Queens­land's LNP doesn't get that pub­lic en­ter­prises gen­er­ate in­come

The Guardian Australia - - News - John Quig­gin

The cur­rent Queens­land elec­tion is the first in many years in which the sale of pub­lic as­sets is not an is­sue. All par­ties have ruled them out. The rea­son is ob­vi­ous enough: in the last three elec­tions, Queens­lan­ders have demon­strated their over­whelm­ing op­po­si­tion to pri­vati­sa­tion.

In 2009 Anna Bligh won by promis­ing not to sell as­sets, even at the price of for­go­ing a AAA credit rat­ing. Once re-elected, she promptly dis­cov­ered that the AAA rat­ing was vi­tal af­ter all, and that selling as­sets was the only way to get it back.

As­sets, in­clud­ing ports and rail­ways, were duly sold, but Bligh did not re­gain the AAA rat­ing, or re­tain her job at the next elec­tion in 2012, when La­bor was al­most wiped out by an­gry vot­ers. (The Aus­tralian Bankers As­so­ci­a­tion took a more pos­i­tive view, ap­point­ing Bligh as its CEO in 2017).

The LNP gov­ern­ment of Camp­bell New­man and Tim Ni­cholls kept its prom­ise not to sell as­sets in its first term of of­fice, but tried hard to set the stage for pri­vati­sa­tion. Fol­low­ing a fa­mil­iar script, for­mer trea­surer Peter Costello led a “Com­mis­sion of Au­dit” which pre­dicted dire con­se­quences if large scale pri­vati­sa­tion was not un­der­taken. The Costello Com­mis­sion fo­cused in par­tic­u­lar on the ra­tio of net fi­nan­cial debt to state rev­enue, then run­ning at about 84%.

Once again, Queens­land vot­ers were unimpressed. De­spite an ex­pen­sive, pub­licly-funded mar­ket­ing cam­paign, awk­wardly named Strong Choices, the 2015 elec­tion pro­duced an­other un­equiv­o­cal re­jec­tion of as­set sales.

Based on the Com­mis­sion of Au­dit anal­y­sis, spelt out in the Strong Choices cam­paign, the re­sult ought to have been a disaster with bal­loon­ing debt and an in­abil­ity to fund ba­sic ser­vices, am­pli­fied by the end of the min­ing boom.

In re­al­ity, noth­ing of the kind has hap­pened. The Palaszczuk La­bor gov­ern­ment has main­tained bud­get sur­pluses de­spite re­plac­ing many of the pub­lic sec­tor work­ers sacked under the New­man-Ni­cholls gov­ern­ment. The big­gest crit­i­cism the LNP op­po­si­tion has man­aged to of­fer in its cam­paign is that La­bor is a “do noth­ing” gov­ern­ment that has un­der­taken few bold ini­tia­tives.

La­bor has been able to im­prove the ac­count­ing performance of the gen­eral gov­ern­ment sec­tor by re­quir­ing pub­lic en­ter­prises to make big­ger con­tri­bu­tions to the bud­get and by mak­ing trans­fers from the funds hy­poth­e­cated to pay for pub­lic ser­vice su­per­an­nu­a­tion. This doesn’t change the fi­nan­cial po­si­tion of the pub­lic sec­tor as a whole, but it makes the bud­get sec­tor look bet­ter. In par­tic­u­lar, it has per­mit­ted a big re­duc­tion in the ra­tio of gen­eral gov­ern­ment debt to rev­enue to less than 60%.

The ease with which this re­duc­tion was achieved re­flects the ar­ti­fi­cial na­ture of the divi­sion be­tween gen­eral gov­ern­ment and the pub­lic sec­tor as a whole. The rel­e­vant cri­te­ria are pub­lic sec­tor net worth and net fi­nan­cial worth, which are un­af­fected by such ma­noeu­vres. For­tu­nately, pub­lic sec­tor net worth has never been a prob­lem: the Queens­land gov­ern­ment had net worth of over $170 bil­lion when the Costello Com­mis­sion re­ported, a fig­ure that is pro­jected to ex­ceed $200 bil­lion by 2020. Net fi­nan­cial worth is sim­i­larly strong be­cause of the own­er­ship of pub­lic en­ter­prises.

Where did Costello and the LNP go wrong? The key point, un­der­stood by the Queens­land pub­lic but ap­par­ently not by the LNP is that pub­lic en­ter­prises are in­come gen­er­at­ing as­sets, which can ser­vice their own debt. The debt as­so­ci­ated with own­er­ship of a prof­itable pub­lic en­ter­prise is not a prob­lem, any more than it is un­de­sir­able to be a home­owner with a mort­gage less than the value of your house.

The Costello Com­mis­sion’s fo­cus on debt and as­set sales ob­scured the one valid point in its anal­y­sis, a point that had al­ready been made­many times be­fore.

For most of the 20th cen­tury, Queens­land was, by com­par­i­son with Aus­tralia as a whole, a low­tax state with low-qual­ity ser­vices, low ed­u­ca­tion lev­els and low wages. The re­sult was that the state was widely de­rided as a back­wa­ter, but that gov­ern­ments had lit­tle trou­ble bal­anc­ing the bud­get.

From the 1990s on­wards, how­ever, suc­ces­sive gov­ern­ments im­proved the stan­dard of ser­vices, while do­ing much less to im­prove rev­enue.

As the Costello Com­mis­sion Re­port stated,

Suc­ces­sive gov­ern­ments have man­aged to square this cir­cle through a com­bi­na­tion of lucky breaks (the min­ing and hous­ing booms) and short term ex­pe­di­ents. In the long run, how­ever, Queens­lan­ders will be forced to choose whether the high qual­ity ser­vices we have come to ex­pect are to be main­tained, at the price of pay­ing the same taxes as other states.

John Quig­gin is an economist at the Univer­sity of Queens­land

Con­struc­tion on the Gold Coast Light Rail (GCLR) ex­ten­sion at Park­wood on the Gold Coast, April 2017. Pho­to­graph: Dave Hunt/ AAP

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