Wednesday, January 15, 2014

Campbell Newman must get the privatisation message right

The Newman government faces a challenging political task to convince sceptical Queenslanders of the merits of privatisation.

Reports last year suggest the government is investigating selling the state's extensive portfolio of assets, after recommendations by the Costello Commission of Audit led by former federal treasurer Peter Costello.

That being the case, 2014 is an opportunity for Premier Campbell Newman and his Treasurer Tim Nicholls to try to sell the virtues of privatisation to the public.

However, privatisation has long been unpopular in the electorate.  The defeat of the Bligh government in 2012 is widely pinned on its unpopular sale of the coal railway carrier QR National, port facilities in Brisbane, and other assets, after having said during the 2009 election campaign that it would not go down that path.

So how might the Newman government get the electorate onside on the need for such a big reform?

To help counter perceptions that selling government assets is a radical initiative, the government should emphasise that privatisation is a common economic and financial management practice.

The latest ''Privatisation Barometer'' report indicates governments around the world raised about $US189billion from asset sales in 2012, the third highest total since 1988.

While some of this was accounted for by the US government's withdrawal of its bailout of insurers and car companies, impressive outcomes were attained in mixed-economy Europe, China, the autocratic Middle East, and elsewhere.

Since 1988 governments have sold assets in fields as diverse as aviation, banking and insurance, broadcasting and social services, construction, electricity generation and distribution, manufacturing, mining and telecommunications.

With electricity and port facilities having been successfully privatised, including by other Australian states, it would not be so extreme if Queensland chose to follow suit.

Another argument to be made is that transferring assets from the public to the private sector usually leads to a better long-term economic performance on the part of the privatised entity.

Government-owned entities are forced to adhere to political imperatives, such as providing below-cost services to favoured constituencies, while also being insulated from the direct effects of competition and the threat of bankruptcy or takeover.

Such circumstances necessarily lead to wastage as government entities operate less productively than their private sector peers.

On the other hand, numerous studies, including those in peer-reviewed academic journals, indicate privatisation is generally associated with improved financial performance and productivity gains.

Academics William Megginson and Jeffrey Netter surveyed the privatisation experiences of developed and developing countries, concluding that privatisation works in the sense that divested firms almost always become more efficient, more profitable, and financially healthier — and increase their capital investment spending.

After the electricity sector was privatised in Victoria and South Australia, labour productivity improved and high service reliability was maintained.

The final key argument Newman and Nicholls should consider is that selling assets can allow the government to focus more effectively on core tasks, such as law and order.

Declining production costs, technological advancements and access to global financial markets mean the private sector is more capable than ever of managing assets once controlled by government.

The prospect of billions of dollars to be made through asset sales would no doubt be attractive to the government, given the troubling budgetary circumstances the state faces.

But sound arguments for privatisation should not — and cannot — rest on financial considerations alone, if privatisation is to have any hope of passing muster with the public.

Privatisation critics will try to demonise any proposal to sell government assets, so patient and intelligent political arguments are needed if privatisation is to win over the voters.

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