Don't pay so you can read it. Pay so everyone can!

Don't pay so you can read it.
Pay so everyone can!

Privatisation: is the jury really still out after 30 years?

by Michael West | Oct 8, 2024 | Government, Latest Posts

Privatisation in Australia has been a gigantic transfer of public wealth into private hands. Michael West address to the Academy of Social Sciences conference.

The first time I cracked the front page of a newspaper was in 1991 as a cadet journalist on the banking desk at the Australian Financial Review. Truth be told, it was an early mentor, Ivor Rees, then banking editor, who later became Chanticleer columnist, who wrote most of it.

It was quite the experience however, waiting until 10.30 to pick up the first edition of the AFR rolled off the Broadway printing presses, still warm.

The story was about the gravy train of advisers to the Commbank sale who cleaned up making fees on the float – the bankers, lawyers, brokers and assorted advisers to the sale. This was the first tranche of the sale under Prime Minister Paul Keating. And it was hailed as an enormous success, and for share market investors it was, for many years to come.

Since then, I’ve spent a lifetime in journalism covering privatisations – toll roads, electricity assets, airports, communications, hospitals, property, telcos.

Vultures’ Reprise: MacBankers bob up in takeover battle for hapless Sydney Airport

But cui bono?

To cut to the chase, although I have chronicled myriad rip-offs, and all up a gigantic, relentless transfer of wealth from public hands to private interests over these 30 years, my view is not definitive; that privatisation is always wrong, always a bad thing that is – we prefer to look at things on a case by case basis, and theoretically, privatisation can work. 

We will get to a good privatisation shortly. Suffice also to say that there should be no privatisation of essential government monopolies – airports and so forth, where the temptation to rent-seek is too high, where the public interest is not well served, or where a sell-off of critical health infrastructure such as hospitals means the conflict of interest between human life and profit is too great.

The reality is that the history of privatisation in Australia is a history of privateers having their way with politicians and public servants. Where is the big study on it, though? This brings us to another vital point – it is disappointing that the world of academia has not done the definitive analysis on the issue; where is the comprehensive cost-benefit analysis of 35 years of privatisations in Australia?

The answer is that universities and academics have been busy being privatised themselves, following the inevitable multi-million dollar payments to the Big 4 for consulting reports telling uni leaderships of the beauties of corporatisation – and by the way, you people at the top who commissioned this landmark yet secret report deserve more money for sure!

For Whom the Tolls Bell: traversing Transurban’s $20 billion debt and tricky tax lurks

So now we have universities under pressure from a business model that has made them reliant on private income from foreign students, we have tollroads flogged to monopoly of monopolies; Transurban where the tolls are so high that governments are now having to subsidise motorists’ tolls just to get to them to work in order to keep Transurban’s profits rolling on – while its stapled security structure means it pays no corporate income taxes.

And we have gas pipelines privatised, sold to China and Singapore, we have the Qantas monopoly which had to be bailed out by taxpayers to the tune of billions during Covid; likewise Virgin the other duopolist in aviation. What is the point of privatisation if the public still carries the risk when things turn pear-shaped?

We have half the electricity grid sold off. More than half in Victoria and NSW. The two biggest personal beneficiaries of these sales are two HK billionaires, Li Ka-Shing and Michael Kadoorie.

They’re not shivering in Honkers: Australians’ electricity pain is two billionaires’ gain

Right here in South Australia, SA Power Networks is 51% owned – controlled that is, by Li’s son Victor Li, chairman of CKI, who lives on the island in Hong Kong. One of the three big national ‘gentailers’, which also has assets across South Australia and the Eastern Seaboard, Energy Australia, used to be owned by a company called Energy Australia in the tax haven of the British Virgin Islands, controlled in turn by Hong Kong billionaire Michael Kadoorie.

It is no accident that North American private equity vultures Brookfield have tried to take over the other two gentailers, AGL and Origin Energy, as the profits from owning regulated Australian assets are enormous, especially if you re-domicile them to Bermuda or the Cayman Islands and don’t pay any income tax.

Energy Australia is the piece de resistance of privatisations. It came about via a host of government privatisations of coal mines, gas assets and various bits of the eastern seaboard grid over many years: much of it the sale of poles and wires In NSW and Victoria. And they were happily paying no tax for years, calling themselves Energy Australia and siphoning profits off to the BVI until we exposed them a few years ago, and they changed their ownership structure and took out the BVI bit.

Who is watching?

The point is nobody was watching. Nobody is watching except for those who are in on the scam. And they are hardly going to blow the whistle. If we take a look at CBA, it has been a magnificent performer on the ASX from day one back in 1991. It has recorded the biggest and fattest profits of all for its investors over the years of all the banks. In that sense, it has been a success.

Its advocates say Australians benefit through their superannuation as all the super funds own a slice; and this is true, but it is the wealthiest who have the most shares and yet pre-privatisation the government assets belonged equally to all voters. It is foreign investors too.

But what would have happened if – instead of flogging this bank into the effective government-licensed Big Four banking cartel, guaranteed to make money from one of the most profitable banking markets in the world and also guaranteed since the Global Financial Crisis by us the public – it can’t fail, as we underpin its risk – what would have happened if they had kept the bank in public hands, kept it competing against the private banks with its sovereign cost of capital?

What would have happened is that mortgages would almost certainly have been cheaper for all Australians, and therefore, home ownership more accessible as credit was cheaper. We could still do it now, deploy Australia Post’s vast retail network and sovereign credit rating, as bank branches. Alas, the banks and their advisers would not like that.

Qantas: privatise the profits, socialise the losses

Could this have been the same deal with Qantas and airfares had they not privatised Qantas? We don’t know what could have happened, only what did happen. What of the GIO, sold to Suncorp, which was recently sold to ANZ? And the demutualisation of the NRMA, now IAG. We don’t know what might have happened, only what did. Insurance costs are through the roof.

Silver donut for investors, hole in donut for public

A few years ago, we received a call from the BBC, which was doing an investigation into the Macquarie Bank privatisation of Thames Water, the UK’s largest water utility.

Thames had been busted dropping raw sewage into the Thames, literally. Keep the costs down, keep the costs down. Gobsmacked, the BBC producer asked us if Macquarie had paid for Thames with Thames’s own money. In effect it had.

River of Tears: how Macquarie Bank profiteering sent Thames Water to the wall

You see, the trick with privatisation is to win the bid. And bid high. For ratepayers in the UK, anywhere for that matter, are not suddenly going to stop flushing their toilets. The cuff-linked buccaneers of Macquarie had become the masters of OPM, deploying other peoples’ money to buy public assets, then ripping out the cash, doing sale-and-leaseback on the assets, and injecting debt – the bankers’ money.

Being regulated public assets, you can gear these assets highly and use a lot of debt, and that reduces the tax liability, too. And so they did, and Thames is now ‘restructuring’, bankers’ parlance for going bust. These things can’t actually go bust, so the bankers know they can take a lot of risk.

They did it too, spectacularly with Sydney Airport. There are better airports in the third world but the gateway to Australia is rickety by comparison with its global peers because … why spend money when it affects returns to shareholders?

The Macbankers retrieved the $5.6B in other peoples’ money spent winning the auction in a couple of years, then raked in dazzling profits before selling it again. As for tax, again, like Transurban, it was structured as a stapled security so super fund unit-holders pay the tax at their marginal rate, which may be 15% compared to the 30% corporate tax rate.

A better way

If privatisation was done properly, hundreds of billions of dollars could have been saved. Back in the day, it was deemed as proper process to have a ‘Public Sector Comparator’, that is, government ought to do the analysis with public consultation of costs and benefits – privatisation versus public funding alternatives. Would rail or road be better in the long run? Let’s have the public debate!

But no, the process was hijacked by the bankers. Secrecy is far more profitable when dealing with politicians and public servants. It even got to the point with casinos where they just did a deal in secret with the Packers for Crown Casino in Sydney.

A good privatisation story

As we noted earlier, our view has not been entirely prescriptive. The Manly Ferry service in my home town was privatised, at least the new Fast Ferries service was put out to tender. We were critical at first, but it is a brilliant service, more expensive but it does the trip to Circular Quay in 20 minutes rather than half an hour. It’s efficient and the old government ferries still chug into town as well.

Point being, there is competition – private versus public – and it is not a monopoly as such. You can always get the bus.

In the same neck of the woods however, the Northern Beaches Hospital was privatised to Healthscope with its 40 other private hospitals, and Healthscope was sold to Brookfield via a takeover bid for Healthscope on the ASX. That left the 30,000 residents of the beaches with one hospital – they closed Manly and Mona Vale – ultimately controlled by anonymous directors of a company in the Cayman Islands.

The sale process was secretive, after spending billions on the asset the government vendors and the foreign buyers have refused public disclosure of vital materials relating to both the financial process and the medical breaches. There is finally now a review taking place by the NSW Auditor General into the financial structure following concerns by politicians, residents, doctors and nurses.

This is a health monopoly which should never have been privatised as the conflict of interest is too great between the demands for profits from shareholders and the vital public service which is keeping people alive.

Personally, as a regular customer of this hospital, we have received highly professional care, but that observation is as useful in reality as the climate change denier remarking how cold it is today so therefore, climate change science must all be a big con.

All this talk of privatisation without even going into telcos and the sale of Telstra, the NBN, massive state property sales, or the very privatisation of government by the sharp rise of outsourcing of government to the Big 4 consultancy firms and others.

In a philosophical sense, the problem is the neoliberal creed of government held by both major parties still, the idea that things must be more efficient if held in private hands. There is no credible evidence for it because the exhaustive work on the subject has never been done.

But there is no alternative creed of government to oppose it right now. And so communities across the country are stuck with it for now, fighting at all three levels of government against secrecy and the sale of public assets on a case-by-case basis.

Caymans Privatisation: Northern Beaches Hospital limps into financial triage

Michael West headshot

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

Don't pay so you can read it. Pay so everyone can!

Don't pay so you can read it.
Pay so everyone can!

Pin It on Pinterest

Share This