Asset recycling fund

This week the government introduced Bills for its Asset Recycling Fund. I spoke about the differences between the Government and Labor on the issue of privatisation.

19 June 2014

The Harvard philosopher Michael Sandel once said that he was for a market economy but not for a market society. I think that is a good way of characterising the differences between the two sides of the House on the question of privatisation. The perspective of the Liberal and National parties has always been a theological belief in the value of privatisation. Those on that side of the House believe in a market society. They believe that inherently privatisation is always good. 


Those of us on this side of the House take a much more pragmatic view to privatisation. It was the Hawke government that privatised Qantas and the Commonwealth Bank, but it has also been Labor which has stood up against bad privatisations. We have to admit in a debate like this that there is such a thing as a bad privatisation. Privatisation of the British rail network is a classic example, a privatisation which ended up with consumers bearing higher prices and getting inferior services. So when we are considering privatisations, it must be on a case-by-case basis. Yes, we should look at the revenue that flows from privatisation but we also need to consider the situation of the asset. Is it a natural monopoly? Is it the kind of thing where there is going to be contestability in the market? Is the asset itself a natural role for government or is it something where we might expect the private sector to get more efficiencies? These are the questions that this side of the House asks on an issue like privatisation.

At the heart of this Asset Recycling Fund Bill is the notion that an incentive payment of around 15 per cent of the value of the asset multiplied by the share of that sale price that is invested by this state into certain other assets should be returned to the state as an incentive payment. But as a number of University of Queensland economists, Flavio Menezes and John Quiggin chief among them, have highlighted, it is quite unclear whether this incentive payment is of appropriate size. One of the things it depends on is whether companies are in fact going to pay company tax revenue which is of that scale.

Let me step back for a moment. The notion of paying an incentive payment has at its heart the principle that a government entity does not pay company tax. Once the asset is sold to private investors, they begin to pay company tax. The Commonwealth gets company tax and returns a portion of that to the state. But that argument only holds if the company actually pays a reasonable rate of tax. If it has very large deductions, and we have seen some of the potential loopholes in the company tax system arising in the debate over the base erosion and profit shifting, then it is not going to be the case that the Commonwealth gain in company tax is 15 per cent of the sale price of the asset. We need to be very clear that this is only a very small share of what states have had ripped away from them by this Commonwealth government—$80 billion ripped out of schools and hospitals as a result of this latest budget—and it will be a very small share of that which states see returned to them in the form of this incentive payment.

The idea of an incentive payment is not new. It has been floating around in the ether of Treasury and Finance for nigh on two decades just waiting for a buyer. The idea found a gullible buyer in the form of the Prime Minister and the Treasurer who, when they walked into office, bought an idea which had been considered and rejected by the Keating government, the Howard government, the Rudd government and the Gillard government. So you cannot help thinking that the Abbott government is somewhere in the position of someone who finds themselves having inadvertently purchased the Sydney Harbour Bridge. They have bought an idea which so many others had rejected. And the reason they have bought this idea goes back to that Michael Sandel distinction between a market economy and a market society.

If you believe in a market society, if you believe that the private sector always does things better than the public sector, then invariably you are going to be tempted to pay states to privatise. But if you take a more pragmatic approach to privatisations, as we on this side of the House do, then I think you are much more likely to be sceptical of privatisations, to want to see the business case for a privatisation, to take the view that if it does not stack up on its own merits then the federal government should not be paying the states to privatise an asset that they would not otherwise have privatised.

We on this side believe in a market economy. We have a pragmatic attitude to markets and privatisations, which is that we should take things on a case-by-case basis, analysing each decision on its merits and deciding whether it is in the interests of the Australian people.

There are a number of issues that are important in considering the Asset Recycling Initiative. One of these is an issue that was raised by Flavio Menezes in a piece for The Conversation in which he noted that:

The key issue is that most projects in the top two highest priority lists, adding up to over $A25 billion, are either road extensions and upgrades, or urban railways or busways. While worthwhile, these projects will not be suited for a capital recycling program until a comprehensive user pays system is in place. In fact, there are only two projects in those lists that would fit well into a capital recycling program, namely the Oakajee Port (A$5.4 billion) and the Darwin East Arm Port Expansion (A$336 million). This is well short of the revenue that may be raised by asset sales and so recycling of capital would not be very effective.

He concluded:

This means that capital recycling, while a potentially worthwhile concept in a world where governments cannot borrow directly, will be at best one additional tool for funding infrastructure. At worst, the proceeds from the sale of assets will be spent to ensure future electoral support, on projects that would not pass a cost-benefit test.

That is a concern of this side of the House. While Labor had a strong process in place for Infrastructure Australia to ensure projects were scrutinised based on their cost-benefit ratio, those opposite seem to want to return to the days of National Party pork-barrelling, the days of Roads to Recovery, where careful analysis by journalists, including Mark Davis, and an economic paper that I did showed very clearly that there was a partisan skew to the Roads to Recovery funding. It was not funding based on the highest cost-benefit ratio; it was funding based on the highest political pay-off.

We see this ideology replacing evidence again in the case of this government opposing investment in urban rail projects. Even though urban rail projects have a high pay-off and even though commuting times in Australia's cities are too high and one of the best ways of reducing them is through better public transport, this government has stepped back out of investment in urban rail. We on this side of the House have a proud record in urban rail. The Rudd and Gillard governments invested more in urban public transport during our six years than every other government back to Federation combined. We call on this government to put evidence ahead of ideology and to back important urban rail projects.

It is also important to note where the resources are coming from to provide the initial contribution for the Asset Recycling Fund. The initial contribution of $5.9 billion will be funded by $2.4 billion ripped out of the Building Australia Fund and $3.5 billion ripped out of the Education Investment Fund. The Education Investment Fund was established to provide funding for projects to create or develop significant infrastructure in higher education research and vocational education and training institutions. The abolition of the Education Investment Fund raises big questions about this government's commitment to the long-term, sustainable funding of infrastructure for the teaching and research of Australia's public universities.

It is now clear that the Asset Recycling Fund will not allow for investment in research infrastructure, which means that 59 per cent of the seed funding from this Asset Recycling Fund will come from investment that might otherwise have gone into education. As the Australian Technology Network of Universities has noted:

EIF funding has been used to develop new research and education infrastructure across universities, VET institutions, research centres and institutes and the CSIRO (pertaining to the SKA). The provision of modern research capabilities comes at a cost. To date 71 infrastructure projects have been funded by EIF to the sum of $2.4 billion. This included $643m in funding for pure research infrastructure—not including funding for dual purpose teaching/research infrastructure across a wide range of fields including Medical Research, Science and Engineering since 2008.

If the Education Investment Fund is abolished without any replacement, our fear is that Australia's research performance will suffer.

The Treasurer has spoken about his desire to have more Australian universities ranked among the best universities in the world. Those are fine words but they are not matched by actions. The actions of this government are: ripping money out of research; shutting down the Education Investment Fund; not having a minister for science; ripping 1,000 jobs out of the CSIRO; and showing a general disregard for experts across the spectrum, whether they be expert bodies like CAMAC, experts from the charities commission or experts on climate change. This government appears not to have ever seen an expert body that it did not want to shut down or stymie.

Labor has a proud record on infrastructure. When we came to office in 2007 Australia was ranked 20th in the OECD for our investment in infrastructure. In our final two years in office Australia was ranked No. 1. We were well outside contention in the OECD but we had the gold medal in our final two years in office.

That investment in infrastructure by Labor was carried out based on the best evidence, and our concern about this bill is that it will not be based on the best evidence. It will not be based on sound science and expert advice, and it will encourage privatisations in instances in which those privatisations are not in the best interests of Australians.

The Kennett government lost office in 1999 due in large part to its theological belief that privatisation was always better. The Howard government's approach that if you could find it in the White Pages then government should not do it was, I think, found in many cases to have cost the taxpayer more. A theological belief in privatisation does not serve the Australian people well. A pragmatic analysis of privatisation on a case-by-case basis is what Australians deserve and the risk of the 15 per cent incentive is that they will not get that pragmatic approach from this bill.

We support education infrastructure and we are concerned about the money being taken out of that. We support transport infrastructure but we believe that there are smarter ways of investing in transport infrastructure than this bill.

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