Queensland’s assets are too important to trust to the government

Next year’s State Election is shaping as a referendum on the LNP Government’s privatisation agenda. But as well as asking whether they want state assets leased, voters should also ask whether last century’s government ownership model is still the best way to deliver services.

To some extent, Queenslanders have already decided it is not, with 30.1 per cent of Queenslanders having partly privatised their own electricity supply by installing solar photovoltaic cells.

Clearly these households don’t believe the state needs to own their solar installations in order to guarantee supply or service standards. While the investment in solar cells was driven by an inappropriate government subsidy, the experience clearly demonstrates Queenslanders are not necessarily averse to private ownership of electricity assets. What matters are the relative costs and benefits of electricity supply options to households.

Certainly the current model of Government ownership hasn’t prevented electricity price rises with increases of around 50 per cent over the last three years, and another 13.6 per cent this year.

Evidence compiled by independent sources such as the Productivity Commission and Grattan Institute shows privatised businesses typically have lower capital and operating costs than government-owned businesses.

Further, according to one recent academic study, government-owned regulators, such as the Australian Energy Regulator, seem to be prepared to lean harder on privately-owned, rather than government-owned, businesses, moderating price rises even more.

Over the long-term, the privatised Victorian network has been more efficient and experienced lower growth in costs than the Queensland network. Since the mid-nineties, network costs have increased 140 percent in Queensland, but fallen by 18 percent in Victoria, in real terms.

This broadly confirms the history of privatisation. For example post privatisation Telstra, has provided a better, cheaper and more diverse service than its government-owner predecessors, Telecom or the PMG.

Privatisation will also increase the return on overall government assets. The final Strong Choices plan notes the government-owned businesses returned around $1.1 billion to the Queensland Government in 2012-13. This represents a 3 per cent return on the $37 billion estimated value of the assets. If they had given the money to Sunsuper, they may have earned 10 per cent last year.

Tax payers ought to be doing better than this. There is no point in holding assets just for the sake of holding them.

Opponents of privatisation also ignore the risk that these power generating and distribution assets carry that have already seen the value of assets drop in recent years. These risks include the heavy reliance on coal for generation, and the loss of revenue to solar photovoltaics.

Privatisation also allows the Government to address the growing liability associated with the 44 cents per kilowatt hour feed-in tariff for solar energy (roughly twice what power companies charge their customers). The Government effectively values this cost at $3.4 billion, which is the compensation they will set aside from the privatisation. It is a serious distortion in the market.

Queensland will also use the proceeds to pay off $25 billion of state debt, saving $1.3 billion in interest costs. This will put us back on track to regain a AAA credit status, which reduce our ongoing borrowing costs by around one-quarter of a percent, or about $100-200 million per annum.

This is real money the Government can allocate to better health and education services.

Finally, privatisation would restore Government to its proper role, which is setting the laws and regulations in the economy. The current situation is essentially a rigged game with the government both umpire and player. This leads to the risk of inappropriate political interference in business decision making.

One example is the probable over-investment in poles and wires by electricity distributors such as Energex and Ergon. Consumers are effectively paying a premium to save the government the embarrassment of an occasional blackout.

Ultimately there is no more reason for government to be involved in power generation than in the production of any other staple of life like food or housing. There are things government has to do, and there are things it can choose to do. In this case we’d all be richer and better catered for if government got out of the power business and allocated the proceeds to where they can make a real difference.