Why on earth wouldn’t Labor support privatisation?

Labor oppositions campaigning against the privatisation of assets by state and federal governments should think again. It’s in their political and economic interests to allow them to proceed.

Oppositions want to get back into government as quickly as possible, but too much opportunism can cut off too many policy options when they do regain office.

Labor doesn’t have a solid ideological objection to privatisation having sold Qantas, CBA, and Queensland Rail, to name but three.

So it should welcome a situation where it can bank present political benefits from the sales and also pocket the long term economic dividends.

The fact is that the public opinion has never supported a privatisation so the opposition doesn’t have to actively oppose one to gain a political benefit.

They can sit tight and watch the government’s political capital erode on its own, or they can quibble about sale price, structure, process and how the proceeds are to be distributed, to help it along.

But once they actively oppose, then it makes it more difficult for them when they return to government.

One reason for the unprecedentedly huge defeat of Labor in Queensland at the 2012 election was community anger at their hypocrisy when they privatised assets after promising in the 2009 election that they wouldn’t.

After that an LNP win was always guaranteed, it was just a question of what the margin would be.

The public’s fear of privatisation boils down to a few propositions: they think that the new owners will price gouge; that the state will lose access to valuable cashflows; and that unemployment will increase.

There is little evidence to support any of this.

After most privatisations we have seen prices fall, at least in relative terms.

While not necessarily a direct result of their sale, the new shareholders of Telecom Australia and Qantas have not been able to stop the cost of telecommunications and airfares declining.

Looked at from the other side, government ownership has not been effective in containing price rises.

Comparing Victoria’s privatised electricity network to Queensland’s government-owned one, in real terms network costs have increased 140 per cent in Queensland, but only 18 per cent in Victoria since the mid-1990s.

The dividend flow from government-owned assets generally fails to make established hurdle rates.

The $37 billion in assets that the Queensland government intends to privatise is currently earning approximately $1.1 billion for a return of only 3 per cent. Term deposits pay 4% or thereabouts, and funds managed by Queensland industry super fund Sunsuper earned 13.1% last year.

Clearly there is a huge negative opportunity cost for tax payers in holding these particular assets.

In the case of the Queensland and NSW proposals, part of the sale of the assets will be invested in infrastructure. This should be beneficial from a labour market point of view in the short term, taking up some of the slack in construction left by the maturation of the mining boom.

In the long term, assuming the rate of return from the new investments is higher than that from the existing government-owned ones, an increase in living standards and employment should follow.

At the same time a decrease in the real cost of electricity and other services will create new business opportunities and enhance the profitability of existing businesses.

There is also evidence that government-owned regulators, such as the Australian Energy Regulator, lean more heavily on private providers than government ones, further guaranteeing a drop in real prices.

From the governing party’s point of view the sale of publicly-owned assets reduces government debt and overheads, and while some capital spending is generally part of the package, a permanent reduction in costs is a core aim.

Labor governments pride themselves in being “reformist”, which, apart from the historical exception of the Hawke governments, seems to mean inventing more programs rather than reinventing and refining existing systems.

And new programs require funding.

So by passively facilitating Liberal/National governments in selling assets, Labor oppositions guarantee that when they do get back into power, the economy is in a position where they can go again.

If Howard and Costello hadn’t reduced net debt to virtually zero, substantially off the back of asset sales, then the various big picture programs of the Rudd and Gillard governments, like the BER, the NBN, Gonski and the NDIS, would have looked much less tenable.

Polling shows that electors are less trusting of government now than ever. That’s partly because politicians favour short-term tactical squabbling over long-term strategic manoeuvring.

If Labor lets the privatisations pass we’ll all be happier – politicians and public alike – and everyone will get what they want in the fullness of time.

This article was first published by the Australian Financial Review.