Saturday, 2 March 2013

Costello's privatisation propaganda

Peter Costello’s Queensland Commission of Audit inquiry is recommending large scale privatisation of public assets especially electricity and port assets.

Something similar in Tasmania would not surprise as the ideologues in the Liberal Party ponder the possibility of majority government.

Cameron Murray who posts as Rumplestatskin on the site has a short discussion of the issues and a few interesting comments follow.

If the exercise was genuine we would see some public discussion about the merits of public debt and the financial benefits to the State from privatisation.

Would you decide to sell your business simply because you had debt, even if that business was profitable and had solid future prospects? No. The best thing is to keep the debt and the business, as the returns from the equity in the business outweigh the cost of debt.

By definition the price the government would receive for any asset sales is a price that reflects a market level of return on equity, which would surely be higher than the rate of interest on the debt that is being repaid. Thus, by definition the government is in a financially better position to own the assets.

And in Comments

All you are doing as a State is selling assets to pay debts when there is no reason to do so, and the net public financial position will be worse for it. Imagine that the government raises $10 billion from all these asset sales. If the private sector thinks these assets are worth $10 billion, they probably expect an annual return in the order of $800 million. The cost to government from $10 billion in debt is probably about $600 million. So they are making the budget position worse by $200 million per year by privatising.

No comments:

Post a Comment