The current Queensland election is the first in many years in which the sale of public assets is not an issue. All parties have ruled them out. The reason is obvious enough: in the last three elections, Queenslanders have demonstrated their overwhelming opposition to privatisation.

In 2009 Anna Bligh won by promising not to sell assets, even at the price of forgoing a AAA credit rating. Once re-elected, she promptly discovered that the AAA rating was vital after all, and that selling assets was the only way to get it back.

Assets, including ports and railways, were duly sold, but Bligh did not regain the AAA rating, or retain her job at the next election in 2012, when Labor was almost wiped out by angry voters. (The Australian Bankers Association took a more positive view, appointing Bligh as its CEO in 2017).

The LNP government of Campbell Newman and Tim Nicholls kept its promise not to sell assets in its first term of office, but tried hard to set the stage for privatisation. Following a familiar script, former treasurer Peter Costello led a “Commission of Audit” which predicted dire consequences if large scale privatisation was not undertaken. The Costello Commission focused in particular on the ratio of net financial debt to state revenue, then running at about 84%.

Once again, Queensland voters were unimpressed. Despite an expensive, publicly-funded marketing campaign, awkwardly named Strong Choices, the 2015 election produced another unequivocal rejection of asset sales.

Based on the Commission of Audit analysis, spelt out in the Strong Choices campaign, the result ought to have been a disaster with ballooning debt and an inability to fund basic services, amplified by the end of the mining boom.

In reality, nothing of the kind has happened. The Palaszczuk Labor government has maintained budget surpluses despite replacing many of the public sector workers sacked under the Newman-Nicholls government. The biggest criticism the LNP opposition has managed to offer in its campaign is that Labor is a “do nothing” government that has undertaken few bold initiatives.

Labor has been able to improve the accounting performance of the general government sector by requiring public enterprises to make bigger contributions to the budget and by making transfers from the funds hypothecated to pay for public service superannuation. This doesn’t change the financial position of the public sector as a whole, but it makes the budget sector look better. In particular, it has permitted a big reduction in the ratio of general government debt to revenue to less than 60%.

The ease with which this reduction was achieved reflects the artificial nature of the division between general government and the public sector as a whole. The relevant criteria are public sector net worth and net financial worth, which are unaffected by such manoeuvres. Fortunately, public sector net worth has never been a problem: the Queensland government had net worth of over $170 billion when the Costello Commission reported, a figure that is projected to exceed $200 billion by 2020. Net financial worth is similarly strong because of the ownership of public enterprises.

Where did Costello and the LNP go wrong? The key point, understood by the Queensland public but apparently not by the LNP is that public enterprises are income generating assets, which can service their own debt. The debt associated with ownership of a profitable public enterprise is not a problem, any more than it is undesirable to be a homeowner with a mortgage less than the value of your house.

The Costello Commission’s focus on debt and asset sales obscured the one valid point in its analysis, a point that had already been made many times before.

For most of the 20th century, Queensland was, by comparison with Australia as a whole, a low-tax state with low-quality services, low education levels and low wages. The result was that the state was widely derided as a backwater, but that governments had little trouble balancing the budget.

From the 1990s onwards, however, successive governments improved the standard of services, while doing much less to improve revenue.

As the Costello Commission Report stated,

Queensland has become a high expenditure state, whilst remaining a low taxing state. This situation is unsustainable.”

Successive governments have managed to square this circle through a combination of lucky breaks (the mining and housing booms) and short term expedients. In the long run, however, Queenslanders will be forced to choose whether the high quality services we have come to expect are to be maintained, at the price of paying the same taxes as other states.