Selling public assets remains a politically fraught endeavour, but help may be at hand from an unlikely source

The economic flavour of the month seems to be privatisation. After winning the election, the government asked the productivity commission to conduct a six-month public inquiry into public infrastructure. This week submissions to the inquiry by Infrastructure Australia (IA) and Industry Super Australia have spurred the privatisation debate.

But a report earlier in the week demonstrated support for selling government assets is decidedly mixed.

On Monday the Australian Financial Review reported an interview with the head of the Australian Competition and Consumer Commission, Rod Sims, which implied he recommended the government sell Australia Post.

Not surprisingly, this suggestion saw the National party respond in about the time it would take you to lick a stamp. Senator John Williams responded by not only arguing the many rural services Australia Post provide are a natural monopoly, he also rather killed any chance of the government being able to ask for a decent price for the organisation by saying of it, “Who wants to buy a dead dog?”

Sims also refuted the AFR’s version of the interview.

The speed of the Nationals’ response highlights that privatisation remains a politically fraught endeavour. This is because the public remains rather sceptical of the benefits of privatisation mostly due to their experience of it over the past 20 years. Some of the disappointment people might feel is because the benefits were rather oversold at the time.

Back in the late 1980s and early 1990s for example, privatising electricity assets was pitched as leading to a more productive and efficient industry and lower prices for consumers.

In Victoria, the Kennett government espoused this philosophy and sold its electricity assets. But, as a report by the Australia Institute released in April last year noted, despite Jeff Kennett still maintaining that prices for energy have risen in Victoria “less ... than other states”, electricity prices in Victoria have actually increased pretty much in step with non-privatised states since 1990.

Moreover, a study by the University of Wollongong noted there is evidence prices in Victoria were increased up to 175% for “off-peak” periods leading to some consumers – such as farmers who employ electricity-intensive activities during off-peak periods – to experience significantly high price increases.

Neither has the promise of greater productivity come to fruition – the industry has been one of the biggest drags on our national productivity since 2000. And rather than a lean, efficient workforce, the electricity industry now has a much greater percentage of managers and sales workers than there was before the privatisation of the 1990s.

So while IA’s submission does talk of higher efficiency of privately owned companies over public enterprises, the benefits of privatisation are now more focused on its ability to improve governments’ budget balances.

The sales of assets are pitched as a way to reduce debt and perhaps use the proceeds to build other needed infrastructure. Often however, this promise for more infrastructure spending is more in the promise than the reality. Economist John Quiggin has noted that such increased infrastructure spending did not occur in Queensland under the Bligh government despite nearly $10bn in sales of government-owned assets.

The argument of an improved budget position relies on the view that the proceeds from the sale exceed the net present value of proceeds that would have produced through annual dividends to the government. Because if this were not the case, the government would merely be forgoing future revenue to get money now, but in the long run be no better off.

IA considered various state infrastructure assets such as ports, electricity generators, transmission and distribution assets and water assets such as SA Water and Sydney Water. It concluded the sales of all 30 assets would bring in $92bn but would see the various governments would forgo future dividends worth about $28bn in today’s money.

This suggests there is a $64bn gain to governments through selling all 30 assets.

That sounds wonderful, but before governments start counting the money, they should note IA’s submission also examined the suitability of such assets for sale – categorising them in four levels of suitability.

Water infrastructure assets accounted for $25.5bn of the $64bn, however IA noted such assets were all in the lowest and second-lowest categories. Of “urban water and wastewater assets in regional towns” IA noted they were “generally not commercial and would not yield significant privatisation proceeds”. Of the “metropolitan water and wastewater and rural water assets” only Sydney and Melbourne were deemed to operate within a regulatory environment that might yield significant returns from a sale.

IA did recommend the electricity and airport and ports assets “be privatised either immediately or with only minor regulatory reforms”.

But the political difficulty remains because, as IA noted, “many economic infrastructure assets have monopoly characteristics which could potentially enable their owners to misuse their market power and earn monopoly profits”. To counter this, an effective regulatory environment is required, but such regulation almost immediately comes under pressure to be weakened by the same people who were advocating the initial privatisation – including the buyers.

Many voters also dislike losing “ownership” of these assets – especially if the buyer is foreign and the profits are viewed to “disappear” overseas.

Here the submission by Industry Super Australia may provide an outlet for those wishing to win over doubters. Its submission, reported in the Australian, notes the public are often concerned that privatisation is more about job cuts, higher prices and quick profits than ongoing provision of services.

Its submission cites a poll that found community support for privatisation rose from 13% to 75% if the new owner was a superannuation fund.

Given the Abbott government’s previous criticism of industry super funds as “gravy trains for union officials” in a delicious irony, it may now see such funds as the lifeline for its privatisation dreams.