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The Forum > Article Comments > Australia: the consequences of privatised infrastructure > Comments

Australia: the consequences of privatised infrastructure : Comments

By Tristan Ewins, published 7/8/2012

Capitalism has an interest in opposing public private partnerships in Australia as they threaten its reputation.

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The obvious solution is to entirely jettison the current tax act, along with the thousands of tax loopholes it allows!
Like that now practised by most major corporations, who have created a number of subsidiaries in tax havens, who then charge excessively, for so called service provision etc?
All apparently legal tax avoidance, which is currently available, courtesy of one of the most complex tax acts in existence.
We would actually collect more tax, if the only tax was that collected, by an unavoidable, stand alone, expenditure tax, set at just 5%.
The sort of billion dollar spending, as just described, would then be accompanied by increased, [5% tax charge, and paid now please,] rather than reduced tax charges!
Nor could a multinational, write off billions by investing/tying up billions in projects, that might never ever eventuate or be mothballed, with any downturn in demand.
Even so, a vastly less complex tax collecting system, would still benefit current tax avoiders, pseudo religions etc, with the accompanying repeal of all other taxes.
This vast simplification would add around 30% to the averaged bottom line, around 25% to household disposals; and, around 25% to inland revenue, which by the way would be immediately available, rather than be held, pending reconciliation outcomes.
Arguably, paper shuffling foreign subsidiaries, and their tax avoiding multi-national masters etc, would pay for all the local improved outcomes!
Rhrosty.
Posted by Rhrosty, Tuesday, 7 August 2012 12:46:24 PM
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Government ownership is no cure for price increases, nor a panacea for infrastructure provision. Here in Western Australia the government owns our main electricity generators, and the transmission and distribution system, yet electricity prices have soared in recent years. The problem is rising costs, which ultimately have to be passed on, whether electricity is delivered by the private or public sector. We are still short of full cost recovery, and prices will probably rise further in future.

Likewise, we have no private or government toll roads, tunnels or bridges, yet our transport infrastructure is clogged, and travel-to-work times are rising.

While governments can indeed borrow money cheaper than the private sector, this does not always mean that the public sector is the best provider. In part, lower borrowing costs reflect an implied cross-subsidy from the taxpayer – if a public sector utility makes a bad investment its creditors will still get paid; this many not be the case with the private sector. This risk factor should be added to nominal interest rates as part of the social cost of public borrowing. And, the private sector can sometimes be more efficient at delivering services, achieving lower operating costs despite higher borrowing costs.

There is also the question of opportunity costs. What the government spends on economic infrastructure like roads and ports, it cannot spend on social infrastructure.

We should asses each infrastructure need on its merits. In some cases, public provision or subsidies will be best (public transport); in others, user pays is the fairest and most efficient way to cover the (ports). Pricing can help to manage demand and improve the efficiency of infrastructure use (such as varying electricity prices by time of day to meet peak demand.

Starting with an ideological predisposition - whether towards public infrastructure provision or against it - is likely to lead to poor results.
Posted by Rhian, Tuesday, 7 August 2012 3:02:09 PM
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Rhian writes:"lower borrowing costs reflect an implied cross-subsidy from the taxpayer"; But if 'bad investment decisions' are made up for by the taxpayer with the public option, they are made up for by *consumers* with the private option. (ie: by the same people but in a different capacity) With the private option the same people end up paying *more* in their capacity as consumers than they would in their capacity as taxpayers.

The example of the desalination plant in Victoria meanwhile shows that PPP profits are usually 'locked in' even if there has been a misjudgment re: big investments. There is talk of 'risk' - but it is usually borne by taxpayers not private investors.

You say the private sector can be more efficient; But in the past this was due to very significant downsizing of the workforce. (Victoria) But why not have a culture of co-operation with unions - with efficiencies/productivity passed on to *both* workers and consumers?

You say public money spent on infrastructure cannot be spent on social causes... But that argument doesn't make sense - as low income groups who are most effected by the higher structural costs have them passed on to them as consumers. And even with govt subsidies for pensioners the same would apply to low income groups in the workforce...

Perhaps the WA govt is using electricity as a cash cow because of falling GST revenue - which has hit the other states? If that is true the answer is Federal tax reform passing increased grants to the States. In which case both the Fed Opposition and State Govts need to stand up for increased progressive taxation to make that possible...

I concede increased costs are being passed on even with public ownership; But I maintain that public ownership lowers cost structures - which have the *potential* to be passed on for our benefit in our capacity as consumers.

Crucially privatisation of generation means you can't cross-subsidise distribution infrastructure with public sector profits... I should have made that point in the article to make it clearer...
Posted by Tristan Ewins, Tuesday, 7 August 2012 4:41:10 PM
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Trisan
The WA Government is not using electricity as a cash cow – electricity is subsidised by taxpayers. The subsidy is diminishing, however, but electricity prices would have to be 20% higher to cover costs:
http://www.erawa.com.au/cproot/10639/2/20120704%20Synergys%20Costs%20and%20Electricity%20Tariffs%20-%20Final%20Report.PDF

. The reason is mainly higher fuel costs and the need to replace aging and inefficient infrastructure (one of the key failings of government-owned utilities in the past was that they under-invested in maintaining and upgrading infrastructure).

I agree with some of your points about the failings of PPPs in the past – if risk and costs are pushed back onto taxpayers when businesses fail, this is an additional cost to the community. Allocating risk appropriately is one of the most important and difficult things to get right when doing PPPs. But those are mistakes that can be learned from, not reasons to abandon PPPs entirely.

The efficiencies that the private sector can achieve are not only a results of slashing the workforce (though sometimes that was necessary with the bloated and inefficient public services of the past). It is also about incentives to innovate, a clearer focus on meeting customers’ needs, and reducing the politicisation of investment and operational decisions.

Even if you are right that private sector economic utilities charge higher prices – and I don’t think you are – my opportunity cost argument would still hold. Government does not have a limitless pot of money to invest, and it makes more sense for government focus on things the private sector will not do well or sufficiently (like universal education). We are better off if the government provides excellent schools and we pay tolls for our roads, than if we have mediocre schools and mediocre roads provided “free”.

I agree that privatisation can make cross-subsidies more difficult – in fact, I think that’s one of it benefits. Cross-subsidies mean people make consumption decisions on prices that don’t reflect costs, which will lead to inefficiency (that’s why I support a carbon price, too). There are other, fairer and more efficient ways of ensuring redistribution and access to essential services.
Posted by Rhian, Tuesday, 7 August 2012 5:28:14 PM
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But Rhian; What room is there to 'innovate' when investors are 'locked in' to massive infrastructure investments that need to last for decades?

Can you give many concrete examples of such "innovation" or is it simply an article of faith because you believe in privatization 'in principle"?

Ken Davidson makes the point well in at the following URL: That such 'innovation' is sometimes just the incentive to fleece consumers for private profit. See: http://m.smh.com.au/opinion/politics/victoria-can-escape-the-publicprivate-partnership-black-hole-20120527-1zcw2.html

And remember we need not only to make up for the higher cost of borrowing in the private sector - but also to pay for the bottom line of private profits as well. These are massive cost-structures that consumers must pay for.

And at the same time such profits are forsaken which could otherwise cross-subsidise the worthwhile social initiatives you say you are concerned about.

The cross-subsidies I was talking about was using energy sector profits to reinvest in infrastructure in the sector. The alternative is that infrastructure is paid for separately. Which can help explain the massive cost to the public with prices going up more than 40%.

And again you maintain the argument that privatisation means more money for socially-worthwhile initiatives. But if the motive is *social justice* how does that fit with flat user charges that hit low income earners like a flat tax?

How will low income earners benefit from private roads, for instance? Take a worker who lives in an outer suburb who has to transit for a hospitality job in the CBD every week day. How would they benefit from a private toll-road?
Posted by Tristan Ewins, Tuesday, 7 August 2012 6:11:27 PM
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It is all mismanagement by government is it? How much has Labor in Qld wasted then? $10 billion? $20 billion? Compare this with the $100 billion debt: Wastage does not even come close to explaining the massive debt during a time of great revenue growth.

So what about population growth as a cause? Queensland's population has increased by ~50% since 1990, from just under 3 million, to over 4.5 million currently. A public infrastructure value of $200k per person would incur a public cost of $300 billion.

Is it any wonder that Australia is drowning in public debt when government is inflating the population at a rate well above that of other developed nations, and reminiscent of the chaos and decay of third world cesspits?
Posted by Fester, Tuesday, 7 August 2012 6:58:32 PM
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