Mr McMULLAN (9:10 PM) —Obviously, like my colleagues, I rise to oppose the Telstra (Transition to Full Private Ownership) Bill 1998 and to support the remarks made by my leader, the Leader of the Opposition, Kim Beazley, earlier this evening, and in particular to expand on some of the points he made where he outlined some important issues of concern for us, particularly as they relate to my area as shadow minister for finance, and the budgetary impli cations of what is being undertaken here. That will be the principal focus of my comments.

Before I move to that, however, I want to refer to some remarks made by the Minister for Finance and Administration (Mr Fahey) in the introduction to the bill. In comparing Telstra with other organisations and this parliament having had to deliberate on the role of public versus private and Australian versus domestic investment, the minister very succinctly summarised the distinguishing characteristic. As he said in his speech, `Telstra has a vital, continuing, strategic role in the national economy', to which I say, `Hear, hear.' Unfortunately, after we agree with that conclusion, we diverge about the lesson we draw from it.

It is a significant concern that, if this bill becomes law—that is, if it is passed by the parliament and then if the coalition is re-elected is therefore able to proclaim this law—the minister for communications, whoever it may be from time to time, will lose the capacity to give directions to Telstra. That would be a significant inhibition on our capacity as a nation to pursue and exercise our democratic interest in that vital continuing strategic role in the national economy.

Why is it that we are dealing with this bill and why are we dealing with it now? Of course we are dealing with it now because it was a political escape route for the Prime Minister (Mr Howard) confronted with a significant political embarrassment relating to Senator Parer and an attempt to change the agenda. The last time there was such a significant political embarrassment and the need to change the agenda we had the announcement of our exciting tax adventure. This time we had the proposal to sell all of Telstra. The only question remaining is: what will he do next? Many Australians are asking the same question. It is fascinating that such a major decision can be made without even a budget submission.

Against that background, the two issues that I wish to refer to are, as I said, the implications for this bill on the budget bottom line, about which I think there is a profound misunderstanding, and a need for some more accurate assessment, some more empirical assessment of its implications, and I will deal with it in terms of the claim that is made that there is support for this legislation in the hope that there will be some sort of efficiency gains by the transfer of Telstra to private ownership. Essentially the argument comes down to those two things. One is that somehow or other we will get a more efficient telecommunications sector as a consequence of the sale and the second is that we will get some benefits for the fiscal situation of the Commonwealth with regard to debt and the budget bottom line.

Others will deal at greater length with the debate about the claims of efficiency gains by transfer to the private sector. Other than the most mystical of misty-eyed enthusiasts for privatisation, no-one believes that efficiency gains come by magic. They come from some changes in the management structure and approach and the opening up of greater possibilities for an organisation transferred from the public sector to the private.

What are the constraints from which people believe Telstra might be relieved by being transferred from the public to the private sector? In essence, there are three. There will be constraints about the number of people it has to employ and the conditions under which they work. There could be relief from the artificial constraint about purchasing and industry development requirements imposed on Telstra, although the government claims that it will not allow that to change. And there are constraints upon a publicly owned telecommunications company that it may have to provide services, particularly regional services, that are uneconomic as a requirement of its public sector ownership.

That means that, to the extent that there are to be efficiency gains from the transfer, they will be at the expense of the jobs and conditions of people who work for Telstra, the industry development capacity of Telstra to contribute to our telecommunications and electronics industry, and the provision of services to regional Australians. It is against that backdrop—which others can expand on, having more time and opportunity to do so—that I come to the very important question of the implications of the sale of Telstra for the budget bottom line.

Up until now, we have had a very static analysis of what is a dynamic fiscal circumstance. Let us think about the basic assessments that people are making. The financial commentators are saying that generally the accepted figure—and I think it is probably correct—is that the Commonwealth might make $40 billion from the sale. That will enable it to make a public debt interest saving, at the current cost of debt to the Commonwealth of about six per cent—it is slightly less, but let us round it up to six per cent—of $2.4 billion.

The most simplistic and crude assessment is that there is a $2.4 billion saving to the budget bottom line. That is obviously wrong because one needs to count against that the dividend that the Commonwealth receives for its two-thirds ownership, which in 1997-98 is $1.2 billion. That leads people to conclude that, therefore, we are going to have $1.2 billion a year to contribute either to new expenditure programs or to help fund tax cuts because this will be a recurrent bottom line improvement to the budget. On certain assumptions about year 1, that is correct.

What that static analysis fails to take into account is that, over the period since Telstra has been corporatised, since there has been a dividend-paying corporation called Telstra, the increase in dividends to the Commonwealth from Telstra has averaged 15.6 per cent. It is not 15.6 per cent every year, and it needs to be recognised that dividend payments do rise and fall in different years, but there has been a clear, distinct trend and the trend has averaged at a 15.6 per cent increase per year.

As you would expect, the international experience is that telecommunications companies in dominant market positions in the late 1990s, at the end of this century and into the next, are making substantial profit increases. There is nothing extraordinary about that. But what does that mean? It means that we are now dealing not with a static analysis of an extrapolation from the first year that there is perhaps a $1.2 billion bottom line gain to the budget; it means that that flat bottom line change to the budget of the $2.4 billion saving is being provided at the expense of what has been a dividend stream increasing at 15 per cent per year.

That illustrates the point that the Leader of the Opposition made in his remarks that inevitably there will be a crossover point. There will be a point at which, far from assisting the budget bottom line, the sale of Telstra will make the budget bottom line get worse because the loss of dividend will be greater than the gain from public debt interest.

This one point that is not understood and has not been publicly reported to the best of my knowledge. I have had the figures which we calculated in my office checked by the Parliamentary Library. On the basis of the best assessments we can make, and it is really fairly simple arithmetic, it is a reasonable assumption—and I will come back to why it is reasonable in a moment—that the average increase in Telstra dividends will continue at the rate that it has over the period since its corporatisation.

I think most people expect that to be true. The price that people are paying for the shares indicates that investors basically think it is true. Independent market analysts that I have read are in fact predicting a more rapid increase in profit. But let me be conservative and say that the 15.6 per cent should be retained. If that is so, it should be understood that the crossover point is not at some remote point in the future. We are not talking about some distant point that we cannot see and cannot take into account in our current budgeting. The crossover point is in the year 2002-03.

We are thus talking about four or five years from now when, as a result of this sale, the budget will move from gaining to losing. The Commonwealth fiscal situation will be a net loser. What does that mean? It means that we gain for four or five years and then lose forever. That is the message that this should give to the Australian people. It may be that the independent market analysts are wrong and that the rate of improvement in Telstra's dividend to the Commonwealth will be much less than it has traditionally been.

That should be a surprise to all the enthusiastic privatisers because when they put through the bill to sell one-third of Telstra they said, `This will inject a new private sector approach into Telstra and make it more profitable. It will inject a new element of rigour. The shareholders will demand a better return, so it should improve the return on investment.' Because I never believed it to be true, I have not put any allowance for that into my assessment. If you do, the crossover point gets even earlier, maybe three or four years—but let us discount that.

Let us drop the rate back from the average it has been since we have had a corporatised Telstra of 15.6 per cent to, say, 10 per cent, which is a very modest rate of profit improvement for a dominant telecommunications company in a modern Western economy at this stage in the economic development of any country like ours. What difference does that make to the crossover point? It still comes in 2004-2005, six or seven years from now. Six years from the budget we are bringing down now we will be in a situation where, far from gaining from this sale, the budgetary position will be worse.

People might want to analyse this and say there is some way in which these assumptions are flawed and that Telstra is going to be much less profitable in future. That is not what the prospectus that the Commonwealth issued for the one-third sale of Telstra says. The prospectus does not say the expectation is it is going to be less profitable in future. The debate about selling one third of it was not predicated on the assumption that injecting private sector capital would make it less profitable. None of the market commentary on the prospects for Telstra suggests that it is likely to lose its capacity to deliver significant improvements in dividends—in fact, there is speculation about special dividends, extra dividends, but I have not taken that into my calculation.

Alternatively, there is one other assumption that people might challenge about these figures—I think there is only one other—which is my assumption that we should base the public debt interest saving on the current cost of debt to the Commonwealth, which is just under six per cent, but which I have averaged at six. It is possible to argue that the appropriate figure to use is the average cost of Commonwealth debt at the moment rather than the marginal cost, the cost of new debt. If that is the case, the public debt interest saving is $3.2 billion, not $2.4 billion, and the bottom line gain against this year's dividend of $1.2 billion is $2 billion.

If you feed that assumption in and on to the 15.6 per cent increase in return, the crossover point is 2004-2005. So feed in different scenarios, different assumptions—all of which I think are conservative against the published independent market analyses of likely profit—and you still get a situation where the bottom line for the budget inside a decade, possibly inside five years, is loss, not gain.

It is true that dividends are riskier returns than interest, but you would expect the risk element to be reflected in the price that people are prepared to pay for the shares and, therefore, in the return the Commonwealth gets. As I say, I have made no allowance for claimed efficiency benefits from the one-third sale, firstly, because I do not believe they will be there and, secondly, because one cannot quantify them and so it would be a heroic assumption. But the government says that they are there. It should claim on the basis of what it said in the prospectus that my figures are conservative.

This means in practical contemporary terms that no government which flogs the people's asset can justify making commitments for extra spending or tax cuts on the basis of a presumed bottom line gain to the budget because of the relationship between the PDI saving and the dividend loss. You might be able to make a one-off commitment for year one, declining to almost nothing by years two and three and disappearing by 2002-2003. I do not think that would be very responsible, but you could argue that. But you cannot build in long-term recurrent commitments on either expenditure or tax cuts on the basis of an assumption that there is an enduring bottom line benefit to the budget—there is not. In fact, we need to hear what changes are going to be put in place to fund the likely detrimental effect not far into the future that a sale of Telstra could have for the bottom line of the budget. What we are talking about is a saving of $1.2 billion and shrinking.

The other argument that goes to the fiscal benefit of the sale is that it reduces public sector debt if you use the money to pay off debt. It is just as well the government is putting the bill through this year because, if it did it in a year when we had introduced accrual accounting to the budget, which it is proposing to do—I might say quite correctly proposing to do; it is a correct policy—the accrual accounting benefit to the budget bottom line for the Commonwealth of selling Telstra to pay off debt would be zero. You have lost an asset which is equal to the amount of debt which you have paid off. It is the same in any commercial situation. Your loss of asset equals your paying off of debt. The improvement to your financial position is zero.

But if you are in a situation where your public debt is extraordinarily high as a country, it may be that you need to do that—as corporations sometimes need to do; to change their gearing—to get your borrowings down. But as the Governor of the Reserve Bank said only last Thursday:

The stock of government debt to GDP (which effectively measures the extent of accumulated past deficits) is exceptionally low by international standards.

Every international comparison, those given by the Leader of the Opposition in his speech and the reference by the Governor of the Reserve Bank make it clear that the stock of government debt is exceptionally low by international standards. There are many arguments to be had on this matter, but you cannot argue this sale on the basis of the budget bottom line. (Time expired)