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Government smoke-and-mirrors stunt with QANTAS



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Senator Jim Short

SMF 125/92

GOVERNMENT SMOKE-AND-MIRRORS STUNT WITH QANTAS

The Keating Labor Government appears to be trying to pull a classic smoke-and-mirrors stunt in the privatisation sale of Qantas Airways.

The^Government claims it will raise a total of $1.6 billion from asset sales this financial year. Of this, it expects to raise about $1.2 billion from the disposal of Qantas.

The consequences for the Budget deficit of this failing to happen are obvious. In the August Budget the deficit was estimated at $13.4 billion (after a February estimate of $8 billion!) but the recent ABS Government Financial Estimates suggest it is now more likely to blow out to $14.5 billion.

For the trade sale component of the Qantas privatisation, bids have been received from British Airways (25%) and Singapore Airlines (20%).

A key sticking point is the level of recapitalisation of Qantas — that is, the amount of airline's debt that the Government is prepared to take over for the trade sale to proceed.

In September the Government said it would take over about $1.1 billion of the debt but late last week the Minister for Finance, Mr Willis, said the Government is now prepared to negotiate over how much debt it will take off the books.

He said there was no "firm and fast decision" on the Qantas

recapitalisation figure.

This suggestion by Willis that he will reduce the debt on Qantas' books rather than reduce the price for the airline is a blatant attempt to hide the already massive blowout in the Budget

deficit.

If the sale price of Qantas was reduced, then the flow of revenue into the Budget sector would decline. But by reducing Qantas' debt instead, the trade sale price is artificially boosted.

And the taking over of the debt will appear as a below-the-line off-Budget transaction — thus the "smoke and mirrors" (see diagram in 1992-93 Budget Paper N o .1, page 7.4).

By attempting to make the Budget look less irresponsible than the ballooning deficit would indicate, the Keating Government is turning this kind of creative accounting into an artform.

The real impact on the economy (and the burden on Australia's long-suffering taxpayers) is the same whether the Qantas price is reduced and the debt maintained, or alternatively the price is increased by reducing the debt.

By choosing the latter course, the Government is trying to artificially pump up Budget revenues — a desperate attempt to cover up yet another of Keating's policy U-turns which have seen fiscal policy career out of control.

Overshadowing the whole process is the likelihood that even if the trade sale component goes ahead — and Mr Willis has not

ruled out the possibility that neither British Airways' nor Singapore Airlines' bids will be accepted — the public float will not be launched before the end of the financial year.

A trade sale of even as much as 40% of Qantas (way above either of the foreign airlines' offers) would still leave the Government at least $700 million short on its asset sales revenue as stated in the August Budget.

This alone would push the 1992-93 Budget deficit to well over $15 billion.

Canberra 13 December 1992

Further info.: Rod Woolley (06)277 3119, 288 9355 or 258 2789