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Wednesday, 11 September 1985
Page: 489

Senator PARER(6.35) —The Senate is debating the Snowy Mountains Engineering Corporation Amendment Bill 1985. In view of the fact that the debate has been somewhat interrupted, I think a short resume of the background is called for. The Snowy Mountains Engineering Corporation was established in 1970 as an independent consulting organisation to retain the engineering personnel and skills developed during the period of the Snowy Mountains Hydro-electric Authority. The original Authority, as everyone is aware, was established for a specific purpose. It must be remembered that it operated at a time when we as a nation did not have the expertise to engage in a large scale engineering operation of the size of the Snowy Mountains scheme.

In the process, the Authority did a first class job. It produced great men of whom we all can be justly proud. I do not think there is any disagreement whatsoever on either side of the chamber as to that. Senator Sheil has already referred to the great earthmoving jobs, the great tunnelling work, the dam construction, the hydro work and so on. In the process the Authority also proved to be a great training ground for many very fine engineers who now work as consultants in the private sector. One of the other speakers in this debate mentioned that, of course, the great majority of the original people do not work for the present Corporation. However, the fact remains that the Authority was used as a big training ground. Many of the heads of engineering and consulting groups, as well as mine and port managers throughout Australia, had their origins in the old Snowy Mountains Hydro-electric Authority or SMEC.

In more recent times, and with few exceptions, the Corporation has largely become an arm of foreign aid and has relied for its continued existence on such things as Australian Development Assistance Bureau projects. Even so, in the last few years it has shown that it cannot cope with the downturn and it is now relying on the taxpayers of Australia for its continued viability. It has been said that because SMEC is a statutory corporation it does not have the flexibility of the private sector. The Corporation has actually shed several hundred people in recent years, from a peak of 623 in 1983 to 400 by the end of 1984. However, this was achieved at great cost to the taxpayer in the form of very comfortable severance provisions. The private sector is expected to take hard decisions when things get tough, but the public sector has no such responsibilities. Again, this is not a criticism of SMEC per se; it is simply, I think, a definition of the difference between the private and public sectors and the ability of the private sector to move very rapidly when things change.

I can understand the sentiment and nostalgia of those in this chamber about SMEC and their fears about the possible disbanding of that organisation. However, it must be recognised that times change. We now have a myriad of consultancy groups in the private sector which are more than capable of carrying out all the work done by SMEC over the past 15 to 20 years, without government protection or subsidy. I believe that any attempt to give an inanimate organisation a soul is false. An organisation is only as good as the people who work for it. Certainly the name `SMEC' is well known and well respected throughout the world. The question, however, is: Why should it continue as an arm of government, have Public Service conditions of employment and know that it can be bailed out by government at taxpayer expense when economic conditions go against it? What sort of incentive is that for an organisation and its people to continue to be successful and thus profitable? I am opposed to the Bill, as I believe that SMEC should be offered to the private sector, with first offer of shares being made to the employees of SMEC.

I would like to correct some of the almost hysterical remarks that were made by some honourable senators who should know better. Senator Siddons, who is one of the champions of the private sector, remarked: `How on earth could these people pay for it?'. It is fairly simple really. They are offered first choice of shares and if it were done in a proper fashion it would enable the current management and employees of SMEC to organise themselves together and for the balance of SMEC shares to be offered to the various other consulting groups. If one talked to some of the consulting groups one would find that nothing would give them more pride than to be associated with SMEC in a private capacity. This should satisfy the sentimentalists among us and put SMEC squarely where it belongs-in the private sector of consultants. It would do a very fine job.

It has been claimed that SMEC is a flag carrier for Australia and that, unfortunately, its colours in recent years have been lowered somewhat. The Corporation lost $5.5m in 1983-84 and the Minister for Housing and Construction (Mr West) has admitted that it will lose an additional $3.5m for the year ended June 1985. Sales turnover was down 23 per cent last year compared with the previous year. These losses occurred in spite of the Corporation's stated goals, as expressed in its 1983-84 annual report which stated:

The Corporation is required to pursue a policy directed towards securing sufficient revenue to meet the expenditure of the Corporation as well as to make provision for income tax and pay a reasonable return on capital.

In other words, the Corporation in its current form is failing to meet its own objectives. Let us look at some of the provisions of the Bill before the chamber insofar as they attempt to solve the Corporation's obvious current problems. Firstly, the Bill prescribes that the Corporation is to pursue sound commercial principles and practices. One can only wonder why legislation is required to make a government owned operation work more efficiently and effectively to meet the needs of its clients. Moreover, the provisions of the Bill relating to commercial principles are so vague as to be rendered almost meaningless. Further, the Bill gives the Minister enormous financial powers in relation to the running of the Corporation, moneys borrowed by the Corporation and rates of interest payable on loans, if any. These powers make nonsense of any claim that this Bill provides the Corporation with a genuine opportunity to conduct its operations in accordance with the needs of the market. The Minister's second reading speech to some extent lets the cat out of the bag. It states:

The Board will be required to inform me of its policy decisions and provide me with regular reports on its operation. I shall, of course, be able to direct the Corporation as to the exercise of its powers and the performance of its functions.

Not only does this Bill give the Minister great powers of control over the independence of the Corporation and, therefore, its commercial integrity, but also it places the Corporation in an extraordinarily privileged position with respect to its competitors in the private sector, who also pay a great deal in corporate taxation. In addition, of course, private firms have to pay interest on any loans and cannot secure guarantees on loan repayment from the Commonwealth. Private firms, in other words, do not have direct call on taxpayers' funds. They have to sink or swim on their own efforts. One cannot get a greater incentive than that.

This Bill entrenches the worst features of both protection and monopoly, two of the most harmful aspects of government intervention in the running of our economy. The Opposition welcomes the opportunity provided by this debate to reveal a few hard facts of economic life that we face in Australia and to propose some real solutions. Clearly, some of the public sector dinosaurs need to be brought back to life by exposing them to the disciplines and the real opportunities that are provided by the free market. In the context of SMEC this means privatisation-giving the Corporation the opportunity, free from ministerial control and protection and exposed to a genuinely competitive market once more to become a great flag carrier for Australia.

A lot of nonsense has been spoken about privatisation, particularly by the Australian Labor Party, but also by union leaders and other defenders of inefficient protected monopolies. The Prime Minister (Mr Hawke) has not been above spreading a great deal of fear in the community about the Opposition's plan of selling to people some of our more readily accessible government monopolies. Among the hysterical claims made are that privatisation will somehow take the control of government bodies out of the hands of the people, that it will cause massive unemployment, that it will mean a reduction in essential services and that it will destroy our most precious national assets. Claims such as these defy both economic theory and historical experience. They deserve rebuttal because the Australian people must be made aware of the enormous economic benefits that are proven to flow from rationalising state enterprises and exposing them to competition.

The first point to be made is that the overriding criterion for privatisation is benefit to the consumer of the service. Too often, public enterprises serve the needs of their own employees at the expense of the public interest. Public sector unions have been able to extract rewards from governments that are simply not available to private firms because they cannot afford them. In fact, we have seen this occur even in areas like the sugar industry-an industry that is going down the drain-in which a prosperity bonus is still being paid. What is involved here is a massive hidden subsidy paid by the taxpayer without commensurate gains in the provision of service or efficient management practices.

It is simply fanciful to suggest that government enterprises are owned or controlled by the people. They are in no way accountable to those who pay for their service. Privatisation is one way of achieving accountability-by giving or selling shares in our national assets back to the people and making managers perform to the requirements of the market. I am reminded of the definition of the private sector which states that the private sector is that part of the economy controlled by the government whereas the public sector is that portion controlled by nobody.

The customer is never right when subject to a monopoly, particulary when a monopoly is given legislative protection against competition. There are more effective ways of providing subsidised services to groups than by creating and maintaining enterprises with no incentive to perform. There is nothing inherent in a government enterprise that makes it a national asset. Only the people who run that organisation effectively make it an asset worth preserving. The ruins of many sick economies are littered with decaying sacred cows which simply do not perform up to standard. In any case, selling the assets of an enterprise to the people who keep it going-its workers-is the best way of preserving our economic heritage.

The final point is the myth of unemployment. For the same reason that make-work programs do not work in the long run, it is no good preserving institutions which have served their purpose and which in their present form are kept simply to maintain jobs. In an expanding free enterprise economy, demand is matched by supply, particularly in the labour market, by freeing that market from the bonds of centralised wage fixation. The next coalition government will ensure the free movement of labour between employers and from one job to another. Rather than destroying jobs, privatisation will help create them, particularly in the service industries.

Attacks on rational economic policy are a new and debilitating form of luddism. The very economic problems in which Australia now finds itself are perpetrated by the tunnel vision of those who refuse to recognise the broader, larger term interests as against the short term gain of protected vested interests. We have seen the government commendably deregulate the financial market. The Opposition opposes this Bill and asks the Government to sell SMEC to the private sector, with first offer being made to SMEC employees. The question is: Do we need SMEC as a government corporation? It is a question which, regrettably, never seems to be asked, not only about a corporation such as this, but of a mind boggling myriad of other government functions. The answer, whichever way we look at it, is that SMEC belongs in the private sector. If SMEC goes into the private sector, it will thrive.