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Monday, 28 October 1996
Page: 4610

Senator KERNOT (Leader of the Australian Democrats)(6.40 p.m.) —For many months now we have heard the government's rationale for the privatisation of Telstra. It has been like privatisation debates, very short ones, that we have had previously in this place. The rationale is driven largely by two concerns. One is to provide an immediate source of short-term revenue for the government. Secondly, the sale is being driven by the ideological belief that private enterprise is inherently more efficient—I see you nodding, Mr Acting Deputy President Chapman, a captive of the ideology—and accountable than public sector counterparts.

I would like to look very closely at those two assertions because I just don't believe they stack up. I don't believe they provide sufficient justification for turning Australia's most profitable publicly owned asset into Australia's second biggest private corporation. This government, like the government before, has not had the imagination or the political will to devise better ways of improving our national savings. For ideological reasons, they just won't formally acknowledge the significant contribution that public investment actually makes to this country. Instead, it is far easier to do this time honoured little trick—fiddle the books, sell off public assets—

Senator Panizza —That's not fiddling.

Senator KERNOT —I'll tell you why it is, Senator Panizza—and attempt to convince the Australian public that it is in everyone's best interest to keep selling off assets. `We're taking the tough decisions,' they say.

So much of this rationale is based on economic theory. I make this point because I am sick and tired of certain economists and the economic cheer squad of this country behaving as if they have some God given monopoly on the truth when it comes to current economic theory. I am sick and tired of them telling the rest of us to treat what are often not much more than political or economic fads as though they contain some compelling central truth which cannot be denied. I am really glad that finally, after almost a decade, we are having an extended public debate on privatisation, although we are still being told by the government that privatisation of our key public assets is so good for the community that it cannot be questioned or delayed.

I have to say that being told that we should privatise Telstra because nearly every other country has done so is not an argument. `Behave like lemmings,' they say. This is nothing more than an appeal to fashion—an appeal which seeks to deny Australians the right to make up their own minds, irrespective of what any other country is doing, about whether partial or full privatisation of our national carrier is in our best interests, is in Australia's best interests. There is no intrinsic merit in blindly following what other countries have done. Every country has its own unique geographical, historical and cultural circumstances.

Senator Panizza talked a lot about new investors paying tax and how the profit and loss columns will stack up. I would like to talk about the financial implications of the sale in some detail. Eminent Australian economists—such as John Quiggin, Professor of Economics at James Cook University, and Dr Allan Brown from Griffith University in Queensland, both of whom have undertaken painstaking research into this field—have warned that the proposed privatisation of Telstra will result in a substantial loss to the net worth of the public sector. We all know the coalition does not place a high value on the net worth of the public sector, but other people do and taxpayers might be interested to know. These two economists argue that the interest savings in public debt from selling Telstra will be significantly less than the profit stream forgone.

In his submission to the Senate Telstra inquiry, Professor Quiggin estimated the value of Telstra in public ownership to be $54.4 billion. This estimate is based on comparing Telstra's after-tax profits with the net sale proceeds that would be required to generate similar savings in public debt interest.

This is $30 billion more than the market price that analysts believe Telstra will realise if sold. One of the reasons argued for this is that private equity holders demand a far greater rate of return on their investments than the real rate of return on government debt. According to Professor Quiggin, it is only under the most unrealistically pessimistic profit scenarios that the government's partial privatisation scenario appears attractive.

Moreover, Professor Quiggin pointed out to the Senate Telstra inquiry that, in attempting to estimate the value of Telstra—the one that they are telling the Australian public when they are weighing up what we win and what we lose—the Department of Finance made:

. . . the elementary error of comparing the public debt interest savings arising from privatisation with the dividends paid by Telstra rather than the earnings of Telstra including retained earnings. This procedure is defended on the basis of fallacies that were refuted decades ago, such as the view that retained earnings are `locked up' and therefore of no value. This claim is erroneous since reinvested earnings will generate a higher stream of income in the future, and are just as valuable as dividends . . . Once the error of comparing interest flows with dividends rather than profits is corrected, the Department's own analysis would show a loss arising from the partial sale of Telstra. More precisely, if whole of government accrual accounting along the lines proposed by the Commission of Audit—

Treasurer Costello's Commission of Audit—

were adopted, the partial sale of Telstra would result in an increase in the deficit computed on a whole of government basis.

This is a respected economist. He is not the only one to have spoken in this debate.

Senator Panizza —I bet he has not been out in the real world.

Senator KERNOT —You do not like what he says. The coalition government does not like what he says and its only response has been to attempt to impugn his professional reputation and denigrate him as a disreputable economist.

But there are other facts we can put on the record, such as the underpricing of public assets, which is one of the hallmarks of privatisation in this country. It happened with the Commonwealth Bank; it happened with Qantas; it happened with the Commonwealth Serum Laboratories. And what that means is that a relatively small number of people—the new shareholders and those involved in the actual transaction—make a gain at the expense of the rest of the taxpayers in Australia. What guarantee do we have that that will not happen with Telstra?

But what if we assume the financial situation of the government is not adversely affected by the sale. What then? The fact is that we would not be any better off. The government would simply have realised the value in cash terms of an asset valued at that amount and the underlying budget balance would remain unchanged.

So where is value to the nation in that? Where is the good economic policy in that? Under this scenario, it can equally be argued that it is better to retain Telstra in full public ownership and use the cash flows generated into consolidated revenue to repay public debt and fund existing programs or new ventures.

However, when assessing the impact of privatisation on the net worth of the public sector, we also have to take into account the costs of actually floating Telstra—namely, the fees for the lawyers, accountants, stockbrokers, analysts and advertising agents. The Department of Finance told the Senate inquiry that it estimates these costs will be in the order of $160 million. That is a lot of money. That is $160 million coming out of the pockets of taxpayers for the wonderful privilege of losing ownership of their valuable public asset.

What it all adds up to is that the sale of Telstra involves selling off our highest income earning public asset for what is most likely to be no net economic gain. In fact, it is true that Australian taxpayers could be paying for the sale like hire purchase—they could be paying for the sale for many years to come—and I do not see any good public policy in that either.

The government has relied very heavily on the claim that selling a third of Telstra will make it more efficient because private businesses are inherently more efficient than their publicly owned counterparts. This is undeniably true in some industries in some areas, but it is not a truth in itself. I do not see any reason to anticipate efficiency gains beyond those that would have occurred anyway without a change in ownership. The performance and efficiency of government owned enterprises can and has been extensively improved under public ownership. Telstra itself has improved its performance and of course it can continue to do so, irrespective of who owns it.

A significant amount of research has been undertaken which indicates that efficiency and consumer responsiveness is not inherently dependent on ownership, but rather depends on a combination of good management, effective competition, technological progress, regulation and consumer pressure. A 1995 Bureau of Industry Economics study revealed that Iceland, operating under a state telecommunications monopoly, had the world's lowest prices for a national basket of call charges and that Switzerland, another state monopoly, was the world leader both in terms of revenue per employee and revenue per line, which is an important measurement used by Telstra.

So I do not accept that there is a direct and inevitable association between economic performance and type of ownership. The fact is that the performance and efficiency of government owned enterprises has been extensively improved in public ownership. A 1995 study by the Industry Commission found that Telstra:

. . . reduced its prices since 1989-90 by 16 per cent in real terms, while doubling—

and I want to repeat that—

while doubling labour productivity and increasing payments to the government by over 60 per cent since 1990-91.

We should not just blindly dismiss this record. It is a record that is worth pointing to.

It is just propaganda to claim, as Telstra management and the government do, that partial privatisation offers some magic recipe by which Telstra will automatically make these significant efficiency gains. It has nothing to do with privatisation. As I said, it is about technological development. It is about management. It is about a commitment to providing a service, and I think Australians should be seriously questioning the commitment of the government and the capacity of Telstra's current management to deliver the sort of services Australia wants and needs, irrespective of whether Telstra is sold or not.

Even if efficiency gains are made under private ownership, there is no reason to assume that the benefits of those gains will be passed on to consumers in the form of lower prices rather than captured by shareholders in the form of profits. The government has acknowledged this by bringing forward legislation to put in place new regulations for consumer protection.

If privatisation is going to deliver automatic consumer protection, then why do they need to bring forward this legislation? It is because they know that it is regulation, not privatisation, which is the key to safeguarding consumer interests. Unfortunately, the proposed consumer protection legislation does not go far enough in protecting the most vulnerable consumers—residential customers, those in remote localities and those with disabilities. If this is not remedied, and if other privatisations are anything to go by, all that we are likely to see post-privatisation is a sharp rise in the salaries of Telstra's senior executives, efficiency measured in how many jobs can be ditched, and no great leap forward in residential customer outcomes.

We all know the code. What has efficiency and improved efficiency really equated to in this country in recent years? Improved efficiency really equals cutting down on staff and forcing workers to undertake greater duties and longer hours or suffer poorer terms and conditions. Only a few months ago Monash University published the results of a massive study on the effects of privatisation. There were over 200,000 case studies of enterprises and agencies world wide. The conclusion is one the government does not like to hear: no efficiency benefits from contracting out in the name of privatisation. I think that the South Australian Auditor-General just recently pointed out this very fact in an analysis of asset sales in South Australia. So let us not be duped by the repetition of the mantra about efficiency.

I am certain that we would all remember that it was only recently that Telstra announced the biggest annual profit in Australian corporate history—$2.3 billion—while at the same time confirming that it would shed over 22,000 jobs in the next three years. I am not saying that there is no room for any staff reduction at Telstra, but I challenge the depths of those cuts. Recent employer surveys, both here and overseas, show that large-scale downsizing not only has failed to deliver high productivity—that is one of the claims they made—and improved customer service but also has had a devastating effect on morale, staff commitment and motivation.

The fact is that downsizing, like privatisation, is a current economic fad. While this particular fad has been in vogue in America, and is currently in vogue in Australia, the tide has changed in the United States. Earlier this year, the so-called guru of downsizing, Mr Stephen S. Roach, had a great public confession to make: I got it wrong. `Open-ended downsizing and real wage compression were recipes for industrial extinction,' he said. There is a growing number of commentators, analysts and academics who are reaching similar conclusions. This is something that we should be addressing in this country before the situation is irretrievable.

Senator Panizza says that one-third privatisation would make the board have a more private enterprise focus and that that would be a good thing. But he does not talk about the inevitable tension between the one-third of shareholders hell-bent on profit maximisation, which would be natural, and the two-thirds still in government ownership. He does not talk about whose view prevails. He does not talk about the example of AIDC, where one of their recent decisions was to massively increase the salaries of the directors, and the government stood by as the major shareholder and said nothing. There is a huge problem when you have this one-third, two-third split, and there is a loss of accountability in the long term.

The Australian Democrats believe that it is time to call for an end to Australia's decade-long obsession with economic rationalism. There are times when private is not better than public, when asset sales are not in the long-term national interest, and when it is better for all of us to own and control something rather than deliver it into the hands of a few. For this reason, for the economic reasons, the Democrats—it is no secret—will be voting against the sale of one-third of Telstra. We are doing this on the basis of a consistent record. We have assessed in debates that we have had in this chamber in the past, in the case of the Commonwealth Bank—

Senator Ian Macdonald —You were wrong there.

Senator KERNOT —I do not believe that we were wrong, Senator Macdonald. We will trace the future of banking policy in this country. Give us another few years, and I will bet you that we can draw different conclusions. We all know the influence of the ANZ Bank on banking policy and the coalition. We will vote against Telstra, as we voted against the sale of Qantas and the clayton's sell-off of our federal airports. We will vote against the sale of Telstra because, in simple terms, it is not in the long-term economic interest of this nation. What is worse, we all know that the coalition intends to sell the lot of it anyway.