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Selling public assets has created unregulated monopolies that hurt productivity and damage the economy, according to Australia’s consumer and competition tsar, who says he is on the verge of becoming a privatisation opponent.
In a blistering attack on decades of common government practice, Australian Competition and Consumer Commission chairman Rod Sims said the sale of ports and electricity infrastructure and the opening of vocational education to private companies had caused him and the public to lose faith in privatisation and deregulation.
ACCC chairman Rod Sims says privatisation is hurting productivity. Photo: Vince Caligiuri
“I’ve been a very strong advocate of privatisation for probably 30 years; I believe it enhances economic efficiency,” Mr Sims told the Melbourne Economic Forum on Tuesday.
“I’m now almost at the point of opposing privatisation because it’s been done to boost proceeds, it’s been done to boost asset sales and I think it’s severely damaging our economy.”
Deregulating the electricity market and selling poles and wires in Queensland and NSW, meanwhile, had seen power prices almost double there over five years. Photo: Glenn Hunt
Mr Sims said privatising ports, including Port Botany and Port Kembla in NSW, which were privatised together, and the Port of Melbourne, which came with conditions restricting competition from other ports, were examples where monopolies had been created without suitable regulation to control how much they could then charge users.
“Of course you get these lovely headlines in the Financial Review saying ‘Gosh, what a successful sale, look at the multiple they achieved’,” Mr Sims said.
“Well of course they bloody well did: the owners factored in very large price rises because there’s no regulation on how they set the price of a monopoly. How dopey is that?”
Mr Sims, who recently launched legal action against Medibank Private alleging it concealed changes to health insurance policies to boost profits ahead of its privatisation, said billions of dollars had been wasted in the scandal-plagued vocational education sector since it was opened up to the private sector.
A deal to privatise the Port of Melbourne was struck in March with conditions that restricted competition from other ports.
Deregulating the electricity market and selling poles and wires in Queensland and NSW, meanwhile, had seen power prices almost double there over five years, he said.
“When you meet people in the street and they say ‘I don’t want privatisation because it boosts prices’ and you dismiss them … recent examples suggest they’re right,” he told the room of influential economic and policy experts.
“The excessive spend on electric poles and wires has damaged our productivity. The higher energy price we’re getting from some poor gas and electricity policies are damaging some of our productive sectors.”
Mr Sims said he was growing “exasperated” as governments including the Commonwealth became more explicit in trying to maximise proceeds from asset sales.
“I think a sharp uppercut is necessary and that’s why I’m saying: stop the privatisation,” he said.
Mr Sims also used the forum to continue a public stoush with opponents of a proposed “effects test”, saying they were relying on “bogus” arguments against the Harper review proposal to give the ACCC powers to block action that had the purpose or effect of substantially lessening competition.
The Productivity Commission last week joined the Business Council of Australia, the federal Labor opposition and the supermarket giants in opposing the so-called “effects test”, which is a pet policy of National Party MPs including Deputy Prime Minister Barnaby Joyce.
Continue reading Privatisation has damaged the economy says ACCC chief
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Unions covering teachers, police and other emergency and those working in other emergency services, have taken on the issue of housing affordability.
They find that many of their members are struggling to put a roof over one’s head provide for family.
Many union members do not qualify for public housing or other forms on non-privately owned properties, which go under the banner of social housing. The result is that a growing body of working Australians are being pushed into the urban fringes, where they miss out on many important services and must often commute long distances to work. This impacts on quality of life issues.
The big problem is the lack of affordable housing stock, in a market characterised by a bubble that has sent both mortgage repayments and rents through the roof.
Some unions have consequently began to look at ways in which they can help their members.
Early talks have begun in New South Wales, between the Australian Teachers Union in this state (NSW Teachers Federation) and First State Super and Teachers Mutual Bank, aimed at accessing suitable housing in the areas where teachers work. It was announced at the union’s 4 July conference by state general secretary General Secretary John Dixon.
The initiative has encouraged other unions to look at doing something similar.
However, pursuing affordable housing is not supported by the New South Wales Industrial Commission, not by the Australian Fair Work Commission, which have imposed a narrow band of matters on which unions and business can agree. Unions face the need pursue creative means by which to move ahead.
Taking on affordable housing is an important step, especially if it catches on and becomes a national campaign involving all public sector unions and expanding to other unions and sections of the workforce.
Means of financing is there, in the form of superannuation funds. After all, the money going into them comes from the wages of workers. Even the employer contribution does, because it is the outcome of direct wages trade-offs. There is no reason why this money should not be put to work for those to whom the the money belong.
Up to now, the money in these superannuation funds has been at the disposal of major employers, to be used as a source of back up capital loans or as means to acquire shares in other companies.
Australian Bureau of Statistics (ABS) information shows that total household wealth stood at a record $9.6 trillion at the end of March, which is 2.4 percent higher in one quarter.
This is somewhat misleading however. It does not mean that the wealth of the average Australian household is rising.
Household wealth is based on total of assets, including business assets and liabilities in the economy and then divided by the number of households. This very different from measuring income, which is a much better indication of standard of living.
Secondly, the liability of one is an asset of another, which means that there is a measure of double counting.
Nor does the household wealth measure consider the distribution of this wealth. Rather than the average household becoming wealthier, it could be that some do and others become poorer.
If an increase has been reported at the same time as the nation’s Gross Domestic Product (GDP) has experienced negligible growth, it must be that much of it represents the shift of wealth from some households to others and that the measure is inaccurate. After all, new wealth must come from somewhere.
This is exactly what has happened. GDP for the quarter grew by just 0.3 percent. Match this with the reported 2.4 percent rise in average household income and it just doesn’t add up.
Another truth is that nominal household income has been sewed upwards by the real estate bubble. It is questionable whether this is real wealth when it comes to the household’s residential address, given that the cost of a transfer from one dwelling to another would cancel out the gain on the average.
Household wealth should be based on real, rather than nominal wealth and this means discounting inflationary growth.
The biggest growth has been in shares. These are now worth a record $826 billion, due to a rise by just over $36 billion for the quarter. Superannuation funds growth account for $29.9 billion of this. Although these numbers are used to add up assets it represents a transfer of assets, from one form to another and are not the creation of any new wealth. It is about distribution not accumulation.
Welfare groups have said that the ABS information highlights the growing disparity between rich and poor across Australia. They are right.
There is a transfer away from disposable income to shares.
Consumption expenditure almost kept constant, rising only by 0.1 percent. Savings decreased by 0.4 percent, suggesting that expenditure other than for consumption was funded at the cost of savings.
It no longer looks like average households are improving their position.
Chief executive of the Australian Council of Social Service (ACOSS) said that nearly 3 million people still living below the poverty line.
“The reality is that people in the bottom 50 per cent of the community own just 6 per cent of the overall nation’s wealth,” she said.
“This is a story about, well, how are we making sure that the benefits of the overall wealth in the country are being shared more fairly.”
The inescapable conclusion is that one should not take official statistics at face value. There is usually more to the story than we are often told. Most people have not acquired the skills to properly interprete statistics and can therefore easily be misled by false conclusions.
In this case, a misinterpretation of what is really going on at the average household level, hides the truth and therefore detracts from what needs to be done to overcome the real problems faced by many. This needs to be corrected.
By Joe Montero
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An article written by Peter Martin, economics editor of the Age (28 May 2017) is an eye opener for anyone not familiar with the connection between government and Australia’s billionaires in Australia. The practice is so rampant that Australia ranks as one of the worst in the world.
What is left out is the connection that this has with the rise of the finance industry over the last 30 years.
Martin quotes from the work of professor Paul Frijters and economist Gigi Foster, who examined the Rich 200 List for the Australian Economic Review in 2015 and recorded then in a book coauthored by Frijters and Cameron Murray called Game of Mates.
“over 80 per cent of the wealthiest Australians have made their fortunes in property, mining, banking, superannuation and finance generally – all heavily regulated industries in which fortunes can be made by getting favourable property rezonings, planning law exemptions, mining concessions, labour law exemptions, money creation powers and mandated markets of many stripes”.
The book suggests that seeking “favours, be they planning approvals or the right to build casinos or toll roads, is what makes Australia go round. Certainly, it makes Australia’s job market go round. Local council planners move into positions with developers, state and Commonwealth government ministers take up positions with companies they used to regulate and former Treasury officials sit on the boards of private banks”.
Martin describes this as a particularly Australian way to make money. Unlike people like Larry Page and Sergey Brin did with Google, Steve Jobs did with Apple, and Bill Gates did with Microsoft, who did bring something new to the world, these people do no such thing.
They made their money by doing things that anybody could have done and they were able to do so, he says, because they had the right connections. Government provides the opportunities.
Peter Martin labels this as “a particularly Australian way to make money”, and “where Australia has more in common with Columbia than with the United states”.
A study by two United states economists Sutirtha Bagchi and Jan Svejnar used the international Forbes Rich List and an extensive search of newspaper reports to estimate the proportion of
Based on the data, they pointed out that four countries stood out and they were Colombia with 85 percent of billionaires being politically connected, followed by India with 66 percent, Australia with 65 percent and Indonesia with 64 percent.
Martin quite rightly points out that this arrangement makes it likely that there is little threat of billionaires being taxed more in Australia, any time soon.
There is another part to this story. Australia’s billionaires are in partnership with much bigger entities. Those involved in the development game need to raise considerable capital. They do not finance out of their own pocket, but raise the funds from other sources from the banks. This applies even more in the mining industry.
All roads point to the banks. They are where the collective store of investment funds is held and released for a percentage. The point is that they create debt and this debt gives them enormous power. For instance, you could be a Gina Rinehart raising the capital to start up a new mine. The bank supplying it has the leverage to impose conditions. It can recall the money and this can make life difficult for the borrower. Although the billionaires might be in a better position than the average punter, they remain dependent.
This means the banks must be implicated, in whatever level of corruption there is. More so, when government itself depends on raising funds from the same banks.
According to a 2012 report by the International Monetary fund, major banks are highly interconnected. Credit Card Compare reported that they not only transfer funds between them, but shared the same four major shareholders. They are nominee companies controlled by the American banks (Citibank and JP Morgan) and a major British bank (HSBC). There is Also National Nominees that acts on behalf of less clearly defined clients, most of which are registered in tax free havens.
The same banks own large parts of most companies registered on the Australian Stock Exchange. This gives a small group much more power than most would ever suspect. A power that has a global dimension. This is critical. Because it is not likely that a connection with government for favourable treatment would exist without their involvement.
Australia is at the top of the charts in something else and that is the most deregulated financial sector of any comparable economy. The assertion being made here is that there is a connection between the giving out of government favours and the deregulation of finance. If you want to get rid of one, you have to get rid of the other.
Among other changes, deregulation meant that government had less capacity to regulate the monetary side of the economy and to use its control to divert funds for its own needs.It has been a major pusher to privatise government concerns to secure funds to balance the books and creating a major potential for generating close business contacts between government and the business sector
Banking became riskier with the loosening of controls over reserve and liquidity ratios, the rise of new financial institutions and greater exposure to the global financial system, which meant a more unstable exchange rate and subjection to the whim of major global investors and institutions.
Reduction of government control meant that credit could no longer be targeted towards priority areas. It quickly became a free for all. Government could no longer issue directives that would compel the banks to behave in a given way.
Deregulation has created a recipe for corruption.
Australia’s major banks are having a rough ride, not in terms of the profit they are making, but in the way they are seen to operate.
Never has the image of banks been so low, regarded by the average Australian as greedy, overcharging, providing poor quality, making too much money and enablers of corporate the tax dodging industry. This is the reason why proposals for an inquiry are so popular.
Evidence shows that the banks are getting extremely worried about this public perception of them. They have spent almost $7 million in a year trying to fix their image and ward off pressure for an inquiry. The public relations campaign has been a spectacular failure and this is adding considerably to the worry.
The problem is that there is substance to the accusations and no amount of soft sell is going to change this. Only change will.
So serious is the feeling against the banks that politicians are compelled to publicly distance themselves. This is part of what is behind the the $6.2 billion tax on the banks in the May budget, even if it going to be paid by the customers. at heart, the government remains sympathetic to the banks and is working hard to combat pressure in parliament for a Royal Commission. It must also cover itself politically, using diversion and pretending it too is concerned about the excesses of the banks, to respond to a deep sense of betrayal, by the government’s failure to date to take any significant action.
It is even talking about imposing more regulation and accountability measures.
Leaked documents, which include agenda papers from several Australian Bankers Association meetings and a new battle plan drawn up in April, by the Australian Bankers Association’s (ABA) public relations consultants, Newgate, highlight an acute awareness inside the sector about its image problem and frustration at being unable to combat it.
An ABA council agenda warned in December that there were two scenarios the industry faced in the “coming months and years”.
The first was “death by a thousand cuts from the current government, which has made it clear that, so long as banks remain a political issue, it will continue to make new announcements against the banks, including imposing new regulations and making further demands for banks to fund government initiatives”.
This refers to the extra powers and resources granted to the regulators in 2016 for which the banks were made to pay.
The second scenario was “a royal commission initiated by a Labor government”.
“The ABA’s assessment is that there is an 80 per cent chance of a royal commission into the industry in the next two to three years,” the ABA agenda says.
“The two scenarios are not mutually exclusive and both could play out.”
It says the banking industry’s political problems were being “compounded by a growing reaction in Australia against big business and those seen to profit from a political and economic system that many Australians feel does not benefit them.”
The papers detail that the ABA had already spent $2.6 million on a six-point plan launched in April 2016 designed to protect consumer interests, increase transparency and accountability, and build trust and confidence in banks.
The December agenda confirms a six-point plan to convince Australians that the banks were taking measures to protect consumer interests, increase transparency and accountability and build public trust and confidence in the banks had fizzled.
So, it was decided in January 2017 to add another three measures and then launch a Better Banking campaign, which, at the cost of a further $3 million, aimed to “educate key stakeholders about industry-led initiatives to deliver better products, services and culture with the banks”.
In April this year the ABA spent another $1.25 million for Newgate to develop a 14-point plan, which was to guide the new ABA chief executive, the former Queensland Labor premier Anna Bligh.
Despite the new measures, Newgate warned that “there is a lot of evidence that political momentum will continue to build against the industry” and for significant remedial action following the conclusion of “numerous parliamentary committees “. The banks have been told to expect hardening political rhetoric against them.
The ABA has also commissioned former ASIC executive general manager Phil Khoury to conduct a review of the Code of Banking Practice, which sets standards of good conduct for banks, and commissioned former Public Service commissioner Stephen Sedgwick, to conduct a review of commissions and payments made to bank staff and third parties. They have also appointed customer advocates to help when things go wrong.
They are worried and have good reason to be. Australia will continue to demand action to clean up the operations of the banks until it becomes a reality.
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