Alannah Mactiernan (Perth, Australian Labor Party) Share this | Hansard source

erudite and cogent analysis of how this legislation is in fact going to encourage suboptimal decisions on dealing with assets. I will get onto the specific questions of the member for Swan in a few minutes, but I just want to make this general statement that it is very easy for politicians. They want to sound like they are being financially sound and financially prudent and they talk about privatising assets and using those assets to reinvest without any real detailed analysis of where, in fact, that is going to take us financially, whether or not that stacks up when we analyse this. The member for Swan is running away, because he knows I am just going to tell him about all his errors on Roe Highway stage 8.

Mr Irons interjecting—

It is true. I take great pride in the fact that after decades of stalling on Roe Highway I was minister when we completed Roe Highway stage 4, Roe Highway stage 5, Roe Highway stage 6 and Roe Highway stage 7. But we were not prepared to commit to Roe Highway stage 8, because it simply did not make sense. It did not make sense when we saw the trajectory of the Fremantle Port development moving to the outer harbour and given our understanding that the basin of the port was going to be at its final stage some time between 2017 and 2020 and that a new container facility south of Roe Highway would need to be built. So, quite frankly, not only is developing Roe Highway Stage 8 a problematic process environmentally, but economically it does not make sense. It does not make sense to spend $850 million on five kilometres of road going to a port that is actually going to be moving south within a year after the opening of that road.

Putting that to one side, I want to talk about this issue of asset reinvestment and how easy it is to adopt a mantra that makes it sound like you are being commercially sensible and commercially sound when in fact you are being the exact opposite. Now, there are cases where it does make sense to sell assets. Very often government will acquire assets and engage in development simply because the market is not strong enough. In the early stages of a development, government may need to invest in something that subsequently, when the population grows and matures, is a function that can be quite properly supported by the private sector. But making decisions in this area requires very, very detailed analysis. It depends on where the numbers fall and what the risks are in each individual case. First of all we have to look at the actual price received. When you sell something off, it is not money for jam. You are actually selling an asset. And quite often we see cash based reports in the budget that will show the sale of an asset as improving performance. We have all of this additional revenue that has come in because we have sold the asset, even though we may have sold that asset at a very poor price. Even when we are doing accounting on an accrual basis we might see a positive result where we get more than book value for an asset, even though that is in fact far less than its actual value. And hopefully I will have some time to tell the story of the great failed privatisation of the Perth freight network.

We also have to look properly at the revenues lost and make a rational assessment as to whether it is cheaper to borrow than to lose the income stream concerned. Interestingly, the member for Swan was going on about the level of debt and using the raw numbers of debt. That really has become a disingenuous obsession of the government. But we know that in making an intelligent assessment of where an economy is, where a government is, we look at net debt-to-revenue ratios. You do not just look at debt; you look at debt to revenue. Of course, if you are selling off your revenue-generating assets you might be reducing your net debt but you are also reducing your revenue. So you do need to make a careful calculation about whether or not the revenue you lose is actually going to be properly compensated for. The Western Australian government is now talking about selling the Utah Point Berth in the Port Hedland port. The rate of return on capital across the Port Hedland port is about 14.2 per cent. We do not have access to the more detailed information, but if we put the evidence together the rate of return on revenue in Utah Point would be much higher than that. That is the facility that is really bringing home the bacon for the Port Hedland Port Authority. But even if you accept it at 14.2 per cent, compare that to the current state bond rates, which vary from about 3.75 per cent to eight per cent. We could actually borrow a lot less than the sacrifice of that income that we are getting from Utah Point. So, we are getting a much higher rate of return than we are paying in interest. if you are being sensible, if you are being really prudent, you will say to yourself, 'Does it really make sense for us to sell this?'

For those reasons, we are deeply concerned that these privatisations be subject to a proper cost-benefit analysis so that for each one of those we do a detailed and proper analysis of just what that return will be and how it is going to impact on the net debt-to-revenue ratio rather than the financially simplistic and irresponsible approach of just focusing on the debt level. We are also particularly concerned that the 15 per cent bonus in itself—the supplement that is on offer by the federal government, and which does not enhance the amount of money available for infrastructure, because that could easily be given by way of a grant—has the potential to be a great distortion in itself. And it has the potential in part to become a subsidy to the private sector as state governments are prepared to discount the price in order to attract the supplement. We stress that the amendments we are putting up are very much designed to ensure that we have a much more economically rational discussion about the assets that are being proposed for sale, and whether or not that is in fact in the best interests of the taxpayers.

But I think it is also important to understand that the potential risks of privatisation go well beyond the problem of ensuring that we get a good return on assets and that we do not unnecessarily sacrifice highly profitable revenue streams for a short-term boost in debt levels to enable brand-new projects to be announced. I want to talk about a couple of facilities, one of which is the Utah Bulk Loading Facility, which I referred to a bit earlier. This facility was built by the government in the Port Hedland port with the aim of providing a facility for the junior miners. For those who are less familiar with Port Hedland, it is a port that understandably has traditionally been dominated by BHP. Like many ports in WA, there has been a bit of an unfortunate history in terms of access by third parties to this infrastructure, even though the infrastructure might notionally be controlled by government. When FMG was attempting to become a player in the iron ore industry, BHP very much played hardball to keep FMG out. With the strategic intervention of the then government, FMG got its place in the sun, but, alas, FMG did much the same thing to the entrants attempting to come in behind it. The development of a facility like the Utah bulk-loading facility was in part a way of dealing with that.

My concern is that this facility, even if it is sold for a good price and we get a good return on it, could fall into the hands of someone who was in fact ultimately a player and who had a strategic interest in keeping third parties out, and we have certainly seen this happen in the grain freight industry. Whilst that might be to the economic benefit of that company it is not going to be of economic benefit to the region, to Western Australia and to Australia. It is very important to understand this, particularly in relation to ports. The ports on the west coast, where we have very difficult marine conditions, are located where they are because they are the optimal places to site safe berthage. It is not like building a supermarket. If you want to compete you cannot just open one down the road. It is very difficult and complex to find a site where it is cost-effective to build such a facility. We really need to understand the long-term implications for regional development from these privatisations.

I note that the member for Swan talked about the state treasurer's proposal to sell Kwinana Bulk Terminal. This is pretty incredible given Mr Barnett's comment just before the last election that the one thing he would not be privatising is the Fremantle ports, and of course the Kwinana outer harbour is one of the Fremantle ports.

I want to talk briefly about a classic failed privatisation and how the need to be seen to bring down the debt levels, but clearly not looking holistically at the budget, can be a complete disaster. We had a situation in the late 1990s where another wheat farmer who had control of the transport portfolio spent a motza on roads leading everywhere. The budget was in great crisis and he came up with this great proposal to sell off the freight rail network. They said they would sell off the grain freight network and make heaps of money so that they could continue building more roads. We warned at the time that this would lead to cherry picking, with a great deal of focus by the private provider on the tier one lines, those lines on which there was a great deal of freight, whereas the smaller lines would basically be left to rot and not properly maintained, and ultimately the operator would walk away from those lines. We were assured that that would never happen, but we did not believe it. Ultimately, everything we predicted has in fact happened. The amount of money we got for the sale of this asset did not even cover the book value. So there was in fact no actual net benefit at all asset-wise to the state. But we had a situation that has required subsequent governments, federal and state, to invest $360 million of taxpayers money in an attempt to keep the freight network going and, in particular, to keep the tier three lines going. Much to the chagrin of the farmers we see that freight coming off the rail and onto the roads is creating mega road hazards and making many country towns and outer metropolitan roads very unsafe, requiring vast sums of money be spent. So it was a massive result of cost-shifting. It was a short-term political fix that over a decade later the people of Western Australia are still picking up the tab for. I urge the government to support these amendments. They are absolutely critical to getting a proper economic understanding of where we are going with privatisation.

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