Lyn Allison (Victoria, Australian Democrats) Share this | Hansard source

The Australian government’s management of the last tranche of the Telstra sale is a matter of public importance. In fact, it is a matter of public disappointment. The situation of Telstra’s share price is a complex one. The Democrats recognise that there are many factors that have affected the Telstra share price, including the dotcom crash and the worldwide trend downwards in the value of telecommunications companies. In Australia the share prices of other telcos have also dropped considerably.

However, there is no denying that Telstra shareholders from the second tranche have suffered. The Telstra share price fell from $7.40 a share, at the time of T2, to $3.64 today. And we think the federal government has to shoulder a large amount of the blame for that. Senator Minchin is reported to have said:

My mother, like many Australian investors, knows the risks of investing in the Australian share market, and those risks were pointed out in full at the time of T2.

But just how true is that? I seem to recall that the federal government at the time was heavily spruiking the sale of Telstra. The Prime Minister said:

All I can say is that buying into Telstra 2, as buying into Telstra 1, will be an extremely good deal for those who get involved.

And you will remember that, at the time, T1 was hugely undervalued by the government, and shares went up almost immediately after the float. So this message would have been heard loud and clear by those people the Prime Minister was trying to appeal to. The government promoted the sale as an opportunity for small investors, first-time investors and mum and dad investors, urging them to participate in the Australian share market. And it worked. Telstra shareholders represent 1.6 million Australian electors—far more than the shareholders of, for instance, AMP, with 900,000; Commonwealth Bank, with 740,000; or BHP Billiton, with 375,000 shareholders.

Many of the investors in the Telstra 2 sale were first-time investors—so-called mum and dad investors—who had no experience whatsoever of the stock market and, arguably, no real understanding of the risks. And why would they think it was risky? The government was telling them that this was an extremely good deal. Surely the government’s spruiking of the T2 shares was ethically wrong when it could not guarantee that the share price would be maintained or grow. In fact, what the government did then would surely be legally wrong now. Part 7 of the Corporations Act deals with insider and manipulative trading, as well as broader provisions dealing with misleading and deceptive conduct. Specifically, part 7.10, section 1041E prevents ‘false or misleading statements’ and section 1041F prevents ‘inducing a person to deal’.

It could be argued that a reasonable person might be misled into believing that statements made by ministers and other government members at the time were informed comments and predictions. While it is arguable that ministers have some protection in this respect by virtue of section 5A(4) of the Corporations Act, the protection is very limited because of section 8AT of the Telstra Corporation Act. Nonministers have no such immunity. Whether legal or not, the question of whether it was ethically wrong, I would argue, remains.

The government are now planning to sell 20 per cent of the shares to a new lot of investors. They are doing so at rock-bottom prices and are obviously feeling quite guilty about the treatment of T2 shareholders, as they are contemplating a discount or some other incentive to existing shareholders. The government have been accused—rightly, I think—of using speculation to prop up the share price. But just how responsible is this? I think this is a matter the Senate should concern itself with. Don Gimbel, who has been managing funds on behalf of Australians and Americans for 40 years, told the Sydney Morning Herald: ‘To try and flog this on ma and pa is a disservice to the Australian people.’

It is the opinion of the Democrats that the government’s decision to proceed with the float of $8 billion worth of shares in Telstra is foolish and incompetent; we have said that on a number of occasions. This massive float will drive share prices down even further, and institutional investors will snap up shares at bargain basement prices and the little guy will not benefit at all, in our view. Parking 30 per cent of the shares in the Future Fund is likely to have a further dampening effect on the share price.

But the threat to Telstra shareholders does not stop there. One of the arguments the government have made for selling Telstra is about the situation of being owner and regulator—that it is in conflict and untenable. The government have argued that they will be in a better position to regulate Telstra and the telecommunications market once they are no longer shareholders. Presumably the result of ‘better regulation’ will be a weakening of the monopoly power of Telstra, which will presumably drive down the share price. Yet wouldn’t it be politically damaging for the share price to go down, given that a potential 2.5 million mums and dads may own Telstra shares? And, if the government are mindful of the political fallout, will they in fact appropriately regulate? The conflict of interest here remains. In fact, it has perhaps become even worse than prior to any of the tranches of Telstra privatisation.

We say that the government has well and truly bungled the management of Telstra. It has shown itself to be ideologically driven on privatisation, despite the absurdity of proceeding in the current climate. Australian shareholders and Australian taxpayers should be angry. They have a sale with no guarantee of protection for consumers, they have a sale with no guarantee that broadband will be rolled out and they have no influence over Telstra. This situation is likely to get worse, not better.