We’ve had micro-economic reform - how come I didn’t win anything?

For several years prior to privatisation retail tariffs were jacked up relentlessly, When privatisation came in, households then had their tariffs escalated by inflation from a high base, propped up by fixed matching supply contracts. (Pushing up prices and changing accounting to boost current income and increase valuations is a common feature of privatisations.) Large commercial users, taking advantage of surplus generating capacity at the time, were allowed and able to bid the prices they paid down, often by more than half. Note that this had nothing to do with economies of scale or cost of supply and everything to do with market power. Those of you who managed to stay awake in Economics 101 would recognise that this is the antithesis of a competitive market where no individual participant is able to influence price.

All of this was predicted at the time. But such whinging wasn’t to be allowed to obstruct a magnificent money-making adventure. Nevertheless, governments presided over a truly massive transfer of resources from households (and small business who got little out of it) to large and powerful interests, like for example the coal industry, a heavy power user. At least we didn’t squander all our natural gas in power generation like silly Margaret Thatcher did.

Here in Sydney we have an international airport seemingly with the highest car parking charges in the world, immaculate shopping concourses, scruffy baggage reclaim and the only international airport where you can be fined for picking up an arriving passenger directly from the terminal - an obvious efficiency in the age of mobile phones. And the road system is totally bizarre. If you live on the upper North Shore and work in Sydney CBD, you can tool down the highway for free and only pay a bridge toll. If you live in Penrith you get slugged a toll on the M4 but you can then claim it back!

On the other hand, if you live in the Hills district and your employer transfers you from Parramatta to the Randwick office you will suddenly face more than $100 a week in tolls. At least you don’t have to go through the cross-city tunnel which is described as a scary experience as there are so few cars in it. You do need to use the Lane Cove Tunnel which parallels Epping Road. The latter used to provide three car lanes in the dominant peak traffic flow direction. After the tunnel was built (which provides two lanes each way), Epping Road was reduced to one car lane in each direction.

In other words, after a spending one and a half billion bucks now being recouped by tolls paid by said long-suffering Hills’ residents among others, we got no extra car capacity! And just in case you are enjoying a warm fuzzy feeling that the original sponsors of these tunnels deservedly lost their equity, remember that you have no way of knowing whether the equity wasn’t built into the cost of packaging and construction and financed by the debt providers (maybe your superannuation) from the start.

The people in the Hills District would like a railway. Whenever it’s put on the list, it always gets taken off again before anything’s done. Is it possible that somewhere the State Government has rendered itself liable to compensation if it builds a railway which competes with a toll road? It was taken off again quite recently, just before the public announcement that the Lane Cove tunnel has gone belly-up and is to be sold. When there are losses, the law suits will follow. No one can find out because all of these arrangements are “commercial in confidence”. I can only suggest to my Hills’ friends that they ask for the railway to be in a tunnel. If there’s one consistency in transport plans, it seems to be related to keeping a tunneling machine fully occupied!

It is reported that a consortium of toll road operators now want to be given a 50 year concession to collect tolls (i.e. taxes - a toll becomes a tax the moment traffic-funneling measures are put in place) from long suffering Sydney drivers, in exchange for filling in the gaps they didn’t want to pay for when building their toll roads in the first place, because it didn’t maximise their profit, minimise their risk or suit the book-building capabilities of the investment bankers.

The fact is, infrastructure is no longer being driven by the body politic, the public interest. It is now being driven by investment bankers, big construction contractors and assorted hangers-on, solely motivated by how much profit they can make squeezed out of the public using, in effect, coercive powers. They tell governments what infrastructure they can have, how it is to be sized, where it is to be and how competition is to be kept out (i.e. get a monopoly), all of it in secret, out of the purview of the public, until presented as a fait accompli.

I think it is about time we had a Commission of Inquiry into this frolic in micro-economic reform. Who made the money? Who’s wearing the costs? Let’s have all the documents out in the open. No countries these days seem anxious to follow the path we took, and those that did are finding it all falling apart and are having this same conversation, so what are the lessons for the future? I’m sure Mr Keating would be an avid supporter, even if the bankers won’t rate him their first best friend anymore!