Assets sales to plug budget leaks

Investors should start preparing for significant state-owned assets being put up for sale as early as the first half of next year, as Premier Colin Barnett struggles to meet his promise to keep the budget in surplus.

While Mr Barnett has ruled out putting the ‘for sale’ sign on major utilities, speculation began on what assets might go on the market earlier this year after Standard & Poor’s downgraded the state’s coveted AAA credit rating.

Federal Treasurer Joe Hockey’s apparent enthusiasm for asset sales to provide more capital for crucial infrastructure has only fanned the flames.

Opposition leader Mark McGowan pursued the premier on the privatisation issue in the Legislative Assembly last week.

Mr Barnett said several policy approaches would be used to strengthen Western Australia’s financial position. One was legislation for the removal of public servants whose jobs had become redundant; asset sales were another.

“We could sell …  a water treatment plant but not the Water Corporation,” he said. “I think people care about the Water Corporation, and I do too. We might sell a power line dedicated to an individual mine. It does not need to be publicly owned. But we would not sell Western Power.”

With regard to Western Power and similar operations, Mr Barnett said major utilities that provided public services would not be put on the market.

“They will not be organisations or utilities that deal directly with the public,” he said. “They would be, if you like, ‘back door’ services.”

Mr Barnett also pointed to some winding back in infrastructure spending.

“When the state spends $7 billion of $8 billion a year on new assets and infrastructure, we cannot sustain that, year in and year out. Yet the demand is there,” he said.

“It makes sense to sell assets that do not directly impact on the public in any way, and use those funds to help support the construction of new assets and infrastructure.”

WA has a history of privatisation when times are tough. In the early 1960s, David Brand’s government sold assts such as sawmills and hotels. Richard Court’s government in the 1990s sold Bankwest, the Dampier to Bunbury gas pipeline, AlintaGas and the country rail freight network.

The sales haven’t all been one way, with Labor committed to the partial privatisation of Bankwest in the 1993 election campaign.

The premier’s enthusiasm for further sales is a clear reflection of the state of the books, which show an operating deficit of $334 million for the September quarter of this financial year. And remember, the ratings agency chided his government on its apparent lack of resolve to take the hard decisions needed to get the financial position back on track.

Treasury’s mid-year financial report, due later in December, is the next official indicator on how the state is travelling. An improved royalty flow based on higher iron ore prices may provide a degree of comfort.

But get ready for a program of asset sales early next year, aimed at staving off the appearance of red ink on the books.