A CONFIDENTIAL report that delves deeply into the proposed privatisation of government superannuation fund GESB has revealed questions about the organisation’s long-term viability, despite a potentially massive cost to the state.
A CONFIDENTIAL report that delves deeply into the proposed privatisation of government superannuation fund GESB has revealed questions about the organisation’s long-term viability, despite a potentially massive cost to the state.
WA Business News has obtained a copy of the report, ‘Putting Members First’ by government adviser Rod Whithear, which made recommendations to then treasurer Troy Buswell in February to end the mutualisation process.
Mr Buswell announced that GESB would not be privatised in April but the report was not released to the public.
The 232-page report examines the thinking and advice received by GESB and state Treasury in the lead up to the proposed privatisation date on June 30 2008, and the subsequent efforts by both parties to find a solution to the impasse that had forced former treasurer Eric Ripper to halt the mutualisation.
Mr Whithear’s report attempts to unpick the complex structure of GESB, described by many as a financial black box.
In doing so, his conclusions reflect the concerns of the public service whistleblowers and financial services players who raised questions about the enormous cost to the public purse of funding a state-owned organisation to become a private superannuation organisation.
During his review Mr Whithear had access to numerous reports from third-party advisers assisting with the mutualisation process, some of which, he reports, show that GESB may still have been financially vulnerable despite significant seed funding from government and price rises.
“In summary, from this external analysis by GESB advisers, considerable doubts existed about the financial viability of a mutualised GESB,” the report states.
“And this is based on a scenario where members and the state government have incurred increased administration costs, and a major injection (of) well over $100 million in capital had been made as a gift from the state government and over $200 million had been allocated to meet its expenses.
“This excludes the additional $111 million in transaction costs indentified in this report.”
The report shows that the cost to the state varied considerably during a period of almost two years between February 2008 and November 2009, during which there were ongoing negotiations with Treasury.
Thirteen different documented attempts to calculate the amount of seed capital and reserves required for the privatisation are recorded in the Whithear report, varying from as high as $612 million in May 2008, just a month before the privatisation was due to occur, to as low as $44 million, according to Treasury adviser PricewaterhouseCoopers in late November 2009.
Most of the cost predictions settled between a band of between $199 million and $520 million, although the most common number was $383 million, or thereabouts.
Mr Whithear points out that this latter amount, reflective in the main of considerable reserves set aside for various uses, is close to the deficit recorded in the defined benefit liabilities, which were to remain the responsibility government after the privatisation.
“The history captured ... a very fluid situation with extremely large amounts of money in play, and a change in the characterisation of moneys from ‘seed capital’ to ‘reserves’ over time,” the report says.
“Analysis of the large volume of documents supporting the various views on capitalisation and reserves during the course of the review did not provide confidence that the majority of moneys to be set aside from the GES Fund (existing superannuation schemes) were for the benefit of the fund or its members.
“Most, if not all, these amounts were to be set aside for the benefit of the (privatised) GESB mutual organisation to cover capitalisation, risk capital for unforeseen events, product development and administration expenses.”
