29/03/2005 - 22:00

Tim Treadgold: Briefcase - No power in a parlous state of affairs

29/03/2005 - 22:00


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Briefcase does not consider itself a lone voice in the wilderness but wonders whether anyone else in Perth has considered the bizarre situation evolving around the role of state governments in Australia, now that access to GST funding has joined control of industrial relations as an issue in the perennial debate of state versus federal powers.

It is going too far to say that Australia’s state premiers are fast becoming mini-emperors without clothes, but when looked at closely the similarity is somewhat alarming – even if the thought of a naked Geoff Gallop is even more alarming (with apologies to Bev).

Humour aside, GST and IR are the latest in a long line of issues which have largely destroyed the power base of the states.

In fact it is almost worth asking what it is that state governments will do in the future, apart from provide a handful of essential services such as law and order, health care, water, sewage and power.

And even some of those could be up for grabs as national competition policy cuts deeper, with private operators entering the water and power markets.

The meltdown of state powers actually makes for an interesting academic study, but since Briefcase has a particularly poor academic record, here is a simple snapshot of a few of the big changes that have taken place over the past few decades.

Back in the late 1960s the states had control of corporate law and a visit to the Companies Office was a highlight (just joking) in the early working life of Briefcase.

Today it is all federal, via ASIC (Australian Securities and Investments Commission).

The states also had almost complete control over education and healthcare matters, but now rely on large dollops of federal funding, with much of it arriving with Canberra’s strings still attached.

There was an entity known as the Perth Stock Exchange, which disappeared into the Australian Stock Exchange, leaving a letterbox drop in Perth, and Perth was the home to a large number of home-grown companies with their head offices on St Georges Terrace.

There was even a home-grown funds management structure, albeit one controlled by the Weld Club elite.

Modern communications, globalisation, and a range of other forces have seen the consolidation of financial and investment decision-making powers into Sydney and Canberra at the expense of outposts such as Perth and that once-great southern city of Melbourne.

But this latest assault on state powers – through Peter Costello cracking the whip with demands for reduced state taxes to ensure continuing access to GST funding – and the imminent loss of IR powers, really promises to be the beginning of the end of state government powers, especially when competition law delivers alternative sources of electricity and water.

Max Evans, a former finance minister in Richard Court’s government once (half) jokingly said that 90 per cent of the state’s finances were pre-committed to the big three of teachers, nurses and police.

A fresh look might show that the ratio has climbed closer to 95 per cent now that GST has become such a critical part of state finances, and Mr Costello is demanding that the states wind back some of their few remaining taxes.

When (not if) Costello wins this latest one-sided debate, and then IR power slips from state control it might well be a very good time to look very, very closely at why each state has a monstrous bureaucracy to administer hand-outs from Canberra, hand-outs which come with easy-to-read instructions that include a warning to the effect that deviation could jeopardise future finances.

Timing is everything in business and Sydney solicitor Bruce Dennis must still be wondering how he managed to pick precisely the wrong day for a big mail-out to shareholders in the failed gold and tantalum miner, Sons of Gwalia.

March 21 was the chosen date for Mr Dennis, who has a reputation for running class actions, to drop a five-page letter suggesting that a class action against “the company, its directors, officers and auditors” should be successful, and that a “substantial distribution” would be available to creditors.

There’s nothing wrong in what Mr Dennis is suggesting, and the best of luck to him, and the other organisation pursuing a legal challenge over the Sons of Gwalia failure, Hugh McLernon’s IMF (Australia) Ltd.

What makes the letter interesting is this. First, a request for a “one time only payment of $550 inclusive of GST being our fees for managing your claim”, and secondly, Mr Dennis’ comment that advertising for the sale of Sons of Gwalia’s gold assets had started and that the tantalum and gold assets could fetch more than $0.5 billion ($500 million).

Unfortunately for Mr Dennis, on the very day he mailed his letters (March 21) the administrators announced the sale of the gold division for the decidedly unprincely cash payment of $2 million, plus the replacement of environment and performance bonds, which lifted the total cost of the new owner, St Barbara Mines, to around $37 million.

There will be many more twists and turns in the Sons of Gwalia saga but it seems to Briefcase that both IMF and the newly-arrived Bruce Dennis (who is also leading a class action against former HIH Insurance boss, Ray Williams) will be pushing it uphill to earn much, if anything, for shareholders.

The problem is not the merit of the potential case.

Even a casual observer can see that events like those at HIH and Sons of Gwalia provide possible ammunition for the lawyers.

The issue is one of money – and where it is.

Both IMF and Bruce Dennis appear to believe that a pot of gold (hopefully one with more gold in it than the Sons of Gwalia gold division) can be found in the form of personal and corporate insurance policies which might be triggered by legal action.

To this end, Briefcase says anything is possible.

However, if you are a Sons of Gwalia shareholder and over 50 years of age, do not assume you will see anything this side of your retirement and/or death, whichever comes first.

“It is dangerous to be sincere unless you are also stupid.”

George Bernard Shaw



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