The Andrews government have privatised the Land Titles Registry this week on a 40 year lease for sum of $2.86bn. The Government claim that this exercise is to “fund new schools, hospital and transport infrastructure.” Let us be clear, this sale does not fund a thing. State government assets are not magic money trees that provide revenue only when sold.
Selling an income producing public asset is not a funding exercise, but a financing exercise. It is an accounting trick. Leasing the land titles registry is no different for the bottom line than the sale of Government bonds (borrowing) to raise a large amount of money upfront, with the additional interest cost later.
The headlines for the privatisation could be used identically for a bond sale. Instead of “Victorian Land Titles Registry Privatised in $2.9 Billion Windfall,” the headline could read:
“ $2.86 billion cash boost from bond sale”
Given this counterfactual and alternative method to finance Government spending, for the privatisation to make economic sense it should have been at the very least revenue neutral.
How do the numbers stack up?
As of July 2018, the Victorian Government could borrow at 2.95% over 10Y. Some of the lowest borrowing costs in history. For the sum of $2.98bn, the interest bill would be $87.91m p.a.
Now consider the Land Titles Registry we just privatised (for 40 years) for the same $2.98bn.
Considering its annual revenue was $120m, we can estimate this as a yield or alternative borrowing cost of 4.03%. The lost revenue (or “interest bill”) being $120m per year.
Now with some simple arithmetic we can work out just how much this privatisation has cost Victorians:
$120m – $87.91m = $32.09m in lost revenue, every year!
In terms of comparing interest rates, 4.03% – 2.95% = 1.08% more than necessary.
No one in their right mind would choose to not refinance a mortgage with an interest rate difference that great.
Consider now that this occurs over 40 years… In terms of 10Y Government bonds, we can say with certainty that this has cost Victorians $320m over the next decade.
As the parliamentary inquiry revealed, the Government’s reasons for selling the Land Titles Registry are unclear. Something about “private sector innovation.” No one is really sure.
If it is innovation they are after, perhaps throwing a cool $100m+ into cadetships in data science and other Human Resources, new tech resources, would have been a cheaper alternative?
And with the leftover money, perhaps we could pay Sydney’s Wax Museum to keep producing our Prime Ministers despite the high turnover? Surely a few million could be spared to buy some of the wax models (and the climate systems to prevent melting), to host a number of PMs in Fed square?
Or consider the amount of money which was allocated to dealing with homelessness crisis.
As if there wasn’t already a good economic case for not privatising a natural monopoly. This privatisation shows that an ideological aversion to debt financing continues to bleed the nation, and encourage nonsense privatisations. It’s not just bad economics and bad for the public, it’s bad also for the budget.