What they’re not telling voters about selling poles and wires



New South Wales Premier Mike Baird is not being straight with voters about why he wants to sell off half of the state’s electricity distribution network, experts say.

The ‘poles and wires’ sell-off, Baird’s signature election policy, is being marketed as ‘asset recycling’ which will raise $20 billion to develop new infrastructure.

But experts say this is a marketing tactic and is misleading.

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Mike Baird – keen to sell NSW poles and wires to redirect money to other projects. Photo: AAP

Given the electricity networks bring the state government an income of at least $1.7 billion a year, economists argue it would make more financial sense to hang on to them and fund the new infrastructure by borrowing at record low interest rates (currently as low as 2.9 per cent p.a.).

While some economists believe that privatisation is a good idea, both sides of the fence agree the ‘asset recycling’ line is a political ruse to appeal to the electorate rather than a solid argument based on fact.

And given the federal government is actively encouraging states to ‘recycle assets’ through its $5 billion ‘asset recycling fund’, this issue could affect all Australians over the next few years.

Why the argument is dishonest

Professor John Quiggin, an economist at the University of Queensland, says the notion of ‘asset recycling’ is “dishonest” because the proceeds from the sale will be used “to build things that won’t generate an income”, such as roads, hospitals and schools.

“The government then has to find a way of replacing the income lost from the assets, so they’re no better off than if they’d funded the new proposal using debt,” he says.

Economist and former NSW Treasury official Dr Betty Con Walker agrees, calling Mike Baird’s plan “a crazy, tricky proposal”.

Her husband, Sydney University emeritus professor of accounting Bob Walker, added: “Every academic I speak to says they [the NSW government] are just fiddling the figures. Every person in a suit says it’s crazy, but I’ll buy a share in it.”

Long-standing critics of infrastructure privatisation, Professor and Dr Walker have penned a 39-page report that argues the asset sale is bad policy.

They argue that, at current 10-year bond rates, borrowing to fund the new infrastructure would cost the government “a fraction” of the $1.7 billion that would be lost in annual income by selling the poles and wires.

So why are they so intent on selling the poles and wires?

The ‘end justifies the means’ interpretation

The Grattan Institute’s energy program director Tony Wood says that Mr Baird is being disingenuous, but he has a less cynical interpretation of his motivation.

“Australia would be more productive and more efficient if we privatised many of these [government-owned] businesses and introduced competition policy, instead of having government-owned monopoly businesses that almost certainly spend too much money,” he says.

However, he says that the need for new infrastructure is no argument for selling existing infrastructure.

“You have to separate the two things,” he says. “I think selling the assets in NSW is an eminently sensible thing to do. And then if there are things that they might sensibly invest in, that’s equally sensible. If connecting those two dots is necessary to bring along the public, fine.”


The O’Farrell government’s sale of Port Botany will give Mike Baird confidence. Photo: AAP

The ‘big end of town’ view

But opponents of privatisation see something more sinister at play.

Before going into politics, Mr Baird worked as an investment banker at NAB – a bank that specialises in funding private infrastructure projects, which may give him a pro-privatisation bias.

“There is a very sharp cultural divide between the big end of town – the people who work in the CBD, business people, the finance sector, politicians of both parties who want privatisation even though they don’t always know why – and essentially everybody else who hates privatisation,” says Professor Quiggin.

He goes on to make a more damning allegation which, if true, should raise serious concerns about the government’s motivation.

“Within the pro camp, you have some genuine ideologues, some economists, who seriously believe privatisation will improve the operation of these assets.

“But you also have a bunch of people who know there’s a good deal of money to be made. That includes most of the politicians involved, because if they manage a successful privatisation they’ll go on to highly-paid jobs in the private sector after politics.”

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