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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-09-23 Daily Xml
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PRIVATISATION

The Hon. R.D. LAWSON (17:16): I move:

That the Legislative Council—

1. Notes the Premier's announcement that privatisation will be the major issue at the next state election.

2. Notes the Deputy Premier's statement contradicting the Premier's announcement.

3. Considers that a more significant issue is Labor's mismanagement over many years of the financial affairs of South Australia, particularly in relation to state-owned enterprises, including the State Bank.

4. Regrets that neither the Premier, nor his government, have apologised to the people of South Australia for the damage caused by their mismanagement.

5. Urges electors to remember Labor's record, not its rhetoric.

On 1 September this year, upon returning from overseas, in his first press conference, the Premier said:

We've got a State Election coming up next year. Privatisation once again is going to be a key thing that will be fought out at the next election campaign.

Most commentators were surprised to see the Premier seeking to resuscitate that particular issue, but it was a resuscitation clearly motivated by political consideration. The Premier believes that, if he can stigmatise a particular transaction as privatisation, it will not be popular with the electorate, even though it might be in the best interests of the state. He wishes to create a fear campaign that state assets will be privatised and that the community will suffer.

I must give some credit to the Deputy Premier because, shortly thereafter, he said on ABC Radio:

I don't think the next election will be fought about privatisation to be perfectly honest.

When you hear the Hon. Kevin Foley use the words 'to be perfectly honest', you have to wonder whether or not he is pulling someone's leg or perhaps pulling his own leg. The fact is that this government is hypocritical on the subject of privatisation. I intend to provide details of the transactions this government has entered into which amount to privatisation and those arrangements which it has been happy to continue but which it criticised as privatisation when the original transaction was entered into.

I think the start of this historical analysis ought to be February 1991, when the then Bannon Labor government had to acknowledge that, under its watch, the State Bank had incurred liabilities of some $3 billion, which the state government and the community of South Australia were required to stump up because of the government guarantee of that enterprise. That was February 1991. At that time, the Liberal opposition, for some considerable time, had been warned of the state of the State Bank. On 13 April 1989, famously, the member for Briggs (Hon. Mike Rann) moved:

That this house condemns the Opposition for its sustained and continuing campaign to undermine the vitally important role of the State Bank of South Australia in our community.

He went on to say:

I am concerned that the Leader of the Opposition—

that is, the then Liberal leader of the opposition—

his shadow ministry, and his staff have embarked on a sustained and continuing campaign to undermine the credibility of the State Bank of South Australia, and to denigrate and defame its board and its principal officers.

This is what the Hon. Mike Rann told the House of Assembly on 13 April 1989: 'The State Bank is one of South Australia's greatest success stories'. He then went on to say:

So, why has the Opposition in South Australia, at the behest of its Leader, set out to undermine one of the greatest success stories in the economy of this State?

I repeat those words: 'one of the greatest success stories in the economy of this state'. The only other passage from this ill-fated speech to which I will refer is where the Hon. Mike Rann said:

The success of the new bank is, in a large part, due to the brilliance of its Managing Director, Tim Marcus Clark.

How far from the truth were these claims? And how they demonstrate that the Hon. Mike Rann has no understanding of the true operations of the financial markets.

The Liberal opposition was vilified for months and years for having questioned Labor's management of the economy. A royal commission was appointed. It was conducted, first, by the Hon. Sam Jacobs QC and completed by John Mansfield QC, but the three reports of that royal commission were a damning indictment of not only the way in which the bank had conducted its affairs but also the way in which the Bannon Labor government failed to exercise appropriate supervision, sought to manipulate the bank and its policies for political purposes, and failed to discharge its obligations of due diligence.

The Auditor-General reported similarly. I might add that there were two reports in this particular case. Both the Auditor-General and the royal commissioner undertook investigations, indicating, once again, the need for an independent commission against corruption in this state. We hear the constant refrain from the Attorney-General that it is unnecessary to have an independent commission against corruption because we have, for example, the Auditor-General, the Ombudsman and other officers, but the State Bank fiasco highlighted the need not only for an Auditor-General to conduct inquiries, and the like, but also for the occasions when a special inquiry is warranted.

The State Bank cost $3 billion. The Liberal government, when it came into office at the end of 1993, established an asset management task force to address various issues. At that stage, the state's net debt had risen to $8.5 billion. That represented a massive increase, not only because of the collapse of the State Bank but also because of the financial situation of the government-owned state government insurance commission and the failure of a number of other key state-owned assets.

On 30 June 1994, South Australia's net indebtedness had jumped to around 23 per cent of gross state product. That alarming growth led to a collapse in investment confidence, and international investment agencies downgraded our economy. The impact on the state's finances can be underlined by the fact that net interest payments on state debt rose from about $650 million in 1990 to some $900 million in 1995.

Faced with such a dramatic deterioration, the Liberal government grasped the nettle and established the asset management task force which, under the chairmanship of Dr Roger Sexton, set about on a vigorous analysis of our financial position. The methodology adopted by the task force included assessing the benefits of selling an asset versus the cost of retaining the asset in public ownership. Dr Sexton wrote in the final completion report that they applied a rigour to the hold versus sell analysis but noted that debate occasionally surfaced during the three years that followed about the downside involved in 'selling off the family silver'.

Proponents of the latter argument invariably adopted the view that there was little benefit to the state's bottom line from the sale of government-owned assets or business entities because the state had forgone ongoing revenue from the assets but, as Dr Sexton reports, 'this argument is a simplistic and myopic one which simply doesn't stand up to scrutiny'. Dr Sexton pointed to the very real financial problems which existed in a number of state-owned business enterprises and activities before his appointment.

I will not go into all the activities of the asset management task force which was in operation for three years, but it effected a number of important sales. For example, the pipelines authority of South Australia was sold to a company (which became Epic Energy), realising some $304 million. Property sales of some $124 million were realised. SGIC was sold for $175 million. Austrust, a business in which we should never have been engaged, was sold for some $44 million. Fleet SA was sold to financiers—and is now owned by one of the major banks—and realised $195 million. Forwood Products was sold for $122 million. A building at 333 Collins Street, Melbourne—which came into ownership of SGIC by reason of an auction—was sold for $243 million. The ill-fated scrimber business in the South-East, which had cost the government millions on fruitless research, was sold. Bank SA was sold for some $730 million. In all, some $2 billion was realised.

It is interesting to note that, for example, the state government at this time held a securitisation contract involving 70 commercial properties in the United States worth $41 million, and that securitisation actually remained in force until 2000. However, had the state government allowed business enterprises to continue as they had been, there is no doubt they would have been widely involved—and expensively involved—in the securitisation activities in the United States, which have more recently caused enormous financial problems.

SGIC's activities, not only in relation to 333 Collins Street but also in various re-insurance policies, were simply catastrophic. For example, the taxpayers of South Australia lost $30 million when Hurricane Andrew went through Florida in August 1992.

The Hon. R.L. Brokenshire: What about 33 Collins Street, Melbourne?

The Hon. R.D. LAWSON: The honourable member was not listening, because I did mention that. It cost the state tens of millions but was ultimately realised. The current Treasurer likes to suggest that he is a master of financial and business management. He is a master of spin. He has managed in good economic times and reaped the benefits of the good economic managers who preceded him, who reduced the state's debt markedly. He has ridden on the benefits provided by his predecessor, and he has been the beneficiary of the fact that assets were sold and businesses were privatised.

I think it is also worth noting that the recovery process went well beyond the activities of the asset management task force, which finished in 1997. For example, legal proceedings were issued against Mr Marcus Clark and the former directors in March 1994, and those court cases were successful. Mr Marcus Clark was found to be negligent and in breach of his fiduciary duty by virtue of his conflict of interest, following the 1988 purchase of the entire capital of Oceanic Capital Corporation for some $59 million. Mr Clark was found liable to pay damages of $81 million but, of course, he was bankrupt and paid nothing.

The government did reach a settlement with FAI in relation to some of the activities of the State Bank. The government settled the case against KPMG and PriceWaterhouse for some $120 million on account of their negligence as accountants and auditors. There were other recoveries made.

In 2002, the Rann Labor government ran on a pledge by Mr Rann of 'No more privatisation'. Since Labor came into office, let us look at the record. The Labor government renewed the prisoner transport contract, which had been let by the Liberal government. It was a good contract which, when it was let, the Labor Party condemned as privatisation. The government promised the PSA that, when the Labor Party was elected, it would return the prisoner contract to the public sector. The government did not do it. It renewed the prisoner transport contract because it was a good contract and represented value for taxpayers. It would have been simple ideology and not sound common sense not to renew that contract.

The government renewed the contract for the operation of the private prison at Mount Gambier, notwithstanding its condemnation of that contract. The government renewed the contracts for the operation of the metropolitan bus system to private enterprise. This government built courthouses and police stations with private-public partnerships. Indeed, the government actively pursued public-private partnerships for the construction of the new prison facility at Mobilong. The government actually announced that that project was to go ahead, yet subsequently the government has put the project on hold by reason of the current economic situation.

When announcing the new Mobilong prison, the Treasurer announced that the catering and services for the prison, other than the employment of correctional services officers directly, would be provided by private contractors, once again showing the hypocrisy of this government. The government has let the contracts for the construction of super schools, which are to be run by private-public partnership. The government has announced that the proposed Royal Adelaide Hospital on the railyards will be developed as a private-public partnership.

The government has announced—the Treasurer has certainly indicated—that the outsourcing of the maintenance of the metropolitan water network and the operation of the sewerage system will continue in private hands after the expiration of the current contract with United Water, either with United Water or with some other provider. The government is indicating, having criticised its predecessors for entering into these contracts, that it is very happy to continue them. The government made a huge noise about the privatisation of the state's electricity system, yet it took absolutely no steps to unwind that or to bring any part of those enterprises back into government ownership.

The one contract that the government did cancel was with the company Healthscope, to manage the Modbury public hospital. That was a contract which required Healthscope to manage that hospital at a cost which was less than the state would incur if it were to have the hospital managed within the Department of Health. I repeat that: that was a contract which required Healthscope to provide services at a cost less than the cost of public management.

In other words, it was a good deal for the state, but it was an easy one to cancel: easy because Healthscope was quite happy to get out of the contract as it was costing it money and it was too beneficial to the public of South Australia. The hospital has now been taken back into public management, the services provided at the hospital have been downgraded, and the people in the north-east of Adelaide who have been complaining about the private management have now been dudded by this government, for ideological reasons.

Today, of course, we have seen the government's backflip on the Magill Training Centre, a backflip, incidentally, which we have been calling for and which we welcome. The Premier has announced today that the government will be working with the companies involved in the original public-private partnership before tenders are let for construction. The government will be flogging off land at Oakden (some 15 acres), according to this announcement, and selling it to private developers to fund the building of this new training centre.

This government has been entirely unprincipled and hypocritical in relation to privatisation. Once again, we see the Premier engaging in a scare campaign, a hypocritical and unprincipled scare campaign. The ruse, however, is revealed by the Treasurer, who says that he does not agree, if he is being perfectly honest, that privatisation will be an issue.

The extraordinary thing is that neither the members of the Bannon government, of whom Mr Rann was a prominent member, nor his successors, either in office under the Arnold government or in opposition, have ever apologised to the people of South Australia for the gross disservice they did to this state which set us back years, nor have we received any expression of gratitude—nor would we expect to, frankly—from the present government for the work of the Liberal government, under treasurers Stephen Baker and my colleague the Hon. Rob Lucas, in reducing the debt and putting this state's financial footing on a basis that would warrant a AAA credit rating.

It is appalling that this government should also be attacking United Water in a most underhand and outrageous way, a way which is absolutely contemptuous of the court process. It was recently announced, with much fanfare, in a release to The Advertiser, that United Water had, according to the government, been overcharging and that the government was suing, but the government had not actually told United Water that it was doing that. The government issued the proceedings in court but did not serve them on United Water. It simply went to the media to denigrate and bad mouth that particular contractor.

Of course, if United Water has, in fact, been overcharging then let that matter be determined by the court, but to seek to use the threat of court proceedings to browbeat a company, whether large or small, into settling a commercial dispute is outrageous, and I am delighted to see that the defendant has come back strongly and complained to the court, which has agreed, apparently, with the submission that the government has behaved inappropriately, and the matter will be set down for a quick hearing, which I hope is resolved promptly. It brings no credit at all to the Treasurer to engage in activities of that kind. It is the most outrageous contempt of court in recent times. I commend the motion to the council.

Debate adjourned on motion of Hon. J.M. Gazzola.

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