Selling Telstra

Many opponents of the Howard government here in Australia have seen Telstra as some form of rallying point. Telstra, formerly Telecom, is Australia's largest telecommunications carrier. It is one of the last great bits of privatisation the government can do after Qantas and the Commonwealth Bank were privatised under Labor.

The Howard government, now with control over the senate, has just announced that the rest of Telstra will be sold off in 2006. This decision is sure to create some resentment amongst many Australians.

I used to support the current government, but gave up completely in 2001 after the MV Tampa incident. While I support some aspects of the Howard/Costello regime (eg running a budget surplus), I find their moral stance to be repugnant. Nevertheless, I do support the full sale of Telstra.

While I share many socialist convictions, I do not share the idea that the government should own certain industries or companies. If a particular service or industry is able to support itself via the normal operation of the marketplace, then the government should simply butt out of being directly involved. That's why I have no problem with the privatisation of Telstra, as well as things like coal mines, power generation, and water and sewerage. Health care, education and law enforcement, however, are areas that the market cannot provide adequately by itself, which is why I still believe that the government needs to be directly involved in these areas.

One of the biggest problems is that government laws allow competition between telecommunication companies. Yet there is a massive conflict of interest in that the Government has a controlling interest in the largest of these companies. It would be so easy for the government to set up rules that prefer Telstra, allowing more revenue to go to the government and essentially punishing other carriers for not being Telstra. In short, the potential is there for the government to interfere in the natural activities of the marketplace.

So Telstra will be sold. What to do with the A$30 Billion? My preference is essentially that of Costello's - use the money to pay back government debt even further. The fact is that the Australian government owes investors billions of dollars in government bonds that have been accruing over the years. Since 1996, budget surpluses have eaten a considerable hole in this debt. As a result, Australia is one of the few western nations whose public debt is quite low. The money used in selling Telstra should pay back even more of this debt.

The reason is simple. Every year the government, via the treasury, has to pay interest on money that it has borrowed. Every dollar spent on paying back interest is a dollar that could have been spent on health, education or law enforcement. While many would like the A$30 Billion to be spent on things like upgrading schools and whatnot, the fact is that paying off debt will allow governments in the future to be able to spend more of its tax revenue on such things, and do so in a more sustainable way. Paying off debt is a process that will have long-term positive effects since it allows a greater amount of public spending with the funds available.

One of the criticisms that are levelled against this approach is that the government is "selling off the family silverware" - an argument that has no understanding at all of the problems of too much government debt. Another criticism is that Telstra provides the government with a revenue stream that will be permanently cut off once the company is sold. This is true, but we must remember that the revenue from Telstra may not necessarily be the same as the amount of revenue saved from paying off debt. Moreover, we still have the problem of the government's conflict of interest.

One alternative that would be interesting would be if the government were to use the A$30 Billion to purchase shares in every single company listed on the Australian stock exchange. Rather than owning a controlling interest in one company, it would be better if the government owned a small percentage of every listed company. That way "the family silverware" is invested into a broader range of businesses which would not allow the government to have any major conflict of interest. I prefer paying off debt - but this alternative is worth pursuing, especially if future governments are free of debt.

Like the GST (which I supported as well), the proposed sale of Telstra will bring out Howard's political opponents simply because it represents a tangible "thing" that they can fight against. I will always give credit where it is due. Howard and Costello have done this country a great service by paying down government debt, introducing the GST and potentially selling off Telstra. Their actions will benefit Australia's future. Will I vote for them again? Absolutely not. They are men who have shown themselves to be bereft of compassion and who take their orders from Washington. But I can't deny some of the good that they have achieved.

From the Department of "What's Happnin?"

© 2005 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/

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