New CIS paper: lessons from NSW reforms to government-owned businesses

Three decades of reform of NSW government enterprises offer valuable lessons at both federal and state levels for the future, according to a new Centre for Independent Studies policy paper.

In Reform, Retreat and Relinquishment: Lessons from historic state ownership of businesses in NSW, author Percy Allan AM outlines how the reforms resulted in a massive boost to their efficiency and the release of scarce resources for core ‘general government’ services such as public education, health and community services.

“Examples of entities in this transformation — all of which showed considerable improvements to labour productivity, operating results   and customer services — included the State Rail Authority, Sydney Ports, Freight Corp, Hunter Water and Delta Electricity,” Mr Allan said.

“These key structural reforms that made the 1990s the ‘Golden Era’ of transformation for NSW government businesses provide 5 important lessons.”

5. Government businesses need to operate like private enterprises if they are to generate a commercial rate of return. Otherwise, their dividend and tax contributions to funding general government services — such as health, education and police — will stagnate or fall, as they did after 1997/98 (shortly after which, the NSW government ceased publishing performance reports on the sector).
6. If government businesses are required to provide social benefits (e.g. pensioner concessions), they should be compensated from the government’s own budget, so that their commercial charter and culture are not compromised. Governments can perform social and commercial roles, but if it mixes the two it creates conflicting objectives that undermine each sector’s raison d’etre and corrupt its modus operandi.
7. All government businesses should be genuinely ‘commercialised’ so as to maximise their productive efficiency. That would help to contain their prices and debt while boosting their dividend and tax equivalent payments to their owner, the government — as happened during the reform years of the 1990s.
8. It’s difficult to operate businesses in the public sector because it is driven by politics, not markets. In other words, citizen votes count more to politicians than do consumer dollars.
9. All government business divestments should be subject to ACCC scrutiny and approval, to ensure they don’t result in market distortions that disadvantage consumers.

“In other words, government is best suited to making public policy and regulations, redistributing income and subsidising worthy causes with a view to achieving a safe and fair society; while competing private firms do best at selling goods and services to consumers to ensure economic prosperity,” Mr Allan said.

“A mixed economy should not mean the government and private sectors replicating each other’s roles, but each sector doing what it does best — and thereby complementing the other’s strengths.

“This reinforces the case for privatising remaining government businesses so they can operate properly as businesses — not job refuges — to the benefit of the public both as taxpayer and as consumer.”

Percy Allan AM is a public policy, management and finance adviser; a former Secretary of the NSW Treasury (1985-1994) and Chair of the NSW Premier’s Council on the Cost and Quality of Government (1999-2007).