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News of the world: PPPs are a disaster

Kenneth Davidson

The Minister for Finance, Nick Minchin, is one of the driest ministers in the Howard cabinet. He is also a smart politician and one of the Coalition's most serious policy makers.

So, state Labor ministers who are besotted with cosying up to big business at any cost should sit up and take notice of Minchin's reservations about the efficacy of public private partnerships (PPPs).

Minchin's views were expressed at a workshop on PPPs in London last Wednesday. According to The Australian Financial Review, the workshop had been arranged by Australian financiers in an effort to boost Minchin's enthusiasm for PPPs. Apparently they failed.

According to the AFR report of last Thursday, a spokesman for the Victorian Treasurer, John Brumby, expressed total support for PPP funding of infrastructure, saying: "In Victoria we have found PPPs provide the best approach, the right balance and the best value-for-money outcome for taxpayers."

Oh really? Which ones? When will we have access to the agreements on which these win-win contracts are based? Or are they all "commercial in confidence"?

Obviously for the Bracks government it is full steam ahead and damn the torpedoes, despite the resolutions passed overwhelmingly at the state ALP conference in May, calling for the State Government to exercise the utmost caution in financing infrastructure via PPPs.

The resolution against PPPs would not have got up without the support of the Victorian ALP's Right-wing factional chief and federal shadow finance minister, Steve Conroy. It appears that there is a degree of bipartisanship on this issue - federally - between the government and opposition.

According to the report of the meeting in London, Minchin said accounting and insurance problems led the government to scuttle the tender process for the $400 million patrol boat contract, and the government would be wary of returning to the model for future defence contracts.

Quite clearly, the risk of operating the patrol boats remains with the government, irrespective of who formally owns them. (If the risk resided with the owners, it would be the owners, not the government, who would have final say about their deployment.)

Minchin also said the controversy surrounding the Blair government's use of PPPs to build and run schools and hospitals also gave the Howard government cause for nervousness. I'll bet.

The stories emerging from London about PPPs or Public Financial Initiatives (PFIs) are truly hair-raising.

According to George Monbiot, author of The Captive State: The Corporate Takeover of Britain, quoted in the London Spectator (March 9): "The reality is that PFI is a scam ... It offers neither effective public provision nor business efficiencies. Far from introducing market disciplines, it has become an official licence to fleece the taxpayer. Far from reducing public sector borrowing, PFI is, as the Accounting Standards Board has noted, simply 'an off-balance sheet fiddle'. Most alarmingly, the ministers I have spoken to simply do not understand how it works."

This is the whole point. It is like the language of corporate lawyers in the tax-avoidance business. Public opinion would not stand for the pillage of the public good for five minutes if what was being done by these pillars of the legal and financial establishment was spelt out in plain language.

The economic and distributive impacts of PPPs is much the same as the operations of the Mafia in Sicily. As I understand it, no public infrastructure gets built in Sicily unless the Mafia gets a percentage off the top of every construction contract.

What has happened in Britain? According to a study published in the British Medical Journal (May 18) by Professor Allyson Pollock and others, for a given level of expenditure, National Health Service facilities financed through PFI led to a 30 per cent reduction in bed capacity and a 20 per cent reduction in hospital staff.

The Blair government has poured more money into the NHS since 1999 but, according to the authors, there is no evidence that much has flowed through into base-line services. It appears that both the Liberals' Minchin and Labor's Conroy can see this. Why can't the state Labor finance and treasury ministers also see that public-private partnerships are, for the most part, simply mechanisms for diverting funds away from service provision?

The evidence is under John Brumby's nose: The Bracks government had to buy back the La Trobe hospital from Australian Hospital Care in October, 2000, because the private owners couldn't guarantee the hospital's standard of care on the revenue provided under the contract signed with the Kennett government, even though the payments were based on government payments to the government-owned public hospitals.


Kenneth Davidson is an Age columnist and co-editor of D!SSENT magazine. This column was first published in the Age on 15 July 2002.


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