From the beginning of July we were hit by a spate of price increases -- from tolls to utilities (e.g. gas and electricity). Many reasons are cited for the current round of price hikes, especially of gas and electricity. But no one has pointed to privatisation.
Since Ronald Reagan and Margaret Thatcher sold their belief that big government is the cause of so many of our problems, and promoted the virtue of a free market, privatisation became the main game in town. However, driven by the profit motive, private investors were not interested in the loss-making public enterprises.
So, governments of all shades around the world sold profitable enterprises in the name of fixing their budgetary woes. We were told that new private owners would make necessary investment to renew and expand aging public enterprises, to take the pressure off the government budget.
Corporations are not only enjoying lower tax rates, but also using various loopholes to evade tax. It is well known that big multinational corporations (MNCs) are using tax havens to avoid tax.
For the consumers, there would be double bonuses. First, lower tax burden, as the governments do not have to shoulder the responsibility of providing needed goods and services. Second, lower prices, due to competition among new private providers and improvements in productivity from new investment.
But these were the greatest deceptions by the big business lobby in connivance with mainstream economists. In many countries, the privatisation move coincided with reductions in corporate tax rates, and the introduction of broad-based consumption or value-added tax, also known as goods and services tax (GST), not matched by personal income tax cuts, especially at the lower end. Thus, the tax burden of ordinary consumers has risen, not decreased.
On the other hand, corporations are not only enjoying lower tax rates, but also using various loopholes to evade tax. It is well known that big multinational corporations (MNCs) are using tax havens to avoid tax.
The biggest MNCs operating in Australia were paying half the 30 percent corporate tax rate, on average 16.2 percent -- or less than the income tax rate paid by a working nurse. MNCs including Google, Yahoo, Microsoft and Samsung reduced their tax bills by a combined $5.4 billion in 2013 and 2014.
The Sydney Airport Corporation paid no tax in 10 years (2003-2013) since its privatisation, during which time it earned almost $8 billion in revenues. But using accounting tricks it gained tax benefits of almost $400 million! The last time Sydney Airport paid tax was before its sale to Macquarie Bank in 2002 for $5.6 billion.
Therefore, one should not be surprised that the budgetary woes of the governments around the world continue to deepen even when tax burden of consumers keeps rising, and government's provision of essential services are declining. By selling the family silver, they killed the goose that laid golden eggs.
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The Sydney Airport Corporation did not make any substantial investment to expand the airport, except building new car parks and spending in renovations of shops. It made $97.8 million in profit from car parking fees in just one financial year (2015-16). Rod Sims, chairman of the ACCC, said Sydney Airport's monopoly gave them little incentive to reduce prices and left travellers with few options but to pay the fees.
According to Rod Sims, selling public assets has created unregulated monopolies that hurt productivity and damage the economy. A strong supporter of privatisation for 30 years, Rod Sims "is on the verge of becoming a privatisation opponent".
In the 10 years to June 2013, electricity and gas prices for households increased on average by 72 percent for electricity and 54 percent for gas, respectively, in real terms -- that is, after adjusting for general increase in prices of all goods and services. According to a Parliamentary document, "much of the increase in prices has been attributed to ... previous underinvestment in maintaining the network or to increase capacity".
But Mr. Kevin Gallagher, the head of global energy giant Santos, attributed the recent energy situation to government interventions, especially to do with the community's concerns about environmental impacts of gas explorations and fracking.
Unfortunately Mr. Martin Ferguson, the former ACTU president and Labor Resources Minister, agrees. He criticised the Victorian Labor Government, which in March banned fracking until 2020, and said: "If the Victorian government had not put the moratorium in place then we would not have the problems that we currently have on the east coast of Australia because we would have more than sufficient gas both for the purposes of exports and energy security."
Both are worried that government's retrospective intervention in the gas sector could pose a massive sovereign risk for Australia. But they do not see the threat posed to a country's economic sovereignty by giant MNCs, which evade tax through transfer mispricing and creative accounting, yet ask for more tax concessions.
They do not see the contribution of LNG exports worth $16 billion in 2015/16 to domestic gas shortages. They also do not tell how much tax was paid and how much was re-invested in Australia out of these export proceeds.
By privatising, governments have created their own Frankenstein's monster -- the big business interest group. They stoke fears of country's credit ratings, or rising sovereign risk, or losing international competitiveness to confuse community's environmental and social concerns; to distract from their mistreatment of workers, to obstruct government's attempt to tackle their tax dodging, and to create obstacles to government's interventions in national interest.
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