How Packer bought the County Court
Melbourne Age April 13 2006
By Kenneth Davidson
It used to be that government got a reputation for being financially responsible for being economical with taxpayers' money. Now its reputation for prudence depends on its being willing to redirect taxpayers' money in the direction that will maximise the profits of haute finance.
How else to explain the latest move by the Bracks-Brumby Government to block attempts by an increasingly concerned rank-and-file ALP membership to seriously deal with infrastructure financing to maximise the public interest - rather than the private interests that have the ear of government?
Last week, the chairman of the state economic policy committee told a meeting of the committee that he had been told by Premier Steve Bracks and Treasurer John Brumby to eliminate the clause in its report to the next state conference supporting issuing government bonds to finance the building of capital infrastructure.
The committee was so upset that it immediately passed a motion unanimously to maintain the clause. It expressed the view that Bracks and Brumby be asked to discuss with the committee their reasons for wanting it expunged.
Members will probably be fed flannel. Apologists for public-private partnerships, such as Mark Birrell (this page, 10/4), always fail to point out that most of the real benefits of private sector efficiencies occur at the construction stage and can be captured through competitive tendering without losing the overwhelming government advantage of being able to borrow at a lower cost than private investors.
Birrell's one testable claim that "any fair analysis" of initiatives as diverse as the CityLink project and the County Court PPP shows they were less expensive than traditional public works is false.
The revenue from CityLink is sufficient to cover the interest on borrowings to cover both the CityLink and Scoresby freeway. The tolls on CityLink are more than twice what would have been needed to cover the cost of building the project financed by government bonds.
The County Court cost $130 million to build. Down the street is the Federal Court that cost $108 million. The financing cost of the County Court is 8 per cent, compared with the government bond rate of 5.5 per cent for the Federal Court.
Over the 20-year life of the County Court PPP, Victorian taxpayers will have paid out $520 million dollars - an average of $26 million a year.
Over the same period, the interest on the bonds necessary to finance the Federal Court will have cost Commonwealth taxpayers $300 million - an average of $15 million a year.
And at the end of the period, what have we got? In the case of Victorian taxpayers, nothing. The building is owned by the Challenger Financial Services Group, which is owned by Australia's richest family, now headed by James Packer, who also has a controlling interest in Crown Casino and Channel Nine.
In 2022, the state government will have either to renegotiate the lease or find a new building for the County Court.
But that's not all. If a future state government wanted to extend the hours of operation of the courts to reduce a backlog of cases, the Government would have to renegotiate its agreement with its landlord.
Nobody is above the law and before the courts everybody is equal, except for Victoria's County Court, where the landlord is above everybody.
There are two extra floors on the County Court building whose capital and maintenance costs are paid for by Victorian taxpayers. Under the PPP, they are available to be used by the landlord although they cannot be used for a brothel or a casino. But as a studio for a new production of Who Wants to be a Millionaire, perhaps?
The County Court is now valued on the books of Challenger at $230 million - a capital gain of $100 million or about $30 million a year over three years. Given a conservative assumption that the County Court building will appreciate a further $100 million between now and 2022, the loss to the people of Victoria because of the Government's preference for a PPP arrangement compared with conventional debt financing will be about $400 million.
The justification for these assaults on consolidated revenue is the incredibly complex, but ultimately phoney, argument that the extra cost transfers risk from the taxpayer to the private partners. Bollocks. If the County Court is flattened by an earthquake, the Government is still responsible for justice.
The devil is in the detail in PPPs. For instance, the Government will have paid out $1.8 billion for Southern Cross (nee Spencer Street) Station by the time it reverts to public ownership in 20 years for a structure costing $300 million to build.
This is an average payment of $60 million a year. Conventionally financed, the station could have been financed at an average cost of $20 million a year, including an extremely generous allowance of $5 million a year for running and maintenance costs, and leave $40 million a year to invest in the network and rolling stock, which would be of real, as distinct from cosmetic, benefit to Victorian commuters.
But that would be a no-no. Any government that denies haute finance is due for the chop while the debate about public finance is conducted in a juvenile manner - surpluses good, deficits bad - even when borrowings are put to productive and economical use.
Kenneth Davidson is a senior columnist. kdlv at ozemail.com.au