Telstra privatisation: a giant give-away
By Allen Myers
The Howard government's plan to privatise the publicly owned two-thirds of Telstra was presented by the prime minister as intended to make Australia "the greatest share-owning democracy in the world". The phrase is deliberate obfuscation: there is nothing at all democratic about share ownership, which is based on wealth, not on equal rights.
Moreover, like the sale of one-third of Telstra in November, any further privatisation will be designed to benefit a handful of the population at the expense of the overwhelming majority.
Some 1.8 million Australians were reported to have bought shares in the Telstra float — that is, about 10% of the population. These are the "mums and dads" that feature in Howard's privatisation propaganda, but they are not at all a typical cross-section of the Australian population, as we will see.
Buying Telstra shares was certainly a profitable investment. Within a day of two, the market value of the shares, which the government had sold for $14.3 billion, was more than $17 billion. Today, the market value of those shares is around $22.5 billion.
Thus the short-term result of the first Telstra float has been to transfer some $8 billion from the government to private investors. The government's loss will of course have to be made up in some form by the rest of us, through some combination of higher taxation and reduced government services.
The government is projecting that "most" of the estimated $45 billion to be obtained from full privatisation of Telstra will be used to retire debt, thus saving the government some $4 billion a year in interest payments.
But Professor John Quiggin of James Cook University pointed out in the March 19 Financial Review, "... senior government sources do not appear to be very good at arithmetic. At current long-term bond rates of about 6 per cent, a sale price of $40 billion-$45 billion will yield interest savings of about $2.5 billion, not $4 billion."
Looking at the proceeds of the November float, $1 billion was set aside for "environmental" purposes, though in fact it turned out to be a slush fund for use in government-held electorates. But even if the entire $14.3 billion had been used to retire debt, the interest saving (at 6%) for the government would have been $858 million a year, or $429 million for half a year.
This figure should be compared to income which the government has lost as a result of the part privatisation. Telstra reported profits of $1.549 billion dollars (after tax) for the six months to December. (Only about 60% of this is distributed as dividends, the remainder being reinvested, but all of it increases the wealth of the stockholders in one form or the other.)
Before November, the government was the only Telstra stockholder, but now one-third of that $1.549 billion, or $516 million, belongs to private share owners. Thus, for a six-month period, the sale has cost the government $87 million more than it would have saved if all the sale proceeds had gone to retire debt.
And, to add injury to injury, the government also paid brokerage fees of around $175 million associated with the sale.
All up, then, the part privatisation of Telstra was a giant give-away. This should not surprise us. As Professor Quiggin pointed out, "... there has not been one major privatisation in Australia where the Government has made a profit, relative to the alternative of retaining ownership".
Who were the recipients of this gift of public wealth? Not nearly so many "mums and dads" as the government would have us believe.
The November float consisted of 4.3 billion shares. According to a report in the Age at the time, 19% — more than 800 million shares — were bought by foreign institutional investors. The figure for Australian institutional investors could hardly have been less. So institutional investors — big capital — must have taken a sizeable chunk.
Looked at from the other side, individual investors were guaranteed a minimum of 600 shares but not allowed more than 2000. To buy the intermediate figure of 1300 shares, private individuals would have needed to have more than $2500 available immediately (that is, not including the final payment, due next November).
If the average private share purchase was around 1300 shares, the 1.8 million "mums and dads" would have bought about half the 4.3 billion shares sold.
While Howard is counting on these 1.8 million people to think like capitalists and support privatisations, they will not have become wealthy. Even with the maximum of 2000 shares, an individual shareholder would receive a total of only $140 from the latest Telstra six-monthly dividend — $5.38 a week.
Such a private shareholder could sell those 2000 shares for a profit of around $3800, less broker's fees. But they would then cease to be part of Howard's "share-owning democracy". While Howard wants us all to think like capitalists, he couldn't make us into capitalists even if he really wanted to.