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Does Privatisation Pay?

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  • John Quiggin

Abstract

Privatisation has become a popular policy since 1980, particularly for governments facing difficulty in raising revenue. However, there has been no consistent attempt to estimate the impact of privatisation on the net fiscal position of the public sector, or even to consider how such an estimate might be made. The object of this article is to consider the implications of privatisation from a fiscal perspective. Privatisation automatically reduces budget deficits in the short and medium term. However, this apparent benefit reflects the generally defective nature of the budget deficit as a measure of public saving. In this article, case studies of a number of actual and proposed privatisations are presented. In each case it is shown that the savings in public debt interest associated with privatisation are insufficient to offset the loss to the public sector of the earnings of the enterprise concerned. In many cases, the sale price is around 50 per cent of the present value of the stream of earnings foregone. This suggests that the loss in public sector net worth is as large as, or larger than, the sale price.

Suggested Citation

  • John Quiggin, 1995. "Does Privatisation Pay?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 28(2), pages 23-42, April.
    • Handle: RePEc:bla:ausecr:v:28:y:1995:i:2:p:23-42
    DOI: 10.1111/j.1467-8462.1995.tb00886.x
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    Cited by:

    1. Neville Hathaway, 1997. "Privatisation and the Government Cost of Capital," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 4(2), pages 155-164.
    2. Julie Smith & Lindy Ingham, 2005. "Mothers' Milk And Measures Of Economic Output," Feminist Economics, Taylor & Francis Journals, vol. 11(1), pages 41-62.
    3. Amani Elnasri, 2014. "Efficiency of Infrastructure Provision: Australia, States and Territories," Discussion Papers 2014-25, School of Economics, The University of New South Wales.
    4. Michael O'Donnell & Miriam Glennie & Peter O'Keefe & Seung-Ho Kwon, 2011. "Privatisation and ‘Light-Handed’ Regulation: Sydney Airport," The Economic and Labour Relations Review, , vol. 22(1), pages 65-80, May.
    5. John Quiggin, 2009. "Six Refuted Doctrines," Economic Papers, The Economic Society of Australia, vol. 28(3), pages 239-248, September.
    6. John Quiggin, 2004. "Looking Back on Microeconomic Reform: A Sceptical Viewpoint," The Economic and Labour Relations Review, , vol. 15(1), pages 1-25, June.
    7. John Quiggin, 2010. "Bad Politics Makes Bad Policy: The Case of Queensland’s Asset Sales Programme," Economic Papers, The Economic Society of Australia, vol. 29(1), pages 13-22, March.
    8. Grant, S. & Quiggin, J., 2001. "Noise Trader Risk and the Political Economy of Privatization," Other publications TiSEM d078de12-794d-4bb4-b230-5, Tilburg University, School of Economics and Management.
    9. John Quiggin, 2002. "The Fiscal Impact of the Privatisation of the Victorian Electricity Industry," The Economic and Labour Relations Review, , vol. 13(2), pages 326-339, December.
    10. John Quiggin, 2001. "Market-Oriented Reform in the Australian Electricity Industry," The Economic and Labour Relations Review, , vol. 12(1), pages 126-150, June.
    11. Scott French, 2014. "Innovation, Product-Cycle Trade, and the Cross-Country Distribution of Income," Discussion Papers 2014-26, School of Economics, The University of New South Wales.
    12. Stephen P. King, 1997. "National Competition Policy," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 270-284, September.
    13. M. Harris & J. N. Lye, 2001. "The Fiscal Consequences of Privatisation: Australian evidence on privatisation by public share float," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 305-321.

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