Costello makes Telstra more difficult to sell

What appears to have happened is that Treasury officials have been ear-bashed by financial markets players who don’t want the inconvenience of finding a living some other way, and have acquiesced, possibly because some of these same Treasury officials also make their living from the bond markets. And the Treasurer has gone along with this.

What has happened to the dollar sweets Costello? This is a treasurer and a government that is driven by the economically rationalist theories that small government is good, and that individuals know how to invest their money best. The money that will come from the sale of Telstra is our money. Shouldn’t it be given back to us as tax cuts? Allowing for the loss of dividends from Telstra this could be as much as a billion dollars a year.

Alternatively, but still within the same theme, the savings could be redirected into schemes to get the unemployed back into the workforce leading to more taxpayers, fewer welfare payments and eventually to lower taxes.

From a more sophisticated view, there actually are some good reasons for keeping a CGS market running because there are a lot of advantages to debt. Borrowings can be used to fund schools, hospitals, roads, dams and other infrastructure, which increases standards of living over the long term. If the Commonwealth pays back all of its debt, it will lower the potential rate of growth of the country. By world standards our debt is low. There is no need to pay it back.

One option for the Treasurer would have been (and still is) to have an inquiry into what our debt levels should be and to look at investing the proceeds of Telstra into infrastructure in line with those debt levels. Costello would parlay away the good house-keeping arguments (but then he already has) to replace them with arguments perhaps even more compelling. Imagine the pressure that you could put on the Greens, Dems and the Nats over the Telstra issue if, instead of paying the debt back to zero, you promised to put the money into economically sound projects which would visibly make the lot of ordinary Australians better?

In fact, given the linkage between infrastructure and economic growth, it might be a good idea for the Commonwealth to explicitly link borrowings and assets and undertake to only borrow for capital expenditure. There are such things as natural monopolies and public goods, which the government ought to be in the business of supplying, and debt is a legitimate way of paying for a proportion of them.

If Peter Costello wants to become Prime Minister, he needs to pay attention to his portfolio. As this latest tricky and out-of-touch episode indicates, he is very much in thrall to his Mandarins. One of the reasons that John Howard is looking so relaxed is that, while he has an heir apparent, Costello has been unable to give any but a small coterie a compelling argument to push for change in leadership. As a result, there is no mood among the parliamentary party for Howard to move on. Perhaps just as well for the whole party.