Illustration: Michael Mucci
I have no sympathy for those who take an ideological approach to the privatisation of government-owned businesses, whether they support all selloffs because governments are always inefficient or oppose all selloffs because the private sector can never be trusted.
No, each proposal should be judged on its merits - with a lot of boxes to be ticked before privatisation is justified.
Even so, it seems likely we'll see a fair bit of privatisation in coming days - particularly at the state level - as part of Joe Hockey's efforts to get his budget back in the black while avoiding having a contractionary effect on economic activity and, indeed, while ensuring the economy accelerates to the point where we get unemployment down again.
What squares this circle is staggered savings in the recurrent budget combined with increased spending on public infrastructure. Though it's getting late, a surge in infrastructure investment would also be a good counter to a possible collapse in mining investment over coming years.
While only Hockey's former scaremongering about supposedly soaring federal debt stands in the way of the feds stepping up their own infrastructure spending, they prefer it to be done by the states.
Trouble is, those state governments that haven't already lost their triple-A credit ratings are on the edge of doing so should their debt grow. In an ideal world, the (discredited) ratings agencies could be ignored and told to do their worst. But in our imperfect world it's probably not such a bad thing that politicians worry so much about their ratings.
So how can the states do a lot more infrastructure investment without increasing their debt levels? By privatising existing businesses and reinvesting the proceeds in new infrastructure. This is what Hockey hopes to encourage.
One disincentive the states face is that, as well as paying them dividends, the businesses the states own in effect pay company tax to their state owners, whereas privatised businesses pay company tax to the feds.
Although he's yet to spell out the details, Hockey has signalled his willingness to overcome this disincentive by passing that tax revenue back to the states.
On the face of it, the prospect of more state privatisations suffered a setback last week when the ACCC effectively vetoed the NSW government's plan to sell Macquarie Generation, the state's largest power producer, to AGL, one of the state's three largest power retailers. The commission judged that the deal would have resulted in a substantial lessening of competition in the electricity market.
This brings us to the first test of whether a proposed privatisation is in the public interest: it ought to involve an increase in competition within the relevant market and certainly shouldn't lessen competition. Governments should resist the temptation to enhance the sale price of a business by adding to its pricing power, or sell off a natural monopoly without adequate regulation of its prices.
So it's a good thing the commission put its foot down. But, equally, it's a good thing NSW Treasurer Mike Baird expressed his intention to press on with plans to build up his privatisation recycling fund, and do so without selling any asset for less than its ''retention value'' to state taxpayers.
This raises the second test to be passed. The stream of dividends governments receive from the businesses they own (and are about to forgo) could easily exceed the saving in interest payments to be made from using the sale proceeds to repay government debt, unless the sale price is sufficiently high.
This is the main factor determining the business's retention value. To sell assets for less than that value is to put ideology ahead of the public interest.
Polling shows privatisation is greatly disapproved of by voters. But this is the punters wanting to have their cake and eat it. They demand better infrastructure, but don't want to pay higher taxes for the privilege, nor give up government services, nor see government deficits and debt build up.
Well, they can't have it both ways. And an obvious compromise is for governments to sell businesses for which there's no good reason for continued public ownership and use the proceeds to get on with meeting new needs.
It's notable that polling suggests such recycling deals attract significantly less voter disapproval. Note to diehard rationalists: hypothecation is the key to escaping the budget impasse.
But there's one last test to be passed to make such deals good economics: the new infrastructure's social benefits have to exceed its social costs. And public transport projects are more likely to do that than yet more motorways.