Coalition plans $10bn asset clearance

Australians will be asked to accept more than $10 billion in asset sales to pay for new road and rail projects as the Abbott government seeks to challenge community fears over unpopular budget measures.

The federal government will promise a “growth agenda” with heavy spending on infrastructure in next week’s budget, if it can secure the sale of iconic assets, with Snowy Hydro one of the options.

Acting on some of the most contentious proposals from the National Commission of Audit, the government will take the first steps towards selling more federal assets while encouraging the states to privatise as well.

Priority targets for sale include the Australian Rail Track Corporation and Defence Housing Australia, on top of the decision last month to sell health ­insurer Medibank Private in a public share offer.

Australia Post is not seen as an immediate sale option, while the federal government could only sell Snowy Hydro with support from the NSW and Victorian governments, reviving a political row that vetoed the idea in 2006.

The Australian understands the budget will include a plan to use sale proceeds for major infrastructure projects, assuaging community concerns that the cash would be wasted on everyday expenses. A new fund could be used to help finance new ­projects as part of Joe Hockey’s policy to offer a 15 per cent incentive payment to states that sell old public assets to raise the cash to build new ones.

With all governments starved of funds to pay for new construction without deepening their debts, the privatisation policy is emerging as a central element in the Treasurer’s plans to pay for major investments that encourage economic growth.

Selling Snowy Hydro, the oper­ator of the hydro-electric scheme in southeast Australia, could raise $6bn for its three government owners, with NSW holding a majority stake of 58 per cent, Victoria owning 29 per cent and the commonwealth another 13 per cent. The NSW Auditor-General valued the state’s holding at $3.3bn in November, but NSW Premier Mike Baird is standing by the government’s long-stated position that there is no present intention to privatise the energy company.

Victorian Treasurer Michael O’Brien did not rule out a Snowy Hydro privatisation in comments reported over the weekend, saying there were “opportunities” around the business that were worth discussing.

Liberals and Nationals rebelled at a proposal in 2006 to sell the business, out of concern that a private company would have an incentive to release water to maximise its profits from electricity rather than taking the needs of the Snowy River, irrigators and farmers into account.

Defence Housing Australia, which manages properties across the country to house military staff, is estimated to be worth about $1bn, based on its net profit last year of $85 million. Any sale, however, would sacrifice annual dividends to Canberra worth about $50m. Government sources have named the Australian Rail Track Corporation as a leading candidate for sale following the recommendations of the audit commission last week.

Business group Infrastructure Partnerships Australia has estimated the rail track company to be worth more than $4bn given its management of 8500km of rail lines including a central position in the NSW Hunter Valley coal supply network.

Sharpening debate on the likely assets to sell, the Commission of Audit last week called for the “short-term” sale of Australian Hearing Services, Snowy Hydro, Defence Housing Australia and ASC, previously the Australian Submarine Corporation.

The commission identified “medium-term” sales including Australia Post, the Moorebank Intermodal Company transport hub in southwest Sydney, the Australian Rail Track Corporation, the Royal Australian Mint and the Comcar service that provides chauffeured cars for politicians and senior public servants.

Acting on some of those proposals, the federal government will make the case for asset sales in next week’s budget but will not include specific numbers for each potential sale.

The budget will advocate that future proceeds be put into projects to add to economic growth, matching the policy set out in Friday’s agreement between Tony Abbott and state premiers.

Friday’s meeting included the signing of an Asset Recycling Agreement in which states were offered payments from Canberra if they sold public assets and put the proceeds towards new infrastructure. The commonwealth will pay each state 15 per cent of the value of all sale proceeds set aside for infrastructure. While the government is yet to reveal the source of funding for its contributions, The Australian understands that the cash is expected to come from federal asset sales.

The approach is expected to begin with the sale of Medibank Private, which is scheduled to go ahead in the coming financial year as a public share offer managed by Deutsche Bank, Goldman Sachs and Macquarie Capital. While the share offer might raise $4bn according to estimates, the government has not put a figure on potential proceeds.

Those familiar the with government’s agenda cautioned against expectations that Australia Post would be privatised.

While the business is said to be worth several billion dollars, it relies on a highly profitable parcels business to subsidise a standard mail business that loses money.

Private owners would be eager to buy the parcels operation but might expect subsidies from Canberra to continue the traditional letters business.

The commonwealth stands to gain dividends from Australia Post, such as a $244 million payment last year.