THE DISTILLERY: Mute anguish

Mark McInnes and DJs must be jumping for joy. They've been shoved off the commentary agenda in what must have been a mad Sunday dash over the Telstra announcement. And in that dash there is one clear winner: Tony Boyd (Chanticleer) at the Australian Financial Review who scoops the pool with greater detail than others. 

Boyd sees the deal as good for shareholders for five reasons: "The first and most obvious is that the deal is worth about 90c a share. That is, the net present value of the $11 billion and part of that should be reflected in the share price immediately. Secondly, the deal removes the uncertainty that has plagued the stock since April 2009 ... A third reason shareholders have to thank Rudd is that the NBN Co deal will lead to an important and enduring shift in Telstra's cash flows ... NBN co is effectively monetising an asset that was in decline and unlikely to grow in value ... A fourth reason why the NBN co deal is a plus for Telstra shareholders (and not so good for consumers) is that there is unlikely to be a price war in the broadband market ... Another reason why the deal is good for Telstra shareholders is that they will finally be freed of the bulk of the financial obligations imposed on the company through the universal service obligation (USO). Changes to this policy are complex but the net present value of that aspect of the deal is $2 billion.” Boyd concludes that "...the NBN Co deal announced yesterday had all the hallmarks of an event driven by political necessity.”

Other commentators focus on the $2 billion for the USO. Alan Kohler of Business Spectator outlines that "... the government has agreed to pay up to $100 million a year for retraining and an extra $50 million or so for the USO. The net present value of that over 25 years is $2 billion. But is it justified? Well, mostly. Telstra has been getting underpaid for the USO and whether $100 million is reasonable for teaching a few thousand staff to deal with fibre instead of copper – who knows? But it got the deal done, and it avoided a fight with Telstra like the one with the global mining industry. In the circumstances there was no choice – Australia's superannuants would march on Parliament House with lit torches if Mr Rudd robbed both Telstra and BHP.” 

John Durie of The Australian is less forgiving: "The extra $2bn is a straight-out bribe. Combined with the threat of being blocked from bidding for next-generation wireless, it convinced the Telstra boss to agree to the deal.”

Adele Ferguson of The Age looks at the one large remaining threat to the deal: "The controversial Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill has been in the senate since November because the opposition and the Family First leader, Steve Fielding, refused to support it. Now Telstra needs that legislation to be passed to put a safety net around the deal.”

This column has one thought only to add. What does the deal do to NAB's persistence with AXA? Despite what seems to be a sensible balancing of interests in the Telstra deal, it also suggests that if the NAB can find a buyer for its platform that gets it past the ACCC, then the Treasurer might make a quick choice in favour of the bank, as the government seeks to clear the decks in its fight against the mining campaign. 

And right on cue, the resource super profits tax (RSPT) debate throws up an excellent discussion of policy process and the role of vested interests. Head of the Business Council of Australia, Graham Bradley, declares in an Australian Financial Review op-ed that "... by any measure, the process associated with the development of the RSPT has fallen well short on the grounds of openness and transparency. The new tax was announced to take effect from July 1 2012 without proper consultation, with serious concerns about its workability and with legislation yet to be drafted. This is creating confusion and uncertainty, and destabilising the market.”

David Uren of The Australian is of like mind and reckons that "... the government should have released the Henry review in January, shortly after it received it, as a green paper, and allowed a 12-month period of consultation, before publishing a white paper bringing together its response.” This column will note that Uren's arguments are couched within a broader attack on the government for failing to implement the wider Henry Review recommendations that "... were flatly ruled out by the government, while no process has been established to advance government policy in any other area. In the wake of the mining tax debacle, it all looks too hard.” Given the life-threatening denouement the government finds itself in, its judgement on not going immediately deeper and wider in the rough-and-tumble of tax reform looks pretty good. Imagine, for instance, if the government had taken on capital gains reform as Uren suggests – the revolution would have dwarfed the mining campaign. Nonetheless, on the point of insufficient consultation, this column agrees, but will also note the process recommended by Uren is the same one that the Rudd government followed on its CPRS, the negotiations over which resulted in the disgraceful watering down of the legislation. The government appears to have then overreacted the other way in the RSPT process. This leads to the conclusion that it is not necessarily process that is the problem here so much as it is the government's inability to handle it. 

But the government is not the only one to blame, according Paul Kerin, Professorial fellow at Melbourne Business School, in an opinion piece in The Age, who reckons the process was reasonable: "When Gough Whitlam established the Productivity Commission's forerunner, he mandated that reviews be open to 'public consultation and scrutiny' and be 'independent and impartial, and seen to be'. The commission must take an economy-wide perspective and base recommendations solely on the national interest. Although ministers make the ultimate decisions, it's harder to pander to vested interests when an independent, transparent assessment of the national interest is available. The Henry tax review largely followed this model. The review panel was reasonably (though not entirely) independent and conducted substantial public consultation. Anyone (including miners) could make submissions. Henry's August consultation paper requested feedback on possible resource rent taxation. The review received more than 1500 submissions (including one by the Minerals Council of Australia), met more than 130 stakeholders (including the MCA), gave more than 30 speeches (including one last September to the MCA, which clearly flagged the prospect of a resource tax) and held numerous public consultation meetings. This process gave vested interests ample opportunity to put their case. Some chose not to participate. Rather than presenting a full public case, the MCA's brief submission emphasised that 'consultation with industry' was 'critical' prior to any change – code for: we want to meet behind closed doors. Most large miners now criticising the government for not consulting them failed to make public submissions. Vested interests that behave like this, then feign 'surprise' when a policy is announced and demand further special treatment don't deserve it.”

Whilst this column also agrees with Kerin's point, one must point out that having successfully watered down the CPRS, the miners perhaps can't be blamed for believing they could be successful behind closed doors again. Moreover, a quick comparison with the process that predated the Petroleum Resource Rent Tax of the eighties is instructive in terms of such policy implementation. It was first announced as opposition policy and an eighteen month debate informed the public of the issues before it was released as a White Paper. An informed public was therefore better placed to resist vested interests. In contrast, the radical form of the RSPT seems to have surprised everyone.