Good mail on privatisation

Bookmark and Share Economics & Deregulation and Deregulation Unit | Mikayla Novak
On Line Opinion 26th October, 2012

The Gillard government has urged states to sell their electricity assets, but at the same time has left privatisation of its own assets off the reform table.

While the general public impression may be that all the federal government's 'family silver' has been sold off, the privatisation lull since the early 2000s has meant some entities which would be more efficiently operated in private hands remain firmly under government control.

One of the remaining candidates for privatisation is Australia Post.

In similar fashion to government postal services in other countries, Australia Post is being squeezed in regard to both the revenue and cost aspects of its operations.

Technological developments such as the internet and mobile phones have meant that the use of letters as a mode of communication has waned significantly, eating away at a traditional source of revenue for Australia Post.

The latest figures show that Australia Post has lost about $91 million through the exclusive 'reserve service' requirement imposed by the government to deliver letters within Australia and from overseas to Australian addresses.

The organisation is also labour intensive, which is not altogether surprising given another regulatory requirement by government that it physically provides weekday deliveries to most Australians, and maintains 4,000 odd postal outlets including a mandatory share in rural and regional areas.

But with its highly unionised workforce prone to strike action opportunities to use labour-saving technologies, such as vending machines for standard letters or Express Post envelopes, have not been fully exploited.

Australia Post appears to be holding its own in the competitive market for parcel deliveries, thanks to a boom in online retailing not of its own making, however its responses to the fall in letters have starkly illustrated that it remains an inefficient, unresponsive government entity.

Very soon Australia Post will party like it's 1996 because it will launch, wait for it, a 'Digital Mailbox' service in which people receive email, pay bills and store documents in one online location.

Even those with a cursory knowledge of the internet know that Hotmail (which was launched in 1996), banks, telephone companies and other private concerns already provide such services, raising questions about the inherent wisdom of a government-owned entity duplicating that which already exists.

There has also been speculation in recent years that Australia Post wish to move more deeply into the financial services arena, a field in which governments in the past have had poor management records.

Australia is grouped together with a small cohort of countries that have engaged in partial liberalisation of postal services during the 1980s and 1990s.

In 1989 the Hawke government enacted the Australian Postal Corporation Act, which 'corporatised' Australia Post entailing that the organisation would be subject to general taxation and regulatory requirements similar to those facing private sector businesses.

The objective of corporation was to improve Australia Post's efficiency by enforcing it to act 'as if' it were a private entity whilst remaining under government ownership, with the Communications Minister being Australia Post's sole 'shareholder.'

The Act, and subsequent legislative developments, reduced the degree of exclusive monopoly rights held by Australia Post in the distribution of heavy-weight letters and parcels helping to enhance the growth of private courier services.

These measures were steps in the right direction, however other countries have proceeded further down the road of postal services liberalisation.

In countries such as Germany, Malaysia and the Netherlands the government post offices have been either partially or completely privatised, mainly through the public offerings of shares.

The monopolistic rights accorded to government post operators to carry letters have also been abolished entirely in several countries, including Germany, New Zealand and Sweden.

Australia should follow the path of the postal reform pathbreakers to improve the efficiency of the presently government - owned postal carrier, and deepen postal and courier services markets.

At the very least Australia Post should be fully privatised, and could be expected to perform effectively as a private operator given that it has existed for almost a quarter - century on the 'training wheels' of corporatisation.

What of the community service obligations applicable to the carriage of letters and physical services accessibility?

One option could be that the government sell off the rights to a bidding company to deliver the CSO arrangements for a fixed term on a least cost basis.

However in a country characterised by ever - increasing access to internet services, such as email and online bill paying facilities, and greater private sector competition there is a case to further liberalise the regulatory requirements entailed under the CSO.

About a decade ago the Howard government proposed that private companies could charge market rates for the delivery of letters weighing between 50 and 250 grams, a reform not implemented due to political considerations.

The government's 'no privatisation' stance is lamentable, as it deprives consumers of the potential benefits provided by the realisation of private sector efficiencies.

And in the short term to not privatise government assets also deprives the government of financing options to plug its yawning budget deficit gap.

But with the radical innovations witnessed in communications markets over the last two decades, no sound rationale remains for the government provision of increasingly antiquated letter and small parcel postal services.

There is still some lucrative low hanging fruit of prospective privatisation ripe to pick; it is time for the government to pick it.