Michael Costa, NSW Government, ABC Learning, ASX-SFE merger
July 22, 2008
Here are Stephen Mayne's four stories from the Crikey edition on Wednesday, 7 June, 2006.
1. Michael Costa blows a gasket
By Stephen Mayne
Newly installed and already embattled NSW Treasurer Michael Costa put on an extraordinarily belligerent performance with Virginia Trioli on ABC 702 Sydney this morning, reflecting the pressures of a man who has just delivered the most irresponsible and worst received state budget in more than a decade.
Clearly stung by a chorus of disapproval from the commentariat, Costa nit-picked at every second adjective that Trioli used in what might go down as the most difficult political interview she has done since the infamous Peter Reith barn-stormed into her Melbourne studio during the 2001 federal election campaign brandishing pictures that "proved" children were thrown overboard.
Costa's accounting and political rhetoric is sounding remarkably similar to the Cain-Kirner years, but he was telling blatant porkies when he claimed NSW has a net wealth of $200 billion, when his own hard to believe budget papers claim it is less than $130 billion.
I listened in to the Costa interview from Brisbane airport and was then interviewed straight after and made the point that all this upward valuations of assets was like Ansett coming out shortly before its collapse claiming that, suddenly, its planes were worth billions more than first thought. It's an accounting ruse that even seems to have sucked in the ratings agencies.
You can't get away from the fact that NSW is on a debt hand-cart to hell, with annual new borrowings of more than $4 billion expected into the future, even though most credible commentators reckon the projected cost-savings from 2007-08 onwards will be impossible for a union-run Labor government to achieve.
And this cuts to the heart of the matter. Costa, a former secretary of the NSW Labor Council, was gloating to Trioli that he is proud NSW teachers, nurses and police receive the highest salaries in Australia. He's still talking like a union leader, not someone charged with overseeing responsible economic management and balancing the books.
As president of the local kinder I would love to double the pay of our staff, but to do this parent fees would also have to be doubled. NSW has nowhere to go on tax because it is already our gold medal taxing state levying its citizens 10% more than the national average and about 30% more than Queensland. Even worse, it is going further into debt at an unprecedented rate, just to do the equivalent of maintaining our kinder and putting in an extension.
Let's not mince words here. NSW will have to shed tens of thousands of public sector workers – not quite the 100,000 that Jeff Kennett got rid off – to stabilise its budget, but the public sector unions simply won't allow its parliamentary brothers to do that.
Therefore, NSW will remain on its path to debt hell until someone takes control and undertakes the privatisation and downsizing necessary to make the state competitive and sustainable again. That's the choice facing voters next March.
Finally, check out the latest delusional letter from former NSW Treasurer Michael Egan in today's AFR. It's a classic of the genre. And let's hope Trioli, who lifted her ratings to 7% in the latest survey and is now within striking distance of a faltering John Laws on 7.7%, makes this morning's Costa interview available as a podcast that we can link to tomorrow.
2. The NSW borrowing binge
By Stephen Mayne
These are unprecedented days in NSW. As this press release from the central borrowing authority T-Corp points out: "Based on projections from TCorp's clients (the debt-laden government), it is anticipated that loan outstandings will increase by $6.5bn in 2006/07."
How's that for an election pitch – after 12 years of uninterrupted growth our government is spending this election year borrowing $18 million a day to stay afloat, not that far below the $27 million a day that Paul Keating was borrowing when his government got turfed out seeking a fifth term back in 1996.
Meanwhile, check out the first page of the budget section dealing with the NSW balance sheet. When talking about assets, the government is happy to go with nominal figures claiming that the $41.3 billion infrastructure spending spree will increase gross assets from $173 billion now to a record $199 billion in 2010.
The Cain-Kirner government tried the same trick in their dying days and one of my old bosses, Kennett Finance Minister Ian Smith, forced the public servants who dreamt up these delusionary figures to try and itemise the actual assets. They never got near the claim.
However, when it comes to talking about liabilities, the NSW government quickly falls back to a ratio analysis claiming that net financial liabilities will only increase from 15.9% of GSP to 16.9% by 2010. We know that $17.4 billion in new debt will be taken on over the next four years to fund the infrastructure push, but these are the actual raw liability figures over the past five years:
| Year | 2001-02 | 2002-03 | 2003-04 | 2004-05 | 2005-06 |
| Gross debt | $24.83bn | $25.29bn | $26.36bn | $28.01bn | $30.25bn |
| Unfunded super | $11.72bn | $13.81bn | $13.01bn | $12.49bn | $18.29bn |
| Total liabilities | $36.55bn | $39.1bn | $39.36bn | $40.5bn | $48.54bn |
That is spookily similar to what the Cain-Kirner Government achieved by 1992 when Victoria's gross debt peaked at $32 billion and unfunded super reached $18 billion. How on earth will NSW fare when the total liability figure surges past $60 billion by 2010?
The public finances of our largest state are careening off the rails. Surely it's time for a change of government, although the choice for voters next March looks a bit like Tweedledum and Tweedledumber.
5. Eddie Groves sprints from shareholders and The Chaser
By Stephen Mayne, in a jewellery shop with a net cafe in Brisbane's Queen Street Mall
ABC Learning might be the world's biggest childcare company but it hasn't got a clue how to handle public or investor relations if this morning's extraordinary general meeting of shareholders is any guide.
Chairman Sally-Anne Atkinson, the former Lord Mayor of Brisbane, was positively clueless and couldn't even answer basic questions such as how much debt the company will have once the $600 million placement is finalised?
Even worse, Sally was unwilling to defer to someone who did know something when it came to several key questions. For instance, when asked how much boutique investment bank Austock would pocket from handling the $600 million placement she claimed not to know because it hadn't been finalised yet.
When I complained about having Austock chairman Bill Bessemer on the board and the recent allocation of a 4.2% stake in Austock to ABC Learning founder and largest shareholder Eddie Groves, Sally denied there was any conflict of interest and said Eddie and Bill never participated in any discussion about hiring Austock. This was handled by independent director David Ryan who failed to show up this morning due to fog at Sydney Airport.
Right, so when Austock was paid $16 million for corporate advice and the $400 million equity raising when ABC Learning pulled together its great three way merger in 2004, Big Eddie and his old mate Bill had nothing to do with the negotiations. It was an obvious line, but I told the board it was time to "grow up" and stop tolerating such 1980s-style conflicts of interest.
Dressed in a black skivvy and brown jacket, Eddie came across as someone who hated fronting shareholders and treated them just like he treats the company's 12,000 staff – badly. Asked what proportion of staff own stock to align their interests, Eddie would only say that half are eligible but no-one could come up with an answer about staff equity participation. It sounds pretty low, which might partly explain why their staff regularly sledge the company.
When it came to the various resolution on shares, options and cash bonuses for the three executive directors – Eddie, his wife Le Neve and fellow long-term executive director Martin Kemp – I pointed out that they already owned more than $200 million worth of stock and didn't exactly need any more incentive. Why didn't this incentive scheme extend to the next tier of executives or is the $2.5 billion ABC Learning still being run like a three-person private company? We'll take it on board, was the mumbled response.
All today's resolutions were passed easily, so it marks an important milestone in the company's evolution because institutions now clearly control the operation with about 70% of all shares on issue. Therefore, it's about time ABC Learning behaved like an outfit that is there to serve independent shareholders.
Given that Eddie and Le Neve together dumped $32.8 million worth of shares – 13% of their holding – last December in a classic ASX announcement that was released at 3.55pm on a Friday, I asked Eddie to outline his future intentions.
As with every other issue, Eddie was dead keen to avoid answering and his supine chairman more than obliged when she declared she simply wouldn't allow him to answer. When asked the same question, Martin Kemp was prepared to say that he wanted to keep buying shares and did at every opportunity. So why didn't he participate in the placement at $7.30 a share, which is now underwater with the stock at $7.05? Sally, after consulting with the company secretary, claimed that he couldn't under the Corporations Law. That's funny, I asked the same question at the recent Nexus EGM and the chairman said that all directors had bought $5000 worth of shares in a placement.
After the meeting, Eddie did a rapid-fire runner to the exit where he was confronted by Julian Morrow and a crew from The Chaser. This is a man who seemingly doesn't like publicity or accountability – yet he's ultimately responsible for the welfare of more children around the world than anyone else on the planet.
26. ASX-SFE merger gets Cossie's green light – no conditions
By Stephen Mayne, small SFE Corp shareholder
After a decade of sitting back and doing diddly squat while financial services cartels and monopolies blatantly rip off consumers, it should come as no surprise that Peter Costello yesterday waved through the merger of SFE Corp and the ASX with no conditions.
It's hard to imagine a more powerful monopoly than a combined SFE-ASX, which will presumably continue on its merry way jacking up charges for its captive customers if the merger is approved by SFE shareholders at a meeting in Sydney on 5 July.
While some SFE shareholders continue to agitate for a bigger premium, both ACCC chairman Graeme Samuel and the Federal Treasurer are showing no concern about what will be one of the world's ten biggest exchanges in a financial services market that comprises barely 3% of global financial activity.
Sounds a bit like Sydney Airport's current $7 billion-plus valuation being way out of whack with its relative size because the Costello-Samuel double act have sat back and allowed the Millionaires Factory to gouge away mercilessly.
Australia has one of the world's most concentrated corporate sectors and, with the exception of resource stocks, it is dominated by domestically-focused service sector oligopolies that usually rely on government licences or weak regulation to prosper.
Look no further than ABC Learning, Australia's most subsidised company, which now runs a staggering 780 child care centres nationally but was only required by the ACCC to sell a pitiful five centres after its recent takeover of the 101-centre Kids Campus.
Then we have our old friends the banks. Today Tonight had a good hit at bank fees on Monday night, highlighting the case of some poor sucker getting slugged $45 for doing a $1 transfer. The $10 billion a year bank fee bonanza is now so out of hand that it is starting to show up in the official inflation figures and is certainly a big driver in booming company tax receipts over the past decade.
Costello made some vague noises about being concerned about bank exit fees last month but hell will have frozen over before he'll actually use his vast powers under The Banking Act to do something about it. Even Labor has now ditched some of the bolder aspects of Mark Latham's banking policies, which would have offered some protection to consumers.
The government's hands-off approach to financial services regulation even extends to financial planner commissions after the Westpoint collapse. Costello's underling Chris Pearce yesterday told an IFSA lunch that the industry should clean up its own mess.
Yeah right, and banks should voluntarily cut fees – just like the ASX certainly won't once SFE Corp is in the bag, even though the original 606 stockbroking shareholders in the ASX are already about 200-fold in front on their original $25,000 investment in Australia's most lucrative monopoly.
If Costello gave a toss about consumers he would have implemented a formal price monitoring regime for ASX-SFE, just like Telstra and most other monopoly utilities have had to put up with.
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