Australian Democrats Minority Report
Introduction
1.1
The purpose of the Medibank
Private Sale Bill 2006 (the bill) is to make changes to the relevant
legislation to facilitate the sale of Medibank Private by the Government in due
course. The bill is comprised of three schedules.
1.2
Schedule One modifies provisions
in the Health Insurance Commission (Reform and Separation of Functions) Act
1997 (HICA) and the National Health Act 1953 (NHA) to allow the
Commonwealth to sell its equity in Medibank Private Limited (MPL). Schedule Two
provides for the MPL sale scheme. Schedule Three contains amendments relating
to various operational aspects of MPL which will cease to exist once MPL is
privatised.
1.1
In comparison to public concern
and debate on previous Commonwealth privatisations, this proposed privatisation
of Medibank has not been highly contentious. Nevertheless, putting the bill
through a Senate Inquiry has been useful in fleshing out the opportunities and
risks attendant to the proposed sale.
1.2
Although it is important in the
interests of good governance and the democratic tradition that there be a full,
informed and aware debate in relation to the sale of Medibank Private, that
debate is unlikely to result in delay or to stop the sale proceeding. The
Howard Government holds a majority in both houses of the federal parliament and
the bill will likely pass, meaning Medibank Private will likely be sold as
intended in 2008. As I remarked in the Senate Committee Hearing:
... unless there is a Snowy River type revolt in government ranks,
they have the numbers to pass this bill. So we should therefore presume...that
it will pass out of government hands.[1]
1.3
Therefore, while it is important
for me to indicate my position on the proposed sale, it is probably more
important to try to maximise the benefits of what seems to be an inevitable
sale. In that regard, the bill could be improved.
1.4
The Australian Democrats are not
automatically opposed to privatisation of government assets. Each case of
privatisation should be assessed on its merits, and should not be driven by
ideology.[2]
What should drive asset sales is the community benefit and the public interest.[3]
In situations where privatisation is genuinely in the public interest and
benefits the community, then it should be supported.
1.5
With respect to this proposed sale
the questions are generic to all sales:
- Is the public interest better
served by the asset remaining in public hands?
- Can the sale realise funds that
can be put to a better use?
- Is the net funds flow positive
with respect to government finances?
Commonwealth objectives for the sale of Medibank Private
1.6
There is a considerable distance
between the real reasons for this sale and the stated reasons for
the sale. I believe the real reasons for the sale are these:
- The Government can see little
policy benefit arising from keeping Medibank Private in public hands;
- The Commonwealth earns no income
from Medibank Private; and, most importantly of all,
- The Government can make a windfall
of several billion dollars from this sale.
1.7
In other words – the sale is
mostly about money. That is not necessarily a bad motive, depending on what the
money will be used for.
1.8
The Government has not been as
open about its motives as that. It has dressed up its sales objectives.
According to the Explanatory Memorandum (EM), there are five objectives for the
sale of MPL. In my view, the last one is the one that really counts for the
Government:
- to contribute to an efficient,
competitive and viable private health insurance industry;
- to maintain service and quality
levels for Medibank Private contributors, including in regional and rural Australia;
- to ensure the sale process treats
Medibank Private Limited employees in a fair manner, including through the
preservation of accrued entitlements;
- to minimise any post sale residual
risk and liabilities to the Commonwealth; and
- having regard to the above
objectives, to maximise the net sale proceeds from the sale. [4]
1.9
I find it remarkable that there is
no mention of the removal of the ‘conflict of interest’ as an objective,
especially in view of how often it has been mentioned:
the specific phrase ‘conflict of
interest’ and its motivation for the government getting out of Medibank Private
has been constantly used over many months and perhaps years.[5]
1.10
At the Senate Committee Public
Hearing, I entered into a discussion with Mr Rob Butterworth (Division Manager,
Shareholder and Asset Sales, Department of Finance and Administration) on this
point:
Senator MURRAY—I want to draw your attention to item 11,
which is the Commonwealth’s objectives for sale. There are five of them, (a) to
(e). Can you tell me why removing conflict of interest issues is not part of
the Commonwealth’s objectives for the sale? Why were conflict of interest
problems omitted?
Mr Butterworth—Arguably they are covered by
the first objective of ‘to contribute to an efficient, competitive and viable
private health insurance industry’.
Senator MURRAY—You know I am not going to buy that. Was
it an oversight?
Mr Butterworth—And, item (d):
• to minimise any post sale residual risk and liabilities to the
Australian Government;
...
Mr Butterworth—The sale objectives we have
here are the ones that we have in the broad consistently used for previous
asset sales. They have been tailored slightly to the circumstances of Medibank
Private, but I am not aware that the issue was considered in the way that you
are suggesting.
Senator MURRAY—I will ask you directly: do you consider
one of the objectives for the sale to be to rid the government of its conflict of
interest?
Mr Butterworth—Yes.[6]
1.11
The term ‘conflict of interest’
has a strong meaning in the public mind, and its minimisation is generally
viewed as a positive thing by the community at large. However, this applies to genuine
conflicts of interest. I am not the only Senator who is concerned that the
perceived conflict of interest is somewhat of a weak proposition:
Senator McLUCAS—How does the sale of Medibank
Private resolve a conflict of interest?
Mr Maskell-Knight—One postulates that the
government may find itself in a position where it is trying to decide how to
regulate the industry, having regard to the fact that it owns a major player in
it. If it no longer owns a major player in it, it can make decisions about
regulatory policy based on first principles.
Senator McLUCAS—Can you identify any time where
the government has regulated differently because it owns the major player?
Mr Maskell-Knight—Not that I can think of.[7]
1.12
As well as the missing ‘conflict
of interest’ objective, the objective that the sale of MPL will “contribute to
an efficient, competitive and viable health insurance industry”[8]
warrants further discussion.
1.13
Whilst such an objective is to be
commended if it is true and achievable, claims of increasing efficiency and
competition in the context of the proposed sale seem to be just motherhood
statements, in effect. The Government has not said how this could be
achieved. The expert witness Dr Deeble described the functioning of the private
health insurance market in the following interchange:
Senator MURRAY—....One of the points you make very
clearly in your long discourse......is that the private health insurance industry
is in no sense a free market, it is a very managed market. It is a market
characterised by high subsidies, high government intervention, high regulation,
very low mobility of customers between funds and extremely poor customer
knowledge because of lack of comparability. In other words, it is, to use an
economist’s term, a most imperfect market.
Dr Deeble—Absolutely.
Senator MURRAY—That is right, isn’t it, as a
summary.
Dr Deeble—And it is an oligopolistic
market—six major funds dominate.
Senator MURRAY—I am in something of a difficulty in this
discussion in that my party actually took a more free market view of private
health insurance in that the Democrats opposed the private health insurance
rebate. We believed that premiums should be set where they may and that the
moneys being spent on supporting private health insurers should rather be put
into public health, and reinforced there.
Dr Deeble—In general, I would agree with you.
Senator MURRAY—The difficulty we have, I think, arising
from your views is that we are asked as a Senate committee, as a parliament, to
appraise the benefits of the sale in the public interest, and yet the normal
market comparators are not available to us. That is right, isn’t it?
Dr Deeble—When people say a profitable industry is a good
one, the assumption is that it is an informed market and that its ability to
make a profit indicates that it serves that market better than the other funds
do or the other firms do.
Senator MURRAY—My point is that, if there are
marked market rigidities because of a lack of mobility, understanding and so
on, it is very difficult, then, to compare efficiencies, administration fee
levels and profitability in the sense of retained assets. It is also difficult
to compare products. That is the point that you have made.
.........
Senator MURRAY—Where I am going to with this—I am
conscious that the government has the numbers to push through its legislation
if it wishes—is that if the government is taking a market oriented view and
saying, ‘Well, we should not be engaged in the provision of private health
insurance through Medibank Private,’ which has 30 per cent of the market, then logically
it has to review subsidies, tax concessions and also review just how
competitive the market is with respect to choice, the availability of product
disclosure statements, information and so on. I can give you an analogy, which
is the superannuation choice regime. Effectively that introduced a far more
market oriented approach in what was a market which was highly rigidified prior
and is no longer as rigid. Isn’t that the logical consequence of the government
stepping out of this particular investment?
Dr Deeble—If you think of all of the subsidies and
benefits the government gives to the health insurance business, they are really
enormous, but it flows through to the providers and to the people who are
supported by private health insurance. There is the rebate. There are the
various encouragements that people have to go into it, including their own tax
position and there is the tax exempt position of the health funds. Nearly all
but one of them are tax exempt because in the past it was seen as not to be a
business that the private people would go into because it would never be
profitable enough—that is, the for-profits would not go into it. I agree that
if a government then moved its own fund into the for-profit area, it is
changing the balance of that enormously and changing lots of the assumptions
that underpinned its subsidies. Does that answer your question?[9]
1.14
I can only go on the evidence
before me, and that evidence does not persuade me that (given current policy
and market settings) a more efficient, competitive and viable health insurance
industry will necessarily result if Medibank Private moves into private
hands. On this point, I should note the Government has failed to put on the
public record a strong case to show the market benefits of privatising Medibank
Private. The release of the CRA report was supposed to trump criticism of the
sale in this respect. However, Dr Deeble and the AMA respectively presented a
strong critique of the limitations of the CRA report.[10]
The Government has also withheld the scoping study on the sale from scrutiny.
Its hand would have been stronger if it had published the findings of this
study, assuming the study demonstrated the advantages to the industry and
consumers of the sale.
1.15
The question is whether a more efficient,
competitive and viable health insurance industry will result if Medibank
Private remains in public hands. On this point the answers of one of the
departmental[11]
witnesses was instructive:
Senator MURRAY—Do you think that Medibank at
present contributes to an efficient, competitive and viable private health
insurance industry?
Mr Maskell-Knight—You are asking me to think, and I do
not know that I do that readily about those sorts of issues.
Senator MURRAY—Do not be smart.
Mr Maskell-Knight—I am sorry, but you are asking for an
expression of opinion. I believe that Medibank Private is an efficient,
well-run fund, yes.
Senator MURRAY—The explanatory memorandum
specifically says:
The Commonwealth’s objectives for the sale of Medibank Private
Limited are:
(a) to contribute to an efficient, competitive and viable
private health insurance industry;
I do not want a smart answer from you. That would either imply
that it is not at present or that it would become more efficient, competitive
and viable if sold. As someone who is involved with an agency with intimate
connections with Medibank Private, I want to know if you think it does
contribute at present to an efficient, competitive and viable private health
insurance industry and whether, if it were to be sold, it would do a better job
in that respect?
Mr Maskell-Knight—The questions about the
statements in the explanatory memorandum should be directed to the department
which wrote it, which is not the Department of Health and Ageing. As I said, I
believe that Medibank is an efficient and well-run fund on the evidence
available to us at the moment. It is a matter for speculation about what would
happen were it to be in different ownership.[12]
1.16
The Australian Medical Association
(AMA) was more straightforward. In its submission, the AMA expressed concern at
the changing market structure that would result from the sale of MPL. The AMA
is of the opinion that “the sale of Medibank Private would reduce
competition in the sector...”.[13]
The AMA argues that there is no national market for private health insurance
and the acquisition of MPL by another private health fund would result in a
market which is dominated by a single player, even more so than at the moment.[14]
1.17
Whilst such a situation as the AMA
foresees seems unlikely in the medium term, given the ownership restrictions in
the bill that will apply for the first five years, there can be no guarantee
that such a situation will not emerge in the longer term.
1.18
There is often a perception that
government involvement somehow makes things inherently more equitable and
accessible, and that privatisation will result in declining standards and
consumer detriment. Whilst this may be true in some cases, it cannot be said to
be the norm. Increased competition in a market place usually results in
benefits to the consumer market, as companies are forced to offer better
services or lower prices in a bid to maintain their market share.
1.19
In my view the AMA argument is not
that a more competitive market will result if MPL remains a public asset – it
is an argument that the sale of MPL is insufficient of itself to produce
greater competition.
1.20
The evidence before me does not
persuade me that (given current policy and market settings) a more efficient,
competitive and viable health insurance industry will result if Medibank
Private stays in public hands. From a policy perspective that means
there is no sound reason as to why the Government should continue its
participation in the private health insurance market.
1.21
That means too that the government
focus should be restored to the provision of public health services. Perhaps it
is this point (the role of the government in public health services) that is
the real cause of many people’s fears over the sale of MPL. I would suggest
that maybe many are not so much directly concerned with the sale as such.
Rather, they are concerned with the government absenting themselves even more
from the health services and insurance market.
1.22
The government has shown no signs
that they will focus more of their efforts on public health as a result of
exiting the private health insurance market, and has made no guarantee that the
proceeds from the sale will even be placed back into health care.
1.23
One counter
to the fears expressed by the AMA and others is for a more competitive market
to be actively promoted by government. Simply sitting back after selling
Medibank Private and expecting significant new competition to emerge is relying
too much on hope. It would indeed be advantageous for policy to be developed so
that a more competitive market did become a feature of private health
insurance. In that respect recent superannuation industry experience is
instructive. In that industry, mobility, portability, comparability, choice,
and so on, have all helped create a much more competitive market than formerly.
1.24
As increasing competition is a
stated objective for the sale of MPL, and it is obvious that the sale of MPL
alone will not result in marked changes to the competitive characteristics of
the private health insurance market in Australia, I think it is crucial that as
part of the sale process, the Productivity Commission be required to inquire
into competition in the private health insurance market. The last time such a
project was carried out was almost ten years ago with the Productivity
Commission’s 1997 report ‘Private Health Insurance’ and, given the
circumstances, it is an opportune time for that report to be updated and
reviewed.
1.25
Price is an issue. Will prices
rise if Medibank is privatised? The changing nature of competition in the
market also flows on to the issue of health insurance premiums, concerns over
which have been raised throughout the committee stage. In the report by CRA
International commissioned by the Department of Finance and Administration, it
is concluded that:
Irrespective of any change in ownership, Medibank Private’s
premiums will need to rise to cover a substantial increase in benefits
necessitated by such factors as the ageing of the Australian population,
increased cost per day of hospital care and increases in the number and value
of ancillary claims.[15]
1.26
Extending this line, I would add
that there may be additional sources of upwards pressure on premiums if MPL is
privatised to become a for-profit entity. For instance the surplus may reduce
as a result of changes in tax status. There are negative tax implications of
MPL changing its status from a not-for-profit organisation to one that is operated
on a for-profit basis. Once MPL becomes a for-profit entity there is an
associated additional tax burden.
1.27
A second source of pressure
potentially forcing premiums upwards is the changing motives of management.
Currently, MPL is focused on the provision of health services. Although
management prudentially aim for operating surpluses, by and large, the focus is
on provision of services. However, privatisation via a public float (as against
a sale to members, discussed below) may change the focus, and result in the
pursuit of profits being the dominant goal.
1.28
Chasing profits is always going to
be an ownership aim. Paying several billion dollars for MPL will mean the new
owners will want a commensurate return on investment. To claim that MPL will
not need to raise premiums because it will become more efficient once it is
privatised is to claim that it is being run inefficiently now, and the
Committee has been given no evidence of this.
1.29
There are only so many ways that
greater profits can be pursued, such as: raising prices; gaining market share;
innovation and diversification of products; improvements in administrative
efficiency; and by lowering costs associated with the provision of services,
such as by cutting services back.
1.30
As a government owned entity it is
difficult for MPL at present to diversify its products – this would
certainly be possible once MPL is removed from government hands.
1.31
There is the possibility of
lowering the standards of service to increase profit margins. In an ordinary
market, this would not be a concern: if standards fell, consumers could change
their service provider. However, private health insurance is no ordinary
market, as the earlier quoted discussion with Dr Deeble
illustrates. The private health insurance industry is oligopolistic in nature,
and there is low portability and mobility between insurers: it is a captive
market.
1.32
Different outcomes on product
pricing and services will arise according to the nature of sale and ownership.
The mutualisation of MPL and associated assets deserves further consideration
and should not be automatically discounted as an option by the government. A
proposal is outlined below (under ‘Method of privatisation’) but in my view, it
seems to be a ‘best outcomes’ approach. Members who have a vested interest will
not be interested in lowering the standards of service which they use. But equally,
they will not be interested in seeing a company in which they have a vested
interest collapse. Member-owners will be in the best position to find a balance
between the pursuit of profits and the provision of services, with the freedom
to diversify the business.
The issues of MPL ownership and compensation
1.33
At the centre of the debate about
whether or not the Government should sell MPL has partly been the question of
who owns Medibank Private and in particular whether members of MPL have any
claim to compensation if it is sold.[16]
1.34
MPL was established in December
1997 as a public company, limited by shares. All the shares were vested in the
Commonwealth and section 35 of the HICA provides that: the Commonwealth must
not transfer any of its shares in the nominated company.
1.35
The Medibank Private Fund and
associated assets (into which member contributions are placed, and out of which
member benefits are paid) has been operated by MPL since 1998.
1.36
As noted above, Schedule One will
enable the Government to sell MPL. It repeals section 35 of the HICA which
currently has the effect of prohibiting the Commonwealth from transferring its
shares in MPL. Schedule One also amends the NHA to provide for the fact that
once sold MPL will become a for-profit organisation and have a resulting need
to distribute profits. Finally, Schedule One also creates a new section,
section 73AADA, which provides (in the words of the EM) a ‘constitutional
safety net’, allowing for the payment of compensation if property is acquired from
a person other than on just terms.
1.37
The real contention, then, lies
not in the ownership of MPL: both the Blake Dawson Waldron advice to the
Department of Finance and Administration, and the Parliamentary Library
Research Brief, are in agreement on this matter. What is really at the centre
of contention is who owns the fund and its associated assets.
1.38
The bill is predicated on the
belief that the Government is entitled to sell off MPL without any specific
regard as to possible risks or claims to compensation by members. This (to be
punnish) seems like a risky proposition.
Senator MURRAY—I will go to the question of compensation
possibilities. I accept the view of the library’s advice, which I read into the
record earlier as expressed on page 11:
'[I]t is arguable that members of Medibank Private could be
entitled to compensation if the terms of any sale do not adequately account for
their right to the benefit of fund assets. It was not asserted in the Research
Brief, and is not asserted here, that this means that Medibank Private is owned
by its members, or that members could block the sale.'
I accept the government not only has the right to dispose of the
asset but has the ability to dispose of the asset subject to parliament’s
finding, which is essentially the position of the department. So what is left
of the issue is a potential class action with respect to compensation. I assume
there will be a class action rather than individual members. My question to you
is: is it possible to compute the level of compensation that could be sought? I
am not asking here for a hypothetical. I am really asking: in view of your
experience within DOFA in the sale of assets where these issues are raised, are
there aspects or areas to which compensation claims such as these might
focus—for instance, the total level of surpluses or the total break-up value of
the fund? Is there a standard kind of area to which these claims of
compensation can be directed?
Mr Butterworth—I will say before answering that that it
is certainly our strong view that Medibank Private contributors will not be
entitled to compensation on the sale. The government’s legal advice is clear
that Medibank Private contributors do not own an interest in the fund.
Senator MURRAY—What I am trying to compute here is
the level of risk. If I were the buyer, I would get my own legal advice and
then I would seek to get you to indemnify me from a risk, and that is therefore
a cost to you, because it either results in a lower sale price or a higher sale
price with a potential risk. You would want to calculate the risk. The way in
which you deal with that is perhaps to cap what risk you agree to expose
yourself to, but as soon as you do that and you nominate a figure you are
telling anybody who is going to sue you what figure to target. As a seller, my
preference would be not to indemnify them, to tell them that it is their risk
and put that into the contract, but that may affect the price. I have not
raised this with you in a hypothetical sense; I have raised it in a real risk
sense. I understand that the government thinks it is on firm ground, but I have
heard that from many defendants in courts. Are you able to assist the committee
at all? One of the things that the committee might need to take into account
is, regardless of what we think the risk might or might not be, how the
Commonwealth should deal with any risk, notional or otherwise?
Mr Butterworth—The entire process of
preparing for a sale of a government asset is focussed on minimising those
risks. We think that the process we have gone through reduces those legal and
commercial risks to the minimum. We are confident of that position.
Senator MURRAY—Can you answer this question? If
you cannot, can you take it on notice? If the committee was of the view that
the government should not indemnify for compensation, would that mean that the
committee would need to recommend that the legislation explicitly specify that?
Mr Butterworth—I am happy to consider that question.
Mr Staines—From the legislation that is
drafted at the moment, any liability for the Commonwealth arising out of the
sale process itself would lie with the Commonwealth.
Senator MURRAY—It would lie with the Commonwealth?
Mr Staines—Yes.
Senator MURRAY—Exactly. That means that you have
accepted that there is risk. You might be able to, but I doubt you will want
to, quantify that risk.
Mr Butterworth—Again, we have researched
this issue. We have drafted this legislation. We will approach the process
between now and the sale with a view to minimising that risk. We do not think
that risk is significant.[17]
1.39
The majority report accepts the
Government’s position, and the Blake Dawson Waldron advice, that the government
is entitled to sell MPL and does not need to be concerned with members claiming
any rights against assets, or bringing actions for compensation against the
government. Yet representatives from the Department of Finance and
Administration confirm that the bill specifically includes a liability clause
that lays the cost of any compensation claim at the taxpayer’s door:
Senator MURRAY—...Let me try a different direction.
Blake Dawson Waldron says in item 5(f) on page 3:
For this reason, the Commonwealth will not be liable to pay
compensation as suggested in the Brief.
They have given us this guarantee. Do you think we should add an
amendment to this bill that says, if there is any claim for compensation, Blake
Dawson Waldron is liable? You are convinced this advice is good, so let them
wear the responsibility if it is not. What do you think of that?
Mr Butterworth—I do not think they would find that
acceptable.
Senator MURRAY—Therefore, they have no faith in
their brief? Is that what you are saying to me?
Mr Butterworth—No, I am not saying that at
all.
Senator MURRAY—That is what it says to me. If
somebody says that they will not be liable to pay compensation, let them put
their money where their mouth is.
Mr Butterworth—I am saying that they have staked their
reputation on that advice.
Senator MURRAY—So later on, in five years time, when the
Commonwealth is hit with a class action for $200 million, we are going to
remember that the reputation of Blake Dawson Waldron was wonderful? Do you see
where I am going with this? Neither you nor I can forecast the future with the
cleverness of lawyers or courts. I have seen dozens of legal briefs, some to my
cost and some to my benefit, which have been very firm in their opinion and
have been wrong, and so have you.
Mr Butterworth—We have been conscious of certain risks.
We have been conscious of the potential for risks. We have gone through a very
thorough process. We have taken the best advice. We will continue to apply the
sale processes with a view to minimising those risks.
Senator MURRAY—You are not at risk. Blake Dawson Waldron
is not at risk. The buyer is not at risk. But the taxpayers of Australia are
potentially at risk because you are going to give the buyer an indemnity. That
is what is happening. Is that right? If there is any risk, it is to the
taxpayers of Australia, is it not?
Mr Butterworth—The Commonwealth as the
vendor is accepting that risk at the end of the day.[18]
1.40
The Government say that the
liability clause is a standard one.[19]
In other words it is a precautionary provision – it prevents the validity of
the bill being challenged if it did not allow for compensation under the just
terms provisions of the Australian constitution. This is a circular argument.
In the absence of such a liability clause no one would challenge the validity
of the legislation unless they thought there was a case for compensation.
1.41
The fact is that the bill
specifically anticipates the risk of a compensation claim, and allows for the
taxpayer to pick up any compensation tab. The only sure-fire way to avoid this
risk altogether is to sell MPL to the members.
Method of privatisation
1.42
As previously noted, Schedule Two
deals with the actual process of selling MPL. It does not limit the method or
timing of the sale, and recognises that the Government may wish to use a number
of strategies to obtain the maximum revenue from the sale. Importantly, it also
contains provisions which will enable MPL to modify its constitution and rules
such that it can alter its not-for-profit status, and operate (once sold) on a
for-profit basis. With respect to the timing of the sale I agree with the Majority’s
concerns, reflecting that of the Senate Scrutiny of Bills Committee.[20]
1.43
Schedule Two also contains two
appropriations clauses in relation to the costs of the MPL sale scheme, and a
number of other situations in which expenses may arise. Within the second
schedule are also provisions which relate to the ownership of a privatised MPL.
Under the bill, there will be a five year period in which the maximum stake
that can be held by anyone in MPL will be fifteen per cent.
1.44
The bill also contains requirements
relating to the ‘Australian nature’ of MPL, including that the company is to
remain incorporated in Australia, that the majority of directors must be
Australian citizens, and ensure that its central management and control is
ordinarily exercised in Australia.
1.45
As the quotes in the previous
section show, the method of sale of MPL may determine the Commonwealth’s (i.e.
the public’s) exposure to risk. Although the majority report is silent on the
way in which MPL is sold and does not offer any recommendations or comments on
the issue, I feel it is of central concern.
Senator MURRAY—Moving on to the issue of the
actual sale, can you tell me whether any of the following are explicitly ruled
in or ruled out? I know some of the answers, but I would like them on the
record. Firstly, is mutualisation ruled in or ruled out?
Mr Butterworth—The government has announced
that they will be offering the shares in the company through an IPO.
Senator MURRAY—That would rule out mutualisation.
Is a public float ruled in or ruled out?
Mr Butterworth—An IPO is a public float.
Senator MURRAY—Is a private placement ruled in or
ruled out?
Mr Butterworth—The government has announced
that they will be offering shares by way of an IPO.
Senator MURRAY—Is an offer to Medibank members ruled
in or rule out?
Mr Butterworth—Medibank members would be
free to participate in an IPO.
Senator MURRAY—Is the IPO announcement in the
legislation or in the general policy announcement of the government?
Mr Butterworth—The legislation provides the
scope for an IPO. The government has indicated in its public announcements that
it will be pursuing the sale as an IPO.[21]
1.46
It is my opinion that one method
stands out above all others as the preferred option and the avenue which should
be taken: the sale of MPL to its members. For example, if there are 1.2 million
members of MPL, each member could be offered a shareholding equivalent to
$1,500. This would give the Government $1.8 billion, a figure at the upper end
of estimates that have been suggested it might raise in public sale, and at a
lower cost than otherwise might be the case with a public float. Those share
portions which were left over as a result of members opting out could then be
sold to the general public. The members of MPL could then operate it as they
saw fit, including a public float later if they so wished.
1.47
In my mind this removes any risk
that the Government may be exposed to, satisfies the members by giving them
right of first refusal in buying into MPL, and satisfies the Government who
receive their budgeted sale revenue. The only people that it might not satisfy
are the companies and commission-makers looking to get a hold of MPL, or
members of the general public who feel aggrieved that they cannot buy shares in
MPL. However, they may still get the option to buy shares later – they are just
not guaranteed a right to buy shares in the initial sale.
1.48
So far, the Government have been
unwilling to seriously consider this approach. As I remarked in the Senate
Committee Hearing:
...I cannot quite understand why that option should automatically
be excluded...it seems to me there is an automatic assumption in the government
mind that, if it were to be sold, it needs to be sold either in a private
placement to the highest bidder, which takes it our of the hands of the
members, or that it should be a public float ... .[22]
1.51 For this reason, and
despite the apparent freedom of choice that the government of the day will have
in relation to the sale scheme I would like to see an amendment incorporated
into the bill. In addition to those options currently contained in the bill
(indicated by the list of items in Schedule 2, Part 2, Item 5, Subsection 6), I
wish to see a specific subsection which provides that the Government may sell
MPL via:
- mutualisation;
- public float;
- private placement; or
- any other method the government
feels is appropriate.
Proceeds of sale revenue
1.49
The sale of MPL will create a
substantial windfall for the Government. They are naturally interested in
maximising their revenue from the sale, and make no secrets of the fact: it is
one of the stated objectives for the sale.
Senator MURRAY—...We might disagree with it, but the
idea that you should make a couple of billion for the people of Australia
through a sale is not a reprehensible one. I do not impute a bad motive...[23]
1.50
In terms of what the sale of MPL
would raise, figures close to $2 billion have been seen as a reasonable sum.
The important question then becomes “what is to be done with the proceeds of
the sale?” $2 billion is a substantial amount, and there should be cause for
concern about how the Government puts the sale proceeds to work.
1.51
The bill, not surprisingly, is
silent on the matter. It would be poor financial management to put the proceeds
of asset sales into general revenue for current expenditure. Tipping the money
into the Future Fund to meet future superannuation liabilities of public
servants would be a singularly unattractive option, as opposed to the far more
immediate alternative represented by the need for current health capital
expenditure.
1.52
That suggests there should be a
hypothecation of funds. This would ensure that the proceeds from the sale are
kept within the domain of public health services expenditure. When the
possibility of hypothecation was raised in the Senate Committee Hearing, it was
received with interest by the representatives of the Australian Medical
Association:[24]
Senator MURRAY—...In other words, could the sale be made
more palatable to somebody like the AMA, for example, just taking a figure, if
it realised $1 billion and that billion was hypothecated into mental health,
dental health or something in the health regime, which meant that you might
have given up something on the one hand but you have gained on another in the
health context? Would this be more palatable to you as a policy if there were a
hypothecation—in other words, if the sale proceeds were directly reinvested
back into public health services?
Dr Yong—That is an interesting question.
Senator MURRAY—It is my job to ask you.
Mr O’Dea—In the material the government is
talking about putting money into research. Clearly, from our point of view, if
there is a sale it is better that the money stays in health. We have not
covered that in our submission. We have not looked at it and it is very complicated.
From our point of view, it is certainly better that the money stays in health
rather than going into Defence or wherever.
Senator MURRAY—You have got to be careful of the
government’s promises. The legislation does not hypothecate the money.[25]
1.53
Whilst on the evidence before me I
can see no sound policy reason for the government to continue to maintain a
position in the private health insurance market, there is an ongoing need for
it to play a role in the provision of public health insurance and services. The
Democrats have been anxious for some years about declining levels of Government
expenditure on mental and dental health, as well as on public health measures.
The hypothecation of the sale proceeds to specific health areas would
undoubtedly make the sale of MPL less contentious and more in the public
interest.
Conclusions and recommendations
1.54
In my opening remarks of this
Minority Report I said that with respect to this proposed sale these questions
are generic to all sales:
- Is the public interest better
served by the asset remaining in public hands?
- Can the sale realise funds that
can be put to a better use?
- Is the net funds flow positive
with respect to government finances?
1.55
A strong case has not been
made for Medibank Private remaining in public hands. The net funds flow is
positive with respect to government finances. The weakest aspect is with regard
to the present intended use of the realised sale funds.
1.56
I wish to reiterate the point I
made at the start of this minority: the Democrats are not opposed to the
privatisation of Commonwealth assets if they are genuinely in the public
interest and for the benefit of the community. I do not believe that the
government needs to continue to play an ownership role in the private health
insurance market. The public health market is the area in which the government
should focus on.
1.57
However, I do not wish to see the
Medibank Private Sale Bill pushed through parliament without regard for some of
the key issues that the proposal raises, especially when there are potential
consequences for the people of Australia. The concern over the risks of compensation claims
must be taken seriously and effort should be spent in minimising the potential
for these risks where possible.
1.58
Additionally, the revenue that
would be raised from the sale of MPL must be dealt with specifically by the bill.
To not do so would be to leave the door open for its appropriation into general
revenue, or for ‘vote-buying’ by the government of the day.
Recommendation 1
1.59
That the bill be amended to
- require that the net sale proceeds
be hypothecated for health expenditure; and,
- to include a list of unrestricted
options for the sale of MPL: mutualisation; public float; private placement; or
any other method the government considers appropriate.
Recommendation 2
1.60
That the sale to members of MPL be the first option for sale.
Recommendation 3
1.61
That prior to the sale, the Productivity Commission be required to
conduct an inquiry into the private health insurance industry, with specific
attention to enabling an efficient, competitive and viable private health
insurance industry.
Recommendation 4
1.62
That prior to the sale, the government of the day be required to prepare
and present a discussion paper to the Parliament addressing the (eventual)
method of sale of MPL, with particular reference as to why that particular
method was chosen over alternative methods.
Senator Andrew Murray
Australian Democrats
Senator for Western Australia
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