Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 27 March 2014
LEON BYNER: Now the Feds are to sell Medibank Private. It’s a money making venture. Last year it was reported to have delivered around $450 million in profit to Treasury. Although, it’s widely believed that this is a dividend that’s might larger than might ordinarily be. But a Government-owned entity like this, can be used to influence other funds in what they charge and how they behave. The Feds have decided that they don’t wish this influence, but rather they’re following the principle that government’s should not run businesses in opposition to privately-owned businesses. This is long a running argument in Australia. The government that relies solely on taxation for income have narrowed their ability to raise money. Of course South Australia has sold almost all of its government businesses and is now a very high tax State. Governments who have sold their businesses have to rely on persuasion to influence the way the private sector behaves. Experience around the world has shown that once government surrender their place as a competitor they lose influence as well as income. We are promised that a scoping study, which the Feds, or have done independently won’t be released, but it’s shown that customers’ premiums, that is the premiums you pay for your health insurance won’t be affected. But it is a bit silly to say that we’ll second guess a competitive market behaviour to a monolith like Medibank Private, which is a big player. Now after all, privatising power assets immediately added rising costs, didn’t it and risk. Perhaps the Feds are getting out of the health fund business because cost pressures are driving ever upwards and they simply don’t want to be blamed and have the risk. But let’s talk to the Minister responsible for this, Senator Mathias Cormann. Senator thanks for joining us today.
MATHIAS CORMANN: Good morning Leon. Good to be here.
LEON BYNER: Tell us why the health community, that is the consumer, in your view is going to be better off by the Federal Government or the taxpayer disposing of this asset and letting it run to market forces?
MATHIAS CORMANN: Because Medibank Private as a truly private company can do an even better job for its customers and it will help strengthen competition in the private health insurance market, which will deliver better service quality at more competitive prices.
LEON BYNER: So are you saying that up to now as a taxpayer owned entity Medibank Private was not competitive?
MATHIAS CORMANN: Medibank Private does operate as a commercial business, as a for profit entity, in a highly competitive well-functioning, well-regulated market with 34 health funds. We do believe that Medibank in private hands can do an even better job. Just to pick up on the point you raised in your introduction around impact on premiums. Medibank Private whether in public or private hands has to compete with other health funds for customers and they have to comply with all of the relevant regulation when it comes to price setting. That will continue after any sale.
LEON BYNER: Okay. So are you saying that because of regulation there can’t be much difference to any premium? Are you implying that?
MATHIAS CORMANN: I am not implying it. I am saying explicitly that because of competition, strong competition, in this market and because of regulation that there will not be any impact on premiums from this sale.
LEON BYNER: Okay. All right. Now, given that you, just for the record how much did Medibank Private deliver to Treasury in the last 12 months?
MATHIAS CORMANN: Well this is an interesting question because in the 2012-13 financial year, Medibank Private made a profit of $233 million which was up 84 per cent on the previous year.
LEON BYNER: Yes.
MATHIAS CORMANN: Yet the Labor Party today is arguing that we should be taking out more than double that, half a billion dollars a year, in dividends. Now you can’t take more than double the profits out in dividends every single year and not start hurting the business, and not start pushing up the cost of premiums. Now what Labor did in government over the last six years...interrupted
LEON BYNER: Yes.
MATHIAS CORMANN: ...after they turned them into a for profit business, they took $1.1 billion out in special and ordinary dividends.
LEON BYNER: All right.
MATHIAS CORMANN: Now in order to do that they were running down, they were forcing Medibank to run down their capital reserves, which if that was allowed to continue, that ultimately would push up the cost of premiums. Now selling Medibank Private actually eliminates that risk that future governments would do what Labor did over the last six years.
LEON BYNER: Well you can’t do it if you don’t own it.
MATHIAS CORMANN: Exactly.
LEON BYNER: Yeah. So are you saying we can’t trust governments to own businesses?
MATHIAS CORMANN: Well governments are not as good as the private sector is in running private businesses. The health insurance market is a well functioning, very competitive market. There is no market failure here.
LEON BYNER: Yeah.
MATHIAS CORMANN: While Medibank in government ownership has done a good job we think they can do a better job in private hands.
LEON BYNER: All right. So you’re going to get possibly $4 billion from the sale. How are you going to use that money? Will it be health related or are you going to put it into general revenue and spend it on something else?
MATHIAS CORMANN: Well we are not going to put it in general revenue and we haven’t put a number on it. That is the Government hasn’t put a number on it. We obviously would like to get the best possible return for taxpayers.
LEON BYNER: Sure. Yeah.
MATHIAS CORMANN: The market will determine what the value of Medibank is. But what we have said we would do is that we would recycle the capital that is freed up from the sale of Medibank and reinvest it in productivity enhancing infrastructure which will deliver an economic growth dividend for the nation, which in turn will deliver increased revenue for Government, which we can then invest in health services and other things ...interrupted
LEON BYNER: Okay and just to be clear for the general listener on this, when you say you are going to invest it in producing infrastructure...
MATHIAS CORMANN: Productivity enhancing infrastructure, yes.
LEON BYNER: Yeah. Tell them, define what that is. Give a couple of examples.
MATHIAS CORMANN: I am not going to go into much more detail now.
LEON BYNER: No, but just define in principle what you, you use a term that sounds very lofty and good and motherhood but people need to know what it actually means.
MATHIAS CORMANN: Well it is not motherhood at all. It essentially is investment in infrastructure that will help increase economic growth.
LEON BYNER: Infrastructure like?
MATHIAS CORMANN: Infrastructure like roads, like ports, like whatever.
LEON BYNER: Sure.
MATHIAS CORMANN: But I am not here making announcements in relation to any of this.
LEON BYNER: No.
MATHIAS CORMANN: But this is going to be a matter for the Treasurer, Joe Hockey in the context of the Budget to make some further announcements. Across Australia there is a need for expanded investment in productivity enhancing infrastructure. We have already made significant additional commitments to that.
LEON BYNER: All right.
MATHIAS CORMANN: And the sale of Medibank will help us boost that further.
LEON BYNER: While I have got you there it is now being suggested that the next cab off the rank for sale will be Australia Post.
MATHIAS CORMANN: The Government has a policy to sell Medibank Private. We don’t have a policy to sell any other asset. People might make these suggestions but as far as the Government is concerned we do not have a policy to sell Australia Post. Now if that were ever to change we would be making the relevant announcements at that point.
LEON BYNER: All right. Mathias Cormann thank you.