Turning Housing Tasmania into a Government Business Enterprise

Kathleen Flanagan Anglicare

Let’s take a quick look at the history of corporatised Government services, particularly the Tasmanian ones, to tell you why charities are so worried. Corporatisation is the process of establishing a government business as a separate entity that operates as a private sector business while retaining government ownership. The Tasmanian Government currently has two models of corporatisation, the government business enterprise (GBE) and the state-owned company or corporation (SOC). At this stage, it isn’t clear which option is being considered for Housing Tasmania.
RUMOURS keep seeping out of government circles that the State Government is considering turning Housing Tasmania into a GBE. Alarmed for the particularly vulnerable client group living in public housing, community sector advocates have repeatedly challenged the Treasurer to confirm or deny this rumour. The question has been ignored or evaded each time.

And now we are presented with the strange sight of the recent Legislative Council Select Committee inquiry into housing affordability recommending that Housing Tasmania be split into two divisions, one of which should then be converted into some form of government business enterprise. This is in spite of the fact that a trawl through the publicly-available evidence presented to the Committee reveals that none of those witnesses suggested this to them as a way forward. So where did the Committee get the idea from?

Let’s take a quick look at the history of corporatised Government services, particularly the Tasmanian ones, to tell you why charities are so worried.

Corporatisation is the process of establishing a government business as a separate entity that operates as a private sector business while retaining government ownership. The Tasmanian Government currently has two models of corporatisation, the government business enterprise (GBE) and the state-owned company or corporation (SOC). At this stage, it isn’t clear which option is being considered for Housing Tasmania.

GBEs and SOCs are similar in that they are both obliged to operate as if they were private businesses operating in the private sector and they are both owned by the Government. The difference is that there is a more formalised structure in place around GBEs, which means that there is a greater capacity for Government to intervene in and control a GBE than there is with a SOC. There’s also the matter of community service obligations.

In this context, a Community Service Obligation, or CSO, is not a general government obligation to act in the best interests of the community. It’s a technical term with a financial costing attached.

Essentially, a CSO arises when the government requires a GBE to carry out activities it would not do if it operated on a commercial basis, or which it would do commercially at a higher price. Critically, in the Tasmanian context, there isn’t any obligation under the legislation for a CSO to be fully paid for by the Government – instead, the basis of funding a CSO “in whole or in part” is determined by the Treasurer.

One of the concerns with CSOs is that although they work quite well with quantifiable matters like the cost of a service or product, they are not so effective with less tangible matters like the quality of the service or the process through which it is delivered. And the way they have to be costed can mean that the funding doesn’t cover the full cost of providing them, which means the GBE has to charge fees or cross-subsidise from other services to make up the difference.

Importantly, in Tasmania, only a GBE can have a CSO. A SOC can be required to do something that is like a CSO and will sometimes refer to this as a CSO, but what they actually have is a contract between them and the Government under which the Government purchases certain discounts or services on behalf of certain groups of people – for example, electricity discounts for concession card holders.

Now let’s look at some examples of corporatisation in Tasmania.

The Public Trustee: Tasmania’s Public Trustee is a GBE with a funded CSO to administer the financial affairs of people who the Guardianship and Administration Board considers incapable of managing their own financial affairs (because they have intellectual disabilities, serious mental illness, acquired brain injuries or other cognitive problems). However, the Public Trustee also charges these clients substantial fees.

At the recent GBE scrutiny hearings, it was revealed that the Public Trustee has never received enough funding to cover the full cost of providing its CSO. It has covered the gap partly through the substantial fees it imposes and partly by cross-subsidising with revenue from its other services.

In 2007-08, the Government for the first time will provide the Public Trustee with enough CSO funding that it won’t need to cross-subsidise. But it will still charge fees, and these fees are considerable, taking up 9.5% of the weekly income of a single person on the Disability Support Pension. This compares very poorly to the 0-3% charged for similar services in other states.

Anglicare Tasmania has campaigned for some time for the abolition of these fees because of the financial problems they cause clients, but the Public Trustee is unlikely to be in favour – their CEO said at the GBE scrutiny hearings that the cost of the fees was “not too much of a burden really” (Hansard, 5 December 2007).

What we learn from this is that there is no guarantee a CSO will be fully funded, but the cost must be met somehow and this can mean that unaffordable charges are imposed on clients.

Aurora Energy: Aurora is a SOC. The discount on electricity bills that it gives concession card holders is delivered under a contract between itself and the Government.

Under its present Board and management, Aurora has demonstrated a commitment to corporate social responsibility. But its principal objectives under its establishing legislation are to operate in accordance with sound commercial practice and maximise returns to shareholders. There is no reference to community or social objectives.

Aurora is planning capital works worth $588 million over the next five years. It is financing this partly through debt but also by increasing its prices.

When this increase was announced, the Treasurer announced an increase in concessions and Aurora increased the hardship funding it provides to emergency relief providers. However, there is no legislative obligation for this to be done each time prices increase. In fact, it is not done each time. Between 1994 and 2007, the value of the concession didn’t increase at all except for one adjustment to compensate for GST, even though electricity prices rose by more than 50% during that time.

Whether concessions go up to match price increases is entirely dependent on the benevolence – and the financial position – of the Government and Board of the day.

Metro Tasmania: Metro, also a SOC, was cited repeatedly by Committee members during the Legislative Council inquiry hearings as a possible model for a corporatised Housing Tasmania.

Metro has a contract with the Government to provide concession travel and non-commercial services (that is, services on non-profitable routes) on a break-even basis, which means that Metro receives just enough funding to cover its losses but not enough to make a surplus.

Financially, Metro is not robust. About three quarters of its passengers travel on concession fares and some of its regional routes would actually be non-commercial even if every passenger traveled at full price.

Concerns have been raised in the GBE scrutiny process that because Metro can’t generate a surplus, its asset management capacity is limited. In March 2007, the GBE scrutiny committee heard evidence that because of this, Metro’s program to upgrade the bus fleet and ensure a quarter of buses were accessible for people with disabilities and other mobility issues was under threat.

If Metro is the model for a public housing SOC, then the question mark over the bus replacement program is a concern for two reasons: one, asset management is a major issue for a public housing provider and having the capacity to proactively maintain, upgrade and replace stock as required is critical, and two, while replacing the buses is not a CSO (or CSO-like activity), it is actually critical for many disadvantaged people with mobility problems who rely on public transport.

So while Metro can’t operate as a purely commercial entity because of the nature of its client base, it is also unable achieve broader social and community goals because they aren’t explicitly accounted for in its contract.

Let’s look at some examples of corporatised housing authorities.

The Housing New Zealand Corporation: In New Zealand the public housing authority was converted into a GBE, the Housing New Zealand Corporation. This created a very successful commercial entity which paid off all its debts, achieved significant profits and paid considerable dividends to Government.

But the new GBE also introduced market rents for all public housing tenants, arguing that tenants in public housing and the private rental market should be treated the same. All tenants were eligible for an income supplement to assist with housing costs.

But this did not provide people with enough support to bridge the gap between what they could afford and what they were being asked to pay. Many public tenants became homeless or dependent on food parcels or had to live in overcrowded and unhealthy conditions with friends and relatives to pool costs.

In August 2000, the incoming Labour Government abolished market rents and reinstated income-related rents. It now provides the Housing New Zealand Corporation with funding to cover its CSO.

It is true that the Corporation is still a GBE, but the system had to demonstrate that a commercial approach was utterly destructive to tenants’ wellbeing before the Government made available the current funding, and the Corporation is totally dependent on their CSO to operate effectively.

The other point to be made about the Housing New Zealand story is that sometimes the best commercial decisions are not necessarily the best social decisions. For example, Housing New Zealand accumulated a massive maintenance backlog because it focussed on profit-generating asset sales instead of maintenance and it sold off all its good quality stock; by August 2000, 15% of the stock had been sold and much of the remaining stock was concentrated in very disadvantaged areas. The reduction in stock and the maintenance backlog had direct implications for the wellbeing of tenants.

Territory Housing: Territory Housing, the Northern Territory’s public housing authority, is the only state housing GBE in Australia. It is also the worst performing public housing authority in Australia.

The Northern Territory Government classified Territory Housing as a GBE in order to increase its commercial focus and improve its efficiency and productivity. But like Housing Tasmania, Territory Housing is selling stock to offset its operating losses – it has sold 10% of its portfolio since 2000-01 – and it has a significant debt burden and a maintenance backlog.

Territory Housing does receive CSO funding, but not enough to cover its costs, so it cross-subsidises using funding it gets under the Commonwealth-State Housing Agreement. Between 1990-91 and 2005-06, Territory Housing’s real operating deficit per dwelling grew by 297%. And these financial results can’t be attributed to the cost of managing Indigenous housing in remote communities, the condition of which is nothing short of appalling, as they date from before it took on this responsibility.

The alleged productivity, efficiency and performance gains that are supposed to arise from a GBE structure obviously aren’t doing a lot for Territory Housing.

So what does all this mean for the 11,500 households living in public housing in Tasmania?

In Tasmania, GBEs and SOCs sit in a legislative and policy framework that is commercial in nature. Their primary obligation is to act as if they are private businesses. If the Government wants them to achieve a social policy outcome, then it is done through a negotiated contract and there are incentives for the Government to negotiate that contract to minimise the cost to Government.

There are clear risks in using a commercial model for a non-commercial service. The implications for clients were seen at their extreme in New Zealand, but they are also visible elsewhere.

Metro clients face limited availability of accessible buses and skeletal public transport coverage.

Despite being housed by a GBE, Territory Housing clients face the same situation as Housing Tasmania clients: outstanding maintenance requirements, a long waiting list, highly targeted allocations and fewer and fewer houses available for people who need them.

And the Public Trustee charges people with significant intellectual disabilities and serious mental illnesses 9.5% of their weekly income and dismisses this as “not too much of a burden really”.

The contrasting experiences of Housing New Zealand before and after its CSO was fully funded illustrate how critical that funding can be. But even after providing additional funding for the Public Trustee, the State Government still isn’t funding the full cost of its CSO.

Currently Housing Tasmania is under pressure to obtain ‘efficiencies’ by increasing rents, which suggests that any CSO funding for a corporatised Housing Tasmania would only be provided in exchange for efficiency gains – and in this case, efficiencies appear to equal increasing the burden on tenants.

One of the arguments put forward in the media in support of the GBE idea is that a GBE can go into debt to build more housing. This is misleading in the extreme. There is no law that says the Government can’t go into debt. In fact, the Government would be able to borrow far more cheaply than a GBE because it’s the Government. The GBE will get the same reduced borrowing rate but because they’re a GBE they have to pay compensation for that so that they remain competitively neutral with the private sector.

And, given that investment in public housing is investment in a long-term asset with appreciating capital value that benefits the whole community, few economists would criticise the Government if it did use debt to fund more public housing.

The fragile financial position of Housing Tasmania is due to the decision over the last decade – a decision supported by both levels of Government – to significantly reduce funding while at the same time requiring Housing Tasmania to allocate an increasing proportion of its housing to the poorest households with the highest support needs. Reduced revenue and increased costs means Housing Tasmania has had to sell properties to cover costs.

There is a wealth of research evidence showing that the best and most efficient and effective option for low income earners who can’t afford housing on the open market is public housing. The Government needs to go with the evidence. It needs to retain Housing Tasmania as a core Government service and fund it on a recurrent basis at a level that both fully reflects the cost of housing provision and allows for flexibility to respond to changing needs and increase supply when necessary.

Kathleen Flanagan is a research and policy officer with Anglicare Tasmania’s Social Action and Research Centre. This article is based on a longer paper, The corporatisation of government agencies: does it work for public housing?, which is available on Anglicare Tasmania’s website, www.anglicare-tas.org.au.