Asset recycling no dream for Hockey, but efficiency boost likely

The federal government’s A$5 billion asset recycling initiative, part of Prime Minister Tony Abbott’s claim to be the “infrastructure prime minister”, has passed the Senate.

Under the initiative state and territory governments will receive from the federal government a payment of 15% of the sale value of privatised assets, so long as the proceeds are invested in new infrastructure projects. The legislation has been amended to allow parliament to veto the payments on a case-by-case basis, with a cost-benefit analysis by Infrastructure Australia before payments are approved.

In his budget announcement, Treasurer Joe Hockey stated: “The government’s $5 billion investment through the asset recycling initiative will leverage close to $40 billion of new infrastructure investment from the states and territories.”

Economists have engaged in a long and inconclusive debate about the size of the “multiplier”, which is a measure of the extra expenditure induced by an additional dollar of government spending. Given that many economists doubt the multiplier is much greater than one, Treasurer Hockey’s claim of a multiplier value of eight is surely the high-water mark of Keynesian optimism. Rather, state governments are likely to repackage projects already planned so as to qualify for the incentive.

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