Rod Sawford (Port Adelaide, Australian Labor Party) Share this | Link to this | Hansard source

Each generation breeds its own greed brigade. We all remember the excesses of the mid-1980s when banks across Australia lost $28 billion on foolhardy ventures and loans. We all should become aware of the growing private equity debt in Australia and its possible threat to superannuation funds. As I said, every generation has its own brand of greed brigades and yet another is emerging. Greed does not result in wealth creation. High debt does not result in wealth creation. Private equity debt is no different. Ultimately, debt cannot create wealth. That only happens when productivity, innovation and hard work occur. Certainly carpetbaggers can make ill-gotten gains in the short term, but ultimately greed, financing on debt and high private equity debt, leads to tears.

In 2004, and five years previously, private equity debt in Australia averaged $1.5 billion. In the 2006 December quarter it grew to $19 billion. That is $76 billion a year. The $11 billion proposed sale of Qantas is a case in point. If allowed to go ahead, this grab for an Australian icon will be financed by 70 per cent private equity debt. Significant individuals become megamillionaires on the transaction fees alone. Ken Davidson in the Melbourne Age on 15 February said there are five reasons why the Treasurer should block the sale of Qantas to the private equity debts consortium. He wrote:

The sale is at the expense of Australians both as taxpayers and superannuants. It increases the risk Qantas will go bankrupt.

The takeover will not generate wealth. It simply adds to the already considerable foreign debt in Australia of $550 billion.

In the 1980s the main actors were the Bonds, the Holmes a Courts, the Spalvins, the Skases and the Abe Goldbergs. The victims were the banks, which ended up with $28 billion in non-performing loans. Those entrepreneurs have now been replaced by a new breed of financial engineers who specialise in private equity. The banks still play a major role but, instead of depositors’ funds being risked, the deals and the risks are passed on to superannuation funds.

Fees passed for a successful sale are staggering. They could be as high as $500 million—a very nice bonus for some. ‘You beauty,’ they say. But that low-grade activity will add nothing to Qantas’s value. If Qantas is sold to the private equity group, then in five years Qantas will be sold again—this time to the public, with another round of hefty transaction fees for that sale too. ‘Thank you very much,’ says the new round of financial engineers. ‘You beauty, we’re going to be rich.’ Productivity zero, but rewards for some counted in tens and hundreds of millions of dollars.

What encourages these actions are the scandalous decisions by the Howard-Costello government to abolish capital gains tax on capital gains realised by foreigners and changes by the corporations regulations to not make private companies subject to the same rules as are applied to public companies. These decisions should be reversed. If not there will be a flood of LBOs—leveraged buyouts—and, unlike the eighties when the banks were exposed, this time it will be the superannuation funds at risk. (Time expired)