Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The Medibank Private Sale Bill 2006 contains a number of amendments and provisions to facilitate the sale by the government of Medibank Private in 2008. The bill is comprised of three schedules. Schedule 1 modifies provisions in the Health Insurance Commission (Reform and Separation of Functions) Act 1997 and the National Health Act 1953 to allow the Commonwealth to sell its equity in Medibank Private Ltd. It repeals section 35 of the HICA, which currently has the effect of prohibiting the Commonwealth from transferring its shares in Medibank Private. Schedule 1 also amends the NHA to provide for the fact that, once sold, Medibank Private will become a for-profit organisation and have a resulting need to distribute profits. Finally, schedule 1 also creates a new section, section 73AADA, allowing for the payment of compensation if property is acquired from a person other than on just terms.

Schedule 2 contains provisions which form the MPL sale scheme and deal with the actual process of selling Medibank Private. It does not limit the method or timing of the sale, and it recognises that the government may wish to use a number of strategies to obtain the maximum revenue from the sale. It also contains provisions which will enable Medibank Private 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. Schedule 2 also contains two appropriations clauses in relation to the cost of the MPL sale scheme and other situations in which expenses may arise. Also within the second schedule are provisions which relate to the ownership of a privatised MPL, including a five-year period in which the maximum stake that can be held by anyone in MPL will be 15 per cent.

The bill contains requirements relating to the Australian nature of MPL, including that the company is to remain incorporated in Australia and that the majority of directors must be Australian citizens, and it ensures that its central management and control is ordin-arily exercised in Australia. Schedule 3 contains consequential amendments relating to various operational aspects of Medibank Private which will cease to exist once Medibank Private is privatised. These include the removal of fixed remuneration governed by the Remuneration Tribunal Act as currently applied to certain MPL officers and the removal of non-application of section 186 and paragraph 461(d) of the Corporations Act 2001, which MPL currently enjoys.

According to page 8 of the explanatory memorandum:

The ... financial costs and benefits from a future sale or sales of ... Medibank Private Limited are difficult to quantify at this stage.

Many people and politicians seem to have a knee-jerk reaction to privatisation. They are either for or against it, without much thought or research. The Democrats policy is not to oppose privatisation when it is done for the benefit of the community and in the public interest. In situations where privatisation is genuinely in the public interest and benefits the community then it should be supported. I do not believe that it has been clearly shown that the sale of Medibank Private Ltd is or is not in the public interest or for the benefit of the community. On the one hand, I can see no sound policy reason as to why the government should continue to be involved in the private health insurance market. The role for government is the provision of public health services. On the other hand, I have not been satisfied by the government’s stated case for the sale of Medibank Private.

There is considerable distance between the real reasons for the sale and the stated reasons for the sale. Page 2 of the explanatory memorandum states that there are five objectives for the sale of Medibank Private, these being:

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.

I believe the real reasons for the sale are in fact that the government can see little policy benefit arising from keeping Medibank Private in public hands, that the government earns no income from Medibank Private and that the government can make a windfall profit or surplus of a few billion dollars from this sale.

Those are not bad reasons, but it is concerning that the government has been justifying its actions with reasons that are not what I consider to be its real and genuine reasons. The government has been dishonest in its claim that selling Medibank Private will remove a conflict of interest. This argument has been employed in defending the government’s position in relation to the sale, no doubt due to the strong and positive connotations such a position has. Where there is a genuine conflict of interest, then its avoidance, minimisation and removal is to be encouraged. However, I doubt the sincerity of the government’s claim that, by selling Medibank Private, it will eliminate a conflict of interest.

The Hansard of the Senate Standing Committee on Finance and Public Administration inquiry shows this extract from a conversation between Senator McLucas and Mr Charles Maskell-Knight, who is the Principal Adviser, Acute Care Division, Department of Ageing:

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.

Exactly. Further, doubt must be cast on the government’s claim at page 2 of the explanatory memorandum that the sale of Medibank Private will contribute to an efficient, competitive and viable health insurance industry. On the evidence put before me during the committee inquiry, I cannot say that I have been persuaded that a more efficient, competitive and viable health insurance industry will necessarily result if Medibank Private is transferred to private hands. Equally, however, I am not persuaded that a more efficient, competitive and viable health insurance industry will result if Medibank Private remains in public hands.

What I am sure of is that the simple sale of Medibank Private is insufficient of itself to produce greater competition, as the government would have us believe. The health insurance market is far from an ordinary free market, as I noted during the committee hearing, in discussion with Dr John Deeble:

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.

As increasing competition is a stated objective for the sale of Medibank Private—and it is obvious that the sale of Medibank Private alone seems unlikely to 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 10 years ago, with the Productivity Com-mission’s 1997 report Private health insurance. Given the circumstances, it is an opportune time for that report to be updated and reviewed.

Aside from the government’s motivations and reasons for selling Medibank Private, there are other aspects which merit discussion here. A key issue throughout the debate has been the question of ownership of the assets of Medibank Private and whether or not members will be entitled to seek compensation from the government. Most accept that the government has the right to dispose of Medibank Private. But the Parliamentary Library Bills Digest rightly highlights the risk that the government may be exposed to a potential class action by MPL members seeking compensation from the government as a result of Medibank Private being privatised.

It is important to note that the bill accepts this risk as real. In the bill, liability rests with the Commonwealth—the classic constitutional clause allowing for compensation where property has been acquired other than on just terms. More accurately, it does not rest with the government; it rests with the people of Australia, the taxpayers.

I am not at all convinced by the legal advice from Blake Dawson Waldron, which maintains at page 3, item (f), of the brief to the department:

Contributors have no rights or property interests in assets comprising the Fund, or enforceable rights to the benefit of Fund assets ... For this reason, the Commonwealth will not be liable to pay compensation …

Despite the evidence given to the committee by the department, it is clear that the government does not agree, either, with the legal advice from Blake Dawson Waldron. Otherwise, why would it have a clause giving a Commonwealth indemnity to cover the risk? The government says that the liability clause is a standard one—a precautionary provision that would prevent 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.

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. This is a problem that needs to be faced up to. The only sure-fire way to avoid this risk altogether, therefore, is to sell Medibank Private Ltd to its members. Rather than selling off Medibank Private via a public float—as the government seems intent on doing—or private placement, Medibank Private could be mutualised and sold to its members. By way of example, if there are 1.2 million members, which was the evidence we had, each member could be offered a right of first refusal to purchase 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.

In my mind, this removes any risk that the government may be exposed to. It means the government receives its money. It satisfies the members by giving them right of first refusal in buying into Medibank Private and is potentially the lowest cost approach. Remarkably, however, the government so far has refused to seriously consider this as the avenue to proceed down. One cannot help but feel that, by and large, the government believes there to be an assumption that the sale of government assets must be by public float.

Finally, I wish to address what is to be done with the proceeds from the sale of Medibank Private. As I noted earlier, the sale of Medibank Private may raise a sum of close to $2 billion for the government—a substantial windfall. The important question then is: what will the government do with the proceeds from the sale? Up to $2 billion will be a substantial amount, and there should be concern about what the government will do with the proceeds from the sale of this Commonwealth asset.

The bill is silent on the matter. The realistic options would seem to be: placing the proceeds of the sale into general revenue for current expenditure; placing the money into the Future Fund to meet the future superannuation liabilities of public servants; or to hypothecate the funds. The first two options I have listed strike me as being singularly unattractive. It would be poor financial management and poor financial policy to put the proceeds of asset sales into general revenue for current expenditure. Tipping the money into the Future Fund to meet the future superannuation liabilities of public servants would be a singularly unattractive option, as opposed to the far more immediate and better alternative represented by the need for current health capital expenditure. This suggests to me that the sound option would be the hypothecation of the funds for the provision of public health care services. The Democrats have been anxious for some years about the lack of Commonwealth expenditure on mental and dental health, as well as on other public health measures.

Further, I believe that such hypothecation of funds would also help alleviate concerns that some stakeholders and certain members of the public hold in connection with the proposed sale of Medibank Private. The following questions are generic to all privatisation 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? A strong case has not been made for Medibank Private remaining in public hands. The weakest aspect is with regard to the present intended use of the realised sale funds if it were to move out of public hands.

I reiterate that Democrat policy does not state that Medibank Private should be kept in public hands. Democrat policy states that the Australian Democrats are not automatically opposed to privatisation of government assets. Each case of privatisation should be assessed on its merit with reference to the community benefit and the public interest. The question is: is this sale 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. I believe that the public health market is the area which the government should focus on. However, I do not wish to see the Medibank Private Sale Bill 2006 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.

The revenue that would be raised from the sale of Medibank Private must be dealt with specifically by the bill. Not to do so would be to leave the door open for its appropriation into general revenue or for the sale funds to be tipped into the Future Fund. Neither of these alternatives justifies the sale.

I have circulated amendments which will address our concerns and which will hopefully receive some positive responses. The other thing I have addressed is the issue which was looked at by the Senate Standing Committee for the Scrutiny of Bills, and that is the open-ended nature of the provision for when the sale should be concluded and therefore when the provisions of the bill should apply. I have sought to limit that in time terms, as the scrutiny of bills committee implied. In closing, I wish to move two second reading amendments.