The Andrews government and the rise of Rentier capitalism in Victoria

ABSTRACT

On 26 November 2022 the Andrews Labor Government was re-elected for a third term in the State of Victoria. The starting point for this paper is its decision during the pandemic to seemingly break with neoliberal political orthodoxy, by boldly and deliberately leveraging the state’s balance sheet to avoid recession, using debt-funded record levels of spending, particularly on infrastructure, as a means of doing so. The paper argues that in decisively embracing a neo-Keynesian budget strategy, the Andrews government did not actually break with the recent neoliberal past. It turbo charged it, with the dramatical increase in debt-funded spending being used to finance a massive expansion of an intricate network of private monopoly contractors operating everything from ports, tollways and public transport, to policy advice, jails and road maintenance. The paper concludes that over the last four decades of policy reform, Victoria has been transformed into a ‘Rentier State’.

2022年11月26日维多利亚州的安德鲁斯工党政府第三次当选。本文的出发点在于该届政府于疫情期间似乎要与新自由主义的政治教条决裂，大胆而稳当地利用州资产负债表以避免衰退，办法就是通过举债增加投资尤其是基础设施的投资。本文指出，安德鲁斯政府虽断然采用新凯恩斯主义的预算，但并非真地与新自由主义的过去告别，而是为其输血打气。巨量的举债投资为私人垄断承包商融了资，他们的业务从港口到收费站到公共交通到政策咨询到监狱到道路养护。本文的结论是，经过以往四十年的政策改革，维多利亚州已被改成了一座“收租院”。

KEYWORDS:

• State politics
• Andrews government
• rentierism

Introduction

The focus of this paper is the Andrews Labor Government, which was elected to office in Victoria in 2014 and re-elected in 2018 and 2022 with landslide-scale victories. Labor’s social reform credentials are impressive for their scale and depth, including nation-leading policy changes in family violence, trans-gender rights, assisted dying legislation, mental health reform, social housing investment and Treaty with Aboriginal people (for an excellent summary, see Strangio 2022). Labor also earned national and international attention during the pandemic for its commitment to lockdowns as a means of controlling the spread of COVID-19 (Le Grand 2022).

These social reforms and also Labor’s preparedness to champion health over civil liberties during the pandemic are in themselves deserved of analysis in their own right. This paper, however, takes as its starting point the Andrews government’s financial and budgetary reforms during its second term, which are eye-catching and historically significant in their scale, as well as their speed of implementation. In 2020, 2021 and 2022, Labor delivered a series of breathtakingly expansionary budgets to try to pump prime the economy out of a pandemic-induced recession (Victorian Government 2020, 2021, 2022). State spending surged to record levels, as did state debt.

Victoria was not the only state to follow this path. But it led the nation, and remained committed to it longer than any other jurisdiction.¹ In the process, the Andrews Government apparently overturned 3 decades of bi-partisan support for neoliberal budgetary settings famously first put in place in Victoria by the Kennett government in the early 1990s. Under these settings, the budget was not to be used as a counter-cyclical tool, but was to be kept in balance throughout the course of the business cycle. Net debt was to be kept at near zero levels.

One interpretation of this is that the Victorian political economy has returned to the neo-Keynesianism last embraced by the Cain Labor Government during the 1980s, and which ended disastrously courtesy of the early 1990s recession. This approach had been abandoned by the Labor Governments of Steve Bracks (1999–2007), and John Brumby (2007–2010) and also the first term of the Andrews Government.²

Part one of this paper explores this line of reasoning by considering long-term trends in government payments, receipts, debt and infrastructure spending. Here it is shown that in its rapid expansion of debt-funded spending the Andrews Government has broken with the recent past by embracing neo-Keynesian budget settings to a degree that exceeded that of the Cain administration.

Broad financial data are useful as a means of capturing changes over time and also for comparisons. But they are limited. What matters more are the social, political and economic relationships that underpin them. These more detailed considerations form the subject matter of parts two and three. Here it is shown that the Andrews Government did not inherit a shrunken state as is conventionally believed, but a privatised one³ involving a web of contracts with large private ‘monopolies’.⁴ This privatised state was embraced by successive Labor and Coalition administrations. It was also embraced by the Andrews Government during its first two terms. Its decision to turbo charge state spending during the pandemic has mainly served to dramatically extend the privatised network of monopolies that have become dependent on the public purse.

Part four of the paper draws upon recent theoretical writings to make sense of this process. It is argued that we have been witnessing the emergence of ‘Rentier Capitalism’ in Victoria, in which private capital operating in highly concentrated markets has emerged as the major beneficiary of the dramatically enlarged state. By drawing on recent theoretical work on ‘Rentierisation’ (Christophers 2022), the paper offers a new way of understanding the role state governments have played over the last four decades in facilitating, if not leading, major structural economic reform of an enduring kind. The paper also offers one of the first detailed historically situated accounts of the Andrews Government’s approach to public finance and economic policy by drawing together detailed evidence on contracts and privatisations across a broad range of policy domains.

1. The Andrews Government’s financial performance: back to the future?

Over the four decades to 2020, there were two broad approaches to budgetary and financial policy by Victorian governments. During the 1980s, the Cain Labor Government adopted a neo-Keynesian approach in which the State’s finances were to be used to balance the economy (Davidson 1992). It won office in 1982 during a major recession and quickly used debt-funded spending on capital works to drive economic growth (Considine and Costar 1992). For much of the 1980s, this neo-Keynesianism seemed to work. Unemployment fell to 4.6% by 1989, the lowest in Australia (Victorian Government 1989). That success story collapsed in the 1990/1 recession (Davidson 1992). Debts and deficits grew alongside record unemployment and poverty, and the public sector became almost paralysed by mass strikes. The neo-Keynesian experiment came to a disastrous end.

The Kennett Coalition Government won a landslide victory in October 1992 (Costar and Economou 1999), moving quickly to implement a wide-ranging set of neoliberal reforms. It spent its first term cutting spending by 10% and increasing tax revenues by a similar amount (Hayward 1993). It also implemented a massive programme of privatisations, particularly during its second term, across electricity and gas, public works, complementing a swingeing programme of outsourcing, that extended to local government. A neoliberal financial architecture was legislated, and a new budget framework was adopted. Recurrent spending and taxation were to be kept low, the budget was to remain in surplus and debt kept at near zero.⁵

In 1994, Labor in Opposition formally ditched its commitment to neo-Keynesian budget policy, emphasising instead the need for sound financial management (Theophanous 1994). When Labor eventually won office again in 1999, budget settings remained very similar to those of Kennett, under both the Bracks (1999–2007), and Brumby (2007–2010) Labor governments (Ilanbey 2022, 154), as well as the Coalition Government (2010–2014) that followed.⁶ They were also embraced by the Andrews Labor Government during its first term (2014–2018). Those bi-partisan principles included a commitment to retaining a AAA credit rating, delivering an operating surplus sufficiently large to pay for all or part of capital spending, a pledge to keep taxes to around the national average – a challenge for Victoria because it receives a relatively low proportion of revenue from Commonwealth grants – and a commitment to grow infrastructure investment (see Victorian Government 1999, 18, 2009, 8, 2014, 8, 2018a, 6). It was generally agreed in Victoria and NSW at least that there was no role for the states in counter-cyclical fiscal policy (see for example the NSW Public Accounts and Estimates Committee 1994).⁷

In 2018, the policy settings began to change. The Andrews Labor Government had won a landslide election victory, having promised to increase borrowings modestly to fund a record amount of infrastructure. In 2020, the coronavirus struck, and the Andrews Government responded with three budgets that delivered a massive stimulus, taking spending and debt well beyond levels seen when Cain was premier. The second term Andrews Government could be seen to represent a ‘return to the future’, with Labor once again resorting to the neo-Keynesian policy script to which John Cain was committed.

Figures 1–3 illustrate these trends. They provide aggregate financial data for the Victorian General Government sector, all expressed as a percentage of gross state product for the period from 1988/9 to 2022/3. Figure 1 shows payments and receipts, while Figure 2 shows infrastructure spending. Figure 3 shows net debt.

Figure 1. Victorian General Government Sector, Payments and Receipts, % of Gross State Product, 1989/90–2022/3 (budget). Source: Department of Treasury and Finance financial data sets accessed at https://www.dtf.vic.gov.au/economic-and-financial-updates/state-financial-data-sets on 15 October 2022.

Figure 2. Victorian General Government Sector, Net Debt as % of Gross State Product, 1989/90–2022/3 (budget). Source: Department of Treasury and Finance financial data sets accessed at https://www.dtf.vic.gov.au/economic-and-financial-updates/state-financial-data-sets on 15 October 2022.

Figure 3. Victorian General Government Sector, Purchases of Non-Financial Assets as % of GSP, 1989/90–2022/3 (budget). Source: Department of Treasury and Finance financial data sets accessed at https://www.dtf.vic.gov.au/economic-and-financial-updates/state-financial-data-sets on 15 October 2022.

Figure 1 shows that, under the Andrews government, the state budget has moved back into substantial deficit over the last 3 years, and these deficits are much larger than those of 4 decades earlier. Similarly, spending has climbed under the Andrews Government to levels exceeding that of the late 1980s/early 1990s.

Figure 2 presents a similar picture. General Government net debt has climbed dramatically over the last 3 years to levels that are much higher during the crisis years of the early 1990s. From close to zero in 2002, net debt is projected to hit 22% of GSP this financial year (and over 26% by 2025/6).⁸

An even more pronounced pattern is shown by Figure 3. Infrastructure spending over the last 3 years has massively eclipsed the peak years of the late 1980s, after tumbling to record lows during the Kennett era. Today, Victoria is spending more than 3 times as much on infrastructure as it was during the 1980s and 1990s. The available evidence suggests this pump priming was successful in preventing the economy from moving into recession (see for example Victorian Government 2022, 17–34).

It would be premature, however, to interpret these data to mean that the Andrews Government’s last 3 budgets represent a sharp break with the neoliberal policy settings that have dominated Victorian and Australian politics for a generation. Figure 4 provides a more nuanced picture by breaking payments into two categories: salaries and wages, and purchases of goods and services.

Figure 4. Victorian General Government Sector, Payments on Wages and Salaries and Payments on Goods and Services % of Gross State Product, 1989/90–2022/3 (budget). Source: Department of Treasury and Finance financial data sets accessed at https://www.dtf.vic.gov.au/economic-and-financial-updates/state-financial-data-sets on 15 October 2022.

The figure shows that while the Kennett Government in the 1990s reduced dramatically spending on wages and salaries, it simultaneously increased spending on goods and services. In its first full budget delivered in September 1993, it made clear that one of its key objects was to:

… shift … departmental focus from one of direct provision of services to that of service purchaser on behalf of the community. This approach will introduce greater competition to increase efficiency and effectiveness in the delivery of taxpayer funded services. (Victorian Government 1993, 14)⁹

The relative significance of paying public servant wages and purchasing goods and services was almost reversed. In 1989/90, spending on wages and salaries was equivalent to 5.2% of GSP and spending on goods and services, 2.7%. A decade later wages and salaries were 4.4% and goods and services 3.8%. Subsequent governments continued to increase the spend on goods and services, which hit a high of 5.8% of GSP in 2022/3. While the Andrews Government increased spending on wages and salaries during the pandemic at a faster rate than it did spending on goods and services, the broad pattern established by Kennett was preserved. This big increase in spending on goods and services by Kennett, led some commentators to label Victoria ‘The Contract State’:

More than any other, Victoria can increasingly be seen as a “contract state” – that is one in which activity previously subject to some form of organisational hierarchy is governed by contracts (or quasi-contracts) between buyers and sellers, either outside or inside the public sector. (Alford and O’Neill 1994, 2)

And there is no sign that this title has lost its relevance under Andrews. The Department of Transport provides but one example. In 2019/20 it spent less than 4% of its budget on salaries. The rest went on contracts, for the delivery of infrastructure, privatised train, tram and bus services and also policy and research (Victorian Department of Transport 2020).

The Andrews Government has been content to allow the giant private tollroad operator, Transurban, to continue to expand the empire that began under the Kennett Government, generously extending its concession in 2019 by a decade so as to enable it to build its massive Westgate Tunnel. The Victorian Parliamentary Budget Office estimates that this will generate for Transurban an additional $11b in revenues (in 2018/19 dollars) over the life of the agreement to 2044/45 (accessed at https://pbo.vic.gov.au/response/389 on 22 October 2022).

Other major privatisations include the Andrews Government’s decision in 2016 to lease the Port of Melbourne for 30 years, generating almost $10b (allocated to cover the cost of railway crossing removals), and more recent decisions to sell the land titles office and part of VicRoads.

Of even greater significance is the Kennett Government’s privatisation of the electricity and gas industries. Successive governments have embraced these reforms, enabling full retail price deregulation to proceed apace and allowing Victoria to become a key player in the National Electricity Market. In 2019, the Andrews Government partially reversed course, by reintroducing price regulation after significant price increases in the preceding decade of deregulation (The Age, May 30, 2019, accessed at https://www.theage.com.au/politics/victoria/government-s-no-frills-power-bills-to-save-victorian-households-hundreds-20190530-p51son.html on 22 April 2023).

Kennett closed the state’s public works department, while simultaneously introducing a new Infrastructure Investment Policy ‘which articulated a role for the private sector in the design, construction, ownership, operation and delivery of government infrastructure projects’ (Sands, O’Neill, and Hodge 2019, 580). Taken together, these two measures meant that whenever future governments chose to increase spending, this would all end up in the pockets of private contractors. When the Andrews Government did significantly increase infrastructure spending, it did so through contracts with private construction firms.

To this must be added the successful attempts by the Bracks and Brumby Labor Governments to find new privatised means to deliver large scale infrastructure projects through Public Private Partnerships (PPPs) (see Hodge 2006), a policy that has been enthusiastically embraced by the Andrews Government. These involve a consortia of private financiers, builders and service providers, bidding for long-term contracts to construct and typically operate infrastructure of 25–30 years. In return, they are given ‘availability’ payments by the state, which are split across different parts of the public accounts, making it difficult to keep tab of them. These include 37 completed or current projects that cover everything from hospitals, a desalination plant, train rolling stock, underground tunnels, 255 schools, traffic infringement cameras, and new tollways. By 2018/19, these PPPs accounted for almost 40% of General Government net debt and half of all interest payments (Victorian Government 2018b, 36).

It would be incorrect, then, to portray the Andrews Government as having turned its back on the neoliberal policy settings it inherited. It appears to be more of a hybrid that combines the Cain and Kennett Governments in one package. It has adopted neo-Keynesian budget principles for the first time since the Cain era, but the bulk of this increased, debt-funded spending during and prior to the pandemic has been on private contracts and contractors, partly because past administrations have sold the state’s most important business enterprises (the State Bank, the SECV and the Gas and Fuel Corporation), or contracted them out (metropolitan trains, trams and buses, public works, for example).

The story is however rather more complicated than this, as we are about to see.

2.	Neoliberalism in Victoria: in whose interest?

The Kennett Government promoted its reform agenda as being one of privatisation to deliver competition, which in turn would spur innovation and economic growth. The outcome bore little resemblance to this promise. The state has funded and enabled large private monopolies to dominate service provision where previously it was in public hands. By private monopoly is meant companies that enjoy considerable economic power because they control assets that operate in markets where there are few if any competitors, and this in turn feeds into excess profits and/or reduced output. This lack of competition derives from scale economies, the existence of barriers to entry, or the reality of geography which makes it uneconomic for there to be more than one provider in a given locality. Monopoly power can be secured through long-term contracts, which prevent competition from happening for the duration of the contract. It can also be derived through opaque, confusing pricing, which ensures that consumers do not know what they are being charged.

All of these characterise the privatised energy markets created by Kennett, and continued by subsequent governments. In 2021, the 2 biggest generators of electricity in Victoria accounted for 57% of the market, and the top 3 over 75% (Australian Energy Regulator 2022, 48–49). They were also vertically integrated, accounting for the lion’s share of the electricity retail market (Australian Energy Regulator 2022, 49). There was one electricity transmission company and only 4 distribution companies, all privately owned. A single Hong Kong company owned 3 of the 4 distributors, and the fourth was owned by the single owner of the electricity transmission system, which also owned the fourth of the four distributors.

Recent research suggests that the transmission and distribution companies (nation-wide) have been allowed to generate profits up to 67% higher than normal (Orme 2022, 1).¹⁰ The Independent Review into Gas and Electricity Retail Markets in Victoria (2017) also concluded the large retailers were able to mobilise their monopoly power to charge high prices, which in turn was used to pay for expensive marketing programmes. That helped deliver a remarkably loyal customer base:

Retail electricity and gas tariffs in Victoria have increased significantly since the early 2000s … Victorian households and small businesses are paying almost 200 per cent more than they paid for electricity and gas before competition was introduced in 2002. This is not what was anticipated when the Victorian energy market was deregulated. (2017, 6)

This view has been repeatedly endorsed by the Victorian Essential Services Commission (see for example Victorian Essential Services Commission 2021a, 6).

It is a similar story with gas. In 2022, there were only 3 companies owning transmission pipelines, 2 of which share the same owner (Jamena, which is owned by the State Grid Corporation of China and Singapore Power International). There were only 3 gas distribution network companies, one of which (Ausnet Services, which is part-owned by State Grid Corporation of China and Singapore Power International) also owns the electricity transmission network and is also an electricity distributor (Australian Energy Regulator 2022, 159). One company (owned by Hong Kong based CK Infrastructure Holdings) owns 3 of the 4 gas distribution networks. 3 retailers account for almost 60% of the market, and 4 account for over 75% (Australian Energy Regulator 2022, 104). These same companies dominate the retail market for electricity.¹¹

A similar story is to be found in public transport. Kennett initially contracted out the metropolitan railways and the trams to two different firms, each with a geographic monopoly. The country rail service was also contracted out. The British firm, National Express – itself a product of the Thatcher Government’s privatised public transport regime – came out of the process with 3 franchises, one for metropolitan trains, one for trams, and one for the country rail service. Kennett initially intended that the operating subsidies would decline by over $162 m over the first five years as patronage increased. The increase in revenues did not eventuate and National Express hastily returned its franchises in 2002, requiring urgent government intervention and a dramatic increase in subsidisation (see https://www.ptua.org.au/campaigns/govern/priv-2004/). The privatised public transport system has become even more concentrated than when it started. It was also more expensive to operate than when it was a public monopoly (Mees 2005; Mees et al. 2006).

Subsidies have continued to grow,¹² while performance assessment has been made difficult by the ability of the private companies to game the system, including trains skipping stations (https://www.theage.com.au/national/victoria/metro-fined-for-skipping-stations-20120914-25xwu.html) and trams cutting trips short in order to avoid fines for lateness. During the pandemic, the private operators were paid $16 m in performance bonuses, despite having no customers. In a deal that was not disclosed publicly, between April and December 2020, they also received $100 m of ‘relief’ monies to compensate them for the loss of patronage during the coronavirus lockdowns (https://www.theage.com.au/national/victoria/trains-and-trams-empty-but-operators-given-millions-in-bonuses-during-covid-20210328-p57eox.html).¹³

The story is even more remarkable when it comes to Transurban, owner of CityLink, the state’s first private toll road. Its annual report shows that in the fiscal year 2022 its CityLink tollroad recorded earnings before interest, tax, depreciation and amortisation (EBITDA) of $594 m on toll revenues of $722 m. Its net profit was $329 m, delivering an EBITDA margin of a staggering 82%. It has turned into such a profitable asset that Transurban has been able to buy up the M2, M5West, Lane Cove Tunnel, the M7, M4, M8/M5 East and NorthConnex toll roads in NSW as well as 7 other toll roads in Brisbane (https://www.transurban.com/investor-centre/reporting-suite accessed on 4 October 2022). It has grown so large that it is now the 13th biggest company on the Australian Stock Exchange.

Transurban’s returns have been so high that in 2016 former Premier Kennett proposed that it be required to return the original concession to the state 10 years early (https://www.afr.com/companies/transurban-disputes-jeff-kennetts-claim-of-grounds-to-hand-back-citylink-20160526-gp4ful accessed on 4 October 2022). A year later he stepped up his criticism, saying the company was ‘getting away with financial murder’ (https://www.heraldsun.com.au/news/opinion/jeff-kennett-we-must-not-stand-for-this-gouging/news-story/64ff85ac839b5270c836644ef52d5c9a accessed on 4 October 2022).

The privatisation by the Andrews Government of the Port of Melbourne also succeeded in creating a private monopoly. In its 2021 performance review of the privatised Port, the Victorian Essential Services Commission found that it was overcharging based on an inflated estimate of its ‘weighted cost of capital’ to the tune of between $300 and $500 m over a five year period. It also found that its operations were relatively inefficient, and that it had not listened to feedback from its end users about over-charging and under-delivering (2021b, 14–15). It concluded, ‘We find the Port’s non-compliance can be considered significant and sustained and not in the best interests of Victorian consumers’ (2021b, 16).

The big increase in infrastructure spending particularly by the Andrews Government has been accompanied by a series of mergers and acquisitions, which have left the construction industry more concentrated than ever. There are effectively only 6 remaining: Chinese Communications and Construction Company (Chinese, brands include John Holland); Grupo ACS (Spanish, brands include CIMIC, CPB Contractors, Leighton Contractors and Theiss); Brookfields (Canadian, brands include Multiplex); WeBuild (Italian); ACCIONA (Spanish, brands include Abigroup and Bilfinger, having fully absorbed Lendlease’s Engineering Division in 2020) and Ferrovial (brands include Cintra). All tier 1 construction firms are overseas owned (https://www.afr.com/companies/infrastructure/shift-that-pendulum-back-to-australian-owned-20220513-p5al2k accessed on 16 October 2022) and they dominate the megaproject infrastructure market accounting for 95% of projects valued at over $500 m, nation-wide. Of Victoria’s 33 listed PPPs, they are partners on 20 of them, worth a combined value of over $40b. The pace of mergers and acquisitions is fast and they are dizzying in scale.¹⁴

Even with their commanding size, they team up with other large companies to deliver Public Private Partnerships through special purpose vehicles, which include a financier. Two financiers dominate: Capella, a subsidiary of LendLease, and Plenary. The former has helped finance over $13b of projects, while the latter has helped finance $8b. Graeme Hodge (2006) and Sands, O'Neill, and Hodge (2019) has repeatedly pointed out that successive Victorian governments have dragged their feet when it comes to releasing the financial details of these PPP contracts publicly, and the level of accountability remains strikingly low. In the only detailed review of Victoria’s PPPs commissioned by the Bracks Government back in 2004, the Reviewer, Peter Fitzgerald (2004), found that the projects he was investigating may have cost the state $350 m more than had they been traditionally procured.

The non-PPP infrastructure projects also involve a small number of consortia, which have emerged in response to protracted litigation between the private construction companies and governments arising from unforeseen increases in costs. The approach has been given the name, ‘Alliances’, in which three or four companies combine together to bid for – and, if successful, deliver – an infrastructure project on the understanding that unforeseen cost overruns can be negotiated with government rather than sorted through litigation (see for example Department of Infrastructure and Regional Development 2015).¹⁵

Nor is it only in infrastructure where the State Government has encouraged and enabled monopolies to flourish. In policy and research, the big 4 global consulting firms – KPMG, Deloitte’s, PWC and Ernst and Young – are the major beneficiaries. In 2021, Victorian state government revenues received by them were just short of $100 m (https://www.theage.com.au/national/victoria/state-consultant-bill-blows-out-by-300-per-cent-20211130-p59dbw.html accessed 18 October 2022). By way of comparison, the Department of Treasury and Finance’s expenses on wages and salaries for that year amounted to a little over $200 m (Victorian Department of Treasury and Finance 2021, 46).¹⁶

The privatised jails provide another example of monopolisation. The private prison industry is dominated by 2 main global companies, GEO and G4S. GEO operates the Fulham (originally contracted in 1996 and re-contracted in 2015) and Ravenhall (contracted in 2015) prisons, while G4S operates Port Phillip Prison (originally contracted in 1996, re-contracted 2015). Sands, O’Neill, and Hodge (2019) point out that the private prisons have avoided detailed scrutiny of their performance and cost. Drawing on a range of secondary data, they conclude that their performance is at best mixed: ‘The anticipated lower costs have not occurred across the board, improvements in performance have been mixed … and accountability is still contested … Commercial-in-confidence provisions thwart the public’s ability to identify contractual violations … ’ (2019, 592).

There is one other characteristic of these rentiers: they pay little and sometimes no income tax. In 2020/21 (all the figures reported here are for that financial year), Keolis Downer, the operator of Melbourne’s tram service, paid no income tax against total earnings of $1.2b. Metro Australia which operates Melbourne’s train service had a tax bill of just $13 m on total earnings of $2b (its taxable income was $43.2 m). Kinetic, one of the big private bus operators, paid no tax on total income of $276 m. Transurban Holdings also paid zero tax, on total income of $2.4b (taxable income of $92.2 m), as did the PPP financier, Plenary (total income of $249.5 m). Acciona, the big construction firm, paid zero tax on $1.7b of income. Serco paid $39.8 m in corporate tax on total income of $1.3b, while GEO Group, which operates Fulham and Ravenhall prisons, paid no income tax on total income of $465 m. AGL – one of the big four energy companies – paid $64.8 m in tax on $11.7b total income. KPMG paid no tax on income of $203.8 m, while Accenture paid just $31.2 m in tax on $2.3b in income, (Australian Tax Office 2020/21 Report of Entity Tax Information accessed at https://www.ato.gov.au/Business/Large-business/In-detail/Tax-transparency/Corporate-tax-transparency-report-for-the-2020-21-income-year/).

The state, then, has not only massively expanded, but this has been accompanied by the rise of monopolies, which in turn manage to pay very little tax on their total earnings. Profits have been privatised and risks socialised. There is very little if any evidence to show that ‘consumers’ have been the main beneficiary or that services have improved. These trends were kicked off by the Kennett government, and have been maintained by subsequent administrations, before being accelerated dramatically by the Andrews administration.

Victoria: the Rentier state?

In his new book, Rentier Capitalism (2022; see also 2019, 2021), political economist Brett Christophers has drawn attention to a new form of capitalism, involving:

… an economic system not just dominated by rents and rentiers but, in a much more profound sense, substantially scaffolded by and organized around the assets that generate those rents and sustain those rentiers … (253)

It is not just monopoly control of assets that enables and defines rentier capitalism. It is that the assets are deployed in markets involving little or no competition, with rents being extracted as a result (2022, 374; see also 2019, 308–309).

A key feature of Rentier Capitalism is the role of large private companies.¹⁷ Their monopoly power comes, Christophers argues, from a variety of not necessarily independent sources, but one of the primary ones is government (and private) contracting and subcontracting. These contracts are themselves scarce and are binding for years, sometimes exceeding a decade (2022, 546). Another core source of rents, is privatised infrastructure, which is a prerequisite for service delivery in that there are no or few alternatives to it (2022, 558).

Significantly, Rentierism is mainly about the extraction of value rather than its creation, for investment, innovation and productivity improvement are unimportant to it. It is this which helps explain contemporary Britain’s tardy productivity performance over recent decades, and also the declining rate of innovation. The key skill is to be able to bid for and win contracts and the longer the better, for once won, the winner is shielded from competition for its duration.

Christophers draws attention to the significance of PPPs for rentier capitalism, portraying them as an ‘endemic’ source of monopoly pricing and profits (2022, 259–260).

What of the relationship between Rentier Capitalism and neoliberalism?:

Rentierization has not only been coterminous with neoliberalism; it has, to a large extent, been the result of neoliberalism – that is, of the particular constellation of ideas and actions that we have increasingly come to associate with that term, not least in the pivotal realms of monetary and fiscal governance, resource allocation and property rights … (2022, 20).

Under neoliberal policy settings, competition policy has been championed, but simultaneously weakened, through feeble enforcement and more importantly by courts that have not been persuaded by the lofty goals of competition policy. These arguments apply as much to the UK as they do Australia (see Leigh and Triggs 2016, 2021; Triggs and Leigh 2019).

What we have witnessed in Victoria over the long sweep of time from Kennett through to Andrews is the state government becoming deeply embedded in the transition of Australia toward rentier capitalism, courtesy of neoliberalism. This partly reflects path dependence in policy making in western democracies (see for example Greener 2005), which makes policy u-turns difficult, although not impossible. It has partly been driven by institutional reforms at the federal level over the last forty years, including competition policy encouraging privatisation, the asset recycling initiative that provided financial rewards to states that privatised assets, the leveraging of tied grants by the Commonwealth to encourage state policy reform, and the deployment of the Productivity Commission to recommend further neoliberal reforms through bespoke reports on key pieces of state infrastructure and public service delivery. The Reserve Bank has played its part by agreeing during the pandemic to buy large quantities of Victorian Government bonds as part of its quantitative easing strategy, thereby keeping interest on debt lower than it otherwise would have been (see Finlay, Titkov, and Xiang 2021). It has also been driven by the peculiar dynamics of global capital markets, which encourage and reward industry consolidation.

The extent of what is happening is extraordinary. In addition to the 37 pieces of large scale public infrastructure that are being leased or are in the process of being leased from private providers under contracts lasting as long as 30 years, the State Government has commissioned or is about to commission over the next four years public works contracts worth $160b. The non-financial public sector in Victoria will spend almost $110b in 2022/3, yet only $34b will be spent on wages and salaries.

The sweep of privatised public services is breathtaking, from the delivery of train, tram and bus services, to the construction and maintenance of roads, bridges, tollways, hospitals, schools, a water desalination plant, and its ports, through to the provision of electricity and gas, and even policy and research, jails and traffic fines. Victoria has become deeply enmeshed into networks of global firms whose strength is their expertise in bidding for contracts globally.

Rentier capitalism in the Australian states: future research

Is Victoria a lone wolf amongst the Australian states and territories? This question forms part of a larger research project that is at its early stages. Preliminary findings suggest that Rentierisation extends across the nation, but at a varied scale and pace. It appears to be most advanced in Victoria, NSW and South Australia, and least well-developed in Western Australia. The latter is not part of the National Electricity Market and has declined to privatise public transport and ports (see https://theconversation.com/wa-port-sales-the-latest-privatisations-to-hit-political-hurdles-56907 accessed on 3 February 2023).

The privatised parts of the National Electricity Market involve the same big and largely overseas owned players who dominate in Victoria. The same private operators of jails in Victoria operate in NSW and South Australia and also in Queensland until it renationalised its 2 privately operated prisons in 2020 after a scathing Corruption Commission report (see https://www.theguardian.com/australia-news/2019/mar/26/queensland-to-end-private-jails-experiment-after-scathing-report accessed on 3 February 2023). Transurban runs 10 out of 12 toll roads in NSW, as well as those in Queensland. The big 6 private builders and the 2 main private financiers – Capella and Plenary – are active in Public Private Partnerships in NSW, Queensland, Western Australia and South Australia. Privatised public transport – from buses to trains to ferries – in Victoria, NSW, Queensland and South Australia are dominated by four firms, Keolis Downer, Transdev, Kelsian, and Kinetic. Like Melbourne, the major ports in Sydney, Adelaide, and Queensland have been leased to monopoly owners (Chen 2017).

Conclusion

Alongside an impressive list of social policy reforms, the Andrews government’s broader economic credentials are on their face impressive and no doubt help to explain its success at the ballot box. At the time of writing, unemployment has fallen to levels not seen since the 1970s, and in some parts of rural Victoria it is around 1% – effectively full employment. The state’s economy is growing faster than the rest of the country, having emerged from the coronavirus lockdowns in a seemingly strong place.

The Government points to its large investment in infrastructure as being partly responsible for this. It also points to its bold decision to pump prime the economy out of a pandemic induced recession. This paper has shown that the pump priming has also expanded the public funding of private monopolist providers and financiers of public services, a process that began under the neoliberal policy settings of the Kennett Government in the 1990s. Over a forty year timespan, the state has effectively bankrolled and increasingly driven what Christophers refers to as Rentier Capitalism, with private monopolies becoming deeply entrenched, enjoying in many cases generous and growing subsidies when the opposite was the stated intention. The Andrews government has turbo charged this structural transformation, while at the same time enjoying great political success.

Will this continue in the Andrews Government’s third term? During the 2022 election campaign Premier Andrews announced that should he win, his Government would resurrect the old publicly owned State Electricity Commission of Victoria and enshrine its existence in the state constitution. In making this announcement he slammed the big private companies that dominate the National Energy Market, commenting that ‘the generators alone (have made) $23 billion in profits at our collective expense’ (see https://www.danandrews.com.au/news/putting-power-back-in-the-hands-of-victorians accessed on February 3rd 2023). Prior to the election, he also committed to 50 new government owned child care centres (see https://www.danandrews.com.au/childcare-centres accessed on February 3rd, 2023). He was quoted as saying, ‘Privatisation has failed. It’s failed pensioners, it’s failed families, it’s failed Victorians,’ (https://www.theage.com.au/national/victoria/privatisation-has-failed-andrews-hits-back-after-kennett-attack-on-energy-plan-20221023-p5bs4f.html accessed on 22 November, 2022). Perhaps the tide is beginning to turn for Victoria, the Rentier State?

Acknowledgements

I would like to thank Terry Burke, Jago Dodson, Benno Engels, Paul Strangio, Jim Murphy and 2 anonymous reviewers for very helpful suggestions on earlier drafts.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

David Hayward

David Hayward is Emeritus Professor of Public Policy and the Social Economy at RMIT University.

Notes

1 Victoria accounted for 31% of the deterioration in all State and Territory budgets between 2019/20 and 2020/21 (https://www.abs.gov.au/statistics/economy/government/government-finance-statistics-annual/latest-release accessed on 2 February 2023).

2 Former Minister in the Cain/Kirner governments, Theo Theophanous has argued that while the Andrews government has, like Cain, used debt-funding to drive economic recovery, it is nevertheless different because it has proven itself to be a competent financial manager. He rejects comparisons between the two on that basis (Theophanous 2020). The argument developed in this paper is concerned with the way both Governments have used state finances for counter-cyclical economic ends.

3 I mean by this that the activities that the role of the state shifted from direct provision and detailed regulation to a different and more complex form of governance involving contracts, new regulations and regulators which have become progressively more active. The state’s reach as measured by spending and regulatory oversight actually expanded. Similarly, proceeds from the sale of the state’s utilities were used to retire state debt, which in turn was replaced by private debt.

4 This term is used generically to refer to private companies which operate in concentrated industries and which enjoy substantial market power over their customers.

5 The reforms, dubbed The Kennett Revolution (Costar and Economou 1999), were remarkably similar to those rolled out in many other countries across the globe, involving a ‘shock and awe’ strategy explained in some detail by Naomi Klein (2008).

6 Ilanbey (2022, 35) describes the Bracks Labor Government’s budget strategy this way, ‘The Bracks Government was a low-taxing, low-spending government, Kennett-style, and thus neutering the Liberal opposition on budget management’.

7 Vince Fitzgerald and Marc Robinson were two prominent economists who argued during the 1990s and early 2000s that the state governments should not play a fiscal stabilisation role. Their submissions to the NSW Public Accounts Committee capture their views very well. Robinson was particularly pointed: ‘In my view it is quite right that State Governments should not be trying to run active counter cyclical policies’ (Robinson, quoted in NSW PAC, 1994, 62; see also Robinson 1994).

8 While a similar pattern is evident for all Australian states and territories during this time period, the growth in net debt (and spending) in Victoria far exceeded that of any other jurisdiction (see for example https://adepteconomics.com.au/wp-content/uploads/2022/07/State-budget-update-30-June-22.pdf accessed on 2 February 2023).

9 It expressed a similar view about the need for reforms to Victorian business enterprises:

‘By exposing these businesses to greater market competition, the Government aims to reduce costs and improve services to both industry and households in key energy, water, port and transportation services’ (Victorian Government 1993, 1).

10 The Independent Review of the Victorian Retail Energy Market tried to estimate retail market margins, having not been allowed to acquire that information from the companies. It made the following observation:

‘Confidential conversations with retailers indicated the Victorian market is viewed as having higher margins than other jurisdictions … ’ (24).

11 Leigh and Triggs (2021) concluded that concentration from already high levels increased significantly for 43 industries under examination, with electricity and gas figuring prominently. ‘Common ownership increases estimated concentration by over 50 per cent for eight industries: concrete product manufacturing, copper ore mining, department stores, electricity retailing, explosives manufacturing, fuel retailing, gas supply and motor vehicle dealers’ (emphasis added). In the case of fossil fuel electricity generation the increase was 41%.

12 The Auditor-General (2012) found that between 2005/6 and 2011/12, ‘the subsidy to operators grew by 65 per cent from $0.95 to $1.56 billion’ (compared to services growth of 35% and patronage growth of 34%) (1).

13 Bus privatisation was similarly problematic. 70% of the State’s buses were in private hands and had been that way for decades, when Kennett decided to sell the Government’s 30% share in the form of two contracts, through a sale process beginning in 1993. The Auditor-General has pointed out (2009, 2012, 2013, 2014 and 2015 and 2021) that the 27 private contracts with 11 operators covering 70% of the fleet had up until 2015 not included effective performance standards, did not require operators to provide Government with access to their financial reports, and were not open to the Government to end them or put them out to competitive tender. It was not until 2018 that the State Government began to move these contracts across to a performance-based regime, sparking a wave of takeovers. The remaining 30% of buses were covered by an unenforceable performance contract, which was initially won by French company Transdev in 2013. It was re-tendered under a tighter performance-based regime and awarded to Melbourne-based company Kinetic (which also runs SkyBus) in 2021.

14 A few examples illustrate the extent of this. In 1996, the Australian-owned Transfield and a Japanese construction firm Obayashi, trading as Transurban, won the concession to build and operate CityLink. In 2002 its construction arm was sold to the Australian-owned Leighton Holdings. In 2000, Leighton purchased John Holland, another large Tier 1 construction firm. In 2015, Leighton Holdings was acquired by CIMIC, which also acquired Theiss Construction (it had been acquired by Leighton in 1983). CIMIC sold John Holland to Chinese Communications and Construction Corporation shortly afterward. In March 2022, CIMIC was taken over by the Spanish construction giant, Grupo ACS. In the space of a decade, the Tier 1 construction industry was effectively consolidated and sold into overseas ownership.

15 The massive $18b level crossing removal programme which will see 87 crossings removed from across the metropolitan area now involves only 4 ‘alliances’, each composed of 2–5 firms. As with the PPPs, the major participants in each consortia are all overseas owned.

16 In 2020/21, it has been estimated that payments to the Big Five consultancy firms (the four identified in Table 2 plus Accenture) totalled $2b (Australian Financial Review, Digital Edition, 9 August 2022).

17 This does not mean that they will always make surplus profits but that by virtue of their market power they are in a strong position to do so, or alternatively to reduce output (or some combination).