The Guardian August 8, 2001


Public property sold off, taxpayers ripped off

by Anna Pha 

Commonwealth Auditor-General Pat Barrett issued a report on August 1 highly 
critical of the sale of Commonwealth property by the Department of Finance 
and Administration. The Auditor-General's "Commonwealth Estate Property 
Sales" report, looking at the sale of 56 publicly owned properties to 
private corporations, reveals a litany of mismanagement and what amounts to 
government handouts to those buying the properties. 

The sale of the 56 properties is part of a wider program under which all 
government assets are being sold off or handed over piecemeal to the 
private sector. 

In an amazing response to the report the Department said that it does not 
have a responsibility to protect the interests of the Commonwealth. 
Instead, it said its sole aim is to sell off public property according to a 
set timetable and to raise as much revenue as possible in the sale 
"regardless of long-term consequences". 

Mr Barrett has raised many issues in the report regarding the practices 
adopted by the Department of Finance and Administration, including its lack 
of documentation. 

Properties were sold to the private sector at prices which leave taxpayers 
heavily out of pocket and with guarantees of big returns to the buyers 
through inflated rents paid by the government departments which occupy the 
buildings. 

He illustrates how in the long run the sales, although raising $1.4 
billion, will result in a negative return as the government agency 
occupants continue to pay high rents. 

The Minister for Finance and Administration, John Fahey, has rejected the 
report's recommendations and the Auditor-General's criticism. Fahey sees no 
need for the Department to change its ways even though they leave the door 
wide open to corruption and rip off taxpayers. 

The properties involved were sold over a three-year period to July 2000. 
They include the RG Casey Building in Canberra which is occupied by the 
Department of Foreign Affairs and Trade, the Australian Geological Survey 
Office HQ, Discovery House, the Adelaide Commercial Centre and other office 
accommodation. 

The properties were selected for sale under a Property Divestment Program 
based on what are known as the Commonwealth Property Principles (CPP) which 
were adopted in July 1996. 

Commonwealth departments and agencies, these are all required to pay rent 
on a commercial basis, even when the property is owned by the Commonwealth. 

These sales are part of the commercialisation and corporatisation of the 
public sector, a process which began under the previous Labor Government 
and has been accelerated by the Howard Government. 

The CPPs apply to all Commonwealth property. They specify that all property 
which is not bringing a return of 14 to 15 per cent or more through rental 
on its market value must be sold. 

Commonwealth property which does not bring such a rate of return is deemed 
no longer required to be owned by the Commonwealth. 

The only exceptions would be public interest considerations such as 
properties with national symbolic significance, national security 
requirements or of some highly specialised use that would significantly 
inhibit commercial provision. 

The hurdle rate of 14-15 per cent was set so that almost all commonwealth 
property would be up for sale. Such a rate of return is considered high by 
industry standards which are close to six per cent for this type of 
property. In other words, the CPPs were designed to allow the sale of most 
Commonwealth property without the Government having to make an open 
declaration that the Commonwealth was divesting itself of its assets. 

The sale involved massive hand-outs and huge profit prospects for the 
private sector at the expense of the public purse, such as the $20.6 
million dollars which went into the pockets of sales advisors, sales agents 
and legal advisors contracted from the private sector. 

In the case of Australian Geological Survey Office building, the sales 
advisor was paid $1.3 million more than anticipated because of a low 
initial valuation of the property at $90.54 million. This was because the 
valuation did not take into consideration the generous terms of the lease 
which went with the property as part of the sale. 

The lease included guaranteed increases in the rent of at least three per 
cent per annum over a term of 20 years and agreement that the government 
would foot the bill for maintaining the building and paying expenses, such 
as land tax, insurance and management fees  costs that are normally paid 
by landlords. 

The Auditor-General estimates that within 11 years taxpayers will be losing 
money at the Geological Survey building through the rent payment. 

At the end of the 20-year lease it is estimated that the sale will have 
cost the taxpayer a net amount of $265 million. 

"The sale of properties with long-term leases in place has provided the 
purchaser with guaranteed cash flows at high yield over long periods", says 
the report. 

Recommendations in the report that the Department review the payment of a 
number of "advisor" fees have been rejected by the Department. 

On the Department's arrangements with its legal advisor in the sale of 
several packages of property, the audit office reports that "There was no 
documentation of the agreed financial arrangement between Finance 
(Department) and its legal advisor for services provided in respect of 
property sales." 

The report recommended a review of the Department of material contract 
arrangements with external advisors but the Department again disagreed, 
saying no review was needed and that the issues raised by the audit office 
relate only to "a minor contract variation". 

And the response to the Auditor-General's queries about the failure of the 
Department to adhere to government regulations and guidelines brought the 
disclaimer that it "was not charged with the role of protecting the overall 
interest of the Commonwealth" but simply implementing a property divestment 
program endorsed by Ministers. 

It is criminal that these properties are being sold at all, and an added 
indictment of the Government that it is in the main government agencies and 
departments which will continue paying above-market rents to property 
speculators, actually providing a form of corporate welfare.

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