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.