Financial performance of Government Trading Enterprises 2004-05 to 2006-07
Commission research paper
Financial Performance of Government Trading Enterprises 2004-05 to 2006-07 was released on 31 July 2008. It forms part of the Commission's research into the performance of Australian industries and the progress of microeconomic reform. An erratum (PDF - 26 Kb) was released on 19 January 2009.
An erratum (PDF - 26 Kb)Download the research paper
Financial Performance of Government Trading Enterprises 2004-05 to 2006-07 (Word/Zip - 1675 Kb)Key Points
- The financial performance of 86 government trading enterprises (GTEs) providing services in key sectors of the economy - including electricity, water, urban transport, rail, ports and forestry - is presented in this report. In 2006-07, these GTEs controlled about 2.8 per cent of Australia's non-household assets (valued at $192 billion) and accounted for around 1.7 per cent of GDP.
- Overall, the profitability of GTEs increased by 36 per cent in 2006-07, with mixed results across sectors. Profitability increased in the electricity, urban transport and ports sectors, but declined in the rail, water and forestry sectors.
- For sectors recording a profit improvement, much of this derived from the performance of a single GTE in that sector (between 41 per cent and 63 per cent of increased profits).
- Profitability also varied among GTEs:
- profits declined for two-fifths of GTEs
- fourteen GTEs (of which five were in the water sector) reported losses.
- Just over half of monitored GTEs failed to achieve a return on assets above the risk-free rate of return in 2006-07. This implies that an even greater proportion did not earn a commercial rate of return (which would include a margin for non-diversifiable risk).
- Twelve GTEs (14 per cent) failed to achieve a positive return on their assets.
- The poor financial performance of many GTEs underscores a long-term failure to operate these businesses on a fully commercial basis, in accordance with Competition Policy Agreements.
- In total, GTEs made dividend payments to owner governments of almost $4.4 billion in 2006-07. In addition, income tax and tax equivalent payments totalled $1.8 billion.
- Contrary to stated policies, not all governments have identified all existing Community Service Obligations (CSOs). Also, governments are generally not reporting funding for CSOs in a transparent manner. Almost no information is reported on the costs of meeting CSOs.
- Inadequate funding for provision of CSOs affects a GTE's financial performance and can result in inadequate or misallocated investment, price increases for non CSO services, and/or lower quality service provision.
- Poor profitability can lead to inadequate investment and asset maintenance, which can in turn reduce the future profitability of GTEs. Without a return to commercially sustainable operations, this cycle can persist.
