The proposed privatisation of the Victorian electricity industry has produced criticism based on the alleged failure of the privatisation of the British electricity industry. However, the Victorian proposals should establish a more competitive environment and avoid at least some of the problems that have arisen in Britain.
Even so, it is incorrect to suggest that British consumers have suffered. Information provided by the British Treasury shows that between 1989 and 1994, average electricity prices fell in real terms by 12 per cent for industrial consumers, and also fell slightly in real terms for domestic consumers.
An important additional benefit is that taxpayer-financed, cross-subsidies have been eliminated in Britain. This serves to emphasise that changes in electricity prices alone are an inadequate measure of the possible benefits of privatisation. Savings to taxpayers (who are also consumers) may be as large, if not larger.
In the case of the Victorian electricity industry, long suffering taxpayers have, in effect, been paying a subsidy to support a less than efficient industry. This partly reflects the excessive employment of labor and partly the over-capitalisation, both flowing from the past and present exercise of union power.
While the competitive environment being created under the Victorian privatisation proposals cannot remove the excess costs from past over-capitalisation, it has the potential to eliminate the wasteful use of other resources and improve the future efficiency of all resource use.
Reducing the true cost of producing electricity will free-up resources (capital and labor) to produce more of other goods and services that will enhance the welfare of the Victorian population generally.
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