Australia Post is the Government Business Enterprise that provides postal services in Australia. It is currently experiencing a rapid decline in letter volumes due to increasing use of electronic communication such as e-mail. Its letters business made a loss of $218 million in the 2012-13 financial year as letter volumes fell by 6.4%. This was offset by the $648 million profit in the parcels business due to growth in online shopping, leaving the enterprise with a net profit of $312 million (Johnston, 2014). In the 2013-14 financial year, the earnings from parcel operation increased to $337 million while the mail business lost $328 million. The growing losses in the mail business will result in the entire enterprise making a loss in the near future, with the profits from parcels being unable to offset the losses from letters. As a Government Business Enterprise, Australia Post is also required to meet its Community Service Obligations (CSOs) which are set by the federal government (Australia Post, 2014). Australia Post’s high costs are partly caused by the requirement to maintain these CSOs. Australia Post was therefore recommended for privatisation in the medium term by the National Commission of Audit (Schetzer, 2014).
The purpose of this report is to provide a cost-benefit analysis of the privatisation of Australia Post. It aims to determine whether Australia Post should be sold by the government or if it should remain a government enterprise. A cost-benefit analysis is the process whereby a project or policy is assessed to determine whether or not it should be implemented (Cave, Searle, Kirkwood, Cronk, 2011). The costs and benefits, both financial and non-financial, of the privatisation will be evaluated and a recommendation will be made.
All monetary values have been given in 2014 dollars, along with any calculations.
2.0 Cost-Benefit Analysis
2.1.1 Financial costs
One financial cost of the privatisation of Australia Post would be the loss of the yearly dividend paid to the government. In the 2012-13 financial year, this dividend was $244 million while the most recent dividend is $79 million (Johnston, 2014). However, as Australia Post is expected to make losses in the future, the government cannot expect further dividends without reform. If privatised, Australia Post would be able to increase the stamp price without requiring permission from the government. This would present a financial cost to the consumer as they will be subject to price increases as a result of privatisation. This more accurately reflects the large costs involved in delivering letters which is currently cross-subsidised with the revenue from the parcel business. Privatisation would likely also result in the implementation of a tiered system wherein customers pay more for priority delivery while standard delivery would take longer to arrive (Whalley, 2014). This represents another financial cost to the consumer caused by privatisation. In addition, privatisation will lead to the abolition of Australia Post’s CSOs. The financial impact of this on the community can be valued using the cost of maintaining these CSOs, $177.5 million in the 2012-13 financial year (Australia Post, 2014). More than 5000 people are directly employed by Australia Post in rural areas and these jobs will be at risk if privatisation occurs (Commonwealth of Australia, 2014). The Full-Time Adult Average Weekly Ordinary Time Earnings for those working in transport, postal and warehousing is $1 442.5 (Australian Bureau of Statistics, 2014). Using this figure, it was calculated that the loss of income over one year caused by these job losses would total $375 050 000.
2.1.2 Non-financial costs
A non-financial cost of privatisation would be the loss of Australia Post’s CSOs. Under these standards, it is required to conform to a set delivery timetable and deliver at least 94% of letters on time. It must also