The government should really have just paid those MacBankers a billion dollars in protection money and hung onto Sydney Airport. A contract might even have been drawn up by the prime minister of the day, John Howard: ”We, the people of Australia, pay you, Macquarie, $1 billion upon your undertaking not to deplete the finances of the Commonwealth by your financial engineering.”
Instead, Macquarie owns the airport, and a cool $1 billion-plus in fees so far – and it celebrated its 10th anniversary this very week of not paying any corporate tax.
As for we, the Great Unwashed, we mere taxpayers, we now have a hole in our annual tax-take, and no airport either. But it is true that Macquarie did scrape together $5.6 billion of other people’s money to pay for it. So, we mustn’t complain.
The year before Sydney Airport was privatised in 2002 it paid $54 million in tax. Adjusted for the time value of money, it would have tipped $1 billion into Commonwealth coffers by next year had it never been auctioned.
In construction deals such as Brisbane’s Airport Link and Clem7 Tunnel, and Sydney’s Lane Cove and Cross City tunnels, the private sector committed the funds, took the risk and defaulted. The public got first-class toll roads. And assets were built, not just flogged to be gutted of costs and geared up.
To be fair to dear old Macquarie, though, it is not entirely alone in this tax chicanery. Others run similarly geared trust structures. Take Transurban, the big toll-roads operator, which churns out billion-dollar revenues and has only paid tax once – it must have been a slip-up. It will pay a lot of tax, it says, at the back end of its 30-year road concessions. One day, over the amortisation rainbow.
At this point, a disclaimer is germane, for we said earlier ”Macquarie owns the airport”. This is not strictly true. Macquarie Airports, a satellite fund, did have the concession. But in 2009, Macquarie Airports paid its parent, Macquarie Group, a fee of $345 million to go away and not manage it any more. True story.
So, Macquarie Airports changed its name to Sydney Airports, which is an $8 billion company on the ASX, although it kept largely the same management, board and strategy.
And we can report, a little ruefully, that the ties have not exactly been, ahem, brutally severed. In a secluded section of the results presentation this week there is reference to a ”Simplification Process” slated to cost $54 million.
This brought great joy to the heart of your humble essayist – not in sheer wonderment at how they could, with a straight face, charge investors $54 million to simplify something they made complex in the first place – but rather because our instinct sensed the invisible hand of Macquarie at work.
This unearthly premonition was soon fulfilled when our intrepid aviation reporter Matt O’Sullivan confirmed that Macquarie would be indulging in this $54 million fee as financial advisers to the … err … Simplification, alongside PwC, Allens and Ashurst.
Had we not seen this clandestine coven of fee-concocters somewhere before? That’s it! In Duet’s symphony of fees.
Duet owns pipelines and transmission towers and used to be managed by Macquarie and AMP until they were paid $100 million by Duet to go away. Like Airports, Duet is a leveraged trust structure.
Having increased the number of entities in the spaghetti mud-map which is its corporate structure from four to six, Duet’s management and board, just six months later, paid the aforementioned fee-hunters $10 million to execute a ”Simplification Plan” and reduce the number of entities from six to four. True story.
Sydney Airport has priced its Simplification at $54 million – which is not only $44 million higher than Duet’s Simplification but, let’s face it, $54 million too much.
Departing from this financial engineering chipmonkery, it is useful to compare the Sydney Airport vehicle with Auckland International Airport, which also released its results this week.
Auckland paid the statutory rate of tax despite having a good deal of debt, too. The Kiwis lost the plot a tad with their EBITDAFI – earnings before tax, interest, depreciation, amortisation, and fair value adjustments in investments (they have equity interests in Cairns, Mackay and Queenstown airports).
Despite this EBITDAFI artifice, Auckland earned a 25 per cent increase in bottom-line profit compared with Sydney’s 10th straight tax-driven loss. Melbourne Airport, too, reports a decent profit, but pays its share.
And there are plenty of large corporate players like Sydney Airport minimising their tax to unreasonable degrees via trust structures to pay out distributions on which the investors may pay the tax – contingent on rulings from the taxman.
Budget deficits experienced by nearly every country are unlikely to come back into balance until governments get together and take concerted action on tax loopholes and internet-based tax minimisation.