$32b Telstra sale windfall triggers row

CANBERRA - The Australian Government was planning to use its A$30 billion-plus ($32.1 billion-plus) windfall from Telstra's sale to buy shares in other companies, it said yesterday.

The idea marks a change in direction for the Government, which used the $A30 billion from its two previous Telstra share sales in the 1990s to pay off debt.

Finance Minister Nick Minchin said the purchase of shares or bonds would help to finance services in the future, but opponents argued that the money should be used to fund road and rail projects now.

Minchin said: "Obviously what the Government has at the moment is $A30 billion tied up in a telephone company.

"If the Government is going to have investments then it should have a spread of investments that produce income to help taxpayers and help provide the services that taxpayers want."

Labor attacked the plan and said it stood in stark contrast to Minchin's opposition to such an idea in June 2002.

Opposition treasury spokesman Wayne Swan said: "If the Government is merely selling one income-producing asset for another, why is it selling Telstra?"

The plan was also criticised by Queensland's senator-elect Barnaby Joyce, of the Nationals, who said the Government should invest some of the Telstra sale proceeds in infrastructure projects.

"If what we are looking for is a return on the share market, then the Government gets a pretty good return with Telstra," he said.

"I see no point in getting out of one lot of shares to buy others."

Deputy Nationals leader Mark Vaile delivered his own Telstra surprise yesterday, backing down on his previous support for it to undergo a structural separation before privatisation to improve competition.

He said such moves had failed in other countries and he now favoured Communications Minister Helen Coonan's idea of a voluntary operational separation of Telstra's wholesale and retail businesses.

"We need to be guided by the experiences of overseas Governments and organisations and I think it may be worth looking at ... commercial separation," he said.

If Telstra agrees to the idea, it could be rewarded by the Government relaxing the tough regulations on its business.

* Meanwhile, up to 12 investment bankers are in talks with the Finance Department in the hope of being chosen to play a role in Telstra's sale.

- AAP