Govt's NBN accountability correct: economist

Govt's NBN accountability correct: economist

Summary: An Australian Parliamentary Library background note has smacked down claims by the Coalition that equity injections to NBN Co should be counted in the budget.

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An Australian Parliamentary Library background note has smacked down claims by the Coalition that equity injections to NBN Co should be counted in the budget.

Since the last Federal Budget, Shadow Communications Minister Malcolm Turnbull has claimed it is a "charade" that the NBN is kept off budget. The government, in response, has always argued that the NBN is not an expense to the government, because ultimately the project will be paid back to government, with a commercial rate of return estimated at around 7 per cent.

In a parliamentary background note published earlier this week (PDF), and first spotted by Communications Day, Parliamentary Library economic analyst Brian Dalzel said that the way the NBN was treated in budget statements was consistent with internationally accepted accounting standards.

In the budget, the NBN is treated as an asset rather than an expense to the government.

"Money transferred to NBN Co cannot be classified as an expense under currently accepted accounting standards. It is accounted for as a financial asset on the balance sheet (an 'investment in other public sector entities'), as opposed to an expense item on the operating statement. An eventual gain or loss on the government's equity investment in NBN Co is accounted for in the operating statement as an expense, but this does not affect the fiscal balance measure."

While payments from the government to NBN Co and vice versa does affect the budget, Dalzel said that even if the rate of return on the NBN is lower than the government had forecast, there is no "trigger" to suddenly make the NBN "on budget".

"Such payments are indirectly affected by the success and therefore rate of return generated by NBN Co. However, this is in direct contrast to the idea that a return below a specific benchmark triggers an accounting rule where treatment of NBN Co is switched from 'off-budget' to 'on-budget'. There is no such accounting rule."

More broadly, Dalzel said that the term "off budget" for the NBN should be avoided.

"The term off-budget is sometimes used to refer to entities that do not form part of the general government sector (for example, Australia Post and the Reserve Bank). However, that does not mean that such entities do not affect the budget," he said. "On the contrary, the budget accounts for the inter-relationships between these entities and government, and these inter-relationships are reflected in the general government sector financial statements."

The statement comes as the Coalition ramps up its attack on the $35.9 billion project. Earlier this month Shadow Treasurer Joe Hockey said that the NBN was the biggest off-budget project undertaken by any Australian government, and that "it detracts from productivity".

Speaking at the 2012 Young Liberal Convention in Sydney over the weekend, Turnbull also attacked the NBN as "profoundly anti-competitive, and hugely restricts economic freedom".

"It is plain that a more rational approach involving running fibre closer to end users but not all the way to every house or business in Australia could achieve largely similar performance for almost all users at perhaps a third of the cost," he told the audience.

Topics: Broadband, Government, Government AU, NBN

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Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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4 comments
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  • And the opposition have the nerve to say the others have NFI?
    Beta-9f71a
  • If Hockey is the best they've got on the fiscal side, there's not much to worry about.

    All this bleating that "it detracts from productivity" doesn't even pass the laugh test - the man never seems to know what he is talking about, and has no credibility on this or any other point of fiscal rectitude.
    Gwyntaglaw
  • Surely Malcolm Turnbull is not STILL saying that FTTN will deliver "largely similar performance for almost all users at perhaps a third of the cost"?

    Of its $35.7 billion ten-year construction and maintenance budget, the task of laying NBN fibre to all premises in all cities and large towns is to cost $12 billion.

    Back in 2007-08, FTTN was to have cost between $6 billion and $11 billion(depending on how closely-spaced the cabinets were to deliver faster speeds). But then Telstra must also hand over access to ten million copper segments to every urban home and business. In 2009, Telstra priced this access at $15-20 billion (which, by the way, it planned to spend building it's own FTTP network and take all the customers away from the tax-funded FTTN!)

    Mr Turnbull, how is $20 billion for FTTN "one-third of the cost" of $12 billion FTTP?

    How is copper-delivered broadband - whose bandwdith limit, especially upstream, has already been found wanting by business - "largely similar" to fibre that delivers 40 Mbps uploads from day one?

    The coalition needs to propose a real broadband offering for the 2013 election, or it will certainly lose key regional seats as it did in 2010. Not that Malcolm Turnbull cares. But we will certainly have a third Green-Labor government after 2013 if the coalition does not wake up.
    umbria
  • Most of our politicians have no idea there is such a thing as the Australian Accounting Standards, let alone any understanding as to the requirements. Even some top level public servants display breathtaking ignorance of these standards.
    Yoda7