Friday, 11 May 2012

The NBN and The Budget- Professional relationship or Hanky Panky in the Boardoom?

So, we're back around to that time of year again- The Budget.

A time of year when all those businessmen with Blackberries (well, iPhones these days, after RIM seems to be bleeding users) on your commute suddenly start scrabbling through last years forecasts, delving into their already stretched briefcases for that tax analysis- Was it based on last year's company tax, or next year's?.....

For the average commuter, The Budget most likely doesn't win over from NCIS or Biggest Loser, or it may be quietly in the background, while you await this years tax cuts/hikes and Family Benefit changes. Sometimes a quick glance at the paper the Wednesday morning following to confirm, yes, that $10.15 you save every week NOT buying a morning coffee now, has just been shunted in to the governments coffers, most likely to give a few extra dollars to that lazy burk over the back fence who only ever leaves the house to buy more pizza and coke and blinks uncertainly at the sun everytime he does. Lazy good-for-nothing.....mumble.....mumble........

The majority of Australians look on The Budget as something akin to your year 8 history class- Interesting during highlights at the beginning, BONE WRENCHINGLY dull during the majority of the explanation and with very few interesting questions asked at the end. And inevitable; it ALWAYS happens. (why couldn't Mr. Merz be sick today???)

This years Budget appears quite friendly in general- some shuffling of tax thresholds, company taxes and some putting off of some payment or another to sure up the small surplus we were "promised." By now most people have accepted the changes the Carbon Tax will bring, even if they still disagree, and the Budget showed little in the way of surprises, except that some of the compensation wasn't really compensation- it was anti-compensation, such as tax hikes being pushed back so we don't lose MORE money.

But more interesting this year, to us tech-heads anyway, has been the Budget's relationship with the NBN. Actually, to be fair, The Budget, as an expense, doesn't have a close relationship to the NBN- The Budget is about spending; the NBN is a capital expense and so it doesn't show up as spending in The Budget. Ah.....

And of course this is where it gets interesting. The NBN is not a Budget expense; it is considered a piece of infrastructure and an INVESTMENT and is destined to make a modest return, so it remains "Off-Budget", even though the government will spend $5.8 Billion dollars on it this year alone (broken up between payments to Telstra and funding to NBNCo directly). But wait! Does this not mean we actually have a....d.....dd...... DEFICIT.....shudders....

Enter the Coalition- This is the line they have been spruicking  for the past year or more. The NBN SHOULD NOT be Off-Budget, it is a government expense and should be treated as such.....oh and look (evil maniacal grin) it means we have a Deficit now, after Labor PROMISED you it would have a surplus!!

Leaving aside the "Deficit we were meant to have" is this a valid point? Have Labor "cooked-the-books" in removing the NBN from The Budget in order to make the garbage pile smell and look like potpourri? According to the Australian Parliamentary Library, no.

Study notes recently published found that, according to accepted international standard accounting measures, the NBN should NOT be counted as an expense in The Budget, as it is a government investment (it will eventually turn a profit and provide a modest return for The Government of the day). This seems logical- Should a company, such as Telstra, decide it wants to build a new fibre network in Brisbane (as it's recently done), any costs related to the planning, implementation and construction of the new fibre network would not appear on the Annual Statement as expenses. They would appear as capital expenditure, as Telstra is investing in an asset they have reasonably assumed will give them a revenue stream in the future. This is standard practice in business and is not at all "under the table" or "below the radar". Yes, the books appear healthier in terms of expenditure for the year, but the money has still been spent, it is just considered an investment, not a day-to-day expense. And before you argue, this IS a business case- NBNCo is a wholly owned company of the Australian Government, funded by the Government, so they are constrained by business ethics and laws.

Why then the brew-ha-ha? Well, as I've explained in a previous post the NBN is funded by government debt. The Government issues bonds, which entities buy and the Government pays interest on them as they mature. This money usually goes towards infrastructure such as roads, rail, ports etc. In this case, telecommunications infrastructure. This is very different to government expenses, such as Health, Welfare, Defence and so-on; these are yearly expenses, that are reshuffled and re-evaluated every year, sometimes multiple times. Their primary funding comes from taxes, both Income and Company taxes, as well as GST, Sales taxes, Import taxes, Stamp Duty etc. These taxes are fluid- the forecast GST intake dropped significantly this year to $50.4 Billion for 2012-2013, $3.8 Billion down on last year (WAToday) mainly due to customer spending reduction thanks to the European crisis and other instabilities, such as a slowdown in construction. As such, both Federal and State Budgets often have to be tweaked to allow for these changing revenue streams. It is unwise to allow this to happen to infrastructure spending, as changing amounts of spending at a critical point in the project can end up costing much more due to changes, contracts and inefficiencies. As such, infrastructure money is usually agreed on beforehand and funded from a location where it can have constant cash flow, such as government loans.

All in all, the NBN being funded by National Debt is sensible, normal, rational and reasonable- but this doesn't sit well with the Coalition. They see themselves as the best economic managers for the country (and by past records, they have a claim to that title) but their competing Broadband Initiative, as we've looked at, would be (almost certainly) On-Budget, mainly consisting of subsidies to private companies to increase their fibre rollouts and inferior besides. So the Coalition have been issuing constant streams of negativity and baffling condemnation of NBN spending and funding in the hope the average Australian will believe the NBN is another taxpayer waste, like The Insulation Scheme (poorly handled, but largely cause by greed, not government inefficiency) or the Carbon Tax (jury's still out).

Alot of the statements from Tony Abbot these days are bordering on propaganda when it comes to the NBN. I'm not a political analyst and I'm not really interested in discussing his political tactics here, but suffice to say, this is hurting Labor, but it's also hurting, more importantly, the NBN and the Coalition too. It is perfectly reasonable for the NBN to be funded in the way it is being funded; this should not be an issue politically. Any decent business analyst will tell you there are sound reasons behind the servicing of government debt and infrastructure, but the Coalition seems to have become deaf, blind (certainly not dumb- the stream from both parties is almost constant!) and immovable to the idea that the NBN is possibly a decent proposal that should have bi-partisan support.

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