news Leading Opposition figures have slammed the Government’s handling of funding for the National Broadband Network in this week’s Federal Budget, alleging that the project’s finances are being misallocated to cover up holes that would have sabotaged the policy aim of delivering a budget surplus. But the Government has fired back, accusing the Opposition of ‘manufacturing’ budget problems.
Most of the funding for the NBN does not appear in the budget, as, according to accounting standards, it is not an expense as generally understood, but is actually an investment expected to generate a modest return. This handling of the NBN’s finances has been backed by a report into the matter published last year by the Parliamentary Library of Australia.
However, Communications Minister Stephen Conroy’s department did disclose how much the government is funding NBN Co over the next few years, in its portfolio budget statements. In the 2012/2013 financial year, the Government will allocate $4.7 billion to the project, and more each succeeding year — peaking at $5.6 billion in 2014/2015, and then setting again to $5.1 billion in 2015/2016. In addition, in this year’s budget additional funding was also allocated for NBN-related activities such as a $20 million investment in public education and awareness.
However, this treatment of the NBN in the budget didn’t find favour with Opposition figures such as Shadow Treasurer Joe Hockey and Shadow Communications Minister Malcolm Turnbull, who have publicly slammed the Government’s financial handling of the matter over the past day or so.
“In headline cash terms, the Gillard government will spend $8.7 billion more than it earns in 2012-13 because the government continues to spend on projects such as the NBN which have been taken “off Budget”,” said Hockey in a statement. “If the government was honest, and included NBN expenditure, the Budget would show deficits over the next three years. To put it simply, there would be no surplus if the NBN was on the books.”
In a statement responding to Coalition criticism of the Government on this issue, Conroy said the claim that the NBN funding should be expensed was “completely wrong”. “The NBN is an investment in an asset from which the Government will receive a return. It is classified by International Accounting Standards as an equity investment rather than a budget expense. This is consistent with long-standing budget treatment applied by this and previous Australian Governments.”
In a separate, lengthy statement on the matter, Turnbull raised a number of other matters with respect to the NBN’s budgeting.
“The National Broadband Network is at the centre of Labor’s 2012-13 Budget cooked books,” he said. “The Government’s claim of a meagre $1.5 billion surplus rests on shifting expenses forward from 2012-13 to the current 2011-12 financial year. Almost a third of the surplus comes from Senator Stephen Conroy’s creative accounting with the NBN.”
Turnbull said that according to the previous year’s portfolio statement for Conroy’s department, the department was scheduled to spend some $57 million on broadband in the past year. However, in the new budget this week, the MP said, that figure had “exploded to $484 million”, because the Government had included in that amount the first part of the payment to Telstra over its $13 billion arrangement with NBN Co.
Turnbull also pointed out that in last year’s budget, the Government had planned to invest $14.1 billion over the three years between July 2011 and June 2014, but in the latest budget that figure had grown to an estimated $14.5 billion. “Yet the network only has 5000 or so customers currently using its fibre network, compared to the 137,000 projected by June 2012 in NBN Co’s Corporate Plan,” said Turnbull. “So taxpayers are paying far more for a rollout that has delivered a fraction of the promised connections.”
The MP said the “large increase in the equity” required by what he described as the “reckless” NBN project, added to what he said were “repeated refusals” by the Government to reveal how many households and businesses would be able to connect to the NBN at the time of the next election, pointed to a “blow-out” in its expense and schedule.
“Little wonder Labor has attempted to frustrate scrutiny of the NBN by Parliament and the Australian public at every turn,” Turnbull said. “It is imperative Senator Conroy immediately releases a revision of NBN Co’s December 2010 corporate plan – fiscal honesty and policy transparency require it.”
The Liberal MP also took aim at the Government for other areas in the budget with relation to the NBN; such as the $20 million in education and public awareness funding, as well as another $20 million allocated towards a national online educational portal in the area.
“Given NBN Co has already wasted so much money by hiring a vast public relations team and granting numerous contracts to PR and marketing consultants and other privileged insiders such as Labor’s preferred opinion polling firm UMR, Australians have every right to ask whether these funds will simply result in more pro-NBN propaganda,” Turnbull said.
However, in his own statement, Conroy said Turnbull had “manufactured claims of a ‘blowout’ and a ‘fiddle’ in the budget treatment of the NBN”. “Mr Turnbull is either lazy, financially illiterate, or both,” he added.
“As a former merchant banker, Mr Turnbull presumably knows that you pay your bills when they fall due. The $450 million additional Departmental expenditure in 2011-12 is the payments made to Telstra under the terms of the Definitive Agreements. These agreements came into force on 7 March 2012. The treatment of these amounts within the budget was outlined in a press release distributed on the same day. There is nothing new about these payments nor can they be described as having been ‘brought forward’.”
“Similarly the claim of a $400M blowout in equity is false. Mr Turnbull’s assertion that there has been an increase in equity of $400M simply reflects that equity funding of $350M was deferred from 2011-12 to 2012-13. This was detailed in the 2011-12 Departmental Portfolio Additional Estimate Statement on page 39.”
Much of what Turnbull and Hockey are talking about here is old ground. The accounting of the NBN as an investment rather than an expense has been talked about a thousand times before, and while the Coalition disagrees, there doesn’t appear to be much evidence that the NBN should be included as an expense on the Government’s books, when it is slated to make a return in the long-run. The Government is pouring capital into the NBN, it is true, but that money is not disappearing into the ether; it will make a return and come back in the form of revenue and profits.
This scenario, as many people have noted repeatedly, is virtually guaranteed by the fact that both Telstra and Optus have committed to move their fixed-line broadband customers onto the NBN in the long run. Most Australians will use the NBN for telecommunications eventually; most will have no other choice in fixed-line telecommunications.
However Turnbull does have some good points here. The shifting of funding around in DBCDE is quite interesting, and it is also interesting to see the Government’s funding commitment changing a little. Most haven’t noticed this in the budget, and it’s a legitimate point which the Government should be questioned about. To be honest, I’m not sure who is really “right” here — Conroy or Turnbull — but it’s good that Turnbull has raised these movements of capital around. It’s always good to have this stuff on the record.
I don’t personally have a problem with NBN Co spending money on ads for for public awareness (and before you ask, no, they’re not spending with Delimiter — I don’t think we’re the audience they’re trying to reach). This is a hugely important government infrastructure project which will affect all Australians, and $20 million in the context of the billions being spent on the project is a legitimate marketing and education expense.
As for the “vast public relations team” which NBN supposedly employs … I can assure Turnbull that that team is actually quite small, over-worked and full of ethical individuals, several of whom I knew previously in other positions. I deal with them every week, usually several times a week. They are doing a tough job day in day out, and I don’t think he should be attacking them for it.