news Senior Coalition figures Tony Abbott and Joe Hockey have both this week again made misleading statements about the funding model for the National Broadband Network, separately stating that the NBN funding should be included in the Federal Budget as an expense, although standard accounting guidelines would see it listed as an investment.
In a speech to the Committee for the Economic Development of Australia’s State of the Nation Conference yesterday, Opposition Leader Abbott said that $5.8 billion of infrastructure spending related to the National Broadband Network in the next financial year “should be on budget”, stating that the Government’s “wafer-thin” budget surplus achieved in the past Federal Budget was based on this accounting treatment and similar “fiddles”.
Shadow Treasurer Joe Hockey, in a separate speech in Parliament on the global economy, also directly mentioned the NBN’s accounting treatment in the Budget. Speaking about the current Labor Government, Hockey said: “They are promising a surplus that, looking at their form, they will never deliver. In the current year they said there would be a $22 billion deficit and now we have a $44 billion deficit.
“They are cooking the books in order to promise a surplus next year. The Greeks got themselves into a bit of trouble cooking the figures. We are not on anything like that scale, but the truth is that if you include the NBN expenditure and the Clean Energy Finance Corporation then we are running a deficit.”
It’s not the first time the Opposition has attacked the Government for its budgetary allocation with relation to the NBN; senior Coalition figures have repeated this criticism repeatedly over the past several months. Shadow Finance Minister Andrew Robb raised the issue in February, Abbott raised the issue in May and Hockey and Shadow Communications Minister Malcolm Turnbull that same month. The Coalition has repeatedly stated that the NBN’s funding could be re-allocated to other projects such as transport infrastructure.
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. That return is currently projected to be between $1.93 billion to $3.92 billion.
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.
According to a research note recently published by the Parliamentary Library of Australia, Labor is technically correct on this matter, and the Coalition is wrong. “Australia has adopted internationally accepted accounting standards, and these are applied in the budget treatment of the NBN,” the library’s Brian Dalzell, who works in its economics division, wrote in the report (available online here in PDF format).
“While the applied accounting treatment depends on the specific transaction conducted between the Government and NBN Co, this treatment is governed by accepted accounting standards and is applied equally to all government business entities (GBEs). This treatment is not determined by the return generated by NBN Co (or any other GBE).”
Dalzell goes on to provide a great amount of detail around how the Federal Budget treats the NBN, breaking up the Government’s investment in the area into a number of different sections and looking at the differences between cash flow, equity, debt and so on. But all of it only serves to reinforce the impression that the Coalition is improperly defining the NBN initiative as an expense. In fact, the economist addresses this misconception directly.
“Can the NBN be accounted for as an expense item in the budget operating statement?” he asks. “In the budget statement, the NBN is accounted for as a financial asset (equity investment) under the ‘investments in other public sector entities’ line item of the balance sheet. The NBN is not accounted for on the operating statement as an expense item, because it cannot be defined as such under accepted accounting standards.”
Communications Minister Stephen Conroy has repeatedly highlighted this fact as a response to the Coalition’s statements on the NBN budgeting treatment.
“In his budget reply, Mr Abbott also pretends that investing in fast affordable broadband should be replaced by additional spending on roads,” Conroy said in May. “Mr Abbott clearly doesn’t understand that the NBN 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. The equity investment in the NBN cannot simply be shifted to pay for more roads, unless those roads are being run by a government business making a return.”
This refrain was repeated by Labor MP and Minister for Transport and Infrastructure, Anthony Albanese, during a parliamentary debate on the NBN this week.
“I note that in my portfolio of infrastructure and transport, I am continually hearing demands from National Party members, federal and state, in particular, but also from some Liberal Party members saying, ‘You should take the money from the NBN and give it to build a road, a rail line or some other project,'” said Albanese. “There is a complete economic illiteracy about the difference between an investment that will bring a return to the government on a commercial basis—that is, the National Broadband Network—and the circumstances of a straight investment in a road project that will not deliver a return but is simply a cost to revenue.”
Albanese further claimed that Turnbull was “deep down”, “a supporter of the NBN”, adding: “We are in on the joke—that this is better than any of the failed attempts of the government that he was a part of was able to achieve in 19 separate attempts.”
I don’t think there’s a great deal more to say about the Coalition’s ongoing statements about the budgetary treatment of the NBN. It is clear that the NBN investment is an investment expected to make a return, not an expense. This is a fact, and the Coalition should start to recognise this as a fact. It’s not an issue which can be meaningfully debated, without throwing currently accepted accounting standards out the window.