news Malcolm Turnbull has over the past 24 hours appeared to make a number of misleading statements regarding the cost of and financial details involved in constructing the National Broadband Network, in what appeared to be an attempt by the Shadow Communications Minister to demonstrate the Coalition’s own rival plan would save tens of billions of dollars.
In several articles and interviews this week, Turnbull alleged that the Coalition’s rival NBN plan — which has not yet been fully revealed, but focuses on fibre to the node technology, as opposed to the fibre to the home technology being deployed by NBN Co under the current Labor plan — would see broadband deployed “sooner, cheaper and more affordably for users”.
“Our broadband policy is to complete the national broadband network, but to do so sooner, cheaper – less cost to the taxpayer – and much more affordably for consumers and that is our plan,” Turnbull said on the ABC’s Lateline program last night. “So we will complete the NBN, all Australians will have access to very fast broadband, but because we’ll use a mix of technologies and use the most cost-effective ones where appropriate, we will be able to do it sooner, cheaper and more affordably.”
Turnbull also made the same argument in an earlier response to several articles by high-profile business and financial commentator Alan Kohler, who has heavily criticised the Coalition’s NBN policy on his site Business Spectator this week.
“[Kohler’s] conclusion is that a change of policy to save tens of billions of dollars is ‘lots of pain, little gain’,” wrote Turnbull. “Apart from the taxpayer, of course, who gets to save tens of billions of dollars and Internet users who get their upgrade a lot sooner and because the capital investment is so much less, more affordably. The Coalition’s approach to the NBN Co is not political or ideological, but rational. We will complete the NBN, there need be no anxiety or uncertainty about that, and we will do so sooner, cheaper and more affordably for users.”
In a separate interview earlier this week with the Financial Review, Turnbull also referred to the claimed ability for the Coalition’s rival NBN policy to save “billions of dollars”. In addition, Kohler noted that Turnbull estimated the amount which could be saved through the Coalition’s policy as being “$20 billion”.
However, there is currently no publicly available evidence that Turnbull is correct in his statement that the Coalition’s rival NBN policy would save the Federal Government billions of dollars in investment when it comes to its funding of the NBN project.
This is because the NBN project is currently projected to actually make a long-term financial return on the Government’s investment in the project over the long term through the year 2033. In its 2010 corporate plan, NBN Co forecast this amount to be between 5.3 percent and 8.8 percent — from $1.93 billion in the worst case to $3.92 billion in the best case. This means that eventually the NBN will make money for the Government rather than cost it — including returning its original investment.
In NBN Co’s most recent corporate plan released several weeks ago, NBN Co firmed that figure at 7.1 percent. The project as a whole is slated to cost $37.4 billion in capital expenditure to construct, with an additional $26.4 billion to be spent on operating expenditure through to the year 2021 when the project is slated to be completed construction. However, NBN Co is also projecting revenues of $23.1 billion over that period, and through the decade after that period it is projecting that it will recoup the Government’s investment in the project and make a return on the investment of 7.1 percent.
NBN Co also states in its corporate plan that this rate is above the Government’s long-term bond yield rate — the interest cost at which it can borrow money from the public through bonds. If NBN Co does not achieve this rate of return, the entire cost of constructing the NBN will not fall at taxpayers’ doors — only the net loss in the Government’s investment — which would be calculated as the total Government investment in the NBN plus NBN Co’s costs through to 2033, minus its revenues and other income.
In comparison, the Coalition has not yet released the details of its own rival NBN policy, although Turnbull stated this week that the policy had been costed. An analysis by Citigroup published in November found that the Coalition’s policy would cost $16.7 billion. The Citigroup report didn’t mention what financial return, if any, the Coalition’s proposal was slated to bring in on its own investment.
Turnbull’s comments do not reflect the first time that the Coalition has referred to the inaccurate possibility of saving government money by cutting or substantially modifying the NBN project. In February, for example, opposition Leader Tony Abbott stated in a high-profile speech at the National Press Club in Canberra that cutting Labor’s National Broadband Network project would free up Federal Government money to be spent in other areas such as transport.
Alan Kohler reinforced this point in a commentary article published this week critiquing the Coalition’s policy. “The money saved – Turnbull estimates $20 billion – can’t be spent elsewhere or used to bring down taxes, because it is capital expenditure, not operating expenditure,” he wrote.
Turnbull’s office was invited to respond to the issue mentioned in this article, but did not comment by the time of publication. However, the Coalition is believed to consider the NBN project as it currently stands as an imprudent investment, as the project’s ROI will be made through the creation of a regulated monopoly. Economic theory generally considers that the private sector is more efficient at investing capital than governments.
If such regulated monopolies — which are common in the infrastructure space, such as energy and water utilities, organisations which administer toll roads and also in telecommunications — do not invest efficiently, they will be forced to charge higher rates than the market would for the same services — leading to the possibility of generally depressed economic activity. However, it is currently unclear how specifically this argument applies to the NBN model.
I am actually quite surprised to see Turnbull making the argument in public that Coalition’s NBN policy can save the Government tens of billlions of dollars in capital investment, given that it has been repeatedly shown that the NBN project is expected to make a modest return on its investment. By current financial analysis, the NBN will make the Government money, as well as providing a raft of side benefits to the economy, such as increased productivity and efficiency.
Secondly, as Kohler pointed out this week, it’s not as if the money that Turnbull is talking about can be “saved” in any real sense. It’s capital investment — not operating expenditure. You can’t take that money and “spend” it on something else, because it does not represent an expense, but instead an investment. Governments often borrow money to invest in projects which will make a modest ROI while also benefiting the community at large, and with the Australian Government’s AAA credit rating, it can certainly afford to do so. I wouldn’t say the Australian Government has access to unlimited debt, but given its very strong economic standing currently, it can certainly afford the debt level required to build the NBN, without blinking.
I am rather disappointed that a politician of Turnbull’s financial education doesn’t discuss these nuances in public. Surely, given the complexity of the NBN debate, it would be worth differentiating between capital expenditure and operating expenditure, and the difference between an expense and a return on investment. Or, even if Turnbull doesn’t go into these nuances, I would at least expect him to provide details of how the Coalition’s own policy will function financially. How does he expect Australia to have a realistic public debate on the differing NBN policies without this information?
Image credit: Office of Malcolm Turnbull