news Malcolm Turnbull has acknowledged that the National Broadband Network’s funding is correctly accounted for the in Federal Government budget as a capital investment and not an expense, in a move which opens up a divide between the Shadow Communications Minister and other senior Liberal leaders such as Tony Abbott and Joe Hockey.
Over the past several years, a number of senior Liberal figures, including Opposition Leader Abbott, Shadow Treasurer Joe Hockey, Finance Spokesperson Andrew Robb and Turnbull himself have repeatedly claimed that the tens of billions of dollars the Federal Government is investing in its NBN project should be classified as an expense under the Federal Budget. Several of these same figures have argued that because of this, the NBN’s funding could be more appropriate allocated to other types of public infrastructure such as roads, instead of spending it on an NBN project which the Coalition has largely seen as expensive and unnecessary.
For example, in May 2011, Abbott said in his budget reply speech with respect to the NBN: “That $50 billion could fully fund the construction of the Brisbane rail loop, for instance, the duplication of the Pacific Highway, the Melbourne to Brisbane inland rail link, the extension of the M4 to Strathfield, and 20 major new teaching hospitals as well as the $6 billion that the Coalition has proposed to spend on better broadband.”
That same year, Turnbull labelled the Federal Government’s continued approach of keeping the cost of building its flagship National Broadband Network project off the annual budget books a “charade”.
In a speech to the Committee for the Economic Development of Australia’s State of the Nation Conference in June this year, 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.”
However, the Coalition is believed to have been factually incorrect in its claims that the NBN funding should be included on the Federal Budget as an expense. 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 (according to its corporate plan) a modest return of 7.1 percent on the Government’s investment, over the period through to 2030.
According to a research note published last year 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).
Communications Minister Stephen Conroy has consistently pointed out that the Coalition is incorrect on the matter.
In a statement responding to Coalition criticism of the Government on this issue in May following the release of the Federal Budget, 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,” Conroy said at the time. “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.”
And in August, Conroy savaged the Financial Review newspaper for its coverage of the issue, speaking in detail about what he said were a series of “misconceptions” regularly repeated in the media with respect to the NBN. “As recently as 28 June, Australia’s premier financial journal questioned the treatment of the NBN as an investment,” Conroy said, referring to the Financial Review.
Today, in a small note published at the end of a lengthy response to a critique of the Coalition’s rival NBN policy by Business Spectator, Turnbull acknowledged the correctness of the NBN budget treatment.
“As far as the balance sheet point is concerned, let us just cut through the fog of spin and nonsense here. A dollar saved on the NBN Co build is a dollar less for the Commonwealth to borrow and service with interest,” he said. “Under the accounting rules the expenditure on the NBN does not count towards the budget outcome – so much deficit or surplus – but it is cash – real money – nonetheless and it does add to the debt burden of Australians.”
Turnbull’s comments represent the first time over the past several years he has publicly acknowledged the accuracy of the Government’s accounting treatment of the NBN funds.
The Shadow Communications Minister’s comments also come as Turnbull has this week made a major speech discussing the need for what he referred to as “the urgent need for honesty” in Australian political discourse. “Most Australians believe we need an honest, informed policy debate. Yet I don’t see many people who believe we have that. Instead, we all hear again and again that Australians are ashamed of the parliament, that they see it as nothing more than a forum for abuse, catcalling and spin,” he said, delivering the annual George Winterton Lecture at the University of Western Australia.
“In case you think my call for a change of attitude and practice to truth in politics is just idealism – let me make a practical political point. It seems to me that we don’t simply have a financial deficit, we have a deficit of trust. We can argue for hours which side and which politicians, which journalists indeed, have contributed most to it. But it affects all of us and all of our institutions.The politicians and parties that can demonstrate they can be trusted, that they will not insult the people with weasel words and spin, that they will not promise more than they can deliver, that they will not dishonestly misrepresent either their own or their opponents’ policies – those politicians and parties will, I submit to you, deserve and receive electoral success.”
Regular readers of Delimiter will know that we have been fighting a long-term battle on this issue for several years now. It has been simply incredible that the Coalition has sought to have the NBN funding classified as an expense on the Federal Budget — this, and the claim that the NBN funding could be re-allocated to other projects, has always been demonstratably inaccurate, as the Parliamentary Library pointed out some 12 months ago.
It is heartening to see Turnbull finally acknowledge this point in public. We can only hope that other senior Liberal politicians pay attention and take the same approach. The NBN funding is not an expense, it is an investment. It is immensely gratifying to see Turnbull acknowledge this objective fact, and I hope we can now lay this particular micro-debate to rest and move on to more fruitful and subjective ground.
Image credit: Office of Malcolm Turnbull