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News, Telecommunications - Written by Renai LeMay on Sunday, October 21, 2012 19:15 - 209 Comments
Abbott contradicts Turnbull on NBN costs
news Opposition Leader Tony Abbott today said a Coalition Government would “pause” the Federal Government’s NBN project and save money in the Federal Budget by doing so, in comments which appear to place the Liberal leader somewhat at odds with the view of his Shadow Communications Minister Malcolm Turnbull on the issue.
In a doorstop interview in Sydney today, Abbott was asked how a Coalition Government would get the Budget back to surplus, given the Coalition’s plans to cut new taxes associated with carbon pollution and the mining sector.
In response, Abbot said there was “a lot of unnecessary spending” under the current Labor Federal Government. “For instance, just to give you one example, we have seen already $5 billion worth of budget blowouts because Labor has lost control of our borders and now we see a Labor Party which wants to tax legal migrants to pay the expenses of illegal migrants. I mean, that’s the perversity of this government,” he said.
“Now, if we can get our borders under control, if we can pause with unnecessary white elephants such as the National Broadband Network, I am confident that we can make the savings that will be needed to give the forgotten families of Australia the cost of living relief that they deserve.”
However, Abbott’s comments appear to place the Opposition Leader in somewhat of a conflict with the Shadow Minister response for the portfolio, Malcolm Turnbull.
Over the past several years, a number of senior Liberal figures, including 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. It is this argument which Abbott appears to be attempting to make with his statement today that pausing the NBN could save the Government money.
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 and could thus be cut to save money. 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.
Consequently, Abbott’s comments today that the Federal Government could save money by pausing the NBN project appear to be incorrect. It appears that rather than saving money, such a move would only prolong the period it will take the NBN to deliver its planned return on the Government’s investment in it.
Turnbull has over the past several years made a number of similar statements. However, in early September, facing substantial criticism on the issue from the Government and industry commentators, 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 appeared to acknowledge the correctness of the NBN budget treatment — a position which would be the reverse of the one Abbott appeared to take today.
“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 said at the time.
Turnbull is correct in that cutting the NBN as a project would reduce the Government’s debt burden in the short- to medium-term. “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. However, in the long-term, such a move would actually increase that debt burden, as the NBN’s long-term returns (profits, for the Government) would not be able to be allocated to pay down Government debt.
The only way that pausing or cancelling the NBN project could affect the Commonwealth’s financial position — under a Labor or Coalition administration — is to allow the Federal Government to re-allocate the debt funding it has and continues to invest in the NBN to other projects. In short, although the Government is already borrowing money to build the NBN, it is possible to make an argument that those borrowings could be re-allocated elsewhere. However, with the Australian Government continuing to enjoy a AAA credit rating from several major ratings agencies, it is unlikely that the Government will have any difficulty borrowing further money (for example, through issuing government bonds). This means that pausing or cancelling the NBN project would be likely to have little or no impact on the Government’s ability to source debt funding.
There is one sense in which Abbott and Turnbull may agree on the issue. Over the past few months Turnbull has repeatedly stated that the Coalition could build the NBN cheaper by using fibre to the node instead of fibre to the home technology. It is not clear yet whether such a rollout would maintain the same return on investment as Labor’s existing NBN project, but if Abbott was referring to this approach, his statement today would not contradict Turnbull’s acknowledgement of the NBN’s budget treatment. However, it is not clear that Abbott was referring to this NBN approach, as he referred to the NBN project as a whole as “unnecessary”.
Abbott’s comments come as the Opposition Leader continues to appear to take a dissimilar view of telecommunications policy than Turnbull. In general, Abbott’s views on the NBN over the past several years have focused around cancelling or dramatically winding back the project. In comparison, Turnbull’s comments on the matter have increasingly focused on changing the technology used in the project — moving to a fibre to the node rollout, instead of Labor’s more ambitious fibre to the home plan — while still using much of the current structure of the current NBN project.
For example, in June news Turnbull gave what he described as a “solemn undertaking” to the Australian people that a Coalition Government would “complete the job of NBN Co”, instead of ripping up the network or abandoning Labor’s NBN policy altogether. This appears to have led to concerns by some Coalition backbenchers that Turnbull’s approach is too similar to that of Labor.
Many in Australia’s technology sector have long suspected that there is a substantial gulf between Turnbull and Abbott when it comes to the NBN. Like many, I suspect that Turnbull understands the dynamics of the project very well, while Abbott does not, and that Turnbull has not yet been able to get the Shadow Cabinet to ratify his views on how the NBN should proceed as official Coalition policy. The fact that Turnbull and Abbott now appear to be somewhat contradicting each other with respect to some aspects of the NBN lends credence to this speculation.
Is the issue which Abbott raised today with respect to budget treatment of the NBN a minor one? You could argue so, given that it was an off-the-cuff comment made at a doorstop interview. And despite how it seems, perhaps the Opposition Leader simply misspoke about the NBN’s budget treatment, rather than holding a different view on the issue than Turnbull. It could be that we’re making a mountain out a molehill here, and we’d welcome further clarification and comment from the Coalition on this issue. However, we are talking about a massive, $37 billion infrastructure project. It’s important to get these things right, and Abbott continues to appear to get them fundamentally wrong. This fact is concerning for the future of telecommunications policy development and implementation in Australia.
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