news Shadow Treasurer Joe Hockey has joined Opposition Leader Tony Abbott in contradicting comments made by Shadow Communications Minister Malcolm Turnbull on the budget accounting for Labor’s National Broadband Network project, describing the NBN’s off-budget treatment as “accounting tricks”, despite the accounting model having been independently verified.
In a statement issued this week following the Government’s release of its Mid-Year Economic and Fiscal Outlook (MYEFO), Hockey said the update was “a confused document, from a confused and dishonest Government”.
“Once again, Labor tries to con Australians with yet more money shuffles, Hockey said, slamming the Federal Government’s decision to introduce monthly PAYG tax for large companies. “Without these changes, Labor’s promised Budget surplus in 2013-14, an election year, would not be a surplus, but a deficit of over $3 billion.”
“This money shuffle is on top of at least $10 billion of money shuffles for the current financial year, when the Government is also keeping almost $6 billion of NBN spending ‘off budget’. Without these accounting tricks, Labor’s almost invisible $1 billion surplus for this year would be a deficit of $15 billion or more.” The comments came just a day after Tony Abbott said a Coalition Government would “pause” the NBN project and save money in the Federal Budget by doing so.
However, it appears as if the comments by both Hockey and Abbott that the Government could save money through scrapping the NBN are both factually inaccurate and contradict the stated view of Shadow Communications Minister Malcolm Turnbull on the issue.
Over the past several years, a number of senior Liberal figures, including Abbott, 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 Hockey and Abbott have appeared to make this week.
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 a capital 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, Hockey’s comments yesterday that the NBN’s budget treatment was an “accounting trick” appear to be factually incorrect, as the accounting treatment of the NBN is correct by modern accounting standard.
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.
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.
Hockey’s comments come as the latest in a long line of inaccurate and misleading statements the Shadow Treasurer has made about the NBN project. Earlier this month, for example, Hockey claimed the National Broadband Network could cost as much as $100 billion to build, despite the company’s own estimates showing that it will require around $37 billion of capital injection from the Government and eventually make a return, paying back the investment with some profit on top. In June, in another example, Hockey inaccurately claimed that 4G mobile broadband had the potential to be “far superior” to the fibre technology of the NBN.
I’d say we have a fairly serious situation if the Shadow Treasurer cannot tell the difference between a capital investment and an expense. Wouldn’t you? I’m only a small business owner who almost failed Accounting 1A at university, but even I know the difference between the two. I am tired of writing about this issue. When even Malcolm Turnbull has acknowledged that the Government’s accounting treatment of the NBN is correct, why does Joe Hockey continue to make factually incorrect statements on this issue?
Image credit: Office of Joe Hockey