NBN no CommBank or Qantas, says Hockey


news Shadow Treasurer Joe Hockey has taken an axe to the Federal Government’s budget treatment of its National Broadband Network project, arguing that NBN Co is not an asset like previous government-owned companies such as Qantas or the Commonwealth Bank, which were eventually successfully privatised.

In a post-budget address to the National Press Club this week, Hockey said that one of the reasons why Government debt kept rising while the budget was “supposedly” in surplus was that spending on the NBN and other projects such as the Clean Energy Finance Corporation were “off-budget” and financed through increased Government borrowings. “If both entities are treated on budget then the $1.5 billion surplus forecast for next year would be a $4.3 billion deficit,” Hockey said. “Add in the $8 billion of money shuffles and the deficit would be $12 billion.”

According to a research note recently published by the Parliamentary Library of Australia last year, Labor is technically correct to account for the NBN 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).” The NBN’s long-term return is currently projected to be between $1.93 billion and $3.92 billion.

But Hockey said he didn’t accept this explanation for the NBN’s budget treatment. “The Treasurer says this is normal accounting but the $50 billion NBN and the $10 billion CEFC are not “normal”,” he said in his speech. “Their size and asset quality are not on a par with a Qantas floated for $2 billion, Commonwealth Bank floated for $8 billion, or Medibank Private valued at around $4 billion.”

“Nor is their asset quality the same. For example the CEFC is offering taxpayer funded credit for green projects where the banks will not … and on this basis it does not seem a good business proposition. And the business case for the NBN is so poor that the government refuses to have a cost/benefit analysis.”

Hockey said if the Coalition won government, one of his earliest administrative tasks to improve public finances would be to “meet with senior public servants to identify the real commercial value of the NBN and the Clean Energy Finance Corporation and their treatment in the Budget”.

However, Communications Minister Stephen Conroy didn’t take Hockey’s comments lying down, issuing his own statement following the Shadow Treasurer’s speech. “The Coalition has won the trifecta for economic illiteracy in their claims that the National Broadband Network should be treated as spending in the budget,” Conroy said.

“In his National Press Club Speech, Mr Hockey has once again shown he is unfit to be in charge of the nation’s finances. Mr Hockey not only masterminded the Coalition’s pre-election costings debacle – where the firm hired by the Coalition to audit its election promises was later fined and reprimanded for unprofessional practices – but now he wants to ignore international accounting standards.”

“The NBN is an investment in an asset from which the Government will receive a return. 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. Instead of wilfully misleading the public, the Coalition should support Labor’s NBN, which will provide fast, reliable, and affordable broadband to all Australians, regardless of where they live.”

As I have previously written, I believe Conroy is factually correct in his assertion that the NBN’s costs should not be on-budget as an expense. The facts of the matter are that the NBN is expected to make a return, and the government’s funding of the project is not an expense, for accounting purposes, but an investment. The Coalition has wilfully ignored the fact that even if the NBN makes a loss, that loss will not represent the entire cost of the project, but only its revenues minus its costs. Furthermore, the Coalition has not presented any analysis for what it estimates that loss might end up being.

In this sense, the Coalition’s continual claims that the NBN should be included in the budget papers as an expense appear to be quite ridiculous. If the Government did include the cost of the NBN in the budget as an expense, then later on, when it started making money from the NBN, it would then need to include those revenues as well. Frankly, this isn’t how accounting works, to my mind, and, it would appear, the mind of the Parliamentary Library, which produced a detailed paper on the issue.

I also want to address Hockey’s comments about NBN Co not being similar to Qantas and the Commonwealth Bank.

Frankly, NBN Co is the very definition of a company which is similar to Qantas and the Commonwealth Bank. And I note that there is a third company which Hockey should have included in that comment, but chose not to — another company which was also very similar to the first two and even more similar to NBN Co, because it also rolled out a national telecommunications network with government funding. A company which was also highly successfully privatised and made a stack of cash for the government in the process, and continues to make stacks of cash for its shareholders.

I speak, of course, of Telstra.

The Government’s creation of a national fibre broadband network is directly analogous to the creation of value inherent in Telstra, the Commonwealth Bank and Qantas, and my personal feeling is that this fibre infrastructure will end up being more important than any of these three companies to the long-term future of the Australian economy.

I think if we look ahead 30 years or more — and bear in mind that this time scale is “normal”, compared with the Qantas, CommBank and Telstra examples — the NBN infrastructure will continue to be worth an incredible amount to Australia, and my feeling is that the return on its investment will continue to grow over time. The estimates of NBN Co’s long-term value which we currently have, in my view, are quite conservative estimates and don’t reflect the way that financiers and the sharemarket will view the company in three to four decades.

I think at that time, the Government of the day may find that the private sector is willing to pay a very pretty penny for a well-established national company with a giant fibre network and a monopolistic grasp on its sector, with guaranteed customers. A very pretty penny indeed.

Image credit: Office of Joe Hockey


  1. Ignoring everything else Hockey said – the second he (or any politician) refers to “the $50b NBN”, they lose all credibility.

    • Agreed!

      He’s obviously not w/ the times.. his pal Turnbull quoted the cost to be 60bil to 80bil on his latest speech at an international broadband conference in Kuala Lumpur a day or two ago!

      *rolls eyes*

    • Keep in mind the reason why the $50 billion number is thrown around:

      1. $50 billion sounds big a scary.
      2. They know that their patchwork plan will blow out to $70 billion when we have to upgrade to fibre and fix us the mess. Inching that number closer to $70 billion for is important for them.
      3. The bigger the number they use the more savings they can make if they cancel it. Voters love this.

    • Hey, get with it, folks.

      Every Abbottspieler worth their salt knows that the cost of the NBN will be ‘more than $100Bn’.

      Gotta love those big round numbers, even when they have no connection to reality.

  2. It’s unfortunate that this guy is probably going to end up being the federal treasurer.

    Continuing blatant hypocrisy, he ignores the globally-advocated best practices for accounting just to push is flawed political agenda. That, and he made the statement (in a not-so-round-about way) on Q&A that his family was better than Minister Wong’s, just because it’s based around a heterosexual environment.

    He’s assassinating his own character and credibility by continuing to ignore the facts, and the experts, on pretty much everything he comments on.

  3. “ignores the globally-advocated best practices for accounting just to push is flawed political agenda” sorry, can I steal that to use on twitter? :)

    • Absolutely… but you might want to replace “is” with “his” (noticing my own typo ;) ).

  4. Why would anyone want to get rid of a guaranteed source of profit is beyond me. Don the Liberals realize that they will get more votes if they supported the NBN rather than oppose it?
    An by stating

    Hockey says: “if the Coalition won government, one of his earliest administrative tasks to improve public finances would be to “meet with senior public servants to identify the real commercial value of the NBN ”

    Well so they will then waste another 6-12 months to determine(delay/waste time) if the NBN is worth it? And then they say they method will bring fast speed internet to Australia sooner? The same guys who do not even have a plan. At least Labor has a plan and its in motion. Stopping the NBN is just stupid. Not to mention the cancellation fees the libs will have to pay mid 2013 if they win the election. Its almost certain that the amount will be much higher than 1.8 billion. Possibly double or triple that.

    • If the coalition supported the NBN, I would place money on them winning the next election by a landslide. Unfortunately, I think they are way too far down the rabbit hole that is, ‘It’s not our idea, so it must be bad’ to get out now. Which really is a shame.

  5. It seems that the tactic here is this.

    Conroy: “facts, common sense, valid arguments”

    Abbott, Hockey: “50 billion… white elephant… Fuddy fudburgers”

    The only reason Abbott and Hockey. et al are so vocal about this is because they have no real policies except to get into government. They are “opposition” to the core and should stay that way.

    If they do get into government, lets see if they spend the first few years blaming the Rudd/Gillard government for leaving the country in a mess for them, whilst dismantling anything that helps low/middle income people or the environment.

    • @Azrehan

      If you want to see Abbot’s policies vote for them in the next election. They don’t need to spend money on think-tanks developing detailed policies of what they would have done if they were in power because they arn’t. All they need to do is make a big deal that labor is doing it all wrong.

      Sometimes there are no perfectly right answers. But that doesnt matter the opposition.

      • The way that Abbott has somehow convinced people that he doesn’t need to have policies because he isn’t in government is ridiculous! How are you suppose to know what your voting for? How are you suppose to know if Abbott can actually do what he ASSERTS he can. Asserting something doesn’t make it true.

        • I think once the (true) electioneering/campaigning begins, Tony will expand his vocabulary from no, by adding another word, “better”…

          Every time he is asked what he will do in relation to health, education, taxation etc, he will repeat his magic new word.

  6. Hockey seems to be saying that, since the NBN’s value is over a magic threshold, it suddenly isn’t an investment anymore. Right.

    He is also misrepresenting both Labor’s reason for not doing a CBA and his own party’s reason for wanting one.

  7. When the NBNCo’s new corporate plan is released showing a return of 7% compared with a 10 year bond rate of ~3.5%, Conroy will be able to shove it in Hockey’s face and say “OK, Joe, what’s wrong with this?”. If Hockey can’t pick holes in the corporate plan he will have to accept the NBNCo is a legitimate investment.

    • @Dibbler

      How can you possible know this sort of information. When the plan hasnt been released yet.

  8. Cant believe these morons are the current “preferred” party to win the next election, there not fit to run a chook raffle!

    • I can believe it. It may come as a shock to some people, but a very fundamental difference between Libs and Labor is that Labor spends money, Lib’s dont. At different times, both are good for the country, but it comes at a cost. Underspending does nothing to make us a world player, it merely makes the bank account look good. Overspending to catch up means often unpopular ideas. Ebb and flow situation.

      Lib’s have no infrastructure plans of their own, relying on the private sector to solve all the problems through market pressures. Hence opposing anything progressive thats Govt funded. Again though, at times its the proper option.

      As Labor is pushing this, in a time of global uncertainty, all the Lib’s have to do is scaremonger and sit back. Sheep mentality could do the rest.

      If the GFC hadnt happened, Labor would have another $100m a year in tax revenue to work with. How different would public perception of Labor be in that situation?

      And in a nutshell, thats why they are the prefered party – they just need to have zero policies, and spout FUD that people believe, which is easy in the current climate, and people will make them the preferred party…

      In the normal turn of events, Labor would have built this, there would have been plenty of money to go around, and Lib’s would still be sitting there with little to no chance of winning the next election. Unusual events have changed the normal process, so we get what we have here today.

      • Not to mention all the assistance the Libs are getting from Noise Ltd press and the ultra-right wing shock jocks!

      • @Gav

        I think what you have said is essentially correct. However, Labor has failed in other ways that has made them unpalatable to the public. Namely in not having a well focused vision of what they want. For example the on again off again carbon trading scheme (eg Rudd says greatest challenge that we need to address then drops it when it gets unpopular. Julia comes in and after a while puts it back up but then changes it to a tax instead. They have also burned a number of people to do something that most people think is essentially useless (eg CTS in Australia will make no difference to the world but will cripple certain areas of the manufacturing sector). They then pay 80% of the public so that they are not affected by the same tax. Even though a tax is essentially designed to modify behaviour they are removing that impediment. So you get 80% that are not affected and 20% that are paying for the entire CTS and are resentful.

        Also don’t forget that Julia has come across as an unprincipled opportunist.
        1. Stabbed Rudd in back to get the leadership as soon as his popularity dropped
        2. Made a deal with independents and greens to stay in power at the expense of her/there values
        3. Stabbed the independent in the back as soon as slipper gave labor another vote
        4. Changed from we will never have a carbon tax to oh god if i dont have a carbon tax the greens wont support me so im going to do it now

        Every day you see those stories and people eventually remember her as that. After she has gained that reputation its virtually impossible to shake it off.

        I am a life long labor voter and support the NBN but I am seriously considering voting liberal for all the other rubbish that has happened in the government. I am bitterly disappointed with Labor :(

        • Stewart as a swinging voter – previously Howard, Rudd (then for reasons which will become obvious) Gillard, I can see exactly where you are coming from…it can be most frustrating seeing a government implode, especially when the opposition’s intentions/policies are top secret, if they exist.

          However, a tip for you to try what I do, when I see all the BS going on with the government and start thinking, fuck it, I’ll vote for the Coalition again.

          All you have to do is look at a picture of Abbott and I can assure you it wears off and very quickly ;-)

        • The very fact that everyone calls it a ‘carbon tax’ shows the problem.

          There’s a very good reason the Queenslanders didn’t attempt their High Court battle; because it really isn’t a tax. Companies are given permits to pollute; some get a number of them for free. It’s not the same as a tax break, because companies that don’t need all the permits they have can sell them. There’s always a finite number of permits. Put this in perspective; if you get over-taxed, you can’t exactly sell your tax return. Long before the price is set afloat, it’s a very different system to taxation.

          The truth is that Gillard committed to a carbon price in virtually the same breath as promising no carbon tax. The problem isn’t that she lied but that she has failed to convince the public that these are different. There are definitely failings, but some of them aren’t what people think they are. The biggest is that the government’s opponents are able to define reality for them.

          • How soon we forget Tony Abbot “If you want to put a price on carbon, why not just do it with a simple tax?”.

            This is not a tax it is the government selling permit to pollute then putting a cap on the number of permits and allow the market to determine the price of those permits. Only people who call it a tax are the collation and by extension the Murdoch press.

            I don’t know about the rest of you but I plan to be alive for a number of decades yet so it is good for me to have a government that is planing to for this country more than 4years at a time.

        • Hi Stewart,
          Please don’t take this as an attack, but as education. (I agree almost entirely with your post, except about the carbon tax). I am going to set this up, its going to be contrived, but it is for education! (real world will be different, but averaged out the whole economy will/should work roughly this way).

          We have 2 cars, a prius and a carolla. To make a carolla, we produce 100 tonnes of carbon. To make a Prius we produce 50 tonnes of carbon.
          Under no carbon tax.
          A Carolla costs 50 dollars. A Prius costs 90 dollars.

          On the other side of the equation, we have “Joe Average” He wants to buy a car. He has 75 dollars to spend. Right now, Joe would have to borrow 15 dollars to buy a prius. Or would have 25 dollars left if he bought a carolla. Joe is going to be frugal and buy a carolla.

          Now lets slap a carbon tax on. 1 dollar per tonne. The car manufacturers are nice and don’t bullshit raise their prices, and pass the tax on through 100%.
          Now, a Carolla costs 100 (tax) + 50 (manufacturing) = 150 dollars.
          A prius costs 50 (tax) + 90 (manufacturing) = 140 dollars.

          Without compensation, Joe now can’t afford ANY car. So we compensate him. We give him 66% of the money we taxed (arbitrary percentage – by the costs of the cars you should already see where I am going). Joe now has 175 dollars to buy a car. 75 (earnings) + 100 (compensation). (remember we taxed the manufacturers 150 dollars total).

          What car will Joe buy this time around? Joe isn’t dumb. He is going to buy the cheapest car. (unless he really wanted a carolla! – in which case he is going to *pay for the luxury of his carbon intensive car!*)
          This is why you give compensation you let the market(ie people!) decide which products win. If doing it the carbon expensive way **is way more cost efficient** then the carbon expensive way will win! It really is the only perfect way to tax carbon emissions. Stick a trading scheme on the back end and it becomes a money making scheme with net positive environmental outcomes to boot.

          • Well put Peter, add to this info that all reputable sources price Tony’s “direct action plan” at double the cost for half the result!

        • @ Stewart

          fully agree. Gillard will be remembered for a number of reasons, most of which arent flattering. No denying that, and its gone a long way towards making Abbott the preferred option. But thats not what I was on about here. It was simply that one party builds, other party consolidates, and in the global financial situation we’re in, spending can be used as a weapon of FUD. Thats it, nothing more.

          The extension to that was that for reasons outside any politicians control, that natural ebb and flow process has been disrupted. If the expected tax revenue was there (and was something Howard took advantage of to build his surplus), then Labor would be $100b in surplus with this budget.

          Of course that wouldnt be the real situation, they’d be spending a fair portion of that, but the extra tax dollars would make it a hell of a lot easier to sell Gillard’s shortcomings, and cushion pretty much all of the impact on the public.

          End of the day, if the GFC had come along a year earlier, we might still have a Coalition govt IMO (because in 2008 non-spending would have been the right option), and its impact on our economy, as well as its been managed (and it HAS been managed well in Australia), has meant there is a LOT less money to do what was planned.

          Somehow the effects of that GLOBAL situation has become the Governments fault, despite the rest of the world being envious of how we’ve managed to get through it, and at the end of the day it looks like they will pay the price.

          As a side note, imagine the extra $100b being there, going into hospitals, roads, etc. What would the nay sayers be using as an excuse then?

          • <<<It was simply that one party builds, other party consolidates,

            One party gets into debt, the other pays it off.

            But debt is actually a good thing. All the wealthiest countries in the world (US, Japan, Europe) have the most debt.

      • @Gav
        “a very fundamental difference between Libs and Labor is that Labor spends money, Lib’s dont”

        In this case, the opposite is true. The NBN is an investment with a (pretty much) guaranteed return. The Libs plan is to subsidize private industry with about $10 Billion…this has no chance of a return.

        • Tbh, there are not many investments that struggle to pass a cost benefit but at the same time is commercially self-funding and guaranteed to make a positive return. The NBN is definitely one of those.

          These unique assets are usually vital infrastructure important to national economic prosperity that only Governments with bold vision will build. Although these project can be proven with evidence to fully recover all money invested plus positive return with zero taxpayer contribution, they will often fail a simple Cost benefit.

          Unless we all log off the internet for good, there will always be 100% takeup of NBN.

        • @Chas, very true, I was just simplifying things. That part of the post was more to do with how, because of party policies, its pretty much always going to be Labor pushing national infrastructure projects rather than the Coalition.

          You cant say the Coalitions $10b plan is infrastructure spending when all its doing is bribing the private industry to do the work for them.

          • Bribery is actually illegal. ICAC should immediately investigate Coalition policies. Along with defamation of Quigley and Conroy’s reputation in telling so many lies about NBN accounting that should see these politicians in jail for many years and keep our NBN safe from political tampering.

      • >>>If the GFC hadnt happened, Labor would have another $100m a year in tax revenue to work with. How different would public perception of Labor be in that situation?

        Well if Labor had an extra $100m to spend on advertising explaining benefits of carbon tax, poker reform, the public perception of Labor would definitely be much improved.

        More government advertising to counter the rightwing media NBN FUD campaign would greatly aid the public understanding of the economic benefits of ubiquitous internet. Some companies spend up to 5% of sales revenue on product promotion. NBNco with eventual billions in revenue should be allocating more money to educational advertisements. Faster uptake and revenue growth alone would justify the expense.

  9. Labor is completely correct. As long as the servicing of the debt for the NBA asset is included as an expense (which they do from memory).

  10. Can someone give me an example of how the governments treatment of the costs of the NBN would be noted in my home budget (ie where do I put the costs of creating a capital assets)?

    • If you borrow money to build an investment property at a 3.5% pa rate, and you can rent the property out and make 7% pa on it?

      Disclaimer: I am not an accountant/economist.

      • So, the money I borrow is not specified anywhere? I just have a debt (no not a debt?). Really hard to try and comprehend in laymans terms.

        • A budget is about expenditures vs revenue for the coming period. It has little to do with assets or liabilities.

          The budget is a register of what is going out and coming. Therefore in the case of the NBN you would borrow money (an liability) to pay for a the NBN (asset) these would be listed elsewhere. The budget would reflect the income generated by the NBN for that period (small at the moment) and the expenses for the year (the interest and principle on the money for the period borrowed to pay for NBN).

          As an analogy what the coalition is suggesting is that the entire cost for the current year of building the NBN should be put on the budget that is not how it works.

          • Oh a good analogy is when your budgeting for your household budget you don’t put the cost of your house down you only put down the loan repayments.

          • I am not even sure how you could make the NBN an expense. If the money from the borrowing for the NBN went out as all expense and it had a value added as an asset your whole ledger would be out of balance.

          • Technically even expenses are supposed to be incurred over there life. Eg a bridge should be budgeted by depreciating it over the life of the asset (eg 50 years for a bridge). So the government account standard is quite conservative by writing off capital expense on the year they are incurred.

          • A little odd, does that mean if they sell it before the before it drops to the depresiated value they have to reverse that out?

          • I worked for quite a few years writing business software. It was surprising how many dumb accountants their are. They would complain about the general ledger being out of balance. It’s amazing the number of ways accountants find to do a single sided balance to “fix” an figure that they think is “wrong”. You take out their dodgy transaction and then give them a break down of the other side of the transactions. They usually spot it them. I don’t know how they think it’s ok to just correct one side…

      • One of the most fundamental problems with accounting is accurate valuation of assets. So there’s two basic sides to accounting:

        * cashflow and transaction accounting

        * stock and inventory accounting

        In the first case you can get it very accurate because the cashflow is a tangible thing. Most of the government accounting that you hear announced (like the budget surplus) is cashflow accounting.

        In the second case you have a deep problem. An object does not actually have a price until a transaction exists, so in this situation the NBN does not have a value until it is sold. However, at the moment the NBN is not up for sale, so the only value it has is whatever people estimate, based on their beliefs and their reading of the NBN business plan. Half of the arguments on Delimiter are over whether the NBN will make a positive return or not, no one can honesty say they know the answer.

        This problem goes way beyond the NBN, please read the articles of J. Edward Ketz who spent years wrangling with this very problem as the banks in the USA would “mark to market” their assets as prices were rising, but then strangely forget to adjust those same assets as prices were going down.

        I’m pretty sure I know what Ketz would say about the ALP accounting procedure, but I haven’t got the spare cash to encourage him to research the topic. At any rate, I’ll point out that Ketz made a formal statement of defeat to the US banks, but he never accepted that they were right, only that they had beaten him.

        • @ Tel, are you suggesting our own Australian Parliamentary Library Economists are wrong or intentionally lying?

          • Your question is too vague to answer. If you can quote a specific statement and indicate the source then I can think about whether I agree with it. By the way, the above PDF link doesn’t even work for me so presumably you must have some other source of information.

          • Oh please… stop the intentional irrational avoidance.

            The Parliamentary Library Economist has said the NBN is being costed correctly. NOTE CORRECTLY.

            So is he wrong/lying – it’s not a trick question YES OR NO?

            I await anything but a straight answer… *sigh*

          • Have you got any actual statement given by the so called Parliamentary Library Economist, or are you going to keep waving your hands?

            What exactly is a “Parliamentary Library Economist” anyhow, and what do they do? I was talking about Accounting.

          • For what it’s worth, I’ve been reading Brian Dalzell’s reports, he seems to be a researcher at the Parliamentary Library, with an interest in telecommunications and economics. Good for him, I’m not about to regard him as a universal authority on accounting standards, but then again neither am I, nor any of you guys. Dalzell does dig up some useful figures on the NBN and I’m willing to presume these are correct:


            The DBCDE has therefore applied the net asset valuation methodology to measure the fair value of its equity investment in NBN Co. Their annual report presents the results of that valuation exercise. For the year ended 30 June 2011, NBN Co was valued at $958.805 million.

            OK, so that’s a valuation to 6 significant figures accuracy. If you wanted to measure the length of your desk to 6 significant figures you would need a tape measure that can discern 1/10th of a human hair or there abouts, but I’m going to give the benefit of the doubt and round that up to a whole $1 billion. See what a decent guy I am?

            Here’s a summary of the costs (perhaps a little out of date, but not much):


            So working in millions of $ we get:

            tot cost to date = 1712 + 3088 = 4800
            asset valuation = 1000

            Nett loss = 4800 – 1000 = 3800

            So we spent $4800M to get an asset valued at $1000M which is a loss of $3800M in anyone’s accounting and this loss should be visible on the balance sheet. Thus, the citizens of Australia have paid $3.8 billion for the NBN so far (in nett terms), and that’s based on the figures from your chosen expert on the subject.

            By the way, the same guy says that the whole debate between “on-budget” and “off-budget” is meaningless anyway, and I’ll quote:

            The use of the terms on-budget and off-budget can be misleading and should be avoided. The budget covers the general government sector. The term off-budget is sometimes used to refer to entities that do not form part of the general government sector (for example, Australia Post and the Reserve Bank). However, that does not mean that such entities do not affect the budget. On the contrary, the budget accounts for the inter-relationships between these entities and government, and these inter-relationships are reflected in the general government sector financial statements. For example, the government’s equity in Australia Post is included in the general government sector balance sheet, and Reserve Bank dividends are included in the general government sector operating statement. To sum, the terms off-budget and on-budget are not used in any technical discussion of financial statements and should be avoided.

            On this specific point I’m perfectly happy to agree with him, although it is quite irrelevant to what I said above “Posted 18/05/2012 at 9:03 am”.

          • I would suggest the Parliamentary Librarian Economist is someone who knows…

            more than me and YOU…

            But don’t let that stop your crusade, please continue…!

          • Err you link to ZDNet and the PDF on their website is broken as well so I immediately KNOW you haven’t actually ready any of the source material.

          • You just discovered that for the first time today right? You read this bit right:

            The DBCDE has therefore applied the net asset valuation methodology to measure the fair value of
            its equity investment in NBN Co. Their annual report presents the results of that valuation exercise.
            For the year ended 30 June 2011, NBN Co was valued at $958.805 million.14 This is 4.07 per cent of
            the total $23 551 million ‘investments in other public sector entities’ line item amount, as reported
            in the 2010-11 government balance sheet statement (see figure 2).

            Oh wait, that’s the same valuation I already quoted above. Roughly 1/4 of what we paid for it.

            Hmmm, no I can’t disagree with that, especially since it’s exactly what I already said above. You quite sure you actually read the report?

          • Oh dear Tel, like all NBN info, people such as you scour the entire doc to find anything to even vaguely fit the FUD.

            What it boils down to is, I have supplied evidence from a reliable source which says the NBN is being costed correctly. Conversely, you have supplied SFA to disprove any of it, but yet, keep refuting (gee why would anyone do such a thing)?

            So, who ever should we believe?

          • I searched for the key numbers: cost of NBN to date, and valuation of NBN. You obviously didn’t even manage to find those. I’m coming to the conclusion that you don’t understand the stuff you are pretending to read, go back and read what I have already written above.

          • Mate all you’ve written is regurgitated Coalition tripe.

            So I’ll keep it simple for you, which part of “the NBN is being costed correctly” do you not understand?

          • The question you are asking doesn’t even make sense, “costed correctly” could mean any number of things depending on context. Are you talking about the balance sheet? I already covered that, costs to date are $4800 million, valuation is $1000 million, thus a nett loss of $3800 million. From the exact same source you were putting forward.

            Are you talking about cashflow? All this handwaving and you can’t even make a specific statement. Clearly I’ve wasted enough of my time, obviously we should be fixing the education system.

          • You still carrying on…really? *sigh* Can’t just accept the experts/referees decision and get on with it, just have to find something to argue about… *rolls eyes*.

            Err, in amongst all your deflective bullshit and politicking, you seem to have lost the basic gist.

            Let me refresh – in it’s most basic form we are discussing “whether the NBN in toto, being (for the want of a better description) *off budget* is right or wrong”.

            Remember now?

            As a result, on the one hand we have The Parliamentary Library Economists. Experts in such matters who would know and would also have no reason to lie, who say “YES, the way it currently stands is correct”.

            Then we have you, who imo (due to every comment I have seen anyway) always backs the Coalition and therefore has many reasons to lie… says NO it’s not correct and wants to itemise each issue FFS.

            So fair enough, whatever, from all of that we can all gather our thoughts and opinions…! We can believe the experts or believe Tel.

            But we certainly agree on one thing, the education system obviously needs an overhaul. Perhaps a new subject could be added to the curriculum, open-minded, unbiased thinking and rationale may be prudent?

            So since the NBN is obviously a white elephant (sarcasm) and every possible thing that could be wrong is (extra sarcasm) please enlighten us to the Coalitions alternative.

            Perhaps start with their CBA and Business plans (all needed prior to commencement according to them), the ROI, funding, costs – on budget or off/investment or taxpayer dollars and the total costs, “including your favourite, any payments to Telstra re: copper and pits and ducts – the break up of technologies, the take up rates, etc.

            Please feel free to board a flight and jot it all down on an envelope if that helps ;-)

            Thank you, because only then we will be able to weigh the two against each other and see which is the best overall outcome for Australia.

            Until then, the NBN is that network!

          • BTW ZDNet also references Dalzel by name (with a broken link to make verification impossible) but that’s exactly the source I was using above.

            What were you saying about facts? Care to present some?

          • The only people making a big deal about the NBN being (so called ) “off budget” Tel, are the Coalition, especially Turnbull, Fletcher and Hockey (who you seem to have a distinct preference for), so what’s your point?

          • Yeah, those dreadful opposition pollies, using terms like “off budget”:

            What Tony Abbott demonstrated was that not only is he not ‘Bill Gates’, but he’s also the economic illiterate Peter Costello said he was. He just doesn’t understand budgets because the NBN is almost entirely off-budget. It’s not something you can just reach into and use for other purposes.


          • LOL… you just proved my point.

            Abbott doesn’t understand the NBN not being included in the budget (which is why he says the NBN money should be channelled to roads…lol) while the others, such as the three I mentioned, are doing the complete opposite, whining about the NBN not being included within the budget.

            Nice work, thanks.

            Costello said Abbott was an economic illiterate, really, thanks for that info too.

            So again I reiterate (with your support and Conroy’s reply to the very same issue) –


            Bye for now.

    • Currently, the NBN share issues to fund it currently is from the building australia fund set up in 2009. There is still a billion dollars of this fund remaining to transfer to the NBN to fund its capital expenditure plans. Once this funding source is exhausted, the government will issue specific debt instraments (Australian infrastructure bonds, identical to commonwealth government securities) to meet the funding requirements. Eventally, the NBN will start to internally fund itself once it becomes sufficently advanced to issue it’s own debt.

      In a home accounts analogy, you are taking the $80 cash from your piggy bank to buy shares in a company, and then borrowing about $200 more money this year to get your share of the NBN. Total borrowing planned will be about $1000 over the next 4 years. Those shares are worth something, but you will be waiting until the NBN’s fully built for some dividends to be paid.
      The company keeps it’s own books, and you can use those results to guess how much your shares have changed in value, but you’ll have to do some maths.

      Hence the NBN is shown as equity on the general governments ballance sheet valued at historical costs, with the NBN’s actual financial results included as part of the “public non-fianancial corporations” section of the budget papers. These two results can be consolidated, and are included so in the budget.

      Hope you can follow that.
      Disclaimer: I am an accountant, but that doesn’t mean I’m good at explaining things.

      • Thanks Lachlan especially for the first paragraph…

        I have been trying to explain to many for quite sometime, about the NBN funding, which you just did most succinctly.

        Explaining BAF, Contingency, Bonds, Securities etc and that, again the Parliamentary Library, have listed the “possible NBN funding sources”, then the “actual funding sources” and state that general taxation revenue (our income taxes – although of course, a possibility) is not one of the NBN funding sources…

        Seems thus far BAF and general issuance bonds (not NBN specific bonds) have been the funding source of equity injections and in 2015 NBNCo plan to issue their own bonds…!

        Thanks again.

  11. Sloppy Joe is so ignorant (or deliberately disingenuous) that he doesn’t even know the difference between an asset and ROI. Suppose for the moment that the NBN does cost $50Bn and at the end is only worth $40Bn to the market. That still makes it an asset.

    The ROI (or loss in this example) has been $10Bn, and that will appear on the governments balance sheet, but there will still be $40Bn worth of fibre, switches, building, connections, etc, etc.

    I.e. it’s still an asset, Joe, get over it!.

    I guess he can only say such things at the National Press Club, where he isn’t going to be questioned closely by anyone with a brain.

    • Let’s suppose everything you say is correct, and the NBN is an asset, and the NBN does make a $10G loss. I’d probably agree with the ballpark figures right there. So when does the $10G loss become realized? Not this year obviously, not next year, probably several years down the track when it becomes clear that uptake is not as good as they had hoped and revenue is disappointing.

      So the Lib/Nat’s win the next election, Hockey becomes treasurer and then “Ha! Ha!” up pops the legacy of Wayne Swan and they get dumped with this loss on their balance sheet which was something they disagreed with all along. The ALP ponce around saying how they got a balanced budget and the Libs get comparatively poor looking figures.

      So you can see why Hockey is pissed off about this.

      • Err, that’s politics, blaming your predecessor – even if unfounded – it’s almost mandatory regardless of which side of politics it is…

        It isn’t all one-way, as you seem to infer, though.

        Here’s an interesting take from the Australian of all places


        And here’s a few from pre-Rudd…




      • You think this doesnt happen both ways? Lib’s policy of maintaining the status quo, under Howard, saw surplusses. Big ones, driven by our resource boom. Sweet, it gave the Lib’s so much money they could cut tax rates something like 6 or 7 years in a row.

        That doesnt happen very often. So Labor comes in, suddenly the Golden Egg dries up a little, thanks to global issues, and the extra money that drove those tax cuts isnt there. Labor has to do more with less, and frankly has done a great job at it.

        Even now, if the Lib’s get into power next year as it seems, they allready have a legacy of Swan’s that should mean some of their election promises are either undeliverable, or incredibly unpopular.

        Cant remember which, but either the resource rent or carbon tax is being used to increase the tax free threshold to $18,000. Cut the one funding to that, Lib’s either have to put the tax free threshold back to where it is now, or find another way to fund it. Either way, not popular. So that carbon tax/resource rent they want to get rid of suddenly has some baggage they didnt plan on.

        They spend a couple of years trying to figure out a solution that doesnt involve pissing off the worst off people in the country, and suddenly its an election issue for the NEXT election. As a side note, thats why so many big ideas take time to implement, and often dont really get off the ground until a 2nd term.

        Happens all the time in politics. When someone wants to rewind something unpopular, stop to think what else was attached to that idea, and the repercussions if those ideas were rewound as well.

        • <<<So that carbon tax/resource rent they want to get rid of suddenly has some baggage they didnt plan on.

          You are so right. Abbott and Hockey don't realise yet repealing a revenue raising measure will have to mean belt-tightening elsewhere. Winning the 2013 election will be a poisoned chalice they didn't expect.

          The Liberals really need to hire more policy advisers to be on the ball on simple budgetary arithmetic.

        • Don’t forget they sold Telstra, sold much of our gold reserves and introduced a GST…

          Seriously Abbott or Gillard could both have bragged about having plenty of $’s as PM, under those circumstances!

      • Even if it were to lose $10Bn, that doesn’t invalidate my argument, that Joe is wrong to claim it’s an expense when it’s actually capital.

        And it’s not going to cost $50Bn, is it! It’s going to cost a lot less and is forecast to make a return. I.e. the nett outcome for the government will be positive.

        The $50Bn is just an invention of the opposition. And they keep increasing their number with no factual basis whatsoever.

        Now suppose for a moment there is a nett loss of a few billion (not what is forecast). What do we get? A superb infrastructure asset that will continue to provide returns for many many years. A bit like, say, the Hume Highway, or the Sydney Harbour bridge, or the Snowy Mountains scheme.

        And all for a little bit of money. I keep hearing big business whingeing that the government must do more to improve our infrastructure. Well, this is it. It’s the infrastructure of the 21st century. BHP is perfectly capable of building a new railway if they need one. The NBN is the sort of thing the government needs to do now.

        I have no idea why Joe is pissed off. Perhaps because he didn’t think of it first. Or because Tony told him he had to. Or it’s too hard for him to understand.

        • <<<The $50Bn is just an invention of the opposition. And they keep increasing their number with no factual basis whatsoever.

          Bang on the money there! First they said if would cost $4bln in 2006, then $43bln in 2009 and now $50bln! The number just keeps getting bigger and bigger.

        • Hmm… Something to add to this. Lets make a couple of assumptions. First, the ‘cost’ to the taxpayer is actually $50b (I know, i know…), and that the end result is an asset worth $40b (again, I know, I know… Work with me here ). No ongoing charges re: connection need be applied reducing the ‘cost’

          Doesnt that mean that it will have ‘cost’ the Government (ok, the taxpayers. I know, I know…) $10b for effectively a nationwide FTTH setup?

          Even assuming all those assumptions happen, isnt that the same cost as the Liberal FTTN suggestion? $10b for each idea, one NOT needing to be upgraded 5 years after its completed. I know which one I’d prefer.

          Second to that, and this is consistently ignored by the anti-NBN crowd, is that the ‘cost’ of the NBN is spread over an extended period – 12 years or so from memory – while most of the Liberal plan is direct one off payments made as a lump sum. So you’re quite likely to see their $10b be a hit to the budget all at once, rather than be spread over time.

          What happens to other more crucial problems in that year? Couldnt that $10b be better used on more important things like roads, or hospitals, or saving the fairy penguins of Manly, or buying back Vegimite?

          No? Get ready for the same old arguments from the groups expecting THEIR problems be solved before anyone elses.

          • NBN naysayers don’t realise that there is a fundamental difference between “spending” and “cost”.

            As you correctly point out, spending say $10bn on FTTN would cost taxpayers $10bn. But spending $43bn on FTTP would cost taxpayers nothing at all. It is a well-known golden rule of infrastructure building that taxpayer cost is a declining function of the amount you spend. The more money you spend on infrastructure, the cheaper it gets for taxpayers.

            Malcolm doesn’t understand this, but Conroy does. That’s why Labor upgraded its NBN policy from el cheapo FTTN to FTTP, it goes from costing taxpayers billions to nothing at all.

            < < < <Second to that, and this is consistently ignored by the anti-NBN crowd, is that the ‘cost’ of the NBN is spread over an extended period – 12 years or so from memory – while most of the Liberal plan is direct one off payments made as a lump sum. So you’re quite likely to see their $10b be a hit to the budget all at once, rather than be spread over time.

            This is why it's always better and smarter to lease a toaster from Harvey Norman and pay it off over time, instead of buying it outright in one lump sum. It ends up saving you lots of money but most people don't realize that.

          • Do you actually read what you are writing?

            * $40 billion of investment (maybe $50 billion depending on whose figures you use).

            * No additional spending by current Internet users.

            * Costing taxpayers “nothing at all”.

            Just sketch out a quick outline as to how this can happen. Please just explain it in a few paragraphs, because no project ever in the history of the world has achieved this. Where is the magic pudding going to come from?

          • Stop it with your financial scare-mongering.

            All we have to do is hold hands, keep the faith and trust in Mike Quigley — and everything will turn out fine.

            Mike Quigley has strong links with Alcatel and Leighton, two companies with substantial stakes in the ongoing roll-out of the NBN. So, he’s completely on top of the situation and is the man best positioned to guide the NBN to financial success.

          • Holy smokes! You’ve been gagging me all along and I fell for it. Damn you nailed me good, the laughs on me.

            As the Joker said, “Why so serious?” hmmm, mostly because it’s my money, my future, ahhh furgedaboutit.

          • Tel, thanks for the utter exaggerations…

            * $40B maybe more…. unclear, but at this stage $36B/$27B from government sourced means are the projections. Anything else is conjecture and/or FUD.

            * No additional spending by current internet users. Correct, unless they/we choose to upgrade to a superior plan (as we can now) and spend more (as we can now). Please don”t try to cloud an obvious personal preference/budgetary issue with BS.

            * Costing taxpayers nothing at all. Perhaps another exaggeration, but yes. The equity injections are said to be coming from Bonds, securities, BAF and all costs are projected to be repaid. Will this occur??? But again, that is the plan/projections and anything else is conjecture and/or FUD.

            No project in our history has been as far reaching as the NBN, so who knows. But again the projections are positive and anything else is conjecture and/or FUD.

            As for a magic pudding, there certainly will never be a magic pudding if the conservatives (read conservatives – not Liberals) gain power and the anally fiscal with their $b’s gifted to private enterprise take over to the detriment of Australia and Australians.

          • “… but at this stage $36B/$27B from government sourced means are the projections…”

            Care to reference those projections, just one link? Does it include the payments to Telstra?

          • The generally-accepted convention is to add any Telstra compensation payments to the network building cost only in the case of FTTN, but to disregard these payments in the case of FTTP.

            The reasons why this is appropriate are obvious.

          • Gee you do a lot of information asking but not much providing… before you bag and refute every aspect of the NBN, Tel.

            We all know those figures are the current figures (until perhaps the revised plan comes out, which now definitely includes the pit/duct/migration deal with Telstra)…but the only people who seem to question them are the opposition (and their faithful followers who question everything NBN and question nothing LNP, odd)?

            Are the figures set in stone? Of course not! We all know that and accept that, FFS. But these are the current figures (rounded – to save pedantics).

            I’d suggest if one does not know these figures by now, then one doesn’t even know the basics and should educate one’s self before commenting ;-)


            “On 20 December 2010, NBN Co’s Corporate Plan confirmed the total capital expenditure for the project is estimated to be $35.9 billion, less than the government’s original $43 billion estimate. The government expects to contribute $27.5 billion in equity for the rollout”.

          • OK, so from a taxpayer’s point of view add $11 billion in Telstra payments because those are not included in the NBN corporate plan (they go direct from govt to Telstra). Thank you for confirming what I thought above, you did not include the Telstra payments in your cost totals.

          • Dear oh dear Tel, it really doesn’t matter what anyone tells (pun intended) you or how much supporting evidence is supplied, because you will not accept anything if the answer doesn’t fit within your already narrow, preconceived Coalition inspired views, IMO…

            So really why do you ask?

            This is just a continuation of the old NBN critics technique – when all FUD is exhausted, ask for supporting info from NBN supporters and when you receive that info ignore 99% of it and find that %1 which you may be able to blindly start a new argument over.

            So please…

            But, feel free to continue this charade, but I’ll bid you adieu (for now) not for any other reason but because your insistence to ask for info, not supply info yourself and never accept anyone else’s “actuals info” and continue arguing, is not only ridiculous, but is really pushing the limits of the comments policy and you know what that means?

  12. Exactly, it’s only the chief correspondents at the major newspapers attending. Most of them are brainless idiots beholden to Packer and Murdoch. They’d be too clueless to keep lying Joe honest.

    Lib pollies only dare to talk publicly about their retarded policies to non-expert live audience. Take another example of Tony Rabbit addressing infrastructure partnership conference. Most of the financiers and bankers those would be completely clueless to question Mr Rabbit’s deliberate lies about NBN accounting. Who caused the GFC? hello!! stupid gullible audience

  13. That’s right Joe, Qantas have those noisy big brrrmm flying thingys, the CBA have those little ka-ching money boxes and the NBN is an elephant (better not say white Joey, that might be construed as racism)…

    The way you so eloquently spotted the differences, just proves that “one day” you “might” make a worthy “shadow” Treasurer ;-)

  14. Commonwealth Bank may have floated for $8 billion(first batch of shares was in 91) but today its worth $81(market cap).

    To compare the value of the 1991 float of the cba to the current (inflated) value of the NBN is incorrect

  15. I’ve been tracing back through the APH website and probably the most relevant discussion on the whole “On Budget” vs “Off Budget” question is covered in Finance and Public Administration Legislation Committee – 18/10/2011 – Estimates – FINANCE AND DEREGULATION PORTFOLIO – Future Fund Management Agency which you should be able to pull up reasonably easily by going to the APH website. Here’s the quote that caught my eye:

    Senator CORMANN: As Mr Martin said—we had very extensive discussions about all of this in the context of the NBN and why the NBN was treated off budget and why the ABS classifications around investment returns, and so on, were important. So I am well across the issue. I listened very carefully to what was being said this morning and my observation is that you are correcting the characterisation of what was said this morning.

    Mr Martine: I think one of the issues is the use of the term ‘off budget’. Even the NBN is not off budget. The NBN is included in the budget. The question is really the activities of the government sector interacting with the NBN and whether that impacts on the budget bottom line. The government’s investments in the NBN are included in the budget. They are effectively balance sheet transactions, but they do not impact on the budget bottom line. So that is where I think the confusion is.

    Unfortunately Senator Cormann failed to ask the key question about mark-to-market valuation and thus allowed Penny Wong to lead the conversation in endless circles after that. What Senator Cormann should have asked is “Does the NBN asset sit on the balance sheet at fair market valuation?”

    Given Mr Martine’s comment that the budget bottom line has not been impacted, and given Brian Dalzel’s research into the DBCDE net asset valuation figure, the only reasonable presumption is that the NBN has NOT been marked down on the balance sheet. There’s no confusion, it is just misleading, exactly the same problem as explained here:


    One obvious current example is the toxic assets still held by banks in the wake of the financial crisis of 2008. These investments have real values lower than their carrying values, but banks refuse to write them down, citing mush about earnings volatility and the adverse effects of mark-to-market accounting. They reject fair value accounting because it would reveal the precarious position of the banking industry. In short, banks are lying about asset values and really are not well capitalized.

    Government leaders buttress the banks’ accounting, either because they have been duped, or because they also have incentives to squelch the truth. In fact, the toxic assets held by the Federal Reserve pose an even larger problem. If these assets were properly accounted for, the losses would be astronomical. But, on January 6th of this year, the Fed changed its own accounting rules to prevent losses from going against capital. It’s nice to be able to change the rules when the results are disturbing, but anybody who thinks it changes reality is insane.

    There’s the explanation, plain as day, from a guy who has written volumes on fair market valuation and accounting ethics.

    • That’s the most ludicrous thing I’ve ever read — why in God’s forsaken world would the Labor Government mark NBNco’s assets to “fair market valuation”?

      The NBN is being built precisely because the market isn’t fair. How is it fair that people living in the big, crowded smoke stacks have access to HFC, while bushfolk are left languishing on lousy ADSL running on rusting copper extending miles from the exchange to the farm gate?

      Fair go for all Australians — roll on the NBN.

      (l will leave you to your Sunday afternoon intellectual masturbation.)

      • +1 true believer…

        Sadly some are so brainwashed by their ideologies that everything else takes a backseat.

        It would be most humorous of it wasn’t so pitiful and blatantly pitiful :-(

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