The great NBN sell-off has already begun


opinion/analysis NBN Co, we hardly knew ye. Make no mistake: Tony Abbott’s new Coalition Government does not want to own a national broadband monopoly. The process of selling NBN Co to the private sector has already begun, and will be accelerated over the next several years.

There was a lovely moment at an event held by the National Broadband Network in Sydney several weeks ago which perfectly encapsulated the imminent future of the company.

The occasion was a type of event which NBN Co hadn’t held before, and which government business enterprises are not accustomed to holding: A financial results briefing session. Such events are typically held by public companies such as Telstra, Optus and iiNet at least every six months and often more frequently. A largish conference room in a ritzy Sydney hotel is booked, financial analysts and journalists are invited, coffee and danishes are served and executives drone on about EBITDA and talk about growth before being peppered with questions about how margins will be improved.

NBN Co hasn’t held such events in the past because it hasn’t needed to. It only has one shareholder — the Federal Government — and it has no requirement to disclose its detailed financial information to the public through briefings.

Then too, NBN Co’s financial performance has never been the key benchmark of its success. The only reason the company exists — in the eyes of the previous Labor administration and in the eyes of the public — is to deploy faster broadband around Australia. Its quarterly financial results are not especially relevant to that operational task, as they will necessarily be weighed down by the startup costs of the next decade of infrastructure investment. As such, little insight can be gained by analysing them.

Consequently, at NBN Co’s first financial results briefing at the Westin in Sydney, there was an aura of puzzlement around the room; an unspoken doubt about the event’s fundamental purpose. Analysts from respected firms such as Merrill Lynch and Macquarie listened to the same financial rhetoric from NBN Co’s finance chief Robin Payne as they would hear from other telco CFOs, and politely asked the same analytical questions about return on investment and market share, but with an aura of uncertainty as to whether the answers actually meant anything.

At the end of the briefing, its quizzical nature was put into words by one wag, who asked NBN Co executive chairman that his only question was: “When’s the float?” — referring to a public listing of NBN Co’s shares on the Australian Stock Exchange. The nervous laughter which greeted the question revealed many in the audience had been thinking precisely the same thing.

The truth is that NBN Co will not go public any time soon. As was starkly evident during its first financial briefing session, the company’s metrics currently mean little, bedevilled as the company is by a turgid political environment and stung on all sides by the slings and arrows of failed contractual relationships. It’s not quite clear just how much of a traditional “company” NBN Co is at the moment. Often its incessant internal bureaucracy and its necessity of swaying in the political wind makes it seem more like a government department, while its risky rollout approach sometimes reminds one that the four-year-old company is fundamentally still a startup.

Most of all, anyone seeking to invest in NBN Co must be conscious that the company’s ultimate fate can, and will, be changed every three years as a new government comes to power. And the market knows that anything too afflicted by the political sphere represents the ultimate in risky investments — more treacherous than the most hyped-up hedge fund.

However, that doesn’t mean that the Coalition won’t try to sell off chunks of NBN Co to the private sector as soon as possible.

In the Sydney Morning Herald this morning, Malcolm Maiden baldly lays out NBN Co’s future path of privatisation. The veteran commentator’s article is completely unattributed, unsourced and will be labelled ‘speculation’. But reading between the lines, it is easy to see that the piece is likely sourced directly from an off-the-record interview with incoming NBN Co chief executive Bill Morrow, as it contains details which only those close to Morrow would know.

To a finance-focused business analyst, Maiden’s projected path for NBN Co — in which the company’s satellite and wireless networks will be quickly sold off, its greenfields rollout capabilities handed back to the private sector, its staff headcount pared back and Telstra contracted to conduct a pilot Fibre to the Node rollout of some 200 nodes — will not be controversial at all, representing legitimate mechanisms of cutting costs and making the company’s business more efficient.

But to those of us who have other concerns in Australia’s telecommunications sector — such as the public interest or technical worries — these measures are nothing short of disturbing.

NBN Co was set up by the previous Labor administration as a wholesale-only national telco monopolist for one very simple reason: The need to remove the inherent and very damaging conflict of interest that resulted when previous governments failed to split the wholesale and retail operations of Australia’s national incumbent telco Telstra.

The only obvious candidates to buy NBN Co’s satellites and wireless networks are existing telcos like Telstra and Optus, which make most of their money from their retail businesses. They will not be incentivised to allow rivals such as iiNet and TPG equitable terms to use the same infrastructure.

Then too, although it is demonstrably necessary to get Telstra more involved in the NBN rollout from a construction point of view due to the failure of NBN Co’s existing model, warning alerts should be raised over any attempt by Telstra to convert its participation in early trials of FTTN deployments on its copper network into ownership or operation of that infrastructure down the track. Telstra must not be allowed to remain a vertically integrated incumbent telco in the next generation of fixed-line networks in Australia.

The idea of handing greenfields rollouts back to the private sector is also a dangerous one. The previous Labor Government handed responsibility for broadband rollouts in greenfields estates to NBN Co several years ago for the precise reason that the private sector was proving itself unable to handle the situation. Reversing that move just a couple of years down the track would cause chaos and, more to the point, may not actually work.

Nobody should be surprised that the Abbott administration doesn’t want to own NBN Co; I almost feel as though I will throw up if I hear Communications Minister Malcolm Turnbull trot out his analogy one more time about a traveller lost in Ireland on the way to Dublin as his reasoning for not having cancelled the whole shebang already.

Neither should we be surprised that the Government has already worked closely with Morrow on an exit strategy for large portions of the NBN; or that NBN Co’s finances are clearly being prepared for privatisation, or even that the public is being softly prepared for all this through background briefings with supportive Fairfax journalists. I am sure the next step will involve a more explicit explanation of the plan in The Australian newspaper.

However, we should be concerned.

Not only is the partial or full privatisation of NBN Co right now a bad idea, due both to competition issues as well as the company’s inherent immaturity, but the public doesn’t want it.

A survey taken just two months ago by Essential Media (was this a coincidence?) concluded that a total of 58 percent of Australians oppose privatising the National Broadband Network Company, around the same level as those opposing government-owned media groups the ABC and SBS.

These results weren’t a surprise — Australians have already been burnt by the privatisation of Telstra and the stagnation caused by its vertically integrated hold over the national telecommunications industry. Right now, Australians just want better broadband and they want it sooner. Most people probably view NBN Co like they view other trusted government organisations such as Australia Post, the ABC and SBS: As an essential public body which provides universal services that the private sector won’t.

But, of course it’s also true that the Abbott Government would love to offload the ABC and SBS to the private sector. The privatisation of Australia Post, along with others such as Medibank Private, is already being publicly canvassed, and Treasurer Joe Hockey has even reportedly made some Federal funding of State Governments contingent on privatisation there too.

We shouldn’t be surprised by the first hints of government plans to privatise NBN Co. It’s not the right thing to do, and now’s not the right time to do it. But it’s coming regardless.

The Abbott Government has gotten a lot right in some industries during its first few months in power, refusing to continue to subsidise unsustainable sectors such as car manufacturing and food processing. But you can’t take the same ideological approach to every market and expect the same results. Australia’s telecommunications sector needs a very ‘hands-on’ approach from the Federal Government right now — because the ‘hands-off’ approach has failed continuously for the past decade.


    • All cabinet documents from this government will be available for the Royal Commision into the handling of NBNCo by this government and how the strategic review removed the policy the coalition took to the election as the cost was the same as FttP NBN cost.

      • Lets hope in vain that the future Royal Commission can reccomend prison terms as part of its brief, or failing that the curtailing of parliamentary pensions & benefits. If private sector is so wonderful then why not performance based remuneration (pensions) afterwards. {ooh look, a flying pig!}

  1. It seems your definition of “got a lot right” for companies means kicking to the curb industries you don’t have any interest in while keeping a hands on, wallet open approach for those you do care about.

    • Not true. Fundamentally, I don’t believe the Govt should be investing in any commercial industry at all. Instead, I believe in the power of underlying structural regulation. In this case, that would mean splitting Telstra and subsidising unsustainable rural telco services, not building a new national monopoly.

      In general I disapprove of subsidies. But I do think Govt should incentivise *growth* industries such as IT and the digital economy through tax cuts to those sectors. Food processing and car manufacturing are *not* growth industries.

      Overall I am an economic conservative ;)

      • No,actually, Renai, you need to comment on arenas you know about.
        I recall your comments on the SPC bust-up and they were ill-informed.
        I don’t believe in government supporting *any* industry, as I believe the rise and fall of business is due to a natural evolution that should not be interfered with in order for the b usiness sector to remain in a healthy state. There are a number of things that need to change radically, in the thinking in this country, regarding food processing, but this does not mean that the food industry is a waste of time and money; however, which is how you attempted to portray it.

        Let’s just follow your ideal logical procession for an instant, that we invest in nothing but technology. Why, this would place us in an unassailable position in a market place peopled only by non-entities such as China, India, Korea and the ilk … oh! hang on a minute!

      • Tax Cut’s help increase the divide between rich and poor.

        A number of studies shows this to be wasteful use of tax payer money.

      • That is totally contrary to how successful economies work. I don’t have the time or inclination to explain the merits of strategic technology planning as practiced by the Germans, South Koreans and range of other nations. They plan to be successful.

        Economic conservatism like Social Conservatism is load of rubbish. Stupid mythical free market which does not exist. Show me a free market and I’ll show you a Unicorn – promise. Privatisation is a scam to enable the stealing of public goods and the commons.

        After Abbott and his brainless mates are finished this country will be a smoldering economic wreck.

      • The fundamental disagreement many people have with this is; what constitutes a “Commercial” industry.

        Wholesale australia-wide fibre networks In my opinion aren’t commercial, they are more like roads and powerlines. A commercial entity can be employed by the government to maintain them, but fundamental ownership should remain with the state.

        Commercial fibre networks are ones where the companies stand up by themselves, fibre networks in CBD’s are commercial.

        This is the same as road networks; You could make building roads a commercial industry. Anyone could build and setup a toll on a road anywhere they could purchase the land. A CBD in a city would obviously have roads; and you’d have nicely maintained primary arterial’s built (I would say) almost without issue.
        You would have nicely paved roads in wealthy areas (that could afford it) and some cheaply (but servicable) roads in the suburbs.
        The bush would end up with muddy tracks maintained by the individual cars that could force their way through it. The costs held by the higher price of vehicles *required* to traverse the “roads”. The worst part; is since someone would own the road, they would still have to pay the toll to cross it – regardless of its poor quality.

        Do you see a parallel of this situation in any other industry? I would argue it exists in all industries that aren’t fundamentally “commercial”, which forms the basis of government intervention.

      • Renai with respect I disagree strongly with 2 points there.
        1) The obsession with taxpayer subsidies, we have the worshippers of the private sector stating emphatically that that sector can provide the National Infrastructure Australia needs at NO COST to the taxpayer. Let them deliver at no cost to the taxpayer and be penalised if they fail to do so. I disagree strongly with taxpayer subsidies of any private sector essential national infrastructure which is what Communications is.
        Time to call quits on privatising the profits and socialising the losses just to provide profits to the financiers who will get a better return than Government Bonds and the shareholders healthy dividends.

        If I want 500/200 at Horsham and order such from TPG as a infrastructure provider, they must be forced to provide it at the same cost as from one of their metro locations at no cost to the taxpayer – It is Essential National Infrastructure and the players must take the good with the bad.
        We have State Governments advertising on TV to encourage people and businesses to move to rural locations. (So expensive to provide the expensive infrastructure the high value city residents take for granted while they whinge about the taxpayer supporting the rural sector. ).

        “Food processing and car manufacturing are *not* growth industries.”
        Maybe so, but they are foundation bread and butter industries that provide a basic skilling process that can be built on. The rescue of SPC is based on the rush to buy SPC products by the same people that contribute to good causes for a short time then revert to normal, that $70 Mill Coles contract will have escape clauses.

        There are Sunset and Sunrise industries at each end and in the middle is the good old foundation and bread and butter, including Retail, entertainment, food, building, banking and agriculture and manufacturing – building a skilled workforce

      • @Renai – “Fundamentally, I don’t believe the Govt should be investing in any commercial industry at all”

        We should test that then…if you could point out an example where private infrastructure was a greater good to the people than a government run infrastructure? In all the cases I can think of (roads – public vs toll, power, water, telecom wholesale, airports, ferries, etc…), the publicly controlled and owned infrastructure was usually far more efficient and cheaper than the privately held alternative.
        In the retail sector, I absolutely agree with you though…that has a much lower barrier-to-entry, and competition can flourish on a far more equal footing.

      • Renai in-light of your economically conservative stance please expand on the opinion expressed:

        “But you can’t take the same ideological approach to every market and expect the same results.”

        Why not? Freer markets have always outperformed interventionist markets.

        “Australia’s telecommunications sector needs a very ‘hands-on’ approach from the Federal Government right now — because the ‘hands-off’ approach has failed continuously for the past decade”

        Yet the hands on approach from Rudd/Gillard has been even worse.

    • The car manufacturing industries were relying on large cash injections from the government, just to keep them operating here. Doesn’t quite seem worth it.
      The SPC deal with Woolworths was a better way of doing things, ignoring the state government deal.

  2. “We shouldn’t be surprised by the first hints of government plans to privatise NBN Co. It’s not the right thing to do, and now’s not the right time to do it. But it’s coming regardless.” — for me, this sums it up completely.

    In the end, its a commercial product, and as a commercial product, needs to be put into a retail context at some point. But like the wholesale rollout of roads, phone, and electricity, it needs to be completed at a wholesale level first.

    This is a changing point in our infrastructure, nothing more. But to facilitate that change, so its handled correctly, and in the countries best interests, it NEEDS to be Government controlled. I just cant understand why Abbott and co cant accept that. Private interests are the very reason this has come about, with the incumbents repeatedly demonstrating reluctance to roll out anything but just in time technology. Selling it off wont change the fact that these companies have failed in the past, and are more than likely to drag their feet in the future.

    And thats not going to cut it in the modern world. Do it once, do it right, and then look at privatising the new and consistent network. The other thing I ask is this: Why is there such a rush to dismantle it and sell it off?

    • “In the end, its a commercial product, and as a commercial product…”

      A Nation’s Communications backbone is NOT a “commercial product”.

      • “A Nation’s Communications backbone is NOT a “commercial product”.”

        You’ve heard of Telstra, right? Listed on the ASX? Owns virtually all communications infrastructure in Australia? Right?

        • And you’ve heard that the majority of the infrastructure is heavily regulated by ACCC, but that certainly hasn’t stopped Telstra from gaming the system to gain a better overall fiscal return from that infrastructure. I think once you have entities like ACCC stepping in to regulate/declare services, then is it really a commercial service in a free market sense? Absolutely not.

    • If they go for deals like that… well only a politcian. “Hey, we will buy if you guarentee us we will be paid more than it costs” and then sit back and skim 25%.

    • Maybe Newsat will win big because of the failed FTTP in this country…time to buy some shares

      • Read a financial Report on them back when they were tendering for NBN, ROI of 5 Years and a 70% profit margin, very wealthy and profitable. They will gut the NBN bird capacity for their high value commercial customers.

      • Shares in Newsat? Let the buyer beware! A debt ridden company with paper satellites buying the most important piece of infrastructure the government could own? A frightening prospect.

    • Its interesting isn’t it. The private sector complain about government monopolies and not being able to compete against them, but when they have to stump up their own money, instead of the taxpayers wearng the risk, the tune suddenly changes.

      ‘Ballintine said that if a company was allowed to purchase NBN Co’s satellites, then that company should be able to use the capacity on the satellite for commercial enterprise services that NBN Co should be excluded from offering, but he said that NBN Co could take a percentage of the profit from those services.” So NBN Co should be blocked from competing even though ( mentioned elsewhere in the article) Ballintines company is going to gladly stick their hand out for ongoing taxpayer subsidies. Cant have it both ways.

    • big deal. newsat were launching their own service, realised nbnco is gonna mess up their profit margin. what else would you do but try and buy them to stop competition. doesn’t mean anything other than newsat have a brain. once again, a little melodramatic reporting here renai

  3. Once again the complete bastardisation of communications and the media in this country to suit a few powerful people. Honestly what they’re doing should be a crime.
    The US started to get colour tv in the fifties, us? The seventies. An on it goes.
    At the risk of sounding melodramatic we are peasants in our own country with no real power.
    What a cockup.

  4. Obvious plan is sell it off and make it impossible or very costly to bring it back to government ownership. Basically a Telstra sell off all over again. Telecoms is going to be rooted in Australia for many years to come due to these idiots and there ideology.

  5. Important infrastructure should never be put into private ownership, especially if there is no real competition. Australia has no infrastructure competition for telecom, gas, electricity, water, roads, public transport. This is why they should ALWAYS be publicly owned and run. Private companies cannot be trusted, and it costs money to regulate and manage private companies. So save money and keep this shit in government hands.

    • I disagree. There is a clear global trend towards the successful privatisation of infrastructure. It’s just not the right time for NBN Co yet.

      • Yes there is and most consumers hate it. There is no competition with infrastructure. Toll roads? Water pipes?
        Electricity poles? We just pay.

        • I agree. The Govt ahould have restrained Telstra during the HFC cable wars. But infrastructure-based competition brought us ADSL2+, which is what most ppl use today.

          • Having said that, that only worked because there was regulation, physical space and a lack of need to control copper pairs in bundles.

            This is very different in FTTB or FTTN deployments, where VDSL and vectoring is in use, and or the available deployment space is greatly reduce due to the technology not leveraging exchanges.

          • If the privatisation of Telstra had been done correctly, or not at all, we’d have had FttN years ago.

            I feel that wholesale infrastructure shouldn’t be privatised because there is no competition. They should be government owned companies, run as well as possible, and designed to balance the books. Low costs, or as low as possible, for everyone while not requiring government subsidies.

          • “The Govt ahould have restrained Telstra during the HFC cable wars”
            You cant really have it both ways. you cant argue for infrastructure competition to provided the solutions and then argue that the govt needs to restrain competition to stop it happening.

            ” But infrastructure-based competition brought us ADSL2+, which is what most ppl use today.” Depends where you are I guess. I know a lot of people who don’t get ADSL2. Certainly in the regions there is very little, if any, infrastructure competition. All roads lead to Telstra one way or another. Telstra have their competitors by the shorts via wholesale services, backhaul etc. Who is going to replicate infrastructure across the whole of Australia to provide the infrastructure based competition that is supposed to? It wont happen. The failure in this exact model is what has got us where we are today – digital divides between the haves and have nots. This will only be further entrenched by relying on the private sector to fix the problem.

          • Telstra and a privatised network is precisely why ADSL stagnated for so long before competitors brought in their own hardware?

            Don’t you remember the 1.5 megabit days? Don’t you remember the “Telstra magically enables adsl2+ in all of its exchanges over night” story?

          • Sorry Renai, you are playing with definitions there a bit.

            You are categorising the ADSL DSLAM business as an example of Infrastructure based competition that works.

            There is a very large difference between DSLAM’s and poles/wires/cable that form a natural monopoly.

            The two cannot be compared. Giving ADSL as an example of infrastructure based competition working is ignoring some fundamental concepts, and is ultimately misleading.

          • Exactly right, putting DSLAM’s in a Telstra exchange with Backhaul is absolutely no different from putting a switch with backhaul into an NBN POI – the ISP/RSP is using someone else’s CAN (last mile) infrastructure to deliver customer services!

            the only major difference is there are ~3000 exchanges nation wide vs 121 POI’s and DSLAM’s cost quite a bit more than switches.

          • It’s not me that’s categorising ADSL DSLAMs as infrastructure-based competition — it’s the ACCC that has cited it as an example for a decade now. I am merely using their definition.

      • Tough crowd on this one Renai. I get what you’re saying, but think something like this, specifically for Austrlaia, means successful commercialisation rather than privatisation. We’ve been burnt both on the privatisation of electricity and phone services in recent memory, and dont want to be burnt again.

        The somewhat unique nature of Australia (essentially, 10 cities worth cherrypicking, over a country larger than Europe) isnt repeated in very many places, and it drives private companies to be very limited in their rollout. If you want an example, HFC is a good one. It “covers” 30% of the population, but that is limited to only a handful of cities, and ignores the part of that 30% that cant access it. Suburbs and rural areas can fend for themselves, and if 30% of the HFC footprint is MDU, then that 30% becomes close to 20% in reality, and the MDU’s are in the same boat as rural areas.

        Privatisation risks repeating that lesson, if its done too early. I still think a Government controlled rollout, then privatisation at a wholesale level is the best result for the NBN. But thats a commercialisation focus, rather than a profit focus, which dont need to be the same thing. As a middleman, the focus becomes creating a profit to survive, rather than maximising a profit for shareholders.

  6. All of this. The entire f*cking mess would have been sidestepped if Telstra was forcibly separated into at least two separate entities when we had the chance, and the reason.

    Sell retail, remove the foreign ownership rules and let the market decide it’s value. Infrastructure remains in Australian hands and could have been freed, and funded, to get on with the job.

    So we’d have made less. Who gives a crap. We’d still be better off now. Regardless.

    But no. We had to see successive governments profiteer. And now the current government has backed itself into a ridiculous situation, where it has little choice and almost zero control – through a complete lack of competence.

    The great sell off, begins again.

    • Welcome to democracy. The great governing ideal where the left hand has no idea what the right hand is doing.

  7. Coalition’s subsidy, subsidy everywhere:
    We’ve got fuel subsidies for farmers and mining.
    We’ve got subsidies for farmers with no rain, they been there for generations and always known about weather but their failed business models require subsidies to survive.
    We’ve got subsidies for real-estate investors (can anyone think of a more deserving class).
    We’ve got subsidies for politicians meals, bookshelves and trips to the footy.
    We’ve got more subsidies for financial advisers and mothers coming.

    Yes privatise;
    Let’s privatise all airport construction if we need a new airport in Sydney let the private sector pay for it and build it. Can’t see why taxpayers funds being thrown at luxuries like extra airports for the eliteists.

    Let’s privatise the roads, sell the whole shebang. Get the government out of the way let private enterprise charge the users and let private enterprise maintain the old, plan and build the new ones. We’ve had too much government and their incompetence in this area.

    If the government wants infrastructure let private enterprise do it and get the government out, end the infrastructure ministries and the advisory bodies hangers on.

    End the political interference and campaigning.

    • “We’ve got subsidies for real-estate investors” — just on this one specifically, I thought the first home owners grant was a great initiative. If it hadnt been for the FHOG, I wouldnt have bought a place, and been stuck in the rent cycle for another decade.

      It had its place, and being specifically for first home owners, wasnt about the rich getting richer, or subsidising stupidity. It was about getting people over the line with deposits and other large scale imposts at that initial home owner stage, so the rich didnt always get richer.

      It conveniently tied in with similar benefits at the state level, and in the end I just needed to show I could pay the repayments, rather than need $40,000 for a deposit and stamp duty..

      I knew I could afford a mortgage, but I also knew that I would live pay to pay while renting – snowballs chance of raising $40k while renting. FHOG helped me step away from that cycle, and do what so many others seem to think is impossible – buy my first home on a single salary thats about average.

      Dont be cynical about that one, it served a valid purpose.

      As for the others, fair enough.

        • If he is, he’s wrong. Negative gearing isnt a subsidy, its a tax deduction, and there is a big difference between the two. Buying an investment property generates taxable revenue (the rent), which is the important part of the whole process. By making the rental income taxable, any costs incured in generating that taxable income are deductible. A fundamental rule with pretty much every tax system.

          Negative gearing isnt the big bad that people think. It has a purpose, and generates taxable income far quicker than people realise. Something to remember is that negative gearing means the owner is out of pocket in some way, and its in their best interests to reduce what they have to pay.

          The real benefit is when they sell the property, make a profit, and pay CGT. Which has nothing to do with negative gearing, apart from NG being a means to getting there.

          Tax is complicated, and for the most part people get it wrong. Property is one of the most confusing areas, and where people think they know things, but are usually wrong. Thats why there are so many accountants.

          Negative gearing is such a simple way for people to get ahead, it amazes me that others want to tear it down. And in the end, if you’re going to tax the rental income, you have to allow a deduction for the costs paid in earning the income in the first place, or declare it tax free.

          Do you think that rental income being untaxed is a better result?

          A typical residence, costing $450k means the owner is probably out of pocket around $350/month. If you make the whole thing tax free, they are $500/month out of pocket. That $150 is going to be paid by the renter at some point, not the owner. You make things worse, not better.

          • Negative gearing means the investor invests his money, and gets the government to pay some of the cost of borrowing.

            It means house prices are higher; because there are more people able to purchase property (because the government pays some of the cost of the borrowing).

            If your plan is to reduce rents; you fail.
            If your plan is to decrease the cost of housing; you fail.
            If your plan is to subsidise a wealthy portion of australia (those that can *just* afford the cost of 2 homeloans), well… I guess that’s good.

          • Dont get me wrong, I think it could be improved, but its not the Big Evil people think it is. How about another plan – allowing people to get into the market, at minimum cost?

            If you want me to suggest a solution, how about limiting the benefits to the first couple of properties owned. CGT has some benefits, limit them when you own multiple places, allow smaller portions of deductions for mutliple rental properties, or limit depreciation on investments showing a loss. Three changes that only hurt the people abusing the system, while still allowing those its meant to be helping to get help.

            But this is off track. The original comment was about real estate subsidies, which I replied to – First Home Owners Grant wasnt the bad idea people think it was. Then someone suggested negative gearing was the subsidy, and all I was doing was pointing out that it wasnt a subsidy. It was a basic tenet of tax law – the costs you incur while earning taxable income are a tax deduction.

          • I would have thought that removing most investors from the market would drive down demand, lower prices and allow more first time buyers into the market to buy their own home, without resorting to a FHOG…but that would “hurt” a minority of wealthier citizens…

          • The problem with negative gearing is that it is claiming is an investment loss against unrelated income, which would not be allowed with any other investment of that size. It has had a couple of major effects it has driven up the price on housing, due to investment demand. It has also reduced available funds for other areas investments, why invest 1/2 mill in a started when I can reduce my marginal tax rate on income by investing in property and still relies the capital gains. The way I see it there are a couple of ways to “fix” negative gearing, restrict it to only certain types of housing investment(affordable housing), or change it so that they losses carry forward and get claimed again capital gains when the asset is sold or turn a profit like any other business.

            *Not a tax agent accountant and finance guru just someone who reads a bit and has wild opinions as a result.

          • Well, as is normal around here, we’ve managed to get well off topic :) With respect SMEMatt, this is the sort of general opinion that most people get wrong. Firstly, its a loss that is most definitely against related income. The negative gearer has to be making some sort of income to be able to claim the costs. Very important part that most people tend to ignore.

            Secondly, while there is potentially a massive pot at the end of the rainbow, they are two different issues. If people want to have issue with capital gains tax, deal with that – THATS where the profit is being made.

            And there isnt an easy answer anyway. The wish of lower prices is a problem of supply and demand – there arent enough houses being built, and while that keeps happening, prices will stay high. Nothing to do with CGT or negative gearing. One of the reasons a property bubble hasnt burst with spectacular effect.

            At the end of the day, negative gearing is still the best way to get people to invest in housing. Perhaps limit claims against established properties, or reward owning in new property more, but something like that. What people suggest goes against fundamentals of tax law, which most dont get.

            Here’s an idea – GST is only officially paid the first time a residential property is sold. Allow that cost to be depreciated over 20 years, but only to the first buyer. Would be big enough to replace FHOG and Stamp Duty exemption, yet not such a lump sum benefit that it could be exploited quickly or easily.

            *does work in tax system, and does have experience with this.

          • “A typical residence, costing $450k means the owner is probably out of pocket around $350/month. If you make the whole thing tax free, they are $500/month out of pocket. That $150 is going to be paid by the renter at some point, not the owner. You make things worse, not better.”

            Thats an amazing aspect of the fantasy world the powers that be have about rental income. I’ve recently received a Land Tax bill on a rental property, because the Victorian government stopped indexing the threshold 7 years ago. Out of $7k rental income, I am now expected to pay $500 land tax, and the State Revenue office decrees this should not be passed on to renters in their FAQ. An increase in valuation is not necessarily an increase in actual sale value. It is no benefit unless the property is sold, it is of less benefit with capital gains reducing any increase, and without an increase in rent, it reduces the worth of retaining the property… Bah, I can already see it would be better sold, with the money in a term deposit, which is also a joke with money paid on interest, yet inflation depleting the principal.

          • It was a simplistic scenario. Real example, looking in Parramatta in Sydney. A property you could buy today for $450k goes for something like $550 a week in rent. Easy enough to figure that they pay around $2700 in mortgage, and get about $2200 back. That was all I bothered with, but there are other costs involved like you say.

            Rates, Land Tax, Strata Fees, etc do add to the cost, but those are expenses over a larger period. They play a part, but on a monthly scale arent as big an impost. When you get hit by them, they hurt, when you dont get hit by them, they dont – but point taken.

            I’m trying to get across that negative gearing isnt the sweet setup people tend to think it is, thats all. To negative gear, you have to be making some sort of loss (that $350/month figure ends up closer to $500), and you’re point only makes that loss bigger.

            But thats still only $120 a week or so out of pocket, to own a property thats growing year on year at a capital level – risk is whether you make more in the capital growth than what you’re out of pocket by. In my example, would that property grow at $500/month, or not? Most places do, some dont.

            Again, the problem isnt negative gearing, its capital gains tax. People are taking the hit with negative gearing, because of the potential of hundreds of thousands of dollars profit at the end (before tax). And THAT is a case of supply and demand.

    • They’ve known about the damn rain since Charles Darwin visited Australia in 1839.

    • That doesn’t solve the problem, Kevin, that just swaps one tax for a greater and never-ending one. Company built roads? A toll every time you travel one, and the maintenance is always there so the toll remains ad infinitum, and it will be higher than the tax quotient, because corporations make a profit and governments are not for profit entities (or supposed to be).

      What is required is the introduction of legislation/regulation to introduce the *qualified* oversight – and there are plenty of grey-haired experienced executives that would take up the scalpel – to force government to operate at the same level of efficiency as private enterprise.

      Endless years of operation where there have been no requirement to meet the bills, has created a myriad of comfortable backwaters where the mental gymnastics and pass the buck mentality of the pending tray resides in complacent comfort. That’s the biggest enemy this country has; a burgeoning overhead that drains the national economy much in the fashion of a leach, with just the one difference. The leach has a viable excuse for what it is.

      • ” That’s the biggest enemy this country has; a burgeoning overhead that drains the national economy much in the fashion of a leach, with just the one difference. The leach has a viable excuse for what it is.”

        Is this Telstra, the banks, privatised ultilities, insurance companies, Woolworth or Coles you are talking about?

        In fact that is pretty much anything but small business in Australia.

        • RBH,

          During the Keating government years, I made an indepth study of the government year book.
          I discovered that between Keating himself, all the way down to the local assistant librarian, that one in three working people in this country were working in a government capacity of some sort. I checked the figures time and again, because I simply couldn’t believe them. In the days of interfaced computerisation there’s no excuse for one in ten, let alone figures of that magnitude.

          Bureaucracy is the big one: the rest are in preschool. Any politico that does go up against the public service associations immediately earns a use-by date. Oh dear! The correspondence got lost down the back of the filing cabinet and that important dispatch got filed in the bin.

          • I’m no fan of bloated bureaucracy however your figures do include teachers, doctors, nurses, police, military as well as the public service. I have a feeling that when you look at like organisations – say the former SEC in Victoria and compare it with its modern counterparts, the efficiency argument of private enterprise starts to look weak.

            Another problem with privatisation from a state perspective is that the government organisation paid dividends to the state government where the private company supposedly pays tax to the federal government. Considering all of those changes in cash movement, the states are substantially worse off. I stand to be convinced that we have actually benefited from privatised electricity.

            I only have a basic appreciation of history in regards to the changes that happened courtesy of Keating and the union accords of the late eighties but they certainly put Australia on a better course than what preceded it.

            My fear is that those 10 years or so will end up being the aberration. Australian corporate culture likes the old way of doing things – no competition, protection, tax payer subsidies. The silver-spooners set. Rotating company directorships and political affiliation.

          • Yes, it’s only with the bloated bureaucracy that I have an argument with. But that is where the bloat is; just ask the rest in regard to such aspects as acquisitions.

            I’m no fan of Keating.
            He destroyed small business in this country.
            It was his move that determined that the trading name earned no tax concession whatsoever, along with other precious moves. He wasn’t much improvement on ‘The Silver Bodgie’ who everybody saw as the great labour leader, and while he was still President of the ACTU, it was his vote that approved live stock export, sending Australian jobs overseas. Australians vote by way of braille at the ballot box.

            Yes, Australian business used to be like that and still is in some quarters. It also amazes me how much Telstra still operates in the manner of a government department after all these years: both the result of geographical isolation. But the rest of the business community has moved on from that, I think.

          • “I’m no fan of Keating. He destroyed small business in this country.”

            Yes, those macroeconomic reforms and deregulations were a real shocker over the long term … funny how we had 15 years of boom time straight after them.

          • And that applies to small business, does it Renai?
            I don’t think so.
            I was in small business, before, during, and have been since that time and experienced the difference personally.

            I still do, and even with a devoted small business minister now, we’re nowhere.
            We even pay for placebos.

            Do try to stay on topic, or it might be seen as an attempt at preferred interpretation reporting.
            Or perhaps you see Keating’s move in the abolition of tax deductions, for those operating under a trading name, as a positive move for small business?
            That alone sent a lot of people to the wall.

          • In fact, many maintain, and I could probably count myself in their number, that Keating’s government was the best Liberal government this country’s ever seen.

  8. wait for it…..


    Tony Abbott and Joe Hockey announces a return to surplus by 2016.

  9. Well here we go again, let’s privatise MORE, so then we have to tax the people more to make back the profits lost from owing those same companies that they privatised.

    Sigh we are fucked…

    All thanks to the wankers who thought voting LIBERAL was a good idea.

    • us wankers were opposed to labor inviting all the boat people in to congest our new internet. you win some, you lose some.

      • So in your fear of disadvantaged people from another place, you voted for a party that is going to reduce yours and your children’s standard of living; I wish I had your smarts!

  10. “around the same level as those opposing government-owned media groups the ABC and SBS.”

    poorly worded; should say “opposing privatisation of the government-owned…”

  11. Selling off the “NBN” piecemeal, would simply finalise the process of vandalism and destruction of this project commenced by the coalition years ago.

    If they are so dead set against the idea, and believe it cannot fly, insist that it is tax payers dollars rather than an investment generating a return.. Then surely the best move for those of us retaining a small vestige of hope for broadband in this country is that they will indeed sell it…. Lets see a public of the entire company in ONE PIECE, with supporting legislation regarding separation of Telstra, locking out the loophole FTTB carrot, and let those of us who understand the value of the network put our money where our mouths are and support it!
    I would invest in a FTTP company that realistically acknowledged the shortcoming of an ideological FTTP or Bust position, and accepted that the best current solution for MDU is FTTB. Seven percent is far better than bank deposits, share markets based on US dollar plays, real estate bubbles, or whatever the current ponzi schem may be have little appeal. A sound investment in this countries future, sensibly implemented to generate a return without that being the only focus, like the FTTP idea itself, a long term investment with minimal wastage. I’d put money in that, and I believe a significant portion of the 270k petition signers would also. As for Malcom’s FTTN circus, 1. I doubt it would ever reach me, 2. I’d not contract to anything over the dilapidated copper out front, 3. allowing competition for profitable areas and subsidising the rest is absurd, and for those reasons I doubt the CBN would ever break even, let alone warrant investment.
    {PS. Similarly the only shares I have, are community bendigo bank, not all the profit goes to shareholders, but it pays its way with benefits for the community as well.}

    • The NBN couldn’t work as a totally privatised company, as it wouldn’t have the power
      to force some of the measures that they needed to. e.g no private company is going to be able to go
      to Telstra and tell them that we need to use your pits etc to run our fibre cabling and when we’re finished could you kindly remove your copper? It’s not going to happen it needed the power of a government to force such measures through

      • Agreed, it couldnt proceed unless support was continued as intended for the full rollout model, which is why I stipulated the supporting legislation. The government would have to continue to support the NBN as they would have originally. I was simply suggesting if they wish to continue to harp on about the Cost, disregarding positive returns on investment and other aspects of the intended financing, then expediting the privatisation of the project removes that complaint, and lets the supporters of the NBN put their money where their mouths are. With measure to prevent controlling interests by companies with contrary vested interests. However that may not be enough, take 270k petitioners @ $1000 each, generates only 0.27 billion, or $150k ea for 40 billion total.

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