Saturday, 8 December 2012

NBN: Oh so Expensive! [NOT]

The Coalition is fond of using terms like "Great Big New Expense/Tax/White Elephant/etc", "On the National Credit Card" and "Cut the Waste!".

Are these political hyperbole or real, pressing issues being raised by a responsible Opposition?

Some of the Coalitions' main problems with the NBN seemed to be the cost, the funding (by Govt. Debt) and the amazingly high borrowings of the Fed. Govt. ($150B. no citation) which need to be paid down immediately or we'll all go to Hell in a Handbasket.

What are the figures? What would they look like if scaled back to an individual wage earner?

GDP:            $1,453B [ABS#1 2011-2102]
Federal Tax: $375B  [ABS#2 2012-2013, estimates]
All Tax:        $536B  [ABS#2]

Average Weekly Earnings: $1352.70 [ABS#1 May 2012], or $70,582/year

Fed. Tax Rate:           25.8% [ $375B /  $1,453B ]
Total Tax Rate:          36.9% [  $536B  /  $1,453B ]
Fed. Debt as %GDP: 10.3% [ $150B /  $1,453B ]

Interest on Fed Debt @ 3.25%: $4.875B [See below: Total budget is $12B]

As Average Yearly Earnings ($70,582/year):

Fed. Tax Rate:           25.8% = $18,216.21
Total Tax Rate:          36.9% = $26,037.05
Fed. Debt as %GDP: 10.3% = $7,286.46

Interest on Fed Debt @ 3.25%: $236.81 ($19.74/month)

I think most voters and tax-payers would be impressed with a National Credit Card Bill of ~$20 a month.
It's not obviously outrageous or nearly ruinous as the Coalition would have us believe: a coffee a week.
And equally "a rounding error" in terms of the $26,000/year tax already paid.

The projected Federal Govt. funding for NBN Co is a maximum of $6-8B/yr for 8 years for $30-40B total CapEx. [NBN Co near 2020 will be funding all/most of the roll-out internally.]

In the context of the Federal Budget, this is not chump change, but nor is it nearly "A massive white elephant/waste" - it's at most 2% of the Budget, small but not "noise'.

Most importantly it is NOT an expense, it is an investment. Like all investments, it may not do as well as we'd like and it may do spectacularly well. But Government investments are long-term, we as collective owners of NBN Co can afford to be patient investors.

The question is: Will NBN Co succeed over 25 years?
I consider that a very, very low risk investment.

Compared against our many Defence projects ($4B for just 6 Wedgetails), yearly NBN Co funding is quite modest. Given the Defence CapEx over the last 25 years is many times that of the NBN infrastructure, something all of us will directly benefit from and will contribute for decades to Productivity and fuel economic growth, I don't understand the Coalitions' trenchant criticism and implacable opposition to the investment.

How can it not be waste to burn money on Defence projects which may or may not get used, that all too frequently get cancelled, run late and over-budget and fail on deliverables, but its wasteful to invest in solid, useful Infrastructure shared and used by all parts of the Economy, that we know will contribute to better lives and outcomes? I just don't get this Coalition view...

Compared to $415B in planned/committed/'in the pipeline' Mining & Gas projects. (Deloitte Access Economics, Feb. 2012) the NBN doesn't rate a headline and the whole NBN Co budget is almost a footnote. Likewise, major resource projects take around a decade from inception through to full operation. The NBN Co timeline is sensible and prudent, not "behind schedule" or a sign of incompetence.

Compared to the $261B committed to Mining Major Projects, May 2012, NBN Co is not "a major project".

What about in the context of the $375B Federal Budget?
Is funding NBN Co $6-8B a year a massive impost?

It's almost trivial compared to Social Benefits and minor compared to Health, Education or Defence - all expenses, not investments, but in terms of small expenditures, it rates down there with the 9% Superannuation levy.

Federal Budget

$130B (30+%) C'wealth budget on social benefits/entitlements
$61B Health
$49B State Govts
$30B Education
$22B Defence
$12B Public Debt Interest [not quite the $5B calculated above, we have old debt as well.]
$8B super interest (CSS/PSS/etc)
$3.5B superannuation
$6.5B Fuel and Energy
$2.7B Road Transport
$2.7B General Research

The $6-8B/year of funding for NBN Co falls in amongst the small items of the budget, but then again, the Fed. Govt. have very, very few income producing assets (a.k.a. 'investments'). I think it's quite something for a Government to invest in sound sectors when the Free Market has failed in them for a couple of decades.

That's not just "opportunistic policy", but sound business judgement, which, by this measure, was particularly lacking in the 11-year Howard Government: Selling the Farm is not good business, even if it is to pay-down debt.

I think most voters and tax-payers, who aren't ideologically opposed or committed to an NBN FTTP rollout, would consider the NBN a modest Capital Investment and as a 25 year investment, very sound.

But there are some major weak-points in the ALP vision and execution - and we've not had a public debate nor had the Government answer important questions. Presumably because the Coalition is too busy running around shouting "The Sky is Falling, The Sky is Falling!", rather than taking a reasoned debate up to the Government:
  • After the Warambool Exchange Fire, where are the Public Contingency Plans by NBN Co?
    • We can hope they've got good designs, but real data beats hoping hands-down.
  • Where are provisions for Accounting for Realised Benefits?
    • The whole point of any NBN is as an Economic Multiplier: the Benefits need to be counted or the whole experiment is just another Political Extravagance.
  • Why the "Big Bang" conversion? Why couldn't we roll out Fibre over 25 years?
    • Greenfields housing development is around 1%/year of the market. Starting with that in 1990, we'd have had ~25% of the Network already converted.
      • Likewise, once we have the Internal Network (PoI's, transits, ...) built, we could roll-out to all new developments and 2-3%/year of existing premises based on demand and need.
      • The ALP has never made a case that we need FTTP as soon as possible.
        • Were they pushed into this position solely because of the intransigence of he Opposition? If so, the Coalition should "man-up" a take responsibility for their actions and the consequences they've caused.
    • Where was the investigation and discussion of temporary stop-gaps, like small-area WiFi (802.11)? Everywhere there are Early Adopters who not only want "faster and better", but are prepared to pay a premium to get it.
      • There's a great source of revenue going begging: but completely ignored by the Masters of Private Enterprise and Free Market, the Coalition.
    • Why has there been no discussion or facilitation of individual investment?
      • Asking consumers & voters to put their money where their mouths are, is a real test of what they think.
      • We know from the sale of Telstra that "Mom & Pop" investors are out there in droves and willing to punt real money on the Telco sector, given the chance.
  • Why prioritise by availability/location of contractors? Those in "blackspots" present a current unmet demand.
    • The Fixed Wireless and Satellite deployments have been scheduled early: they address the most egregious blackspots as early as possible. [That's A Good Thing.]
      • So why hadn't the Howard Govt. done this by 2007? The OPEL deal was late, didn't keep promises and WiMax was never good technology choice. If it was, there'd be many large-scale deployments overseas.
    • Why is there no mechanism for groups of people/areas to fund, fully or partially, early deployment?
      • Those willing to pay should get preferential treatment - because they provide the common equipment/facilities that others will later benefit from.
      • Why has the Coalition, with their focus on Individual Responsibility and Free Markets, not pushed this, the obvious "User Pays".
  • Where has been the discussion of "Single Access Pricing", otherwise known as cross-subsidies?
    • Australians like to characterise themselves are "Allowing a Fair Go" and for helping those in he "The Bush".
    • Instead of the ALP or Coalition mandating a Policy Position, why haven't the electorate been asked what they are prepared to pay for, and what they won't.
      • With the advent of the Internet, we have the means to do this.
      • The AEC (Australian Electoral Commission) has the expertise to make it happen...
The biggest and most important failure-by-omission of NBN Co is its inability to look for and exploit locally available opportunities: forced on them by the "Big-Bang" rollout and compressed schedule (10 years for a rollout more than 10 times the area of the UK isn't dawdling around):

  • Obvious new, reusable technology, like TransACT's VDSL-FTTN here in Canberra, could be a stop-gap measure. They get 55,000 premises passed for a few hundred dollars. Later on they get to rollout GPON FTTP at a more leisurely pace, less debt, more internal funding and riding the technology cost-curve down for another decade.
    • TransACT can't be the only new, high-quality network around.
  • All the 11KV single-wire electricity wires in Country Australia could be recabled with a Fibre Optic core.
    • This isn't cheap and wouldn't be done quickly
    • but would offer country folk the same high-quality, upgradeable infrastructure as those of us lucky to live in urban centres.
    • It would be a good time to upgrade the Pole and Wire infrastructure in fireprone areas and bundle in the marginal cost of insulated wires where needed:
      • The Federal Government could 50% fund this large undertaking, by grant or loan.
      • The State Governments could pay 25%,
      • and Power Distributors and Users front up with the remaining 25%.

All this says NBN Co is being run by Political Agendas, minor tactical advantage and bragging rights, not The National Interest - on both sides of Politics.

Overwhelmingly, its about our Great Leaders Egos, not our Common-Wealth.

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