Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

I am pleased to rise to speak on Appropriation Bill (No. 3) 2010-2011 and Appropriation Bill (No. 4) 2010-2011. These bills come forward in the context where we have a government that has shown a proven incapacity to manage the budget in a responsible fashion. We have a government which this year is proposing to spend $354 billion. That is almost $100 million a year more than the federal government was spending only four years ago. We have a government that is rampantly engaging in deficit financing. This year the deficit will be $41 billion. This is a government which is addicted to spending. We hear the assurances: ‘Don’t worry—in three years time we’ll return to surplus.’ You will forgive me, Madam Deputy Speaker, if I am somewhat sceptical of that claim, because these people have no track record of doing something which they promised they would achieve in three years. When we hear them say, ‘We may have consistently engaged in deficit financing; we may have turned the lever from surplus to deficit the moment we came to government and started spending in a profligate fashion, but don’t worry—we’ll become pure in three years time,’ I am sceptical, as would any objective observer be. The context we face is a government profligate in its spending which has shown a consistent lack of discipline and there is absolutely no reason to be confident that that lack of discipline is going to be corrected.

I want to focus on one area where the lack of discipline in spending is particularly egregious, and that is the National Broadband Network. We have seen a very sorry saga of fiscal ill-discipline since the National Broadband Network was first put on the agenda by the Labor Party in April 2007. When the plan was announced then, Labor was going to spend $4.7 billion of public money, and that was going to be combined with private money. It was going to be a joint venture with the private sector—that is to say, a private sector player would be spending at least as much as the Commonwealth—and it was going to be a much less ambitious and a much less expensive scheme. It was going to be a fibre-to-the-node scheme that would deliver a 12 megabit per second speed to 98 per cent of the population, and it was generally thought to be an incremental improvement on the broadband infrastructure which Australia had at that time.

It transpired, though, that the plan could not be delivered. In a fit of political desperation in April 2009 the previous plan was abandoned, and it now transpires that we were to spend $43 billion—an extraordinary rate of increase in spending—because all of a sudden we were going to be much more visionary, much more grandiose. Part of being visionary, part of getting the political shock and awe effect which was so desperately sought, was to spend more money. But in April 2009 we were told that some of that money would still come from the private sector. We were told that the $43 billion would be the total spent and there would be funding from both the Commonwealth and the private sector.

Some of us, even at that time, were sceptical. Some of us, even at that time, were not drinking the NBN Kool-Aid. But when the implementation study emerged last year, the sad truth became all too apparent: not one dollar was to come from the private sector until the network had been built, until all of the risk had been assumed. And we now know that what is proposed is that there will be a total commitment, a total taxpayer exposure, of $41 billion, including $27 billion in equity, all of which will come from the Commonwealth, all of which will be taxpayers’ money, all of which will be public money put at risk in an unconscionably risky and poorly thought through venture. In addition, there will be $13 billion of debt which taxpayers will also be exposed to; if NBN Co. is unable to repay that, it will be taxpayers who will be on the hook. So we have seen extraordinary ill-discipline.

The second point to make is that the accounting practices which have been followed in relation to the NBN have been dubious in the extreme. The fiction on which this exercise is based is that this is an investment and that, because taxpayers are going to get a return, there is no need to put this on the balance sheet, there is no need to put this on the profit and loss account of the Commonwealth—that is, to put it on the budget. But when we look at the figures which are put forward we learn that, even with the most optimistic massaging of the basic expectations around this business venture, the internal rate of return is going to be barely seven per cent. In the NBN corporate plan, which was published in December last year, we also learnt that the weighted average cost of capital is somewhere over 10 per cent.

Let me make a basic observation about corporate finance. When you work out the net present value of a project, you compare the weighted average cost of capital with the return. In the private sector, in any environment where you do not want to throw your money away, what you want to have is a return which exceeds your cost of capital. Here we have the opposite. The return is seven per cent. The cost of capital, on the admission of NBN Co., is over 10 per cent. The net present value of this project is seriously negative. Public money is being splashed away in this project. This is the same project, I might add, which former Prime Minister Rudd called a first-class investment, and he called on mums and dads to get their money into it as quickly as possible when this project was announced in April 2009. He did not lose his job because of his misunderstanding of accounting and financial practices but, based upon that revelation, he might as well have.

We have seen that a ridiculous and rapidly increasing amount of money is going to be spent and we have seen that the accounting processes underlying this project are very dubious. But the third problem with this plan is that the policy underpinnings of it are thought through in a very poor way. It is far from clear what problem this is designed to solve. Shortly before Christmas the Minister for Broadband, Communications and the Digital Economy issued a media release in which he claimed that the most recent figures issued by the OECD demonstrated the need for the National Broadband Network. He argued that because Australia was ranked 19th in broadband penetration, one place behind New Zealand—and apparently that in itself was a completely shameful thing—that demonstrated the need to spend $41 billion on this project.

There is a clear lack of coherent thinking in the rationale for this project. If our objective is to increase broadband penetration, to get up the broadband penetration rankings—which, according to what Minister Conroy tells us, is our objective—then the most powerful policy lever to pull is to reduce the price that most people pay for broadband, and the best way to do that is to increase competition. The Prime Minister herself told the parliament last year that Australia has very high broadband prices. Australia has the fifth most expensive broadband prices in the OECD.

Let me engage in bipartisanism and agree that Australia does have the fifth most expensive broadband prices in the OECD. What, then, would be a sensible thing to do about that? Would it be a sensible thing to spend $41 billion on a new network, the capital cost of which will need to be recovered, consistent with this government’s promise that it is going to be an investment that will generate a return and therefore will require high prices to be charged to consumers? We know from the corporate plan that the entry level wholesale price will be $24. This will be the foundation on which the retail price will be built—and it will be the retail price that will dictate the number of people who take the broadband service, that will dictate whether we achieve our objective of increasing broadband penetration.

What is the wholesale price that is charged today for the most common product, the unconditioned local loop service, which is the basis through which most people receive competitive DSL services today? The price is set in various bands. The vast majority of people in Australia are in band 2. The unconditioned local loop price today is $16 per month. This will be replaced with a price of $24, which is 50 per cent higher. The wholesale price, the entry level price, is going to be 50 per cent higher. That is before you look at the details of the corporate plan, which makes it clear that NBN Co. intends to ramp up the price which is charged over time. We are going to see prices increase. How that is consistent with an increase in penetration, if that be our policy objective, is very unclear.

The fourth point is the amount of money that is likely to be wasted. So far, I have taken it for granted that the assumptions in the corporate plan are reasonable and credible and therefore the financial projections are credible. There is $41 billion at risk on the proposition that this network will capture 70 per cent penetration, that 70 per cent of homes around Australia will take a service from this network. It is well accepted that the main source of competition is likely to come from wireless services. So we might well ask: what proportion of households take a wireless service today? Today 13 per cent of households take a wireless service. That number is up from three per cent just a few years ago. The corporate plan assumes that that rate will top out at 16 per cent, that it will stay flat at 16 per cent and just will not move. That is certainly a helpful assumption if you are trying to come up with a plan which demonstrates that there is a financial return to be generated—bearing in mind that it is this government’s commitment that it will generate a financial return. But is it a credible assumption?

The only experience I can bring to bear is my 15 years of public policy experience in broadband, including eight years on the senior leadership team of a large telecommunications company, where I was regularly involved in assessing the viability of business cases. Let me say very clearly that anybody who brought forward a business case of this kind in the large telecommunications company I worked in would rapidly have been invited to make alternative career plans. This is not a plan which is financially credible, it is not a plan on which any private sector player would for a second contemplate risking the investment that the Gillard government plans to risk. Indeed, the corporate plan makes that quite explicit on its face. The corporate plan says quite explicitly that these are not returns that would attract a private sector player. Well, isn’t that the truth!

Forty-one billion dollars of public money is at risk on a project which is based upon fuzzy policy assumptions, which is based upon unrealistic projections about take-up and which will have a series of disastrous side-effects, including reducing competition, because it constrains—it seeks to block—anybody else from building a network in competition and it trashes perfectly viable existing infrastructure. There is no dispute that fixed line competition in Australia needs to be improved and the way to do that is to separate Telstra. That is our policy. That is the Labor government’s policy. There is no difference between the parties on that core point. Nor is there any dispute that broadband infrastructure needs to be improved. The dispute is about this particular plan, which is extraordinarily wasteful and profligate and very, very badly thought through.

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