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

I am pleased to rise to speak on appropriations bills Nos 3 and 4. When we consider the appropriations bills we obviously consider questions of the general budgetary position and the government's budgetary strategy and performance. As we know, that performance has been dismal. There is no other word for the shameful string of deficits which this government has produced year after year—deficits which turn out to be vastly larger than originally projected. Of course, this year, 2012-13, was the year that we were boldly promised there would be a surplus of $1½ billion. That was what Treasurer Swan told the parliament and the nation in May last year, but before the end of last year he had to come out and admit that it could not be done.

The overall budgetary position is grim, reflecting mismanagement, lack of discipline and basic incompetence. But, even more troublingly, the true position is worse than that revealed in the budget numbers because of extra spending on entities like the National Broadband Network Company, the Clean Energy Finance Corporation and others which is not included in the budget bottom line. In other words, the government's figures are based upon an accounting trick. They are spending this year, and for several years to come, billions of dollars more than is contained in the budget bottom line—the headline number that we all talk about.

But although that money is not included in the printed documents, the money is still to be spent and has to be paid for. How is it to be paid for? It is to be paid for through borrowing. The question therefore which presents itself is: what is the basis on which the government is engaging in this accounting trick? What is the basis on which the government is not including within what is colloquially called the budget bottom line or strictly the underlying cash balance significant spending, and is that accounting basis justified?

I want to make three points focusing particularly on the accounting trickery being used in relation to the government's equity investment in the National Broadband Network Company. The three areas I want to cover are: firstly, to review exactly how much is being spent on NBN; secondly, to look at what is Labor's stated excuse for not including that money in the budget bottom line in the underlying cash balance; and thirdly, to make the point that the evidence is increasingly clear that the accounting basis for not including that money in the underlying cash balance is threadbare indeed.

Let us start with the question of precisely how much money has been and is to be spent on the National Broadband Network. As at 30 June 2012, $2.832 billion had been spent and that was the cumulative injection of equity by the Commonwealth into NBN Co. That money had been spent over three years since 2009-10—in other words, on average over that three-year period almost $1 billion a year was being spent on the National Broadband Network, money which was not included in the published budget figures. Yet those are still dollars going out the door every day and still dollars that have to be repaid.

On just $1 billion a year so far, you might say: is that really a serious matter? Of course it is a serious matter, but the key point is it gets a lot more serious from here on in, because in 2012-13 the amount to be spent is $4.672 billion, in 2013-14 it is over $6 billion, in 2014-15 it is closer to $7 billion and in 2015-16 it is almost $5 billion. Beyond the forward estimates period there is another $5 billion which this government discloses it intends to spend. In the four years including this year, $20 billion will be spent on the National Broadband Network, but none of that money is included in the figures which Treasurer Swan has presented to the parliament and the people of Australia as he makes his claim as to the amount of deficit that the government will end up with at the end of the year.

Let us turn to the question of whether there is a good accounting basis for the approach that the government is taking to spending all this money but not including it in the published figures, not including it in the budget bottom line. What is Labor's excuse for not including this expenditure in the bottom line? Why is it that a major expenditure program like the National Broadband Network Company can be simply excluded from the budget? It is not just in the case of the National Broadband Network Company that we have seen this approach being taken—in fact, it is a technique that the Rudd-Gillard government are quite keen on. They have used it quite extensively and they have also done it with the Clean Energy Finance Corporation which according to the government's press release will invest $10 billion in businesses seeking funds to get innovative clean energy proposals and technologies off the ground. Of course parenthetically we might note that the ripper business strategy here is to be a venture capital business investing in proposals that the private sector does not think will be viable investments. One can quite reasonably raise very serious doubts about the likelihood of very much of that money generating a positive return.

Nevertheless that has not troubled the government and they have used the same accounting treatment in relation to most of that $10 billion as they are using in respect of the money being pumped into the National Broadband Network. In 2011, officials of the Department of Finance and Deregulation told Senate estimates that most of that $10 billion will not be included in the budget bottom line. Following that estimates finance minister Wong put out a media release in which she quoted the words of one of the officials explaining the justification for not including that money in the budget bottom line:

So the extent to which the Clean Energy Finance Corporation is undertaking investments, and that's the Government's policy, then the majority of its activities will not impact upon the budget bottom line.

That of course is the same rationale that is being followed in the case of the National Broadband Network. The theory is that these are expenditures which are investments designed to secure a financial return. The theory is that this is money that is being invested into a business venture which is going to generate a positive return for the Commonwealth and in turn for the taxpayers of Australia.

A typical feature of this particular accounting strategy is that the money is allocated to a separate legal entity, typically as the acquisition of equity in that entity. That is what is being done with the National Broadband Network Co., that what is being done with the Clean Energy Finance Corporation and a similar technique has been used with the Australian Rail Track Corporation Ltd. If you are a government which is tempted to hide what ought to be ordinary annual expenditures, what ought to be moneys included in your budget as part of the routine expenditure and the spending of government, then the use of this particular accounting technique is obviously extremely attractive because it lets you pump a significant amount of money into ventures which are politically desirable, but you do not need to tell the Australian people that you are spending that money. Of course, the accounting treatment is one thing. What we need to do is look at the underlying economic substance and ask how valid it is to treat the payment of this money as an investment.

How valid is it to accept the assumption that every dollar the Commonwealth puts in in cash into one of these ventures such as the National Broadband Network Co. is being exchanged for a dollar of equity in the National Broadband Network Co. which has the same value. Or in fact, when we look at the substance of it, can we conclude that each dollar of equity is actually worth a whole lot less than a dollar because this is a dud investment, because the National Broadband Network Co. is performing very poorly and because we as taxpayers can have no confidence at all that the money which is being put into NBN Co. is eventually going to be returned? Let us be clear: that is the necessary requirement which must be established for this accounting treatment to be valid. Against that backdrop, let us ask the question: how good an investment is the National Broadband Network Co. turning out to be? The evidence is clear. It is a dud investment. It is an investment which is performing extremely badly and no objective observer could persuade themselves that it was likely to generate the requisite positive return based on the evidence we have seen today. Let us start with the financial track record.

In 2010-11, NBN Co. lost $323 million. In 2011-12, NBN Co. lost $504 million. Its cumulative loss by the time of the closing off of the books last year, 30 June 2012, was $923 million. To that point, taxpayers had put in $2.8 billion. What we have had is taxpayers putting in $2.8 billion and in three years roughly a third of that has vaporised, roughly a third of that has disappeared, roughly a third of that has gone. On the published accounts of NBN Co., $900 million just splashed up against the wall. You would have to be remarkably trusting, you would have to be remarkably credulous to believe that that $900 million is going to come back.

Then let us look at the operational track record of NBN Co. You might well say, 'Okay, it's losing money so far but it's performing so well operationally that we are confident that in due course it's all going to come good and the money is going to come back.' Let us remind ourselves that NBN Co. is supposed to pass 12.2 million premises.

As at December 2012 it had passed less than one per cent of the 12.2 million premises that it is supposed to pass. By the way, that is after 30 per cent of the time has elapsed between when it was announced and when it is supposed to finish at the end of 2020. Over 30 per cent of the time has elapsed, and less than one per cent of the premises that are supposed to be passed have actually been passed.

What about the number of people served on the fibre network? As at the end of December 2012 there were 10,400 premises with an active fibre connection to the NBN. That is a tiny number when this is a project that has been underway since 2009 and when we have already spent $2.8 billion plus the additional money that has been spent this year. By the end of this year, as we know, there will be another almost $5 billion that will have been pumped into it.

You might well say, 'The NBN Co. assures us that by June 2013 it is going to pass 341,000 premises, so they are starting to make a bit of progress.' Unfortunately, what we have seen from NBN Co. so far is a consistent record of overpromising and underdelivering. Remember: its first corporate plan, issued in December 2010, said that by 30 June 2012 it would pass 317,000 premises with fibre. The actual number was roughly one-eighth at 39,000. It is a consistent record of NBN Co. overprimising and underdelivering, and all the signs are that we are seeing that again. It is supposed to get to this 341,000 by June 2013, as I have mentioned. In estimates on Tuesday night the company admitted that there is a company called Syntheo, which was contracted to design and connect 66,000 premises in South Australia, Western Australia and the Northern Territory split into 25 fibre serving areas. Not one of these fibre serving areas has yet been switched on.

We might also look at how NBN Co. is going against its promised rate of progress. According to its corporate plan, the number of premises with an active fibre connection is going to increase from 3,500 as of 30 June 2012 to 54,000 by June 2013. As at December 2012 they had only reached 10,400. If you have to get from 3,500 to 54,000 in 12 months and halfway through that you have reached 10,400, you are not doing very well. In the telecommunications industry you monitor what are called run rates, and NBN Co. is well behind the run rate it requires to achieve its target.

The broader business plan that NBN Co. has is simply lacking in credibility. When we look at the financial position and the operational position, there is no good reason to be confident that NBN Co. is going to be an investment that delivers a return, and that means that the accounting treatment cannot be substantiated. Wayne Swan's budget bottom line is out by several billions of dollars this year because the money spent on the NBN is not being properly accounted for.

See this speech in context