The NBN and Bill Shorten’s Fantasy Economics

March 1, 2015

Bill Shorten was handed a free kick via Samantha Maiden in the Telegraph claiming that a new deployment charge for new home buyers getting the NBN is a ‘secret tax’ being slugged on ‘those who can least afford it’.

Oh dear.  This comes in the very same week it was revealed that the Labor Party  had mislead the Australian public on the cost of providing NBN fibre to the premises connections.  The Labor Government told the public in April 2013 that  it cost $2,200 to $2,500 per premises when in fact, as the NBN Co revealed this week, it was costing $3,600 with an additional $700 for the cost of leasing Telstra’s ducts.

The implications of this are huge.  Rather than the $73 billion blowout calculated a year ago of what it would cost to finish Labor’s ill-conceived project, the full accounting on Labor’s costs are showing it will likely cost even more.

Now Bill Shorten wants to take the Labor Party further down the anti-reform rabbit hole by campaigning against the NBN actually trying to recoup some of this investment!

Any journalist out there should be asking serious questions about Mr Shorten: Is he proposing to discontinue the connection charge?  Is he proposing to revert to Labor’s plans for a full-FTTP NBN?  If so, how is he going to achieve an adequate Internal Rate of Return to keep it off the budget? 

The answers to these questions have profound consequences for our budget and the viability of Australia’s biggest infrastructure project.  

But rather than engage in a serious policy debate – this is, after all, the ‘year of ideas’ that Mr Shorten has been telling us all about – the plan is simple: Just whinge.

So let’s look at Mr Shorten’s complaints one by one.  First that this is a ‘secret tax’ which was ‘hidden deep in a policy document with no public fanfare whatsoever’.

Unfortunately for Mr Shorten, the policy document he is referring to is the cost-benefit analysis on the NBN which Labor failed to conduct before committing billions of dollars of taxpayer funds and which he has obviously not bothered to read.

The new arrangements were so secretive that the Government conducted a public consultation, announced proposed changes here and here while the Daily Telegraph itself covered the issue here and here.

Second that these charges are regressive.  This is rich coming from Labor.  ABS statistics show that the bottom fifth of households by income are ten times more likely to have no internet connection at home than top fifth of income earners – and yet, the consequence of Labor’s recklessly expensive plan was to push monthly Internet prices up by 80 per cent.

Finally, the whole point of implementing these charges is that charging for infrastructure to new estates – such as telecoms and gas – has been established practice for decades.

Under Labor the NBN Co was to provide connections to greenfield estates for no charge at all. This was designed to wipe out a whole industry of private sector fibre deployment companies - after all how could they compete with a free connection from the Government?

But they did survive, just, and for one reason only. The NBN Co was unable to deliver and developers frustrated with no action from NBN Co and needed telecom connections before they could sell their estates, decided to pay the private sector to do the work.

By the end of the Labor Government in 2013 the situation was getting desperate, indeed in late 2012, more than 3,000 new home buyers were left stranded after being promised a connection by the NBN but having nothing when they moved into their house.

The whole fibre deployment sector needed a level playing field so that the NBN Co and the private sector could compete and as the Vertigan Commission recommended, as the Productivity Commission's competitive neutrality office recommended, the best way to do that is for the NBN Co to charge for its services.

Rather than charging full cost recovery, as the Vertigan Commission recommended, the Government has opted for a partial cost recovery. This will ensure a competitive fibre deployment industry. It will mean developers have a real choice and that competition will keep the NBN Co on its toes, as opposed to being a complacent monopoly as Labor had planned. 

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