How expensive is the NBN?

The Coalition is very fond of calling Labor's NBN a ‘white elephant’, using the moniker to expound an image of profligacy. So, just how big is this beast?

The Coalition is very fond of describing Labor’s national broadband network (NBN) as a ‘white elephant’, using the moniker to expound an image of waste and profligacy. So, how just how big is this beast?

Tony Abbott & Co’s invectives are understandable because some of the Coalition’s biggest problem with the Labor NBN revolves around cost, the funding and the high borrowings of the government. But is this mere political hyperbole or are they valid issues raised by a responsible opposition?

As far as the Coalition is concerned, the extraordinarily high borrowings of the Labor government need to be paid down immediately or we will go to hell in a hand basket.

The projected federal government funding for NBN Co is a maximum of six to eight billion a year for eight years for $30 billion to $40 billion of total capex. NBN Co near 2020 will be funding all/most of the roll-out internally. In the context of the Federal Budget, this isn’t exactly chump change, but neither is it a massive “white elephant." At most it’s two per cent of the budget, small but not noise'.

Most importantly it isn’t an expense, it’s 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 and as collective owners of NBN Co we can afford to be patient investors.

When compared to our many defence projects ($4 billion for 6 Wedgetail aircrafts), 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, the Coalition’s implacable opposition to the investment is puzzling.

How can we on one hand happily burn money on defence projects which may or may not be implemented, run late, over-budget and fail to deliver, but consider it wasteful to invest in useful infrastructure shared and used by all parts of the economy?

Mining and gas projects account for some 46 per cent of the $415 billion in the planned/committed/pipeline. Compared to that 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, so the NBN Co timeline doesn’t seem that imprudent. Compared to the $261 billion committed to major mining Projects, as of May 2012, NBN Co is not "a major project".

When framed in the context of the $375 billion federal budget the NBN Co funding cannot be seen as a massive impost. In fact most voters and tax-payers, who aren't ideologically opposed or committed to an NBN fibre-to-the-premises (FTTP) rollout, would consider the NBN a modest capital investment and a sound 25 year investment.

The billions spent to fund the NBN seem almost trivial when one factors in the social benefits and patently minor when compared to our expenditure on health, education and defence. Remember these are all expenses, not investments, but in terms of small expenditures, it rates down there with the nine per cent superannuation levy.

Here’s a quick breakdown of the federal budget. You can get the full numbers here

  • $130 billion on social benefits/entitlements
  • $61 billion on health
  • $49 billion allocated to state governments
  • $30 billion on education
  • $22 billion on defence
  • $12 on public debt interest
  • $8 billion on super interest (CSS/PSS/etc)
  • $3.5 billion on superannuation
  • $6.5 billion on fuel and energy
  • $2.7 billion on road transport
  • $2.7 billion on general research

The six to eight billion dollars a year of funding for NBN Co falls in among the small items of the budget, but then again, the federal government has 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.

This is an edited version of a blog post originally published on December 8. Steve Jenkin has spent 40 years in ICT in wide variety roles including large and small software projects, 7 years writing real-time Exchange software in a Telco and Admin, Software and Database work on PC's Unix/Open Source software and mainframes.

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