Govt's NBN accountability correct: economist

An Australian Parliamentary Library background note has smacked down claims by the Coalition that equity injections to NBN Co should be counted in the budget.

Since the last Federal Budget, Shadow Communications Minister Malcolm Turnbull has claimed it is a "charade" that the NBN is kept off budget. The government, in response, has always argued that the NBN is not an expense to the government, because ultimately the project will be paid back to government, with a commercial rate of return estimated at around 7 per cent.

In a parliamentary background note published earlier this week (PDF), and first spotted by Communications Day, Parliamentary Library economic analyst Brian Dalzel said that the way the NBN was treated in budget statements was consistent with internationally accepted accounting standards.

In the budget, the NBN is treated as an asset rather than an expense to the government.

"Money transferred to NBN Co cannot be classified as an expense under currently accepted accounting standards. It is accounted for as a financial asset on the balance sheet (an 'investment in other public sector entities'), as opposed to an expense item on the operating statement. An eventual gain or loss on the government's equity investment in NBN Co is accounted for in the operating statement as an expense, but this does not affect the fiscal balance measure."

While payments from the government to NBN Co and vice versa does affect the budget, Dalzel said that even if the rate of return on the NBN is lower than the government had forecast, there is no "trigger" to suddenly make the NBN "on budget".

"Such payments are indirectly affected by the success and therefore rate of return generated by NBN Co. However, this is in direct contrast to the idea that a return below a specific benchmark triggers an accounting rule where treatment of NBN Co is switched from 'off-budget' to 'on-budget'. There is no such accounting rule."

More broadly, Dalzel said that the term "off budget" for the NBN should be avoided.

"The term off-budget is sometimes used to refer to entities that do not form part of the general government sector (for example, Australia Post and the Reserve Bank). However, that does not mean that such entities do not affect the budget," he said. "On the contrary, the budget accounts for the inter-relationships between these entities and government, and these inter-relationships are reflected in the general government sector financial statements."

The statement comes as the Coalition ramps up its attack on the $35.9 billion project. Earlier this month Shadow Treasurer Joe Hockey said that the NBN was the biggest off-budget project undertaken by any Australian government, and that "it detracts from productivity".

Speaking at the 2012 Young Liberal Convention in Sydney over the weekend, Turnbull also attacked the NBN as "profoundly anti-competitive, and hugely restricts economic freedom".

"It is plain that a more rational approach involving running fibre closer to end users but not all the way to every house or business in Australia could achieve largely similar performance for almost all users at perhaps a third of the cost," he told the audience.