rudds nbn accounting trick

So it boils down to this.

Rudd has blown all our money. The Budget is in a shambles and he has no money to tip in for the NBN. He needs some way to avoid having to pay a cent out of the Budget towards the NBN.

Solution: Use its inexhaustible spin department, to claim that this Infrastructure project is an "investment" Then every expenditure is off budget.

Lets be clear here. This is the same sort of accounting trick which was pioneered by Enron , where massive debt was hidden in what they called back then SIV (Special investment vehicles)to hide the fact that the core business was rotten.

You would think that the regulators would have said never again after Enron. That this "off balance sheet" trickery would be discouraged. But instead....

The banks then got into the game after that, as they listened to the same people with the same MBA's as the ones who devised the Enron scheme.
All of the risky debt was packaged off into CDO's etc and sold to others who relied on bogus ratings agency ratings. We all know where that ended. GFC

So now we have an Australian government, who thinking they are too clever by half, are embarking on a major nation bulding infrastructure project, and want us to believe that its an investment.
By calling it an investment it is able to by pass all budgetory scrutinisation, and effectively the tax payers and voters, who will have no say in whether they want it or need it. There can be no discussion about the merits of alternatives because it is an off balance sheet "investment"

But to be able to call it an investment it needs to have some hope of a return and to be eventually sold. Thats where the McKinsey report comes in.

Unfortunately the McKinsey report is 500 pages long. But amongst the usually qualifications and assumptions there is the telling phrase which is the elephant in the room. It is mentioned 25 times. CHERRY PICKING.
The whole report rests on the premise that the Government must legislate to prevent TLS and the newly expanded TPG from competing with the NBN (ie cherry picking the most economically viable sites to compete with the NBN).

LET THAT SINK IN.......................

For the "investment" to work, it must be a monopoly, it must have no competition. It must have no pricing pressures , it can charge eventually what it likes, because the NBN will have no competition.
Now that might be fine if the NBN was truly a nation bulding piece of infrastructure, where the aim was to provide cheap access to everyone, regardless of whether it generated a commercial rate of return for the government. But clearly this is not what the NBN is all about. It has to be an investment - so that the government can keep it off balance sheet. It has to be investment grade so that it can be sold off. This leads one to the conclusion that the prices will be artificially inflated to keep the rate of return high , to attract investors.

And then once investors are found, it will no longer be under the control of the government. The private investors , knowing that they have a monopoly would charge what they liked for access knowing that no one can compete with them.

But of course that scenario will never be alowed to happen, the governement will be forced to legislate to control prices, just like they did for TLS and its PSTN, and in the process making the NBN unsaleable into the future.

Just like Enron and the global banks things eventually catch up with you.
The NBN will be a massive white elephant totally dependant on the government for support, to cover its massive maintainance costs of its aerial (cheap) installation, and to subsidise the cost of broadband. You see to remain competitve with overseas the price of the access will need to fall with time quite significantly. Broadband gets cheaper and cheaper. The NBN on the other hand will have a fixed sunk cost. It will also be operating in a much higher global interest rate environment. A paltry 6 % return will not be enough to attract investors who will have much better returns to choose from elsewhere. I doubt whether sovereign debt worldwide will be able to be raised at 6 % at the time that the govt wants to sell off the NBN.

But of course the government knows this, its just that they dont care; They wont be around to have to deal with it. Someone elses problem.

In summary, this NBN hardly makes sense as an "investment" if at all. And only if they legislate the cherry pickers out of the picture to create a monopoly.

This is one of the most cynical and vindictive governments in Australias history. This is not an Investment it is a very expensive infrastructure asset. As such it deserves to be considered along with all the other uses for 43+ billion -on its merits.
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Rudd doesnt have the budget room to fund the extra few billion that is between TLS and NBN