Catallaxy Files

I’ve been struck by the recurrence of the $43 billion figure in three separate matters.

The first was the $43 billion absorbed by the Government’s stimulus package. There was then the $43 billion official price tag on the National Broadband Network as first announced. And finally, this week, there is the $43 billion that BHP–Billiton has proposed as a first offer for a potash fertiliser business located in Canada.

The first two have become part of the national conversation on public spending. The third is a private decision that is really up to the parties themselves. No one, at least no one in public life, is saying that BHP should spend the money or that it shouldn’t. It’s nobody else’s business.

Given the commercial nature of the deal, and given the commercial judgement of the principals, it is a deal that would very likely make money for the company. It will pay its way and earn a profitable return. The world will be a tiny bit more prosperous and BHP will be able to add to its profitability and increase its shareholder returns.

Meanwhile, the $43 billion spent on the stimulus is money gone up in smoke. There will never be a net positive return. The pink batts, the school halls and most of the rest that the money was spent on has created an increase in public debt that had not been there before. The projects themselves are not self financing in any conceivable way.

Repaying the money blown away will be a matter of budgetary discipline for years on end. All the other things this money might have been spent on will never be built.

And now we are looking forward to the $43 billion to be spent on the NBN, a potential white elephant that will become another sink hole for public funds. Is there some identifiable market failure reparable by public sector spending in the broadband network of Australia going forward towards the year 2020? Doesn’t look like it to me, but in any case, no one has done any calculations to show that there is.

It is just money thrown away on some glitzy idea, the usual picking losers strategy of governments everywhere. There will be some benefits – it is unlikely to be a total loss but you never know. What you do know, however, is that the value of the benefits that will accrue will be well short of $43 billion and whatever returns there are will only start coming in years from now.

But no matter how you look at it, there will be more communal debt and less real growth than we might otherwise have had.

In the end it is not the amount of money as such that matters – in each case we are talking about $43 billion – but who does the spending and the likelihood that the spending will end up creating net value added. With BHP, even accepting that there are always risks involved in any project, the high probability is that both the company and the country will come out ahead.

With the stimulus and then the NBN you can forget about positive net returns; what you get is good money thrown after bad. It is bad for the country, bad for the economy. I just wish there were some means to stop governments from throwing our national savings away on projects such as these.