The consequences of wasted government spending are everywhere

It is hard, indeed it seems impossible, to get across the message that using up resources to produce loss-making forms of output causes an economy to slow, lowers the standard of living and reduces employment. Keynesian economics is driven by C+I+G; whatever you spend on makes no difference. So here’s an interesting story, about which Malcolm Turnbull has had an important role to play:

The company building the National Broadband Network could blow its budget by as much as $15 billion after revealing that revenue flow will slow and the costs of construction are far greater than it first expected.

The government-funded company revealed that its peak funding will now come in between $46 billion and $56 billion, up from the $41 billion assumption it previously held.

The company is aiming to complete the build — which will pass eight million homes by 2020 — for $49 billion, which is 20 per cent more than its original forecast. A worst-case scenario would see costs blow out by 36 per cent or $15bn.

The increased funding has smashed the rate of return that the project will generate for the government, which will now come in the range of 2.7-3.5 per cent. The previous rate of return was around 5 per cent. Despite the low return the project will remain off the budget.

The funding increase has been brought on by increases in the capital and operational costs of the build as well as increases in the costs to roll out of fibre to the node technology.

This is the final para of the story, which for some reason did not mention Malcolm.

The NBN received another $4.7bn of government funds in the past year to take its total equity to $13.2 billion in equity at end of financial year 2015. Total government equity contributions are capped at $29.5 billion.

This is just one example of the worldwide waste of resources in one government stimulus project after another. No modern textbook, other than mine, can explain to you why our economies are heading over the cliff. As the latest news has it, Aussie stockmarket tumbles amid growing fears over health of global economy. You’ll have to remind me again what it is that has caused all these problems? Is it still the GFC from 2009, you numbskull kidders? Meanwhile, a bit of whistling by the graveyard:

Treasurer Joe Hockey said that while markets would fluctuate, the fundamentals were still good for the global economy, particularly the US.

He said several factors would cause volatility in the markets in the next few months, particularly any decision by the US Federal Reserve to move on interest rates in September.

“If they do increase their interest rates, then you will see movement of money from equity markets, probably into bond markets,” he said.

He said such volatility would hit confidence in Australia and that’s why the government had to keep reminding people that their economy is one of the fastest-growing in the world right.

The fundamentals are disastrous in the US and not so good here either. These Treasury advisors do not have a clue.

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39 Responses to The consequences of wasted government spending are everywhere

  1. H B Bear

    The increased funding has smashed the rate of return that the project will generate for the government, which will now come in the range of 2.7-3.5 per cent. The previous rate of return was around 5 per cent. Despite the low return the project will remain off the budget.

    There is no way any government will allow this white pachyderm to wander onto the Government balance sheet with its tens of billions of dollars of debt – then the game is up. Expect this GTE zombie to remain in undead limbo for decades.

    KRudd and Conroy should serve jail time for this.

  2. Entropy

    Crickey. Imagine if it was still fibre to the home.

    But yes, always a CF that once again shows keynsian thought wrong. And that Rudd and Conroy should never have been let near the treasury benches.

  3. Squirrel

    And yet there will likely still be Laborites running around claiming that the original rolled gold NBN could have been done for $40bn.

  4. blogstrop

    But, but … the media and the IT hipsters always said the Labor party were fabuloso for coming up with this proposal. Nothing else would do. Remember Red Kerry giving Tony A the hard time on 7.30 Agitprop over his lack of understanding of download speeds? The general lumpenproletariat public don’t understand these things, but the media and the hipsters should. It was a dog from day one, just like (on a small scale of wasted cash) the computers for students!

  5. Bruce of Newcastle

    Its ok, after the NBN the troughers will get the air warfare frigates, the submarines and Shorten’s mega wind farm building project.

    Does the ALP want us to be like Venezuela? Even the left in that country don’t have a pot to piss in.

  6. Tim Neilson

    Shortly after the Budget I was at a function where Hockey pushed this line that the fundamentals of the USA under Obama were going swimmingly. His justification? The official US government unemployment figures. I kid you not.

  7. Rabz

    FFS, Turnbull is staggeringly incompetent. Studiously ignoring this unfolding disaster while attempting to shore up his leadership credentials and leaking from the cabinet like a sieve.

    BTW, why wasn’t all work on this ridiculous labor brainfart shut down after the last election? The NBN has the potential to be the most obscene example of governmental obstinacy, stupidity and overreach in this country’s history. Utterly inexcusable.

  8. goatjam

    BTW, why wasn’t all work on this ridiculous labor brainfart shut down after the last election? The NBN has the potential to be the most obscene example of governmental obstinacy, stupidity and overreach in this country’s history. Utterly inexcusable.

  9. goatjam

    BTW, why wasn’t all work on this ridiculous labor brainfart shut down after the last election? The NBN has the potential to be the most obscene example of governmental obstinacy, stupidity and overreach in this country’s history. Utterly inexcusable.

    Even worse than Myki, which is frightening

  10. The thing with NBN Co, a lot of that work has been outsourced – Theiss is doing inground and cable hauling, Visionstream is doing fibre & cable hauling, ISGM is also doing fibre and installation & maintenance on the copper network via a PAA with Telstra.

    It is a pyramid contracted nightmare.

  11. Gab

    The thing with NBN Co, a lot of that work has been outsourced – Theiss is doing inground and cable hauling, Visionstream is doing fibre & cable hauling, ISGM is also doing fibre and installation & maintenance on the copper network via a PAA with Telstra. It is a pyramid contracted nightmare.

    And add to that all the consulting firms “working” with NON Co that are raking it in in unbelievable amounts.

  12. Fisky

    The thing to take heart from all this is: the Gillard government legacy of NBN, NDIS, Gonski etc is never, ever going to be implemented. It’s dead, caput, over. Australia will have $50 billion deficits as far as the eye can see, and all these stupid Labor boondoggles will never be funded or finished, based as they were on iron ore prices increasing 20% per year every year forever (as Ken Henry predicted, and John Kwiggin furiously concurred).

  13. gogiasl

    The funding increase has been brought on by increases in the capital and operational costs of the build as well as increases in the costs to roll out of fibre to the node technology.

    WTF – in pretty well every other business in Australia costs of labour and equipment are falling as a result of the crappy economy bequeathed by Labor and still unfixed by Liberal.

    NBN is a gravy train for contractors and NBN management is both incompetent and driven by the wrong KPI’s (particularly the thrill of spending other people’s money)

  14. Entropy

    Stick a fork in it and build a heap of 5G towers for less. Throw in an extra couple of satellites for rural areas that were never getting NBN anyway and we can all download game of thrones wherever we want and not worry about being plugged into the wall.

  15. Tom

    It’s time the Cat’s economists and the IPA updated us on the percentage of private wealth in Australia being confiscated by federal, state and local government — that is, the total size of the government drag on the economy. In 2015-16, federal government spending alone is an astonishing 26.2% of GDP ($434.5 billion), yet the latest estimates I read for all government spending in Australia is just 31% of GDP. Pull the other one. I want to know how much less than half of everything the country earns disappears into the government black hole and the statistical correlation between soaring government spending and the decline in annual economic growth.

  16. Baldrick

    FFS – stop the haemorrhaging now.

    It was a brainless exercise to begin with and while you’re at it, can the Disability Support Scheme, Gonski blow-outs and take the Stanley knife to TheirABC.

    Do something for once like you mean it, you incompetent bunch of wankers!

  17. stackja

    The main problem is Obama and Shorten.

  18. Toiling Mass

    But, but … the media and the IT hipsters always said the Labor party were fabuloso for coming up with this proposal.

    Certainly lefties have a tendency to only see half of an issue – and are proud that they are smarter than everyone else.

    In this case they see benefit and are blind to cost.

    In Global Warming they touted their Precautionary Principle – a bit like risk management but they only saw consequence but couldn’t get likelihood.

    But they were so much smarter than the prosaic boring people who could actually see the problems.

  19. Just interested

    However, Malcolm is at large and in charge of this. He has commented on other people’s portfolios – has he said anything about his own stunning success?

  20. Rohan

    I read the financial statement today. They have doubled subscriptions from 600k to 1.2m last FY. But their revenue was just $161m. FFS that’s an average of just $268 pa for each wholesale subscription, based on the number of subscribers at the start of the FY.

    Cumulative operating losses from the last three FY are at about $5.3b. $2b of that last FY IIRC.

    Which fucking lunatics think this is a viable business model?

  21. 2dogs

    Aussie stockmarket tumbles amid growing fears over health of global economy

    Growth forecasts until now had been mildly optimistic.

    Does anyone have any info on what the market is now predicting?

  22. Jmaes Lane

    Given that the NBN has only passed 1.2 million homes, I think it is very unlikely they’ll do 8 million by 2020.

  23. Uh oh

    The annoying thing about this is that Labor will still portray it as a great project that was stuffed-up by the Libs. And the punters will believe them.

  24. Boambee John

    goatjam
    #1776536, posted on August 24, 2015 at 5:57 pm
    BTW, why wasn’t all work on this ridiculous labor brainfart shut down after the last election? The NBN has the potential to be the most obscene example of governmental obstinacy, stupidity and overreach in this country’s history. Utterly inexcusable.

    Because Labor signed a lot of contracts before the election, and unlike with Dan the Man in Victoria, the Media would not give a Coalition government a pass on the immense costs of paying out cancelled contracts.

  25. mundi

    That explanation seems to be bullshit.

    If the government stopped funding nbn co would be install broke, the government has no obligation to pay its debts

  26. Andrew

    The annoying thing about this is that Labor will still portray it as a great project that was stuffed-up by the Libs. And the punters will believe them.</blockquote

    By "Labor" you mean the ABC and 99% of the meeja? It's started.

    This disaster is with FTTN only. The last mile to the home is already there as copper and HFC, and they can't even do that!

    Anyhow, when the SLF is elected he is welcome to retrofit the last mile with fibre if it's so easy.

  27. Pusnip

    You need to learn some economics, Kates. Loss making items do not necessarily lower living standards, for example if the items generate external benefits that exceed the losses.

  28. JC

    You need to learn some economics, Kates. Loss making items do not necessarily lower living standards, for example if the items generate external benefits that exceed the losses.

    Then it wouldn’t be loss making you, nutball.

    You really should be executed without trial, Puss.

  29. .

    Pusnip
    #1777051, posted on August 24, 2015 at 11:52 pm
    You need to learn some economics, Kates. Loss making items do not necessarily lower living standards, for example if the items generate external benefits that exceed the losses.

    Such as?

    Jmaes Lane
    #1776696, posted on August 24, 2015 at 8:15 pm
    Given that the NBN has only passed 1.2 million homes, I think it is very unlikely they’ll do 8 million by 2020.

    LOL

    I know right? The NBN will cost over 250 bn AUD and never be completed.

  30. sabrina

    KRudd and Conroy should serve jail time for this. Include those who continued this after the overwhelming election win. Well-paid idiots have been running/ruining this country for more than a decade now. No end in sight as more short-sighted economists join the treasury as advisers with one motto – please the uneducated political masters with populist advice.

  31. Roger

    These Treasury advisors do not have a clue.

    They’re probably the same ones who advised Rudd to splash the cash during the GFC on the grounds that the Chinese boom for continue for decades, underwriting our borrowings.

  32. Zulu Kilo Two Alpha

    Well-paid idiots have been running/ruining this country for more than a decade now. No end in sight as more short-sighted economists join the treasury as advisers with one motto – please the uneducated political masters with populist advice.

    Well paid idiots have been ruining this country since the Whitlam reign of terror.

  33. motherhubbard'sdog

    Of course, there are more than a few companies that have form when it comes to throwing money down the toilet. The difference is that you have a choice whether to invest in them or not.

  34. You really should be executed without trial, Puss.

    No, JC. The trial is needed to let the other idiots know they will pay the price for… idiocy.

  35. I still haven’t actually met anybody with the NBN.

  36. I still haven’t actually met anybody with the NBN, who is happy wih it.

    You won’t either, Mr Rusty. They are still trying to tweak the DNA to produce a consumer with the ability to breathe, and one who is NBN happy. Both attributes, in sum, are well beyond our geneticists ability to code.

  37. Infidel Tiger

    I still haven’t actually met anybody with the NBN, who is happy wih it.

    The only people happy with the NBN are the union cronies who sleep in a pit filled with money each night.

  38. Ragu

    The only people happy with the NBN are the union cronies who sleep in a pit filled with money each night.

    And Dick Face best mate, Grigory

  39. Leigh Lowe

    Slightly off topic (but not really).
    Yesterday’s Oz had a story on AusAid fraud, which I didn’t read in detail (I think Des Desky had a link to it with some commentary on the shysters in AusAid).
    Anyway, the Oz reproduced a file note in Julie Bishop’s handwriting saying something like “$700k fraud. ….. but it is still $700k.”
    That comment speaks volumes because it clearly indicates that her department was playing it down … “unavoidable cost of delivering complex programes … blah, blah … happens all the time in some countries … blah, blah … immaterial to DFAT budget …” and simply couldn’t understand all the fuss over a measly few hundred thou gone missing.

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