What about PEFO?

Yesterday I heard Mitch Fifield being interviewed on ABC radio. Listen from the 2.01 hour mark for the interview. At 2.09.36 mark we have this exchange:

Epstein: That’s the same thing as saying it’s Labor’s fault you broke your promise.

Fifield: No. What it is, is that in government we discovered that what the Labor Party was saying about the costs of the project were wrong. They didn’t have a handle on the costs and we saw a bit of that in the papers today where Labor’s fibre to the premise approach, in some cases saw the expense of doing that being $91 thousand for just one premise. … 

Okay – I’m happy to accept the argument that Fifield is making. The last Labor government was useless with money.

Mr Rudd also says one of his greatest regrets is appointing Mr Swan treasurer over the more able Lindsay Tanner. He argues Mr Swan was intellectually not up to the job, was a poor communicator and his parliamentary performances were an embarrass­ment. But not appointing him would have risked destabilising the party.

But there are two problems with his argument as I see it.

    1. The Charter of Budget Honesty was supposed to prevent these sorts of surprises from occurring. A quick search of the 2013 PEFO find no warnings to the incoming government or electorate that the NBN was the black hole that it became. All that I can see is that the former government had a $4.8 billion poison pill to prevent the NBN agreement from being terminated (and that really relates to paying out the direct expenses).
    2.  If the project was such a dog as the government are now claiming, why did they proceed with it? Even on a cheaper model that reduced what had initially been promised it seems that the government (read taxpayers) would have been better off paying the $4.8 billion and walking away. A good principle of capital budgeting is to ignore sunk costs and don’t throw good money after bad.

I suspect the government – like its predecessor – doesn’t want to realise the  loss on the NBN as it will then come onto the budget. These sorts of Enronesque accounting practices are frowned upon, if not actually illegal, in the private sector; so it isn’t clear to me why they should be legal in the public sector. I also think politicians promoting dud businesses should be subject to the same penalties as private citizens  promoting dud businesses.

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32 Responses to What about PEFO?

  1. Chris

    As a consultant selling my opinion I had to have Professional Liability insurance, covering the risk that if someone loses money relying on my opinion, I would be liable for their losses.
    This should apply to politicians – at least to the extent of their assets and pensions.
    And Tim Flannery.

  2. Dr Faustus

    The Charter of Budget Honesty was supposed to prevent these sorts of surprises from occurring. A quick search of the 2013 PEFO find no warnings to the incoming government or electorate that the NBN was the black hole that it became.

    Interestingly, in September 2013, the brand new communications Minister called bullshit on NBNCo’s rose tinted projections contained in a NBNCo corporate plan prepared for the Rudd(II) government:

    However, new Communications Minister Malcolm Turnbull said he does not believe the figures in the report and was waiting for the outcome of a strategic review he ordered on Tuesday.

    It appears that this report was presented to Albanese in July, but ‘somehow’ never made its way to cabinet for approval – and was therefore not included in the August 2013 PEFO.

    Unfortunately for Turnbull, the clear line of blame back to Labor misses out on the fact that, despite having spotted the dogginess problem, he became captured by the project itself and instigated the changes of scope that have delivered the present debacle.

  3. Zyconoclast

    On the plus side, downloads of Hi Def p0rn haze never been greater.

    Thanks Kevin & Maocolm.

  4. feelthebern

    We should outsource the NBN construction to pornhub & Crownbet.
    It will be completed by Christmas at no further cost to the tax payer.

  5. A H

    I completely with agree with point B. The project should have been axed.

    They also should have known, as a matter of competency, that the project was a dud project, without even needing a report on the figures.

    It is completely expected that any government project is going to be a depredation on the private sector.

    I am amazed that ten years after the idea was floated, people finally realising that this was yet another socialist policy with failure built into its dna. Needing to see the figures basically means people need it spelled out to them.

    And people still give credence to the irrelevant debate about FTTN and FTTP, without considering the fundamental failings that apply in both scenarios, such as, primarily, that central planning is inefficient and wasteful and that governments do not have wealth of their own they can only spend what is taken from the private sector.

    If the NBN were never commissioned it is a certainty that by now more people would have better internet. The NBN is basically an internet tax.

  6. stackja

    I also think politicians promoting dud businesses should be subject to the same penalties as private citizens promoting dud businesses.

    Gough’s dead!

  7. Shine a Light

    So Australians were lumbered with “The Greatest Treasurer in the World” to create a dodgy version unity.
    So who’s measuring the pile of bulla…. We obviously need an ombusman with a massive measuring tape and a keener sense of smell.

  8. Dr Fred Lenin

    Rudd is correct about swannie , a total tool and incompetent fool ,takes one to know one ,dunnit ?
    Of course modern socialist career politics is stiff with people like rudd and swan ,seems to attract the useless. Like the public service .

  9. Robbo

    Making a decision to continue with the NBN dog left behind by the appalling Rudd/Gillard mob was not difficult for the Coalition. It’s not as if they felt the same sort of responsibility as that of a private sector company faced with a similar position. It is not their money they are playing with, it is the poor bloody taxpayers who are providing the dosh for the bastards to waste. No wonder most people think so badly of governments, regardless of their political colour. We constantly elect governments with a “no care, no
    responsibility” platform so we get duds by the dozen. Some would say it serves us right.

  10. Alex Davidson

    What continues to amaze me in regard to these sorts of adventures is the way no-one ever seems to question the nonsensical premise that everyone should receive the same level of service no matter where they live. Completely disconnected from the reality of costs and revenue.

  11. Neil

    If the project was such a dog as the government are now claiming, why did they proceed with it?

    Would it have needed Parliamentary approval? If so the legislation would have never passed the Senate

  12. gbees

    “politicians promoting dud businesses should be subject to the same penalties as private citizens promoting dud businesses“. Yes I’ve been pushing for accountability for a while. I’d like to see not only politicians subject to the same regulation as company directors but also union management.

  13. Suburban Boy

    The Charter of Budget Honesty was supposed to prevent these sorts of surprises from occurring.

    As has been noted in this place, the PEFO has included ludicrously optimistic budget forecasts. Yet somehow the senior public servants who certify the truth of the PEFO manage to keep their jobs.

    Put another way: There are no consequences for filling the PEFO with mendacity, so why make life hard for oneself by being honest?

  14. gbees

    5G mobile network will most likely be available around 2020 if not sooner. At that point you can expect peak data rates of 10Gbps, edge data rates of 100Mbps. The problem of many users affecting speed and data download will have been resolved. In short NBN is/will be obsolete. 6G (10Gbps) is pie in the sky stuff at the moment. I don’t believe I have come across any research papers on this technology as yet. But is it likely technical issues will also be resolved.

  15. Gengis

    Want a new Dud – think SUBMARINES & SA!

  16. BoyfromTottenham

    Exactly, Alex D. Currently the consumer (generally) decides which Internet delivery technology (ADSL, Coaxial cable, wireless, etc.) is most cost-effective for their particular situation, and wears the consequences for the term of the contract. As an old ‘radio tech’ I have seen the Internet morph from 300 baud acoustic couplers to 1200 baud telephone modems to gigabit over fibre and multi-megabit over 4G cellular. No one can predict such massive changes, and any government would be foolish to try (but yet they do!). Unfortunately us mug Aussie taxpayers get saddled with the costs both as increased telco charges and higher taxes. No wonder my NZ mates are all smiling – the government there is too exposed to voters to get away with this kind of crap. At least I can choose not to play the game by signing up to a 4G Internet service and a wifi hotspot that I can use anywhere in Australia, and hopefully avoid the ‘no Internet for months’ horror stories seen on 4 Corners.

  17. Hydra

    As an accountant, they’re not legal in the public sector.

    They are contrary to the accounting standards and a qualified opinion must be issued.

    What is the auditor-general doing?

  18. Rabz

    Yesterday I heard Mitch Fifield being interviewed on ABC radio.

    I trust you immediately consumed a few stiff drinks afterwards.

    He truly is a world class bore.

  19. Rabz

    A quick search of the 2013 PEFO find no warnings to the incoming government or electorate that the NBN was the black hole that it became.

    You would have had to have been one of the most monumental dullards in human history not to have realised that the National Brontosaurus Network was going to end up being the black hole it would inevitably become.

    Remember, it was costed on the back of a beer coaster in about ten minutes by the frigging Nuclear Milkman, FFS.

  20. Sydney Boy

    I am amazed that ten years after the idea was floated, people finally realising that this was yet another socialist policy with failure built into its dna.

    Except that they don’t. The majority of the rusted-on ALP voters are convinced that somehow Turnbull’s FTTN NBN is more expensive than Kevin 07’s original FTTP plan.

  21. Rabz

    If the project was such a dog as the government are now claiming, why did they proceed with it?

    The stupid.frigging.gliberals – busy implementing labor’s and the greenfilth’s policies for them since 2013.

  22. Squirrel

    “What about PEFO?” – indeed, a question for the future, not just the past, given that Labor will almost certainly go into the next election with some sort of commitment to “fix the thing”, or words to that effect, much to the joy of the assorted anrgy, entitled propeller heads, couch potatoes and porn addicts who are very cross about “fraud-band”.

    It would be most interesting to hear the fibre to the home cheer squad explain how it could be that their preferred model would actually have been quicker and cheaper to install than a (predominantly) fibre to the node model – are they perhaps suggesting that there is an army of super efficient contractors who have refused to be involved in the fibre to the node roll out, but who will spring into (low-cost) action once the nation sees the error of its ways and signs up for coast to cost fibre to the home?

    It would also be interesting to hear the fibre to the home enthusiasts explain the viability of their preferred model, noting the interesting statistic that only 35% of New Zealanders with access to their (cheaper, faster and more reliable) service have actually signed up for it.

  23. Linden

    Around about 3 or4 yrs back now, there was an excellent article published in the Oz by the editor of a magazine called IT Mag or something similar, his credentials were listed and circulation of the magazine backed his bona fides as a reputable expert in the field IT technology. I wish I had of kept it, he has said ‘way back then’ that the NBN was a dud, would be superseded by more popular portable wi-fi technology as it gains momentum, and essentially the nbn would only be used by major corporations for bulk data transfer and that’s about it. He also said if memory serves me correct, he doubted that it would ever even get finished!

  24. 2dogs

    The Charter of Budget Honesty was supposed to prevent these sorts of surprises from occurring.

    Swan and Captain Underpants abused NBN Co’s status as a separate entity to fiddle the books regarding the Charter of Budget Honesty.

    If the project was such a dog as the government are now claiming, why did they proceed with it?

    Because they inherited pre-existing contractual obligations that could not easily be backed out of. They were left with making the best of a bad deal.

  25. duncanm

    $4.8 billion poison pill to prevent the NBN agreement from being terminated (and that really relates to paying out the direct expenses).

    sounding cheaper by the day..

  26. Anon

    Poison pill isn’t really the right term. More of a break fee or cost reimbursement commitment. Anyway, good post, just thought I’d throw that in.

  27. Rob MW

    B. If the project was such a dog as the government are now claiming, why did they proceed with it? Even on a cheaper model that reduced what had initially been promised it seems that the government (read taxpayers) would have been better off paying the $4.8 billion and walking away. A good principle of capital budgeting is to ignore sunk costs and don’t throw good money after bad.

    Sinc – government(s) celebrate entrepreneurial misfortune as being proportionate to the cost of a bunny in a playboy outfit minus the outfit.

  28. Tel

    Because they inherited pre-existing contractual obligations that could not easily be backed out of. They were left with making the best of a bad deal.

    What “contractual obligations” ?

    Here’s a hint… which member of the Australian Executive signed off on those contracts?

  29. Spring is coming

    Could we not go back to that body that holds govment to account known only as Q and A.
    Review all of those supportive comments about how wonderful the world will be with NBN.
    Sell all the panelists our share at cost. ?

  30. EvilElvis

    I personally know of 3 ‘tech gurus’, all under 40, one in particular who is highly sort after by several PS departments, that have always backed the NBN ftth and continue to carry on about it not being implemented. You can guess their political persuasion.

    Me, the lowly, uneducated pleb with only practical project experience could tell it would be a fuck up and a waste of money from the get go.

    It’s constant proof that most people, educated and all, are bloody dumbarses and politicians sit at the top of the pile with their PS brethren.

  31. Kneel

    The 4 corners show had things that seemed heavily downplayed on the actual broadcast that materially impact any conclusion you can or should draw in a comparison to Un Zud
    1) the company (Chorus) that created the NZ NBN, was given (yes given, so they said) a lot of infrastructure like cable ducts, telephone exchanges and so on. NBNCo had to negotiate with Telstra for access to same, increasing their costs and extending timeframes.
    2) In NZ, they created a full FTTN network first, then went back and started on FTTP.

    What has never been much discussed, is that the Telstra proposal for NBN – which was rejected – was exactly that: viz, complete a full FTTN network first. Telstra also was prepared to add additional funds, so the Govt could have been up for a fixed price and any cost blow-outs would have been Telstra’s responsibility – at least partially, which is all the incentive they need. All Telstra wanted was something to let them recover such costs as they did spend in such a way that they would not be disadvantaged by the price of servicing the debt they incurred as part of building the NBN – hardly unreasonable.

    So Telstra now offers MAN fibre access for those in the cities likely to actually NEED the speed and reliability of FTTP. Given the horror stories of NBN, who’d risk it a connection via NBN when Telstra MAN access is available?

    Odd, isn’t it? When it comes to climate change, we should only listen to the experts. But when it comes to NBN, we can ignore the experts at will.

  32. old bloke

    Linden
    #2531994, posted on October 24, 2017 at 6:08 pm

    and essentially the nbn would only be used by major corporations for bulk data transfer and that’s about it.

    Major corporations already had multiple choices for high speed fibre connections. There are around four to six private companies providing high speed fibre connections in all capital city CBD’s and inner city areas. The NBN was really all about residential customers.

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