Saturday, November 27, 2010

Reserve to earth - First a cost-benefit analysis, then an NBN

Reserve Bank Governor Glenn Stevens has risked the wrath of the government by calling for a "proper cost-benefit analysis" of the case for the national broadband network.

His intervention came as the Senate passed laws separating Telstra's retail and wholesale arms, allowing it to enter into a commercial agreement with NBN Co to take part in the multi billion dollar project.

While acknowledging the NBN was outside his "core area of expertise," Governor Stevens told a parliamentary hearing that "as a general proposition" there were some projects the private sector would not fund that still ought to be done.

"Whether this is one of them would be another question," he said. "But there ought to be, of course, a proper cost-benefit analysis of that case in those instances"...

Coalition communications spokesman Malcolm Turnbull seized on the statement saying the Governor would have to "brace himself for a verbal tirade from Julia Gillard."

"No doubt the Prime Minister will accuse the distinguished central banker of being a wrecker, a Luddite and determined to hold back the march of history, technology and human progress," he said.

"Not for the first time the Governor has cut through the political rhetoric and put his finger right on the core economic issue. Nobody disputes the merits of universal affordable broadband. The big question, the $50 billion question, is how you do it – or in Stevens’ words, how much you pay to do it and how efficiently it’s done."

Communications Minister Stephen Conroy said he wasn't in dispute with the Governor.

"We agree with him that there should be scrutiny," he said.

The government had already undertaken a number of comprehensive analyses of the project and would release the NBN business plan next month.

Published in today's Age


Highlights from Chris Joye:


RBA LISTS SUPPLY-SIDE INFRASTRUCTURE INVESTMENT PRIORTITIES—NO NBN

Ms O’DWYER—The RBA has repeatedly communicated its concern that the Australian economy is operating near full capacity, and given expected above-trend growth over the next one to two years faces the spectre of inflation pressures. In March of this year Assistant Governor Dr Philip Lowe gave a speech in which he argued that, for Australia, the main task is to expand the supply side of the economy so that demand can grow solidly without causing inflation to rise. Can you shed some light on the key supply side deficiencies that the RBA has identified and is concerned about?

Ms O’DWYER—If the private sector is not willing to fund some projects that would be related to this and 100 per cent of the equity risk is to be borne by the Australian taxpayer, can you explain what economists mean when they talk about the opportunity cost of capital?

Mr Stevens—The opportunity cost of capital would be, ‘I use it in area A; I can’t use it in area B,’ assuming that the quantity of capital available is finite. You have to be a little careful there, because there is a global supply of capital that is very big and the real question is how well we use it. This is really making very general points, but we are probably going to need more investment in electricity, are we not, over the years ahead, and water? Some of that is being done. There is a fair bit of urban infrastructure that would be desirable, as anybody who lives in any of our major east coast cities—or west coast, for that matter—would think. All of that has to be done, but we have to try to do that at the same time as we build more houses and build more mines. So it is going to be a tall order, I think, to fit all this in without overheating things, if you think about it that way. That is part of the reason that I suspect a little more caution on consumption—which I think we do see amongst households, anyway, at the moment—is probably no bad thing if we are going to fit all these other things in as well.

RBA SAYS WE NEED NBN COST-BENEFIT ANALYSIS

Ms O’DWYER—This is my final question, because I realise I am running out of time. I noticed you did not actually mention $27 billion of taxpayer capital and another $10 billion of taxpayer debt issuance on the National Broadband Network. So I suppose my question is: is there a risk if the government ends up allocating vast amounts of taxpayer capital to projects that the private sector has rejected which do not work materially to improve the supply side of the Australian economy? What hurdles should these projects face to satisfy us that they warrant the commitment of taxpayer dollars?

Mr Stevens—I do not want to get into the NBN in any detail. It is an area that, to use Phil’s words, is outside our core area of expertise. As a general proposition, there probably are some projects that the private sector will not fund that still ought to be done. Whether this is one of them would be another question. But I think you can imagine some projects that the private sector just does not feel it can take the risk on but on which the public sector—which, after all, has a stronger balance sheet than anyone else—might on some occasions be able to accept that risk. But there ought to be, of course, a proper cost-benefit analysis of that case in those instances. It is not unreasonable to expect that more interconnectivity around the country can be a benefit to productivity—that is a reasonable claim, it seems to me—but, as I have said on one or two other occasions, much hinges on how much you pay to do it and how efficiently it is done. But that is not for me to adjudicate on in that particular case. Much as I am sure you would like me to, I don’t think I can.




Related Posts

. A cost-benefit analysis for the Snowy Mountains Scheme?

. Cost-benefit analysis: Samuel versus Treasury

. The NBN is a slowly unfolding disaster

. We're spending a fortune on new wires, we'll disconnect the ones you have


4 comments:

Will said...

Awfully magnanimous of the good old governor to *allow* the Government to build things the private sector won't.

BUT only if there's a CBA, of course. In case, you'd forget the last 10 posts on the subject Mr Martin think we need a CBA. A CBAs is what all serious-minded people need to see. You'd have to be some kind of communist not to do a CBA! Governments mustn't have existed prior to the fetishisation of CBAs because their policies would inevitably exploded under the weight of the systemic risk.

Anonymous said...

Peter,

give it a rest mate.

Your endless strawmen arguments are nothing more than a cover for the fact that you fundamentally agree with the coalitions position - government should not be too heavily invovled in new kinds of large-scale infrastructure delivery. Lord knows, they spent so much time and energy convincing the electorate that the previous national carrier needed to be privatised, and then - as an ultimate insult - convinced us that it was generous of them to sell us back what we had already owned.

Your endless calls for an uttely pointless CBA which will tell us nothing outside the pre-determined frame of reference and will serve as nothing more than a political tool to ensure that Australia remains in the broadband dark ages as long as possible are nothing more than a point of your own pride - you got it hopelessly wrong and you know it.

Anonymous said...

Stevens lifted rates—and stuffed the recovery that was already petering out.

Don’t think I will listen to that NAIRU worshipping neocon fool!

CBA-tell you what you want to hear in the case of the NBN.

Anonymous said...

Get over it Peter. The old copper wire needs to be replaced, the new fibre will be profitable.

Enough of grasping at little straws.

It cost 1% of tax intake each year for 8 years.

There you go, cost/benefit analysis for dummies and idiots.

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