[AusNOG] News: Minister Conroy contemplating Government-Fundedundersea cable?

[Paul Brooks]

On 1/10/2012 11:08 AM, David Hughes wrote:
> On 30/09/2012, at 4:30 PM, Mark Newton wrote:
>> Regardless of what anyone thinks of the NBN, it is inarguable that the Government's
>> current plan is to finance it by means of an investment, not debt;  
> Ok, so based on this, if I go to the bank and borrow $1M to buy a couple of "investment" properties then I don't have any "debt" because they are investments. 
Unless you made a bad purchase, you wouldn't have any net debt, because the value of
the properties you gained offsets the negative value of the amount you owe the bank.
As long as the value of the properties don't drop, you can always sell the properties
and use the funds to repay the loan - so your position stays neutral, even with a loan
to the bank.

And if you are paying interest at 3%, and renting it out for more than 3% of the
purchase value, you are getting ahead every month, which would normally be called a
good investment, even though it comes off the back of a loan.
Not that the NBN is this type of cashflow model.

> And as I'm not indebted I wouldn't be charged any interest on the debt facility I
> don't have because I spent the money on an investment. 
Thats the trouble with analogies - they don't always map properly.
The NBN isn't being funded by a fixed-rate, fixed term loan like you or I would fund a
property purchase - Its effectively the government's line of credit, and the
expenditure is drawn out over 10+ years at roughly $3-4 billion a year,  not a lump sum.
 In years when they run a deficit, they pay ~ 3% (currently) on the balance. In good
years, the roughly $4 billion a year can be funded out of cashflow, given their $300
billion annual budget. In very good years when they run a surplus, they pay off the
line of credit and the interest component drops. Averaged over time, the amount they
pay in interest is a good deal less than a simplistic X% on a Y-year lump sum loan.

Its not much different to you or I negatively-gearing an apartment we plan to rent out
- and thats normally called an investment property. It is still an investment, even
though it is achieved through an initial loan.

(However, IANAAccountant, and this is straying FAR from the charter!)

P.

(At $4 billion a year, out of a annual federal budget of $370 billion this year rising
to $420 billion in 4 years time and climbing, the NBN represents 1.1% of the annual
budget - or by proportion effectively the same as $1100 a year for someone on a $120k
annual salary package, after tax. I'd hazard a guess that most people today spend a
lot more than that on their telco spend - and thats OPEX with no future return,
whereas the NBN is CAPEX that can be sold later, and can be rented out to eventually
(they hope) bring in more than you spent building. it . Arguing against the NBN on
grounds it is too expensive is pointless).