The government claims it had a good week last week, increasing taxes on savings, raising effective marginal tax rates on middle income families and generally behaving like the Light Green Labor Party it seems to want to be. Yet its broken promises, tax hikes and spending cuts will deliver a paltry $6 billion over the four year forward estimates while the deficit is projected to be $84 billion over that period. All this would be bad enough. In fact, the true deficit is much worse. Don’t believe it? Here are four debt bombs just waiting to be detonated.
Take the NBN. Seriously, if only somebody would take the National Broadband Network (NBN Co.) off the taxpayers’ hands. By the end of this financial year the company is forecast to have spent $29.5 billion and industry estimates are that it will cost $60 billion to build. Yet analysts say that at least half that cost will have to be written off, a cool $30 billion. And the worst case scenario is that the whole lot may have to be written off as a stranded asset. Why? Because, exactly as predicted, new high-speed wireless technologies are entering the market with much better and cheaper broadband services, risking making the NBN redundant.
However great the damage turns out to be, that $30-60 billion dollars is money that taxpayers have poured into this white elephant which is currently listed as an asset and is off budget. When the government is finally forced to admit that the asset is a liability, it will come on budget, ballooning the federal government deficit and becoming part of our national debt.
If you want to benchmark just how badly Labor bungled the NBN, look at New Zealand. Ultrafast broadband will deliver fibre to the home in New Zealand, covering 80 per cent of the population of just under 5 million people, by 2022. And the total government investment? Just NZ$1.7 billion. Assuming there were no economies of scale, that implies an Australian NBN might have been built with a taxpayer investment of as little $8.23 billion. No wonder Stephen Conroy, the Labor senator who drew up the plans for NBN Co. on a napkin during a Prime Ministerial plane flight with Kevin Rudd, snuck out of the parliament in the dead of night – NBN Co. is on track to be the worst financial debacle in Australian history. And yet that is just the beginning of our budget woes.
The National Disability Insurance Scheme is just in the ramp-up phase. Between July of this year and 2019 it will expand its client base from 30,000 to 460,000 people. In other words, it will cost more than 10 times what it costs us today. Former National Commission of Audit boss, Tony Shepherd, estimates costs will blow out from $22 billion a year to an eye-watering $25 billion a year. But no-one really knows. As Shepherd says, there is no limit on the number of people who can apply or to the size of the support packages they could seek. The taxpayer has signed a blank cheque.
As with NBN Co., the biggest mistake was not to let the private sector take the running. NDIS should have simply been what its name implies – an insurance scheme that people would be obliged to take out. Once again, New Zealand has a good model. Everyone there has to take out insurance against earthquakes. Even in Australia, drivers have to take out third party insurance to get a car registered. It should not have been beyond our wit to design a compulsory disability insurance scheme where the premiums paid went to a fund – not managed, or mismanaged by the government – that would cover the cost of disability payments. And that would have allowed insurance professionals to engage in the odious but necessary task of dealing with fraud. Instead, we have ended up with another ballooning socialist nightmare, dreamed up by Labor, which the Coalition seems to have neither the wit nor the will to redesign.
In 2009, Labor removed any limits on the number of students that universities and private colleges can enrol and, having gained a place, students are entitled to taxpayer subsidised loans. Students can borrow up to $100,000 and only have to start paying it back when they earn more than $54,000 pa. What’s more, no interest accrues providing no incentive to pay back the loan ever. Uncapping places has seen student numbers balloon from 308,000 to 522,000 between 2010 and 2016. With average graduate starting salaries of $55,000, half of all students are not repaying loans.
At present, universities have every incentive to enrol anyone with a pulse, and for that matter, if they could find a way, they would probably make the possession of a pulse optional. In this, private colleges have been leading the way. A semi-literate Aborigine in a pub, who’d quit school in Year 7, was enrolled in a college. The chances of the taxpayer ever being repaid the money he was loaned would make Buckley look like a shoo-in.
And there is no incentive for universities or colleges to reduce their costs when the unsuspecting taxpayer is footing the bill. But guess what? All those student loans are currently not on the budget either because, you guessed it, they’re assets. When they are converted to the liabilities they actually are, the budget picture will be even worse. But wait, there’s more.
We’ve barely got started. Analysis shows it will cost about 30 per cent more to build submarines in Australia than just buy them off the shelf. The effective rate of assistance is a staggering 500 per cent. But building naval warships in Australia also costs 30-40 per cent more than it does building them overseas, and there are up to 50 naval surface warships to be built, including up to 15 large surface ships such as air warfare destroyers, landing helicopter docks and future frigates.
So what is to be done? The only financially viable solution is not to soldier on, or tinker with misconceived programs but to radically redesign them. And painful though it will be, the sooner we start, the sooner we will staunch the losses.
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