Quote:
Originally Posted by chiaroscuro
Everyone has an opinion on where taxes should be spent and for some, the NBN has a high priority.
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Hi Luke,
A very important point to note that it is
equity funded not
tax funded.
Please see my post here on the topic -
http://www.iceinspace.com.au/forum/s...2&postcount=74
To fund things such as health, defence and education, governments draw
down from the pool of taxation.
As you can appreciate, when you build a hospital or a submarine and pay for it
with taxation dollars, there is no direct financial return on your investment on the
balance sheet. In other words, you don't get your tax dollars back.
We, as a society, are the end-users of the hospital or submarine.
To fund things such as a national broadband network though, you don't need to
draw on taxation dollars. The Australian Government has one neat trick up its
sleeve which that they can write an IOU on a blank piece of paper and investors are
eager to exchange cash for them. I am speaking of course of AAA rated bonds.
The government says, thank you for your thousand dollars, I will pay you
back in say 10 years at an interest rate of 4.1%.
The government then loans the thousand dollars to its own company, NBN Co.
NBN Co uses it to provide a broadband connection to someone. Perhaps your house.
Perhaps the headquarters of the Commonwealth Bank in Sydney.
You use some data in posts on IceInSpace and elsewhere and you pay your
ISP your monthly fee. They in turn pay NBN a part of that for use of the network.
The Commonwealth Bank on the other hand uses lots of bandwidth and they pay their
ISP obviously much more than your monthly bill would be. Once again, the NBN
is paid by the ISP for the bandwidth.
Since an enormous percentage of the country's communications will flow
through the fibers of the NBN (keep in mind even wireless mobile services
route their data from cellular towers over optical fiber), the revenue stream will
be significant and the plan of course is that it will make a profit. The profit then
goes initially to repaying those who have provided seed equity funding, namely
the government and some private investors. Plus they pay interest of, say, 7%.
The government then gets the bond back and pays the owner their $1000 plus
4%.
So there is no "opportunity cost" in the sense that you are not drawing
from the same taxation funding pool that you would use for say schools or
hospitals or roads or defense.
Of course, equity funding is what companies do all the time to bootstrap themselves.
So you may then ask, why not fund it entirely privately?
The answer is that the return on investment (ROI) is seen as too low for most
private investors compared to other places than can invest their money.
For example, say you have $1000 burning a hole in your pocket. You look around
and might decide that you can get a better return on Commonwealth bank shares,
or mining stocks or fixed term deposits and you want to turn your money around
in a shorter period of time.
However, when governments invest in broadband infrastructure they might
get only a small return on the investment directly on the balance sheet, but the
increased economic activity it helps bring about also brings them additional tax
revenue.
So the government investing in the NBN didn't cost you anything. You paid
no additional tax. You get a free fibre connection. There was no opportunity
cost in the sense that money was not diverted from schools or hospitals.
In fact, over time, your tax bill becomes lower because the network
helps more efficient delivery of health and education services and the profits
it makes from large users goes into consolidated revenue.
The biggest risk is that suddenly computers start getting slower and individuals
and businesses no longer have a need to communicate in the future.
The timing is perfect because the interest rates on much sought after AAA rated
Australian bonds is low.
I mean reeeaallly....?
You bet she does. 
