This proposal is still ill-defined and it may be too early to make definite pronouncements on it but I thought I might chance my arm.
First, is it needed? This is not my expertise but there are enough experts around arguing that it would have a high benefit cost ratio for the nation.
Secondly, would the private sector have met the need for high speed broadband without government involvement as Mr. Costello alleges? Perhaps – but it would take longer and almost certainly would lack the public interest safeguards (such as on competition) that government involvement would ensure.
Thirdly, would such a government investment blow out the budget deficit? If it involved setting up a separate entity in partnership with private groups and the government buying shares in that entity and if this entity were to deliver a commercial return (comparable to what it is now getting from Telstra), it would have no effect on the underlying budget deficit or on the Future Fundâs ultimate balance sheet. It would amount to a switch from one financial asset (e.g. Telstra shares) to another comparable one.
Fourthly, at a more macro-economic level, what would it do to net aggregate demand and hence inflationary pressures? Here one must acknowledge that the public investment in broadband could have the same effect as if it were funded by government borrowing. That is, if the economy remains âfully employedâ, it could in the short term put extra pressure on productive resources â albeit spread out over a number of years.
But one needs to be careful here. This short term impact on aggregate demand would not occur if Mr. Costello is right to say that even without government intervention the broadband investment would take place anyway through a private consortium â as private sector investment of x has the same effect on aggregate demand as public investment of x. If Costello is wrong and only government financial involvement can get this project off the ground, then there would be short term pressure on skilled labour resources during the gestation period but in the longer term it would add to productive capacity and lessen inflationary pressures.
Would the âraidâ on the Future Fund threaten the future superannuation rights of employees? The answer is of course not. The Government did not need the Fund to protect these rights – but anyway Rudd has promised that he would leave enough in the Fund to pay for the superannuation liability.
Finally, what would this project do to inter-generational equity and the problems of an ageing population? The answer is zilch. The productivity rewards from a high speed broadband offer at least as good a response to an ageing population as the financial returns from investments by the Future Fund in the share market.