Saturday, September 20, 2014

Sanity Checking Ergas NBN Benefits: Turnbull says "very large benefits", Ergas/Vertigan find under 0.05%

Publicly, Minister for Communications, Turnbull, says of the NBN:
Fast broadband provides very large benefits for the economy and society, ... [emphasis added]
Under Turnbull, government funding for NBN Co is "strictly limited" to $29.4 billion, which over 25 years is under 0.05% of Australian GDP at current trends. Not by any definition "large".

However, the official Cost Benefit Analysis doesn't find even that amount of Economic benefit is created in the Australian economy, but under half that amount, leading to a cost using any type of network.

Would the Minister explain the difference between his public statements and the detailed economic modelling? Both cannot be correct.

The economist Henry Ergas has submitted a report with a considerably different view in the Vertigan "Cost Benefit Analysis, Pt 2", accepted and often quoted by Turnbull, found there is NO net Benefit, but an overall cost. According to Ergas, the benefits delivered by "faster broadband speeds" never outweight the additional costs and fail the economic "Cost Benefit" test.

2013-2014 GDP = $1,569,477M @2.5% for 25 yrs =  $2,909,723M
Sum = $53,609,825M
$29.4B = 0.054840%

2013-2014 GDP = $1,569,477M @3.2% for 25 yrs =  $3,449,430M
Sum = $58,748,544M
$29.4B = 0.050043%

Data Sources:
ABS Key Economic Indicators [1345.0]
Gross domestic product GDP, Chain volume measures - Annual
5206.0 2013-14 $m 1569477 
ABS Australian System of National Accounts, 2012-13 [5204.0]
Following the fall in GDP in volume terms in 1990-91 there have been 22 years of consecutive growth. In 2012-13 GDP increased by 2.6%.
Australian National Accounts: National Income, Expenditure and Product, Jun 2014 [5206.0]
The most commonly used measure of aggregate economic activity is the chain volume measure of GDP(footnote 2) , hereafter referred to as GDP, unless otherwise specified.
GDP measures the domestic production of goods and services adjusted for domestic and external inflation. [emphasis added]
Gross domestic product:
1989-90 to 2001-02: 3.3%
2001-02 to 2012-13: 3.1%