Posted April 10, 2020 09:59:42A new study by the University of New South Wales (UNSW) shows that, on a $2 billion-plus NBN project, the Government could pay back a net $50 billion a year in savings over four years.
Key points:The report found that the NBN could cost $2.8 billion a month in savingsIf the Government decided to build the NBN at $3 billion a week it could pay off a net cost of $50bnA new report by the UNSW, looking at the cost of building the NBN in the next four years, has found the Government would be able to pay off net costs of about $50 Billion over four decades if the Government built the NBN for $3.5 billion a day.
“This study provides an estimate of the cost to be saved and how much each of the major government actors would be willing to pay to maintain the NBN,” said the report’s author Professor Christopher Williams.
“For example, in the case of a $3bn-a-day NBN, a government of the size of the Australian Federal Government would pay for the NBN by issuing $50.7 billion in bonds and borrowing for this investment over the next 20 years, or by issuing an equal amount of bonds in 2020 and 2021.”
By contrast, in a $50billion-a to $1 billion NBN, each government would need to issue $2bn in bonds or borrow for a $5 billion-a year commitment, or an equal number of bonds over the same time period.
“However, the government could offer the bonds or bonds to the private sector at a lower interest rate.
If they were sold at the same rate, this would reduce the net cost to the government of about half of the original $50billable-a-$1 billion.”
The study also estimated that the Federal government could pay for these net savings by issuing bonds at the lower interest rates that the private market was offering.””
This is because the private bond market is highly flexible and flexible bonds are more affordable than government bonds.
“We found that, when a government bonds issue rate of 7 per cent was applied to the market for private bonds issued, it would allow the government to pay for net savings of about one quarter of the total savings that would be expected from the Government’s bond issuance, assuming it chooses to issue a bond at a fixed rate of interest, which would mean that, assuming the Government chose to issue bonds at an interest rate of 10 per cent, the net savings would be only about $7 billion over the life of the NBN.”
The study found that a Government bond issued at 7 per% interest could pay a savings of up to $50,000 a year over the term of the bond.
“A Government bond issue rate at 5 per cent would cost the Government $10.8 million annually, while a Government bonds issue at 8 per cent could pay the Government only $5.3 million annually.”
In the absence of additional bond issuance costs, it is estimated that a 10 per year bond issue would pay the equivalent of a cost of about 20 years of public service,” Professor Williams said.”
If the government chose to use an interest-rate-sensitive bond market, it could make the bond issue cheaper, but it would be less flexible.
“The report estimates that the cost for the Government to pay back the debt and repay its bondholders would be $100 billion.
Professor Williams said the Government had a long way to go to meet its $50b-$1b target.”
It is important to remember that the debt is still relatively high and the bonds are only issued at a low interest rate,” he said.
The study was based on the modelling of the Commonwealth Bank of Australia, and was the result of a three-year study funded by the Federal Treasurer, Christopher Pyne.
Professor Pyne said the study provided a “good basis” for making the case for keeping the NBN.”
While the NBN is not going to be completed in 2024, it provides an important way of monitoring how the Government is meeting its commitment to maintain and improve the NBN, and also shows how much it could save,” he told ABC Radio National’s Breakfast program.”
And in this study we found that it is the Government that could pay it back with bonds that are much cheaper to issue than government debt.
“So I think that’s a good way of thinking about it.”
I think it’s good to have a baseline for the cost that the Government will be able, as part of its NBN strategy, to pay over the five years to 2023, because that’s the timeframe in which the Government really has to make those decisions.
“Professor Williams’ research was conducted for the UNSC report, entitled ‘How much would it cost to keep Australia’s NBN running?’
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