[LINK] The national broadband network and the federal government budget statements

[Marghanita da Cruz]

> Recent media commentary and political debate has concerned the validity of the current accounting treatment of the national broadband network (NBN) in the federal government budget statements. This background note (BN) aims to explain how internationally accepted accounting standards are currently applied in the budget statement treatment of the NBN and how future NBN related transactions are likely to be treated under those standards.
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> This BN also aims to clarify some of the terms and arguments commonly used during commentary on this topic. For example, the terms on-budget and off-budget, and the notion that the accounting treatment of the NBN is dependent on the rate of return realised by the NBN, are discussed in the section below. The body of the note then examines the accounting treatment of past and potential future NBN related transactions, given three assumed stages of NBN activity.
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> Finally, this BN looks at whether the NBN can be accounted for as an expense item in the budget operating statement and then presents the methodology used to value the government's equity investment in NBN Company (NBN Co).
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> Budget statement accounting of the national broadband network
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> Australia has adopted internationally accepted accounting standards and these are applied in the budget statement treatment of the NBN. The budget statement treatment of the NBN occurs primarily as a result of the government's equity stake in the company charged with the rollout of the NBN, namely NBN Co.
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> While the applied accounting treatment depends on the specific transaction conducted between the government and NBN Co, this treatment is governed by accepted accounting standards and is applied equally to all government business entities (GBEs). This treatment is not determined by the return generated by NBN Co (or any other GBE).
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> Payments between the government and NBN Co (for example, dividends paid to government or adjustment of asset values) directly affect the budget statements. Such payments are indirectly affected by the success and therefore rate of return generated by NBN Co. However, this is in direct contrast to the idea that a return below a specific benchmark triggers an accounting rule where treatment of NBN Co is switched from 'off-budget' to 'on-budget' (see box 1 below). There is no such accounting rule.
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> Rather, the rate of return achieved will affect NBN Co's capacity to make payments such as interest expense and dividend payments, or, if the NBN incurs losses, to potentially receive subsidy payments. As outlined in detail in the remainder of this BN, these payments, where they occur, are accounted for in the budget irrespective of the return generated by NBN Co.
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> The national broadband network and the federal government budget statements 
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> Underlying cash balance - calculated as net cash receipts from operations (excluding future fund earnings), plus financing adjustments (to remove cash flows more appropriately viewed as financing in government financial statistics), plus net cash capital investment (net cash investment in non-financial assets).
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> (c) Commonwealth of Australia
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> Creative Commons
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> With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence. 
<http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22library%2Fprspub%2F1345475%22>
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Marghanita da Cruz
Ramin Communications (Sydney)
Website: http://ramin.com.au
Phone:(+612) 0414-869202