Why You’ll Have to Pay $4,300 for Internet Access

Today we’ll have a little crack at the National Broadband Network (NBN). But before we do, let’s have a quick follow up to Wednesday’s Money Morning.

It never ceases to amaze us the wonderful job the property spruikers have done to convince investors that making a loss on an investment is a gain.

As we mentioned yesterday, as a fully qualified adviser we’re dumbfounded that such backwardness could make seemingly sane people believe that consistently losing money is a great way to become rich.

The mistake that every single property investor makes is to believe that the massive capital growth in house prices will continue.

You see, we agree wholeheartedly that while house prices go up, taking a loss on the income side is fine. But when house prices stay flat and then fall, we’d like to hear how making an income loss on top of the capital loss can possibly lead to greater wealth.

It can’t.

But diehard property investors and spruikers just can’t see it. A property investor can use tax deductions as much as they like, but they’re still forking out more money than they’ve got coming in.

To be honest, we’re convinced that most people don’t actually understand how tax deductions work. Not just in property investing but in general. We’ve lost count the number of times people say, “I spent $100 on this but I’ll get it back in my tax return.”

No they won’t. They just don’t pay tax on the $100 spent. But they’ve still spent $100. Sure they’re getting the item at a discount, but it’s not the free ride that many taxpayers believe they’re getting. And likewise we’re convinced many property investors are under the same delusion.

The chart we showed yesterday from Gerard Minack and which I’ve copied again below shows you the extent of the losses:

While property prices were rising, investors would have been happy to breakeven on the rental side. We’ve no argument there. But look again at the net rental deficit.

If you’re losing on the income and the property price isn’t increasing then it’s a fact that they’re losing money.

So, why would you continue to hold on to an asset that was a net cost to you? Buy and hold share investors used to do that. And some foolishly still do.

But as for housing, don’t forget, we’re not talking about the minority of property investors taking a loss, we’re talking 70% of them:

As usual we unashamedly and proudly rely on our pals at Wikipedia for an excellent definition of negative gearing:

“A negative gearing strategy can only make a profit if the asset rises in value (capital gains) by enough to cover the shortfall between the income and interest which the investor suffers. The investor must also be able to fund that shortfall until the asset is sold.”

So again, we’re really keen to hear from property spruikers and investors about how they plan becoming wealthy when the income is less than the expense, and the capital growth is non-existent.

We’re all ears. Send us an email to moneymorning@moneymorning.com.au or post a message to the Money Morning website later today. We’ll publish a selection of the responses next week…

But anyway back to the NBN

Tomorrow you’ll be off to the polls. Enjoy that won’t you.

Just remember one thing, whoever you vote for it’s not likely to make any difference to the amount of tax you pay and the amount of money the bureaucrats will end up spending.

As we mentioned earlier this week, we prefer to advocate Mark Latham’s donkey vote strategy. But anyway, we’ll leave that one up to you…

One of the items on the political agenda is internet access. The internet of course has become the new plaything for bureaucrats the world over.

Unsettled by the amount of freedom the masses have gained through the ability to express views and access non-mainstream views, the political power-trippers are getting scared. Having allowed the internet to grow without too much interference, governments have finally had enough.

Hence in Australia we’ve got the freedom-killing prospect of a government controlled internet filter. Plus the double-freedom-killing prospect of a government controlled internet backbone that will most certainly permit the government to easily implement its diabolical filtering plan.

But, it’s not the filtering we’ll look at today. Instead it’s the NBN we’ll concentrate on. Let me ask you, would you like a super high speed broadband connection?

If you’re like me, you’re probably not bothered whether your internet speed is fast, very fast or super high speed.

As long as you can get onto a web page within a couple of seconds, chances are you’ll be happy.

But whether you want super fast broadband or not there’s a good chance you’ll end up getting it anyway. At a cost of around $4,300 per household.

According to those reliable and completely impartial boffins at McKinsey and KPMG, the report they compiled – in return for a fee – for the government shows that the National Broadband Network should only cost around $43 billion.

“Only”…

That’s today’s estimates of course. But you know how good the coercive sector is at meeting budget targets. That’s right, it’s not very good at it at all.

Although the total cost is predicted to be $43 billion, the number crunchers at McKinsey and KPMG reckon the maximum amount the taxpayer will be up for is $26 billion. Bull dust we say.

If that were true this would be the first project in a long time – whether public or private – that will have been completed within the initial budget.

Our guess is that you can take that number and at least double it.

You don’t have to look far for examples of how inefficient and reckless the coercive sector is with taxpayer dollars – look at the election campaign for starters, money being thrown at special interest groups left, right and centre.

But then also think about the school building programme, or the housing insulation scheme. What a debacle those have been.

Then also look at the latest news from Victoria where new train stations that were forecast to cost $20 million each are now being budgeted for $55 million each.

Do you still think the NBN will come in on budget? Will it my foot.

Even if we’re conservative with our estimates and say that the cost to the taxpayer will “only” double then you’re still looking at more than $50 billion. But let’s be kind and say the taxpayer expense only increases to $43 billion.

Based on roughly 10 million Australian homes that’s equal to a cost of $4,300 per home.

Now let me ask you. Would you ever consider handing over $4,300 in cash to pay for an internet connection? Thought not. But that’s what you’ll be doing with the NBN rollout.

Except that rather than you paying for it in cash, you’ll be paying for it through your tax dollars.

But most people haven’t figured that out yet. The Australian quotes Damian Rodman from Taxmania, sorry, Tasmania, where the NBN is already up and running:

“We love it… It takes less than 30 seconds to download a song and about 10 minutes to download a one gigabite movie.”

Again, would you really consider it value for money to pay $4,300 just so you can download a song in 30 seconds? Is listening to a new song so important to anyone that it has to arrive in 30 seconds rather than, say 90 seconds or even 3 minutes?

And don’t forget there’s the monthly access costs on top of that of around $75.

If you really want fast internet, give Telstra or iPrimus or Optus a call and you can get it. And it won’t cost you $4,300 up front.

We’ve had a quick look at the Bigpond website and you can get free installation if you sign up for one of their bundled packages. Or up to $228 if you don’t.

Of course doing that would mean spending $228 out of your pocket today rather than $4,300 out of your future tax dollars.

The idea that the government needs to get involved to provide a fast internet access is not only a joke but it’s a fallacy. It’s got nothing to do with providing the internet for all Australians or some bizarre idea about broadband healthcare for the bush!

It’s ultimately about control. It’s about the government gaining immediate access to every email you send or receive and every web page you visit. It’s nothing more, nothing less.

Just like the tax system and welfare payments system is about control. It doesn’t matter which party is in power the outcome is the same. More control over your life by the bureaucrats.

It’s one more incursion on the road to totalitarianism.

The fact is, if consumers value something enough they will pay for it without the aid of taxpayer dollars. If they weren’t prepared to pay for it without the subsidy then it’s clearly something they don’t value enough.

And we’ll guess that 99% of the population don’t value super fast broadband speeds if it’s going to cost them $4,300. That’s why the government has to take control and spend the money anyway – your money.

It’s the prospect of that happening which stops consumers and businesses from investing in broadband technology. Because they know the government will interfere they stop to see what manipulative impact the government will take and then they move to exploit it.

I mean think about it this way. Who really benefits from the NBN? And I mean really. We’re not counting the benefit of downloading a song in 30 seconds rather than 90 seconds. To our way of thinking that isn’t a genuine benefit.

No, the biggest beneficiaries of the NBN are the likes of Apple and others that provide bandwidth hungry content over the internet. And the losers are those firms that don’t or can’t provide content over the internet.

So, for example you could say that the NBN is providing a subsidy to Apple Inc., so consumers can download music, at the expense of say JB Hi-Fi which can’t sell CDs or DVDs to consumers over the internet for immediate use.

Again, the government decides who wins and who loses rather than allowing the consumer to decide without influence.

Our guess is that if you ask most people in Australia whether they would be happy to pay $4,300 for an internet connection the overwhelming response would be no.

Unfortunately, the odds are that whether you like it or not you’re about to get yourself a bill for that amount payable through your taxes.

Cheers.
Kris Sayce
For Money Morning Australia

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