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Privatise NBN, cut start-up funding and appoint a chief digital officer: Commission of Audit

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Lia Timson

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ANALYSIS

Commission of Audit author Tony Shepherd uses a Giants wristband to help him lift his findings.

Commission of Audit author Tony Shepherd uses a Giants wristband to help him lift his findings. Photo: Alex Ellinghausen

The National Commission of Audit, a report commissioned by Treasurer Joe Hockey and Finance Minister Mathias Cormann last year, was handed down on Thursday. It cannot be accused of overlooking technology and the impact of digital strategies on the national budget.

It made sweeping recommendations regarding the use and ownership of ICT, most of which, perhaps unsurprisingly, reflect the Coalition’s earlier digital policy and technology policies adopted in the UK.

NBN sale

Disappointed: Rui Rodrigues wanted to see support for innovation in the Commission of Audit.

Disappointed: Rui Rodrigues wanted to see support for innovation in the Commission of Audit. Photo: Supplied

The report has recommended the long-term sale of the toddling national broadband network, after the Snowy Hydro, Australia Post and other assets are offloaded.

The eventual privatisation of the NBN has been part of the plan from inception. The Labor government's intention was to offload the network within five years of completion.

With the change in strategy to a mixed-technology rollout as a result of the Coalition coming to power, the projected revenue for the national asset took a hit, prompting questions over its profitability and the legality of its holding company, NBN Co. NBN Co was set up as an ex-budget government enterprise. Traditionally when such entities cease turning a profit, they are sold.

The question is, will the rubber stamping by the Commission of Audit hasten that sale?

Telco analyst Paul Budde doubts it.

“The issue remains exactly the same – very few people would be interested in buying a half-built system.

Although the government may accept the sale recommendation, it would only happen in 10 to 15 years’ time, Budde says.

“You can confirm the in-principle decision to sell it, but it’s impossible [for the government] to be more precise about it. It will depend on the market conditions at the time: where will the rollout be, and will [the technology] be so out of date no one wants to buy it at the time? We don’t know.”

Innovation funding cuts

The report earmarked a number of grants to be abolished, including the Innovation Investment Fund in order to help reduce the $9 billion in Research and Development it spends each year, and scrapping Commercialisation Australia and the Export Market Development Grants scheme, administered by Austrade.

It said new models of grant development and management should be considered. As an example it offered a ‘payment for results’ model which would “involve the government paying only for effective interventions”.

This suggestion appears to contradict what entrepreneurs and innovators know about innovation: that inventors and ideas must given room to fail. That only by being supported to fail often and fail early, more robust solutions may be found.

Making success a condition of funding appears to be counter-intuitive, and may thwart creativity from the start.

Rui Rodrigues,  investment manager at Sydney-based Tank Stream Ventures and Tank Stream Labs which has invested in five start-ups and assists 29 others including GoCatch and Braintree, is disappointed with the recommendations.

“It is not a step in the right direction. I completely agree they have to look at how the incentives are being applied. What I didn’t see was some alternatives and some suggestions on how it could be improved,” Rodrigues says.

While he says Commercialisation Australia is not crucial for start-up survival, it has an impact.

“We’re not saying the government needs to hand out free money. But it has a role to play in putting in place investment and measures to stimulate innovation. By making these cuts it’s not doing that."

Alan Taylor, executive chairman of grant recipient Clarity Pharmaceuticals, said that ‘it would be disastrous for the industry” if the CA grants were scrapped.  

“For a company like Clarity that has over 10 employees and contractors, we would not exist today if it weren’t for the three CA grants we have been awarded since the company was established in 2010,” Dr Taylor said.  

“We are commercialising Australian science and focused on better therapies to treat disorders such as cancer, and supplying our services to Australian companies and overseas companies and generating revenue in Australia.  We are a developing a success story on the back of the scheme.”

Big data, big challenges

The commission’s report dedicated a whole section to data. In the technology-driven world we live today, it makes business sense for governments to streamline and make the most out of the vast amount of data they hold on industry, citizens and services.

The report says big data, advanced analytics and greater computing power offer an “opportunity to better understand citizens’ needs and behaviour”.

It recommended the government keep pace with the private sector in its use of data to improve services, and make more government data sets available through an initiative known as open data – where private developers can tap government databases to help build better and more efficient services.

The report noted the UK and US have 10,000 and 200,000 datasets respectively available through such a program. Australian only has 3164 datasets available through Data.gov.au. It said such limited resources are hindering insights into government programs. 

For example, it suggested “administrative data could offer evidence about people’s use of income support, linked to health and incarceration data to identify better pathways out of disadvantage”.

The next question privacy advocates are going to ask is: will these efforts to drive data efficiency result in centralised or interlinked databases with the potential to hold defacto profiles on Australians?

Already, the Australian Taxation Office wants to use the Department of Human Services website my.gov.au as a central point for the electronic tax returns. That site is used by 2.5 million Australians to access their Centrelink, Medicare, Child Support, Department of Veteran Affairs, e-health, and NDIS government accounts. By mid-year it will also hold financial information. The Commission sees my.gov.au as central to the online delivery of government services.

Green senator Scott Ludlam is concerned about the potential for misuse of information held in fewer centralised databases.

“I’m very concerned about it, particularly because the security of these [government] websites is appalling."

Senator Ludlam says while the scoping of open data for development of better services was “very healthy” and not to be condemned, the aggregation of people’s information into fewer places is a concern, even if the data is anonymised.

“Having it fragmented is actually a defence against lack of security and privacy. And even if security is quite strong, internally who has access to that information and for what purpose?”, he asked.

“Particularly if we’ve been forced to input financial information and medical information into these sites, they have an obligation to provide [guarantee of] privacy and security.”

Focus on IT, cloud and digital first

The Commission made several recommendations concerning eGovernment, procurement, cloud computing and modernisation of legacy systems.

Kevin Noonan, Ovum applauded the recommendations, especially the appointment of a chief digital officer as per the UK model, and the allocation of IT to a senior minister for oversight.

"A champion of IT, who has a minister to report to gives [technology] some focus," he says.

"If you look at the lead of the UK government in appointing one, it’s really about giving the government's digital-first agenda some theeth."

Jim Longood, research vice president at Gartner, agreed.

"The important thing is to have an officer that investigates where digital can be applied in government, because there's a lot of processing to be done. A chief digital officer is a nice way of pulling a group together to look at how it can be done."

But digital technologies cannot be applied to all government layers and Longwood disagrees with the "digital by default" recommendation.

"Eighty per cent of government services are people-based. It should only apply where it makes sense," he said.

Longwood also says the cloud-first recommendation was "crazy".

The commission noted the federal government has been slow to adopt cloud computing and recommended a ‘cloud-first’ approach particularly for low risk, generic ICT services. It said that in three to five years, “this could progressively reduce ICT costs as cloud computing becomes the default option”.

Longwood says there are no cloud business solutions ready to replace government legacy systems such as Centerlink's. 

While those systems desperately need modernisation, "cloud washing" them would cause more problems.

"There are 40 instances of [enterprise resource system] SAP in government. If they were able to rationalise them they wouldn't need to go to cloud."

Such cloud migration costs - mining companies have paid up to $50 million to migrate - would need to be factored into any projected savings.

"In spite of cloud-first, there's very little implementation of it in the US and the UK," Longwood says.

Noonan says overall, the Commission's focus on IT was positive but still missed nominating technology as a lever for innovation.

"It is has a strong focus on the sorts of things we’ve been talking about for some time but the government hasn’t got around to doing.

"Each individually is not surprising. To see them together as a set of recommendations is the part that I found good."

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9 comments

  • How about giving the digital / technology workers the recognition and status they deserve? Only then will we see the industry perpetuate forward in a meaningful way. Regulate the industry and licence the industry so that any old twit legally can't work on government or corproate (ABN holder) ICT systems. Just like doctors, lawyers, accountants, electricians, AC technicians, plumbers. Restore some credibility and nobility to the industry and eliminate the degree-less twits that don't understand grammar and business. Can you imagine a law firm employing a lawyer because "he finds it interesting, and spends his evenings reseraching legal cases". Or a sparkie that does lots of free electrical work for his friends. As if! So why does the ICT industry have to deal with these bogans, bringing the whole industry down? No wonder they shove us in the basement and pay us peanuts. This MUST CHANGE!!

    Commenter
    Vlaxgg
    Location
    G.
    Date and time
    May 02, 2014, 8:39PM
    • The National Commission of Audit has shown that Joe and Tony seem to have some very well informed business mates. It is only a shame that they are the ones who know the cost of every but the value of nothing.

      Commenter
      Sinnick
      Date and time
      May 02, 2014, 10:19PM
      • The Commission of Audit could have given us a much better example of how the paperless office can save us money by NOT printing the huge report on paper.

        How about a USB copy, given out at the Press conference, on a suitably bright, multi-coloured/fluoro interesting-looking and small memory stick?

        Commenter
        Jos
        Location
        Lilydale
        Date and time
        May 03, 2014, 10:25AM
        • The NBN could be sold tomorrow, and likely for more money than would be achieved if we waited until the rollout is complete.

          The commercial value of the NBN does not lie in the infrastructure it provides. It derives from its monopoly position. If the NBN has a monopoly on wholesale fixed broadband (which it does), then it can charge monopoly rents. If you are (by law) the only supplier of fixed line broadband, then the only competition is mobile. As long as they can undercut mobile internet (not hard), they can charge whatever they like for whatever service they like, and are guaranteed to being profitable.

          This will put us back to the position we had 20 years ago where Telstra (Telecom Australia) had a monopoly over data services. Not surprisingly, with its monopoly enshrined in legislation, we had very primitive and very expensive data services. With no competition, there was no reason for Telstra to introduce better products or reduce prices - they charged monopoly rents and laughed all the way to the bank.

          Or indeed in the position that Sydney finds itself with Sydney Airport Corporation. They have a monopoly over aircraft landings in Sydney, and as a result they have the most expensive landing fees in Australia and have no reason at all to improve their services to the public or airlines.

          Take away NBN's monopoly and it is worth very little. That's why it was given a monopoly; its not viable without it. Do we really want to give private companies monopolies simply to ensure they are profitable and can be sold at a profit? What's next, a government sanctioned monopoly for PC sales? Economic lunacy. Ditch it now.

          Commenter
          weterpebb
          Location
          Bondi Junction
          Date and time
          May 03, 2014, 4:26PM
          • There already are regulated monopolies in the electrical distribution and transmission space, and the greater part of the copper telecom network is a Telstra monopoly I believe (but could be wrong). These have been put in place because it doesn't make economic sense to double up on such a capital intensive venture, where the capital would need to be doubled for other competitors. Of course in the retail space it makes no sense to have a monopoly, but a regulated distribution monopoly isnt something unusual.

            Commenter
            There already is..
            Date and time
            May 06, 2014, 11:04PM
        • I have to question the focus on cloud computing, obviously he is oblivious to the realities of what has resulted from Malcolm Turnbull's complete and utter destruction and bastardisation of what used to be known as the NBN. Cloud computing relies heavily on downloads AND uploads, the latter of which will be virtually non-existent in Turnbull's multi technology mix.

          Commenter
          TuffGuy
          Location
          Canberra
          Date and time
          May 03, 2014, 6:47PM
          • The Commission of Audit report unfortunately recommends stopping funding to start-ups and companies wanting to do something innovative . The dialogue from the government in the lead-up to the budget is that we need to cut spending to recover from the deficit. There are 2 ways to recover from a deficit - cut spending and or increase exports. The fundamental problem is that we have a shrinking workforce to tax, therefore a shrinking revenue stream - over the long term the problem with the deficit will not be solved by cuts alone.

            Investment is start-ups that will eventually generate export potential has to be considered as well. Invest in start-ups to provide a mechanism to generate income for Australia and cut costs sensibility and in a manner that does not hurt Australia.

            Sad that we do not have a vision of what Australia may be doing in 5 , 10 or 20 years time.

            Commenter
            udev
            Date and time
            May 04, 2014, 1:38PM
            • Yep, this worked well for our national infrastructure when we privatised telstra didn't it.

              lets create a new private monoply to replace the old failed one....

              Commenter
              Mark B
              Date and time
              May 05, 2014, 9:32AM
              • Our politicians bang on about the Importance of Innovation & Competition to reduce costs and drive the growth of the (smart) economy. So what happened to encouraging Australian Innovation & Competition. Oh Joe Hockey and Mathias Cormann must have forgotten to mention this to Tony and his friends in the Commission of Audit. That must be why such great recommendations, sell the NBN (which one is that) not sure any one in their right mind will want to buy the coalition version, cut the meagre Innovation funding, what little there is and look at cloud services. And just to top it off you article gets some great Australian perspective from international consultancies (American and European) and name drops a German ERP rather than an Australian one. Long live Australian Innovation!!!

                Commenter
                Innovation & Competition
                Date and time
                May 07, 2014, 8:55PM
                Comments are now closed
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