BRIAN TOOHEY. Building submarines in SA simply sinks Australian dollars

BRIAN TOOHEY. Building submarines in SA simply sinks Australian dollars

Jun 22, 2017

Despite claims to the contrary by the defence industry minister Christopher Pyne, this sector is not driving growth in the economy or jobs. A defence economics specialist Mark Thompson has debunked these claims in a careful analysis just released by Australian Strategic Policy Institute. Thompson concludes, “If we are going to use defence spending to grow the economy, we should get the most out of it, and that might mean importing more equipment to maximise access to global supply chains”.

Based on a PwC study for the government, he says export spin-offs from importing US F-35 US fighters will generate 31 times more jobs per dollar than from building new submarines locally.

Thompson said Pyne misinterpreted the national accounts earlier this year when he said they national accounts showed, “We know the defence industry is driving the economy”. Thompson said the figures didn’t show that defence spending was driving economic growth, other than to a modest extent.

Thompson said that even if 10,000 jobs were eventually created by building major defence platforms in Australia, that would only account for 0.1 per cent of the workforce. Nor would this figure take account of how this 10,000 would not be net new jobs in most cases, but would include workers who would otherwise have found jobs in industries “crowded out” by local defence construction. Thompson said figures for building the six existing Collins class submarines locally suggest that around 1000 net additional jobs will be created by spending $31 billion in today’s dollars to build 12 big new French designed subs in Adelaide — not the 2800 new direct and supply chain jobs that the government quotes.

According to Thompson, the plan to have continuous local construction of new subs will cost the taxpayers “ hundreds of millions of dollars extra every year – forever”. So will the plan to continuously build big new frigates rather than import them. Although Thompson doesn’t discuss this aspect, there will be significant additional costs in keeping the Collins class going well past their due retirement date in 2025. This is because the first of the new subs won’t be available until the early 2030s, despite the government’s 2015 announcement that had to be ready “in time to avoid a capability gap in the mid-2020s”.

There are also big cost and technical risks in trying to convert the existing French design for a nuclear submarine into a conventional diesel-electric version. The government has never given a convincing reason for not choosing an available off-the-shelf boat from Germany, which is the world’s biggest exporter of high-quality subs with the same long range as the Collins, superior performance and extraordinarily low maintenance costs.

If the new subs were imported from the big industrial conglomerates that make the German or French boats, these firms would have been willing to offer Australian companies export opportunities across their wide range of business activities. This is what happened when the government indicated that it would be willing to buy F-35 fighter planes from the huge US Lockheed Martin corporation.

Thompson says that a PwC report for the government shows that the resulting export of $168 million worth of F-35 components a year creates 2,400 jobs compared to 2800 jobs from spending around $1 billion a year on local submarine construction. In “out year” dollar terms, the government expects to spend almost $17 billion importing 72 F-35s compared to over $50 billion to build12 subs in Adelaide.

Fighter planes are much more flexible than submarines. They have much quicker response times and can attack land, sea and air targets. Australia’s F18 fighters purchased in 1984 are giving outstanding service in Iraq and Syria. There is no role there for the younger Collins class. Subs are good at sinking ships, can’t shoot down planes and have a very limited land attack capability.

Unfortunately, Australian defence purchases are trapped in a replacement syndrome were older fighters are replaced by roughly the same number of new fighters and older subs by double number of bigger new big ones. There was no serious attempt to calculate how much military capability would would be obtained for each $1 billion spent. If this were done, it would be highly surprising if the results showed that Australia gets value for money by spending staggering sums on building 12 subs here.

Brian Toohey is a columnist.

This article appeared in the Australian Financial Review on Monday 19 June, 2017