Coalition to rein-in submarine pork

ScreenHunter_4077 Sep. 09 09.24

By Leith van Onselen

The Abbott Government will reportedly announce today that it will grant a Japanese company the contract to build 10 submarines, in the process shutting the door on South Australian builder ASC. From The AFR:

The submarine contract is likely to go to a Japanese bid, which would be about half the $40 billion cost of designing and building in Australia, although maintenance could be carried out in South Australia.

The cost of building 10 submarines in Japan is believed to be about $20 billion.

“The most important thing is to get the best and most capable submarines at a reasonable price for the Australian taxpayer,” Mr Abbott said.

“We should make decisions here based on defence requirements, not on the basis of industry policy, on the basis of regional policy”…

Before the federal election, the Coalition promised unambiguously to build the new submarines at ASC.

The Australian has instead reported that building the submarines locally could cost taxpayers between $50 billion and $80 billion once big infrastructure spending is factored in, dwarfing the estimated $25 billion cost of purchasing up to 12 submarines off-the-shelf from either Japan or Germany.

While it is sad to see another manufacturing industry go, the sector should obviously not be supported at any cost. A $20 billion to $60 billion saving from purchasing the subs offshore is a gigantic saving for taxpayers, and the funds saved could potentially be used for any number of other worthwhile programs that could provide bigger benefits to both taxpayers and the economy.

That said, there is a human face to all of this. Specifically, the loss of domestic military building capability would cost thousands of jobs – many of which are in South Australia – and would come on top of the loss of tens-of-thousands of manufacturing jobs as the local car assembly industry shutters by 2017. With both the car industry and ASC’s closure, Australia would become even more de-industrialised, with a competitive mining sector and services, but not much else.

Rock meet hard place.

[email protected]

Unconventional Economist
Latest posts by Unconventional Economist (see all)


    • This is what will happen, you will buy them for however much and it will be wasted money. In 20 to 30 years they will be sold as scrape, your chances of winning lotto are most likely far higher than ever seen those things in action. It’s a total waste of money and considering it’s believed that some 60% of the US sub fleet are now in these waters these days because of China what is the real point.

      If you did a risk analysis of them ever been used I bet it would be something like .00001%

      Total waste of money.

  1. Phil the engineer

    Why on earth does it cost 2 to 4 times as much to build something here compared to Japan or Germany?? Are wages in those countries not comparable to here?

    • That’s easy… economies of scale. The more you build, the cheaper the unit cost, and I’ll bet they build a lot more than we do.

      If ASC had exported a substantial number of sub’s, we might have been as cheap.

      • Yeah but how can they export heaps of subs without reducing costs to half or a quarter of what they are now?

      • Your question neatly explains why Korea, Japan, and China all protected and subsidized their industries heavily during their early growth phase.

    • There is a rather cosy relationship between the large contractors and the unions and the Party hacks.

      And we have absolutely no other manufacturing other than this sort of absurd political stuff so of course we’ll be sh8t at it.

    • The incentive for building is very different. Japan, Germany, etc builds submarines as the existence of their country depends on them. In contrast, Australians believes Uncle Sam will always save the day, so it’s merely a huge pork barrel.

  2. The bullet to the head of the monster of entitlement manufacturing created over successive governments by our wonderful Laberal party.

    It will take generations for our manufacturing skills to come back, if they ever do.

    Tks Laberal Party dudes. Still who wouldn’t rather sell debt or houses to suckers, a much more noble calling.

  3. darklydrawlMEMBER

    Why are we building them at all? You can purchase proven and ocean ready subs for a fraction of the cost of designing and building them.

    Whilst it is a bummer for SA, there is no sensible reason to design and build our own subs.

      • darklydrawlMEMBER

        Whilst I agree with your sentiment – our last attempt at building subs was hardly a stellar success and has done little for our strategic capability vs purchasing an existing fleet of them.

        They cost a fortune to develop and build – and were over budget and late in delivery, they are barely operational and hard to repair with all their bespoke parts and other bits and pieces bolted on.

        Not a shining example of doing things right.

    • We built 6 (six) Collins Class submarines last time – and by 2008, only three could be manned, and between 2009 and 2012, on average two or fewer were fully operational…..

      Seems to me the first question is WTF do we need 10 when the Chinese are developing superfast submarines that may render our investment obsolete.

      How about we purchase 5 off the shelf and save ourselves $30billion !!!!!!!!!!!!!!!!!!!

      • The Chinese are hardly likely to let us buy cutting edge technology they’ve created themselves. As the world’s greatest technology copycats, they know better than to let anyone else see their best work.

  4. Hang on, don’t we have a BUDGET EMERGENCY?!?

    Why are we spending $20 billion on subs and Christ knows what on fighters that don’t work anyway?

    How about we put it off for a few years and fix the budget with sensible tax reform.

    • Hope the Govt has taken out a hedge

      When the A$ devalues that $20b is going to look an awful lot like $30b !!!!

    • Will resemble Mad Max?

      Last time I was there they already did!

      The only good thing to come out of Adelaide was my wife 😉

      • darklydrawlMEMBER

        hehehe… My thought too. Deep south and north suburban Adelaide has always been ‘mad max’ territory.

      • There’ll be a lot more folks coming out of Adelaide real soon. The unemployment rate is already over 7%.

        Once Holden goes, and Testostertone finishes punishing the ‘state that dared vote Labor’ by closing down its industries, we’re going to see unemployment well North of 10%, and it will be very persistent unemployment.

        Meanwhile, houses on small-ish blocks are still selling in ADL for $500k and more.

        It’s going to be a total blood-bath; people are going to be panic selling houses in order to avoid foreclosure and bankruptcy.

        A mate of mine who drives delivery vans in Adelaide told me in 2013 he cleared over 100k after costs and GST payments. He’s smart and saved most of it. I can’t see that kind of unskilled windfall existing again in Adelaide for a long time.

  5. Hopefully this purchase will turn out to be more fruitful than the F35, which is looking more and more like a lemon (although really hope it’s not).

  6. I for one say “bring it on” lets get the de-industrialization over and done with lets see what the other side looks like. I suspect it will be a very ugly sight but this is clearly something that the great Aussie majority needs to see first hand. So bring-it-on!

    Long time ago I had some involvement with Submarines and AntiSubmarine systems so I find it incredibly sad that this Australian sector was incapable of creating a world class defense business especially given the insane amounts of gov’t money pumped into our last foray into submarine building. BUT you know what, of the guys I knew in this business, frankly the only thing they were ever good at growing was their expense reports, in that area they were truly world class.

    • Nailed it, CB. I suspect that once we’re done the result will resemble Argentina.

      Going full retard will do that to you.

      • Yea what most people dont understand is that 20 years ago Australia developed a number of truly world class Submarine and AntiSubmarine technologies, we had that kernel of expertise (and available capital) to grow a world beating defense technology business, yet we pissed it away. We literally pissed is away. Sad story of technologists taking a back seat to domestic rent seeking in the military / industrial complex.

        Today we’re just arguing about make function jobs, what’s the point of investing in jobs any sector if there is no way to grow this sector? If there is no way to achieve world beating performance, its good money after bad.

        These days I’m too far out of the loop to really know how our home grown defense technologies stack up against their global competitors but from what I hear the world has caught up in the areas where we led and we’ve fallen behind on all other defense technology fronts…..makes this about the last industry I’d want to invest scarce development dollars in.

  7. Submariner Porkers: that is where Australia ought to invest. No one else would conceive of sea-worthy pigs and it would cause fear and panic, though they would have a very low ballistic payload.

  8. Recently I did a calculation of how much the car industry was getting per worker from the government. It was something like the disgusting figure of $20,000 per annum.
    The Australian built subs have been a bloody disgrace, can’t even run silently underwater. Scammed the shit out of us financially.

    • Ha ha ha Ok and how much is the superannuation industry getting per worker from the government (mandate) per annum??

      • Mining BoganMEMBER

        Yeah, plus the Collins subs are quite agile and the quietest conventional subs out there.

        Can’t say that about the superannuation sector.

      • MB,

        What’s wrong with you today, I havta keep correcting ya?

        Our super industry is THE quietest of super industries when it comes to ripping its people off!!

    • While hideously expensive, the ‘can’t run silently underwater’ claim is false. While there was a problem with the Colin Class early on, it is currently one of the best diesel powered submarine in the world, when they’re not under maintenance anyway.

  9. it will be interesting to watch $20b cost of building them in Japan growing to $40b or $60b toward the end of the project

    • Yup. I’ve worked in defence, and it’s hilarious when people get upset about budget blowouts. Here’s a clue, folks… the estimates are ALWAYS low ball, and it’s what both the pollies and defence contractors want.

      EVERY system that is actually delivered blows out on the initial development. The only exceptions are systems already developed being resold (like project Wedgetail to Turkey). This is true in every nation that develops weapons systems.

    • I don’t think it will grow. The $20 billion for 10 Soryu Sub subs already has a great deal of margin built into it and the Japanese are efficient at building subs.

  10. “The only exceptions are systems already developed being resold” – yep, like the japanese subs. Of course, DMO could come in and – as they often do – demand changes that torpedo (sorry) the original cost benefits of an off-the-shelf buy.

    If Australia goes this way, it will be a significant change. Usually we’re first-up buying the new toy & then get burned when the costs spiral out of control. Interestingly, the Commonwealth had wised-up somewhat on Wedgetail – it was a fixed price contract, and the inevitable cost overruns when they came were borne by the vendor.

  11. If they want manufacturing to continue in SA then it’s much cheaper to keep the car industry going, for all its faults.

    Just obligate those using the FBT to buy Australian made vehicles, Holdens and Toyotas. This is one of the few good ideas to come from Pascoe in recent times – subsidising two industries for the price of one!

    And when the ozzie dollar falls over, which will happen as we go over the mining boom cliff in the next couple of years, it will look a wise decision.

    • Car industry is dead, dead, dead. Even if we tried to get it back, Ford and GM would tell us where to go.

      Capital intensive industries like car manufacturing need regulatory certainty. The manufacturers know damn well that half of Oz politics wants them gone, both for ideological reasons, and to punish the unions.

      They will not return within the next 20 years, if ever.

  12. Joe Hockey reads Margaret Thatcher & seeks his inspiration there.
    Was not Australia’s place in the New Global Economy to be a Quarry & a farm?
    Looks like things are going to plan.

    • You can remove the ‘farm’ bit. Other countries can make food and ship it to us cheaper than we can do it locally. Most Australian agriculture has terrible yields because our soil is very old and depleted.

      Australia’s single comparative advantage is minerals. The logical conclusion for pure economic rationalism is for Australia to become the ‘Saudi of the South’, where big companies extract the minerals, and citizens do bullshit jobs, work for the government, or are simply unemployed.

      Since this is clearly what the powers that be want, I echo China-Bob and say ‘go for it’. Half-retard is for wimps, full-retard is where it’s at!