PC hits out at submarines pork

By Leith van Onselen

The Productivity Commission’s (PC) 2014-15 Trade and Assistance Review, released yesterday, fired a direct shot at the Turnbull Government’s spurious decision to spend $50 billion of taxpayers’ money to build a fleet of 12 submarines locally, claiming that it is a “major step back” from decades of reform to industry assistance:

To the extent that it involves a premium over an overseas build, the local build of the submarines also confers significant industry assistance. This is a major step back from the historical reduction in using government procurement preference as industry policy…

Paying more for local builds, without sufficient strategic defence and spillover benefits to offset the additional cost, diverts productive resources (labour, capital and land) away from relatively more efficient (less assisted) uses. It can also create a permanent expectation of more such high cost work, as the recent heavily promoted ‘valley of death’ in naval ship building exemplifies.

Such distortion detracts from Australia’s capacity to maximise economic and social wellbeing from the community’s resources. The recent decision to build the new submarines locally at a reported 30 per cent cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs (box 3.1). While based on hypothetical data, the example reveals that the effective rate of assistance provided by purchasing preferences can be higher than the peak historical levels recorded for the automotive and textiles, clothing and footwear industries prior to the significant economic reforms of protection. It is notable that this cost premium does not include any delays in deploying the new submarine capability.

…the effective rate of assistance for building the proposed submarines locally, at a reported premium of around 30 per cent more than an overseas assembly, has been estimated to be around 300 per cent, perhaps a record high…

The Turnbull Government’s defence procurement policy is one of the most wasteful spending decisions I have ever seen.

In addition to its decision to spend $50 billion on submarines, the Government’s has also decided to build nine frigates locally at a cost of about $35 billion, taking the total estimated taxpayer cost of revamping its naval fleet to an astronomical $85 billion! And that assumes no further cost over-runs, which are highly likely given the cost blowouts in the construction and maintenance of the troubled Collins-class submarines.

As noted by Brian Toohey, the Government’s refusal to go with an off-the-shelf design also means that the first of the new submarines will not be operational until after 2030 and the last until almost 2060. This means that the existing troubled Collins-Class submarines will need to be kept in service for more than 20 years beyond their planned 2025 retirement date – necessitating expensive maintenance and operating costs that will soon pass $1 billion a year. Hence, even more cost blow-outs are likely.

And where is the underlying rationale for undertaking such a large submarines purchase in the first place? Couldn’t it just lead to a classic “security dilemma” whereby our regional neighbours feel less secure and embark on their own futile defence spending to “keep up”, thus leading to a lose-lose regional arms race?

All of this to “create” 3,000 manufacturing jobs and save a handful of seats in South Australia, including Christopher Pyne’s, who has now become Minister for Defence Industry within the Defence portfolio.

And to think, the same Coalition Government decided to jettison 40,000 to 200,000 jobs in the car industry into the sea by refusing to pay a paltry $500 million in assistance.

I cannot think of a worse example of government waste and mismanagement than this.

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Unconventional Economist
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  1. 85 Billion CAPEX over the next few decades! Wow, that’s more than the gov’t pays out each year in aged pension!! (just)

  2. So we’re looking at a $100bn of scrap metal bobbing around somewhere. The entire value of CBA dumped at sea.

  3. Call Boeing, licence the automated subs they’ve designed, sick every comms expert in the country on them to make them secure, build tens of thousands of them. Yes, that many.

    Much more likely to be useful in a real war. No one has the capability to overcome semi-autonomous drones with a singular S&D mission.

    • Correct. push this point at every opportunity.
      Note: no contract has been signed yet for any construction of any submarines.
      It, as usual is all bullshit.
      Look over there,,,,,,, while the migrants flood in.

    • drsmithyMEMBER

      The biggest problems with automated subs are the latency and bandwidth limitations of underwater communications.

      Physics is a harsh mistress.

      Unless you want to go fully autonomous killbot – which comes with its own fairly hairy set of problems.

      • Smithy, you are all bullshit as usual. Bandwidth comms were solved years ago by companies working underground (underground mining) using ultra low frequency comms developed here in Straya and currently in use at Canarvon WA,
        This sabotage of the bass straight link may be related. Keep up to speed sunshine..

      • The command to come to UHF depth for detailed instruction/reporting doesn’t have to be long.

        99% of the time the commands should be “Go to 00.00000, 00.00000. If anomalous or hostile sounds, send sample. Else return to previous waypoint.”

        You’re not going to be listening to their audio all the time. Only when recorded sounds don’t match the library.

      • Myne
        Right now you can command a portion of a trailing array on a sub to come to VHF depth or on the surface.while the sub stays at say 150-250 m. under or in an inversion layer.
        Too easy.

      • Sometimes I have to remind myself that people on this site talk about things they really have no idea about.

        You’d really need to understand the mission requirements to have any sort of valuable opinion. Underwater comms – not possible within mission parameters which include bandwidth and stealth requirements. Without comms you can’t easily do remote control.

        Autonomy technologies are far too underdeveloped to be used on board to remove the human from the loop. Bandwidth is too low to send raw data, algos don’t exist to process data sufficiently to send processed data. If you actually wanted to do something other than just listen (apply an effect) then the autonomy technologies definitely aren’t there. Surveillance missions could probably be done autonomously in the next decade or so but most small craft don’t have anywhere near the range (specifically energy) to travel a long distance and operate there for any length on time. There is a lot of innovation to be done on platform, propulsion, energy storage and avionics efficiency.

        For missions that require more than surveillance, the legal frameworks definitely don’t exist to allow a vehicle to autononously apply certain types of effects (lethal ones for example). Physical transportation (special forces insertion for example) also require internal volume and a large enough size to support range requirements.

        So no, we won’t be seeing large quantities of autonomous subs as an alternative to manned subs any time soon. And no, the decision not to go down this route wasn’t some incredible oversight. These technologies will come, but we are talking a decade for long range surveillance. We are talking a couple of decades for autonomous effects delivery. And most likely that will come from modifications to existing manned platforms.

  4. Without a single shred of doubt – the NBN is far- FAR – worse than this – but you really have to understand the issue to see why.

    The submarine deal is a similar cost (spread over many decades), however the NBN will HAVE to be replaced with fibre eventually – there is simply no question about this bringing the total cost somewhere to around $100 Billion when it should have cost $50 at the most.

    But thats not the problem – the MTM mix means Australians will not get the “mesh” effect of the NBN with high speed uploads – not from satellite, not from FTTN, not from HFC, not from FTTdP – ONLY from FTTH.

    This means that Australia simply can not be part of the world business environment going forward. Sounds extreme but its not – we will not be part of the decentralised competitive global market because the most essential aspect absolutely WILL BE high speed internet.

    Its astonishing – and like global warming – people will have no fucking IDEA how bad it is until it is too late.

    Makes the submarine deal look like an over spend on flour at the school lammington fundraiser – IF YOU GET THE ISSUES.

      • Any of you out there with any business nous of vertical integration will be joining the dots on the news supply and the news transmission integration by face book.
        “You are tight about the 4th estate thingy, how about the coup in turkey where the best and most timely and most accessed coverage. facebook live. The writing is on the wall for MSM and all their bullshit bias”.

      • It would be a sight, an AC trailing an optical fiber to 60,000 feet.????
        Some may attempt it. sign up

      • macrofishMEMBER

        Or we could just do FTTH and not have worry about it dropping out every time it rains or gets foggy.

      • Nope. That is a shared service, and shared services are all bullshit when you suggest that they can replace a dedicated line. Telstra have said that their 4g is better than the NBN, However you could use your entire quota in about 10mins. All wireless systems have diminishing returns because the bandwidth has to be shared among all of the users. Only FTTH will deliver a future proof system where they are able to actually utilize the bandwidth on offer with generous quotas.

      • Ronin8317MEMBER

        ‘Most accurate coverage’ of the Turkish coup on Facebook? While Facebook report the coup as it happens faster, the most important news is the firing and arrests of judges, police, army personal and the reintroduction of the death penalty, followed by closing and confiscation of hospital, schools and businesses. Bullsh$t bias or not, some news still relies on the MSM.

      • You need a fact checker…

        An aircraft is not going to be able to transmit anywhere near the bandwidth required. Transmission requires large amounts of energy. The aircraft will have a hard enough time getting enough energy to keep itself up let alone being a high powered transmitter. You can’t compare the energy available on a distributed airborne platform to that on a fixed terrestrial asset. 10gbps sounds great until you realise that has to be split between all the users. So you’d give 10 households the equivalent of a basic fiber connection. Great for remote locations with low population densities, but hardly going to be economical elsewhere.

    • JunkyardMEMBER

      FTTN in particular is absolutely the disaster that everyone who understands this stuff said it would be. It is also a political time bomb, with most of the shrapnel heading in MT’s direction once it truly detonates.
      It’s why I suspect MT will seek to break up the NBN and flog it off ASAP.

      • The ALP was going to sell the NBN also, so both parties are corrupt.

        Maybe the ALP should have the guts to buy 51% of MEL and SYD airports and hand them over to the state governments to compete against each other.

  5. The LNP is also flooding AUS with cheap illegal labour, so there is a perpetual shortage of jobs.

    But hey, well done to the bogans for voting against your own interests again!

  6. Stock standard USN Spec Virginia Class ($2.688 USD billion per unit (FY2016)) = $ roughly 3.7 Billion AUD
    12 Virginia Class built in the USA = $44.40 Billion AUD. Saving for the Australian taxpayer 5 billion. and no cost blow outs.
    Added plus of such a purchase is Australia’s massive leverage to lean on Australian car manufacturers Ford and GM to stay open here via the US Government and US defence contractors. The pressure from the US Government and defence contractors would be so immense that Ford and GM could not say no.

    • Good one, you are the Minister for Procurement
      Ensure the spec allows for upgrade to the Lockheed Fusion power module, if they get it working.

  7. Is this the same productivity commission that has it’s fingerprints all over the dissection and shuttering of auto manufacturing in this country? Well, that’s working well!
    The only smell of pork I detect are the rewards dished out to this group of clowns to make disastrous decisions that do little to benefit the well being of the Australian people. Micoreconomic engineering based on gobbledegook an eco fresher could tear to pieces. This country is [email protected]#%d with these parasites giving advice to gubberment.

    • The finger prints belong to W Truss, who did the damage and has now bolted into a cosy retirement.
      It is probably not possible to revive the car industry as most of the punters seem to have purchased new cars in the last 3 to 5 years so the new sales will be on pop growth and affordability.
      But there is a huge need for drone aircraft and drone submarines, drone farm machinery and drone mining machinery, drone rail etc all of which needs those facilities.
      If those car plant shut we have lost the last shreds of being able to reignite manufacturing as the skills will disappear. never to return

      • Agree WW, although there are other prints as well stretching way back when. The rust belts certainly need the new engineering jobs you mention and just maybe there will be spinoff with the subs, but I won’t hold my breath waiting. Far too easy to offshore according to the pundits – a great pity gubberment can’t find an active role to play. It’s that small government thingy I guess.

  8. sydboy007MEMBER

    amazing. a few billions in assistance to the car sector, which would prob find life easier with the AUD now, was bad policy, but $50B on submarines to be built locally, due in part to the policy choice of allowing the car industry to shut, is somehow good policy, even though it’s multiple times more expensive and provides a lot less support to the broader industry of the country.

    if you’re going to do policy via narrative (with little regard to reality) then at least keep your narrative consistent!

  9. Give the 3000 workers $1M each and then build them overseas. Still save $20B and the people will spend the money and the taxpayers rejoice. Simple. 🙂