Defence SA, $16,467,00

Membership:

Mr van Holst Pellekaan substituted for Mr Whetstone.

Mr Speirs substituted for Mr Treloar.

Minister:

Hon. M.L.J. Hamilton-Smith, Minister for Investment and Trade, Minister for Defence Industries, Minister for Veterans' Affairs.

Departmental Advisers:

Mr A. Fletcher, Chief Executive, Defence SA.

Ms K. McGloin, General Manager, Corporate Affairs and Government Relations, Defence SA.

Mr R. Barnett, General Manager, Corporate Services, Defence SA.

Mr J. Chapman, Chief of Staff.

Ms J. Barbaro, Ministerial Adviser.

Mr B. Page, Ministerial Adviser.

The CHAIR: I declare the proposed payments open for examination and ask the minister to introduce his advisers before I call him to make his opening statement, if he has one.

The Hon. M.L.J. HAMILTON-SMITH: Thank you , Madam Chair, and thank you to members of the committee. I do not have an opening statement; I am quite happy to go straight to questions.

The CHAIR: Member for Stuart, do you have a statement or straight into questions?

Mr VAN HOLST PELLEKAAN: I have a very brief statement just to say that I am grateful to be the shadow minister for defence industries. It is a new portfolio area to me and I extend my thanks to all the people, both government and industry, who have made me very welcome. I look forward to meeting more of them, working with them and making a contribution to this important portfolio area. Budget Paper 3, page 31, the sixth down in the list is Defence SA. Minister, could you please explain the difference between the estimated result for 2013-14 of $35 million and the budget for 2014-15 of $21 million?

The Hon. M.L.J. HAMILTON-SMITH: Could I just ask the shadow minister to repeat the budget reference?

Mr VAN HOLST PELLEKAAN: Budget Paper 3, page 31, and you will see at about the sixth line down in that table the budget for 2013-14 was $21 million, and the estimated result for 2013-14 was $35 million, so about a 60 per cent overspend.

The Hon. M.L.J. HAMILTON-SMITH: My officers are just comparing that budget paper with Budget Paper 4, Volume 1, page 201. They are probably going to need some time to come back to the committee on that. If we can get to the bottom of that before the end of the session, we will come back, but otherwise I will have to take it on notice.

Mr VAN HOLST PELLEKAAN: Thanks, minister. Do you think it is a typo? You would be aware of a 66 per cent overspend.

The Hon. M.L.J. HAMILTON-SMITH: We will see. I do not think we will make any guesstimates about what might be the cause until we have looked into it in detail.

Mr VAN HOLST PELLEKAAN: Budget Paper 4, Volume 1, page 194, and I am talking specifically about the objective of Defence SA to strive to ensure the right climate exists for defence industry's growth. Can the minister outline what assistance in the federal government procurement process the state government is providing to South Australian defence industries?

The Hon. M.L.J. HAMILTON-SMITH: Could you just repeat that? I just missed the first part of the question.

Mr VAN HOLST PELLEKAAN: Can the minister outline what assistance in the federal government procurement process the state government is providing to the South Australian defence sector?

The Hon. M.L.J. HAMILTON-SMITH: So, what assistance are we providing to the federal government 's procurement?

Mr VAN HOLST PELLEKAAN: What assistance are you providing to the local industry sector to participate in the federal procurement process?

The Hon. M.L.J. HAMILTON-SMITH: The amount of work being carried out by the state government to assist in federal government procurement processes is just so exhaustive; it is across the whole of the portfolio. The budget page you have quoted is really the entire program and includes all the activities of Defence SA and the advisory board, which are extensive.

There have been numerous publications and policy contributions made by Defence SA during the estimates period, which have ranged from defence naval shipbuilding through to land vehicles. We are constantly responding to parliamentary inquiries and requests from the federal government for advice. Mr Fletcher and others are up in Canberra endlessly communicating with those who procure defence products.

As well as that, we provide extensive funding to the Defence Teaming Centre which helps industry to coordinate its activities and to be a co-contributor in influencing defence outcomes. I would say that as a state government we are probably the most respected source of advice outside of Canberra in regard to defence procurement issues because of the quality of the work that is produced by Defence SA, Mr Fletcher and his team, along with the very eminent Defence SA Advisory Board, headed by Angus Houston. We are a state which punches above our weight and which is listened to.

I might also add that, because of the support and funding we give to the DTC, our industry group is probably the premier industry group in the country on defence issues, and as recently as yesterday Mr Fletcher and I gave evidence to a Senate committee on naval ships, along with Chris Burns from the DTC. Again, South Australia is punching well above its weight in the very latest Senate inquiry, so we are just at it constantly.

Mr Fletcher and I will be meeting next week with Warren King, the head of DMO, to again pursue that issue of defence procurement because we face some really important challenges, not only in naval shipbuilding but in vehicles right across defence. We saw it recently with the Rossi Boots question, and this is the whole question of buying local versus buying off the shelf from overseas. We are at it constantly trying to convince the commonwealth of the view that there is value in investing in local industry in the long term.

Mr VAN HOLST PELLEKAAN: Given that glowing report, could you tell me what could have been done differently or better to support Rossi Boots?

The Hon. M.L.J. HAMILTON-SMITH: I will tell you about Rossi Boots. First of all, the important thing is to ensure that local South Australian companies have the information they need to compete. By the way, we also need to do everything we can to get their costs down, but that is a separate issue the government is assiduously working on. The important thing is that they are able to compete on quality and on price.

You cannot ordain that government buys local. You cannot legislate that way. You certainly, as a state government for example, cannot insist that the state government will procure only local products, and the reason you would not want to do that is that you would kill the state economy. Just open today's Business Journal in The Advertiser and look at the stories about companies that have just won contracts in Melbourne and New South Wales; there are a couple of crackers in there. If you had a policy of only buying local as a state government, other states might then turn around and say, 'Okay. Well, if that's your attitude, we will only buy local.'

Mr VAN HOLST PELLEKAAN: Minister, I do understand that—

The Hon. M.L.J. HAMILTON-SMITH: I am just making that point.

Mr VAN HOLST PELLEKAAN: —but what could have been done differently or better for Rossi Boots?

The Hon. M.L.J. HAMILTON-SMITH: That is a question that you should be asking your Liberal colleague, David Johnston.

Mr VAN HOLST PELLEKAAN: Minister, I am asking you; it is budget estimates.

The CHAIR: Order! I want the minister to finish his answer and then we will go on to the next question.

The Hon. M.L.J. HAMILTON-SMITH: This can be as easy or as painful for the shadow minister as he wants, because it is his Liberal government that failed to deliver that order to Rossi Boots. Not only that, the only bloke having anything to say about it is Nick Xenophon. I did not hear the shadow minister out there standing up for Rossi Boots. In fact, I heard nothing but silence from the opposition on Rossi Boots.

My point is this: I was out there and I was making the argument. If you like, I will send the shadow minister the transcript of my ABC contribution. It basically said that I think that the federal government, where possible, should give every Australian company a fair go at whatever is on order, whether it is a pair of boots or an air warfare destroyer. That is my view. I do not know, and I do not think the shadow minister would know, the exact reasons why Rossi Boots did not get up with this particular order. It may have been on quality. It may have been on price. There may have been some other factor or reason why Rossi Boots did not win the contract.

What I have asked for from the federal government is the information so that Rossi Boots have that information so they can do better next time. Australian companies have to compete on quality and price, and I think they can and I think they do, and Rossi Boots are a fantastic example. They have been producing boots since World War I and they are a fantastic company. What they need to know are the exact reasons why they did not win this particular contract.

My understanding is that the contract may have gone to another Australian company. I think there is a debate about the extent to which that company might produce locally or overseas, so these are complicated matters. My point to the shadow minister is: if he wants to know why the defence department or DMO did not select Rossi Boots, the person to ask is his colleague, the Minister for Defence (David Johnston), and other federal Liberals who make these decisions as the commonwealth government. We have a very limited ability to influence it, other than to ask that the government exercise the same protocols we exercise.

I will give you an example. What the state government has done is to produce a position called the industry advocate (Ian Nightingale) who, Rossi Boots confirmed on radio, had spent hours with them helping them to improve their ability to win state government contracts. Perhaps what is needed in DMO is a defence industry advocate like Mr Nightingale who can get out there and bring the customer together with the supplier. There are a range of things that could be done, but we are constantly trying to convince the federal government to buy local and to buy South Australian wherever we can, and Rossi Boots is a good example.

Mr VAN HOLST PELLEKAAN: Thanks, minister.

The Hon. M.L.J. HAMILTON-SMITH: Can I add that minister Close, the Minister for Manufacturing, happened to be up in Canberra last week and I think had a meeting with minister Johnston about the very issue of Rossi Boots. So not only did we make that clear publicly but a minister actually went up there and spoke to the defence minister about it to see what could be done.

Mr VAN HOLST PELLEKAAN: Thanks, minister. Have you met with minister Johnston yourself since your appointment—on any matters at all, not just Rossi Boots?

The Hon. M.L.J. HAMILTON-SMITH: I attended a lunch with minister Johnston at the Australia-Israel Chamber of Commerce. Other than that I have not had occasion to meet with him at this point. I expect I will probably see him during the DNI conference coming up.

Mr VAN HOLST PELLEKAAN: I refer to Budget Paper 6, page 36, Defence Teaming Centre. Please advise how much funding is budgeted for the Defence Teaming Centre for 2014-15 and 2015-16.

The Hon. M.L.J. HAMILTON-SMITH: The Defence Teaming Centre is South Australia's peak defence industry association representing the state's defence primes, SMEs and educational institutions. In addition to servicing its members' base, DTC plays a key leadership role in coordinating and facilitating workforce development and training in skills acquisition for the state's defence industry. DTC has also expanded its industry and enterprise development activities.

The state, through Defence SA, provides funding to DTC to deliver industry advocacy, sustainability and workforce development programs and initiatives. The four-year funding agreement concludes on 30 June 2016 and totals $1.97 million. In addition, the state will partner with the DTC in an $0.5 million per annum election commitment to better integrate South Australia's automotive capabilities into the defence sector.

Funding is released quarterly to the DTC contingent on satisfactory performance against an agreed annual project plan which details planned outputs and initiatives, for example, industry briefings, business improvement activities, workforce updates and submissions to government. Defence SA and DTC hold twice-yearly strategic exchanges to ensure alignment of corporate objectives and explore further opportunities for collaboration. The next session is scheduled for 24 July.

Going into more detail, the government election promise was to provide $2 million in funding to the Defence Teaming Centre. The intent of the government is to provide this funding for the DTC to develop appropriate plans to transition outgoing Holden workers into the defence industry. In fact, I had a meeting as early as this morning with the AMWU. Mr Fletcher does not know this yet, but we are going to organise a get-together between me, the DTC and the union to get their advice on how we could best deploy some of that funding, because I think their advice would be useful.

There are current discussions underway regarding specific workforce program development. Funding for this initiative is outlined on page 36 of Budget Paper 5 for $0.525 million in 2016-17 and $0.538 million in 2017-18. Funding for the 2014-15 and 2015-16 years of $0.5 million for each of these years will be drawn from Our Jobs Plan, which is in Budget Paper 6, Part 2: Budget Measures.

Mr VAN HOLST PELLEKAAN: The figures shown in that table that are referred to—the half a million dollars each year for 2016-17 and 2017-18—are the back half of the government's election promise and the half a million for the two previous years (2014-15 and 2015-16) are coming from the other Our Jobs Plan budget line? Is that what you are saying?

The Hon. M.L.J. HAMILTON-SMITH: That is correct. They are basically for the automotive transformation programs. They will be sourced from a separate part of the budget.

Mr VAN HOLST PELLEKAAN: Does DTC know that?

The Hon. M.L.J. HAMILTON-SMITH: Yes.

Mr VAN HOLST PELLEKAAN: I refer to Budget Paper 4, Statement 1, page 194.

The Hon. M.L.J. HAMILTON-SMITH: DTC knows that it is going to get its money, and it knows that it is coming from separate budget lines.

Mr VAN HOLST PELLEKAAN: So they know it will get, starting this year, its additional half a million dollars a year every year?

The Hon. M.L.J. HAMILTON-SMITH: Yes, that is right. We will be asking the DTC to lay out a program of work to make sure that money is properly deployed to get the right results.

Mr VAN HOLST PELLEKAAN: I refer to Budget Paper 4, Statement 1, page 194 and that objective to facilitate the development and growth of defence and defence industries. Given that the 2014 KPMG report entitled Competitive Alternatives indicates that the cost of doing business for manufacturers in Adelaide was higher than Melbourne and more comparable to Sydney and Brisbane, as Minister for Defence Industries, what specific steps are you taking to make South Australia a more competitive place to do business for the defence sector?

The Hon. M.L.J. HAMILTON-SMITH: That sounds like an attempt to ask a question that would probably be more appropriately asked of the Treasurer. However, I will take it in the spirit in which it is intended.

Mr VAN HOLST PELLEKAAN: Sorry, just to clarify the spirit: if it was small business I would want to know what the minister was doing to help small business.

Mr VAN HOLST PELLEKAAN: If it was agriculture it would be exactly the same.

The Hon. M.L.J. HAMILTON-SMITH: That is fine. If the minister wants to ask questions about tax reform, if the minister wants to ask questions about WorkCover, if the minister—

Mr VAN HOLST PELLEKAAN: Shadow minister.

The Hon. M.L.J. HAMILTON-SMITH: Or the shadow minister—wants to ask questions about the cost of doing business, I suggest that he refers them to the Treasurer. I would, however, make some general points. First of all, the government has given an absolute commitment to reform WorkCover. We cannot have a levy rate with a ‘2’ in front of it when other states have a levy rate with a ‘1’ in front of it, down around 1.5. I am encouraged on behalf of industry by that commitment. I think it is a commitment that not only will be delivered but will be delivered well, and I think that will help defence industries.

I also point to the Treasurer’s stated intention of delivering a surplus within two years—I think it is $406 million—and subsequent surpluses. They will need to be delivered, of course, but that provides headroom for tax reform, and the shadow minister could help here. The shadow minister could help by getting on the phone and talking to some of his Liberal colleagues in Canberra and asking them why they are cutting $800 million to $900 million out of the state budget, which is putting cost pressures on the state budget right across all sectors which will flow through—unless it is alleviated—to additional costs for everybody in this state. I think the federal budget is part of the context that the shadow minister is referring to when talking about the cost of doing business.

I think South Australia does have to be cost competitive, but the most important thing that government can do at the moment to help the defence sector is sort out naval shipbuilding and give us a continuous build over 30 years so that SMEs can get out there and start producing submarine frigates and the various other bits that go with them. Notwithstanding LAND 400 and various other projects, we just need some decisions. To me, that is the most important thing regarding people’s business viability—no other issue. They need their order books filled. Again, that is an area where the shadow minister can help, if he gets on the phone. Let’s get some decisions.

Mr VAN HOLST PELLEKAAN: Thanks, minister. On the same page, minister, were you able to put any sort of case forward to the federal government prior to its decision to exclude South Australian industries from the naval supply ship tender process?

The Hon. M.L.J. HAMILTON-SMITH: Prior?

Mr VAN HOLST PELLEKAAN: Prior to its decision, were you able to advocate?

The Hon. M.L.J. HAMILTON-SMITH: I am advised that the general expectation across industry and within government prior to the federal election, and the general messaging from the Coalition prior to the federal election, was that the two supply ships would be let locally. The reason given—and this messaging—was that the valley of death, or the gap, if you like, between the Collins and sustainment and the Air Warfare Destroyer Program was such that work was needed to keep the workforce not only in Adelaide but also in BAE Williamtown and Forgacs in Newcastle engaged, and that the way to fill that gap was to award the two supplier ships to local construct.

Both BAE and the ASC had an offering. I think the BAE offering was two ships and the ASC offering was three. There was an expectation in the industry that the Coalition would let those two contracts to local workers and businesses. There has been ongoing contact between this agency, my predecessors in this role, and the federal government hammering the point that the supply ships needed to be awarded locally. I think that Mr Fletcher has been involved in that lobbying, our Defence Advisory Board has been involved in that lobbying, and there have been regular meetings with federal ministers and agencies about that in Canberra, pushing and lobbying for those two ships to be awarded locally.

Then we had the stunning revelation that the Coalition has decided to let the jobs off to Korea and Spain. I will make the point in relation to the LHD project (and I have been over to visit the LHD in Canberra and Adelaide), 80 per cent of the ship was built in Spain and 20 per cent has been built here. It was towed out here. If that is the model we are going to use for naval ship building—to build them overseas or build 80 per cent of the work overseas and 20 per cent here—if that is how the Coalition is going to do it going forward, I would be very worried for South Australian jobs.

There has been ongoing and regular contact between the state government, Canberra and DMO on this matter. I am advised that we were distressed that local companies were not more effectively engaged with by the federal government in the lead-up to this decision and, in effect, a situation arose where they appeared to have been ruled out.

I was giving evidence about this to a Senate committee with Mr Fletcher as recently as yesterday, appealing for this to be reviewed and the decision to be considered again. The committee heard evidence from around the country that those ships could have been built here. They were not, and I fear that we are being softened up for more of this.

I have this point to make, and it is a very important one, and that is that the businesses of South Australia, the defence industry and the workers in this state need the state opposition's help. They need the state opposition to get on the phone and ring the Coalition and fight the fight for South Australian jobs and insist that those frigates and those submarines and those ships be built here.

Unfortunately, the South Australian people have heard nothing but silence. So, the shadow minister might want to use his next question as an opportunity to state the opposition's position on those two supply ships. Does he think that they should have been built here? What is his view, what is his leader's view? I am waiting; I think that the committee would like to hear.

Mr VAN HOLST PELLEKAAN: Minister, given those statements, what specific actions—

The Hon. M.L.J. HAMILTON-SMITH: We are not getting an answer.

Mr VAN HOLST PELLEKAAN: It is not how it works in estimates, and you know that very well.

The Hon. M.L.J. HAMILTON-SMITH: Oh, it is not how it works in estimates. We are waiting for an answer.

Members interjecting:

Mr VAN HOLST PELLEKAAN: What specific actions—

The Hon. M.L.J. HAMILTON-SMITH: Does the state opposition support those two ships being built here or does it not?

The CHAIR: I will be leaving the room in a minute, and you will all have five minutes to cool off. You either go ahead listening to each other's questions and answers or I will leave the room.

Mr VAN HOLST PELLEKAAN: Sorry, Chair—

The CHAIR: I am talking to everyone, and I will not be spoken back to. This is it. One question, one answer, nothing more. You have the call.

Mr VAN HOLST PELLEKAAN: Thank you. Minister, given those statements, please advise what specific actions you and the government are taking to advocate for the future submarine building projects?

The Hon. M.L.J. HAMILTON-SMITH: I thank the shadow minister for his question because this project, Sea 1000, combined with the frigate program, is the lynch pin to the future of Australia's manufacturing sector. We have lost the Olympic Dam expansion; you might call that strike 1. We have lost the automotive sector; you might call that strike 2. If we do not get it right with future submarines and the frigates, I would call that strike 3, and I would have serious fears for the future of this state's manufacturing sector. That is why we need all hands on deck and all shoulders to the wheel to argue the case to the Coalition because the decisions made about the submarine and the frigate program in the coming 12 months will determine whether we as a nation go forward with a 30-year ship building industry in this state or whether we sell it off overseas. That is the bottom line.

There is $250 billion on the table over 30 years to be spent on submarines and frigates and other ships. About one-third of that will be spent building the ships and about two-thirds will be spent on mid-cycle dockings and lifetime sustainment over 30 years. These are our children's jobs and our grandchildren's jobs. The current federal government can be the government that made the right decisions about the submarine project and the frigates, or it can be the government that took the industry overseas.

I sincerely hope it will be the former, and I am quietly confident that it will be, because I think it is almost incomprehensible that we will make a decision to spend $250 billion of taxpayers' money creating jobs and enterprise in someone else's country when we can do it ourselves. I can also say that it is vitally important that industry have deal flow, so that it can get continuity into its work and can produce ships and submarines of the highest standard. So the submarine option is going to be vital. It needs to centred around Techport.

To be fair to the current government, these problems go back through successive governments, perhaps decades of this stop/start approach to naval shipbuilding. We have been lobbying non-stop for years now about the submarine project, not just to the current coalition but to the former Labor government, and going back beyond that through DMO and through all the proper agencies. We have written books about it, we have publications about it, we have made endless submissions about it. Mr Fletcher and others, including former ministers, have made endless representations about it. We have attended events and functions all pushing the case for the future submarine, because it is the key.

We have attracted the submarine systems design centre here. As I mentioned, the future submarine project will provide a new and potent capability. The commonwealth government has committed to Australian work on the project to be centred around the South Australian shipyards; that was the coalition's firm commitment. Commonwealth policy has all design options for the replacement of the current fleet under consideration, and indicates a focus on capability and continuous build. So all the words are there.

The commonwealth has already decided to locate the submarine land-based test site and the future submarines systems centre in Adelaide, largely with our encouragement, reaffirming Techport Australia's reputation as the country's pre-eminent centre for submarine construction. Irrespective of the future submarine design or acquisition strategy ultimately chosen by the commonwealth, this project will give significant economic benefit to all South Australians for generations to come.

The release of the Defence White Paper in mid-2015 is crucial. It is expected to provide further policy clarity in relation to the project. We all need to be pushing for the Collins to be replaced by a submarine built in and based around Adelaide, involving industry from around the country. That is what the government is pushing for, that is what we hope there will be bipartisan support for.

The latest indications are that Defence is still focused on two broad options for the future submarines: an evolved design that enhances the capabilities of the existing off-the-shelf designs, including the Collins-class, and the development of an entirely new submarine. A Defence and industry integrated project team is operational at the future submarine systems centre—temporarily located at Dudley Park—to work on the new design concept, drawing on expertise from around the world.

Defence has allocated $50 million for scientific and technological studies to be conducted by the Defence Science and Technology Organisation to inform and develop the requirements and to reduce the risk in critical areas of the project. So we are all over this project with the complete view that this needs to be advanced and advanced quickly, along with the frigate project, and based around Adelaide for the benefit of all.

Mr VAN HOLST PELLEKAAN: Minister, how many defence jobs currently exist in South Australia, direct and indirect?

The Hon. M.L.J. HAMILTON-SMITH: Defence SA, as we all know, is the lead agency for defence issues. It has a goal to increase defence and defence industries' contribution to our economy to $2.5 billion and employ 37,000 people by 2020, which was a milestone of $2 billion and 28,000 people by 2013. Of course, all of that depends on the single customer—the commonwealth.

As at 30 June 2011, South Australia's defence sector, that is, defence and industry, employed 26,882 people—12,655 direct, and 14,227 indirect jobs. That is an increase of approximately 2,000 over the past two years. The sector is projected to grow to more than 31,000 by 2013-14, surpassing the milestone SASP target of 28,000 by 2013.

As at 31 December 2012, and this is preliminary data, defence sector employment remains static at around 27,000—a very positive result given reduced defence expenditure over recent years in consideration of Australia's strategic and fiscal environment. In the same period, specialist defence industry employment was around 4,985 FTEs in South Australia, generating around $1.95 billion.

Employment is not projected to grow rapidly in South Australia over the next few years from 2012. Industry projects direct employment growth of around 1.6 per cent each year on average up to 2017. There is no standard measure to review progress against the defence economic contribution target and, as I mentioned, it is extremely vulnerable to decisions made in Canberra by the single customer. If, for example, we decided to buy submarines from overseas, or frigates, it would have a catastrophic effect on those employment and GSP outcomes—absolutely catastrophic. So, that is the state of play.

Mr VAN HOLST PELLEKAAN: Minister, given that you have just said that there is no mechanism to measure progress against those targets, how do you know when you get there? How do you know whether you have achieved those targets that you have set yourself?

The Hon. M.L.J. HAMILTON-SMITH: The problem is that there is no standard measurement—for example, ABS reporting data, or independently monitored data that automatically reports GSP or jobs in the defence sector. We have to do the work ourselves.

We use a device on an annual basis—a model that was developed using consultants in the past—to go out there and survey and come back, measure, and report that information. I have just done that to the committee, and will continue to do it. Sadly, there is not an independent source of regular and ongoing information that can be relied upon, so we have to do it ourselves.

Mr VAN HOLST PELLEKAAN: Minister, given that you said this growth in jobs and GSP relies on one single customer, what are you and your department doing to try and work with New Zealand and South East Asia to change that fact?

The Hon. M.L.J. HAMILTON-SMITH: I am glad the shadow minister has made this point because I think exports are an area where we could provide some additional effort, and we are doing that. For example, SAAB Systems are active in Thailand and India. I met with them up in India and they are promoting their combat systems in those two countries. We have other manufacturers—

Mr VAN HOLST PELLEKAAN: Which two countries, minister?

The Hon. M.L.J. HAMILTON-SMITH: Thailand and India. But of course it all hinges on R&D capabilities embedded through work with the local customer—the commonwealth. Essentially, about 80 per cent of revenue in defence, in terms of industry revenues, comes from the commonwealth. The commonwealth is the big domestic customer—everything else hangs off that. This is the point about naval shipbuilding: if the Coalition decides that we will have a naval shipbuilding industry, there will be plenty of opportunities to leverage exports off that in everything from nuts and bolts to combat systems design and computer software.

If, however, the federal government decides to buy our ships off the shelf from overseas, those export opportunities will go to wherever that investment is being made. So, when we decide to build supply ships overseas, as we have now (and as I mentioned, that is a Liberal government decision), then Korea and Spain will benefit from that; they will be the ones to get the export opportunities from it. So, again, we all need to be encouraging the local customer, the major customer that generates 80 per cent of revenue, to buy local so that we can generate exports.

The shadow minister makes a good point: exports are something that we need to encourage and promote. The government has a funded plan to include the Defence Teaming Centre and defence companies in its overseas trade missions and activities, because I think that is important work. There are some security issues, by the way, with some aspects of defence exports, where we have agreements with the United States or other countries: there are certain things we cannot sell but there are other things we can.

Mr VAN HOLST PELLEKAAN: Thank you, minister. Same book, page 197. What steps are you taking to assist our defence industries to attract the LAND 400 project?

The Hon. M.L.J. HAMILTON-SMITH: I am glad you have raised this one because it is an issue of real concern. We are well placed to play a major role in the $10 billion plus combat vehicle system, called LAND 400, the largest military vehicle program ever to be undertaken but, again, it all depends on what the single customer (the commonwealth) decides to do. The LAND 400 project proposes procurement of up to 1,100 armoured fighting vehicles of three types in staged phases over 15 to 20 years.

Potentially worth over $10 million, LAND 400 will be one of the largest acquisitions of its type in the world. The vehicles sought will operate in concert with the Abrams tank, together forming the future of Defence's close land combat capability. This capability is currently provided by ASLAV armoured personnel carriers and Bushmaster vehicles, both due for retirement in 2020. In terms of its importance to the Army, LAND 400 is equivalent to the Navy's future submarines and the Air Force's joint strike fighters. It is a nation building opportunity for Australia and for South Australia.

LAND 400 will acquire a new vehicle platform and also new highly complex weapon, sensor, battle management and communications systems. Both will require ongoing sustainment for some 35 years after purchase. This equates to three to four times the vehicles' acquisition cost and presents a very significant opportunity for South Australian industry. This gets back to the point that the economic rationalists of the world would want to save a small amount upfront by cutting this project, but they overlook the three to fourfold benefits of having sustainment work further down the track.

The state government continues to actively advocate for high levels of Australian content to maximise program benefits for Australian companies and workers. The federal government is expected to approve the project in October 2014, including funding, and Defence is expected to release the request for proposal in November 2014.

First pass approval will clarify the commonwealth's requirements for the project; for example, types and numbers of vehicles, which will be further detailed in the RFP. First pass is the critical point also for the commonwealth to set clear rules regarding Australian industry involvement in the project, including through inclusion of through life support bid requirements. Failure to do so, combined with phased acquisition and without current TLS contracting, will ensure that LAND 400 is delivered offshore where bidders have existing operations.

This is an area where I would again urge all MPs, and the opposition, to join with the government in convincing the single customer that we must have this project, it must have an optimum of local content and it must be based and built locally. We have very good contenders here. If I could just add that at Wingfield, BAE Systems Australia designed and engineered the 435-strong ASLAV armoured personnel carrier fleet and also manufacturing many of them there as well.

At Pooraka, General Dynamics Land Systems Australia (GDLS) rebuilds battle-damaged ASLAV vehicles, produces new 25 millimetre turrets for the GDLS global supply chain and manages the long-term sustainment of the Army's 256 ASLAVs and 59 Abrams tanks. So, we are well positioned here, we just need the federal government, as the single customer, to write the cheque.

Mr VAN HOLST PELLEKAAN: Given that Victoria and Geelong specifically are being extremely publicly proactive to win this contract, do you think it is best to compete against them or work with them to try to win the business for South Australia?

The Hon. M.L.J. HAMILTON-SMITH: I think it is a bit of both in defence procurement generally. There are circumstances where South Australian companies can and do compete and go for bids and win them. With certain projects, it is worth doing that. With other projects, and I think naval shipbuilding is a very good example, it is better to be cooperative. For example, we depend on the workforce at BAE Williamtown to some degree. They are building blocks for the air warfare destroyer, and that workforce and capability is needed to make the whole thing work. It is the same with Forgacs in Newcastle.

Mr VAN HOLST PELLEKAAN: And this contract, minister?

The Hon. M.L.J. HAMILTON-SMITH: In regard to the Land 400, we will have to see what the government decides because, for example, the shadow minister is asking whether it is better to compete or work with them. It is not a decision for the state government. BAE and General Dynamics will be bidding for the project. It is up to them whether they include subcontractors from Geelong, Victoria or elsewhere. It is not up to the government. Our job is to help the private sector to win the projects. We have BAE and General Dynamics, which are here. Victoria is also making a strong pitch for the program to be at least part based in Geelong.

The state aims to win the assembly and the majority of the support work for South Australia using a two-pronged strategy: persuading the commonwealth government to set rules requiring the involvement of Australian industry such as local industry to have a fair chance of winning substantial work and, secondly, persuading likely bidders that within those rules South Australia is the logical location for the delivery of the Australian content.

In regard to the first strategy, my agency has strongly advocated to key decision-makers in the commonwealth that these approaches have been favourably received, although political direction for procurement rule changes is yet to come. In regard to the second strategy, the Premier briefed Defence and likely bidders in December 2013, providing a high-level commitment to build a Techport-like facility for Land 400 to attract the project to South Australia. Defence SA remains closely engaged with potential bidders.

By the way, Queensland may also position to be a base for the program, and there is a long list. Companies that may be prime for the project could include a whole host of companies from right across the country, but what we are doing is offering a facilities package, like Techport, for vehicles as part of the deal. If we can be more creative and quicker off the mark than other state governments, we will, because essentially we want the work here.

Mr VAN HOLST PELLEKAAN: On the same page, first dot point under Highlights: will the minister outline if the review of South Australia's defence strategy has been completed yet?

The Hon. M.L.J. HAMILTON-SMITH: I might just hand that one over to Mr Fletcher.

Mr FLETCHER: We have been engaged in the strategic review process for the past 12 months. We have consulted with 46 CEs of industry, the customer base and had considerable feedback and consultation with all players involved. That work is just about complete and will be with the minister in the next couple of weeks.

Mr VAN HOLST PELLEKAAN: On the same page: what plans does the government have to utilise the Woomera training area?

The Hon. M.L.J. HAMILTON-SMITH: The Woomera Prohibited Area is a very valuable asset to this state. On 16 July 2014, passage of the Defence Legislation Amendment (Woomera Prohibited Area) Bill 2014 created a new coexistence regime for the Woomera Prohibited Area, providing certainty of access and use for all users. It will better balance the national security and economic interests in the area and it is a win-win for the importance principles of multiple land use and coexistence between the vital industry sectors of resources and defence.

The WPA is a globally unique 124,000 kilometre defence testing range in the Far North of South Australia. It represents over 12 per cent of the state, and there is really nothing quite like it anywhere else in the world when it comes to testing the sort of things that defence wants to test. The federal government's 2011 Hawke report shepherded the development of a new legislative time-share arrangement governing the shared use of WPA by Defence, the mining sector and other users. The co-existence regime will better balance national security and economic interest. It will also provide access, certainty and scope for forward planning by pastoralists, tourists and others who want to use the area.

The state government has been actively supporting Defence to implement this innovative regime, including participating in the WPA advisory board, the WPA coordination office. We will continue to do so after the implementation of the scheme. The Defence legislation amendment Woomera Prohibited Area Bill, effecting the scheme, was passed by the federal government on 16 July, and Defence will remain the primary user of the area for testing and evaluation.

The new legislation sets out access rights for non-Defence users, a permit scheme, compensation and enforcement provisions and an appeals process and also preserves the right of existing users, particularly Aboriginal groups and pastoralists, to continue to operate under their current access arrangements. This has been a real win/win for everybody, and we certainly hope that this highly prospective area is opened up to mining.

Mr VAN HOLST PELLEKAAN: Minister, are you saying the prohibited area will be open to tourism now?

The Hon. M.L.J. HAMILTON-SMITH: You would have to ask the Minister for Tourism what plans he may have.

Mr VAN HOLST PELLEKAAN: Let me be clear: you did say 'tourism'. I just wanted to check that that is what you meant.

The Hon. M.L.J. HAMILTON-SMITH: What I said was that others had been consulted. The shadow minister might like to read the bill—have you read the bill? You might like to read the bill and see what provisions—

Mr VAN HOLST PELLEKAAN: Minister, I am giving you the opportunity to correct yourself if it is necessary.

The CHAIR: Order! We have a question, we have an answer. I remind you that the standing orders carry on in to estimates. I refer to estimates 271, which means that a member can be heard in silence. We have a question, we have an answer, and then it will be back to you to further interrogate the minister. The minister is finishing the answer.

The Hon. M.L.J. HAMILTON-SMITH: I will just finish the answer, because I made the point that the federal legislation will provide access, certainty and scope for forward planning by pastoralists, tourists and others who use the area. At least we now know with the bill what the rules are.

Mr VAN HOLST PELLEKAAN: What is your plan to promote the Techport Osborne facility for use by visiting naval ships from allied nations?

The Hon. M.L.J. HAMILTON-SMITH: Techport is the country's prime and pre-eminent naval shipbuilding and repair precinct. The capital works that are underway to support the full needs of the air warfare destroyer project in peak production, as well as to provide the state with maximum flexibility to continue to pursue third party use in future naval programs. So, third party use is and has been a consideration for the government from the outset, because we have invested $254 million down there. As at 31 May 2014, $252 million had actually been expended on the whole Techport endeavour.

During 2013-14 the Mersey Road crossing was upgraded to enable the transfer of items between the common-user facility and the expansion of land on the western side of Mersey Road. Installation of the cathodic protection system to mitigate corrosion on the wharf, and ship lift piling commenced, as scheduled for completion of the first quarter of 2014-15. The expansion works and dredging works are extensive. Third party access is something the government is considering, but I do not think any requests have been made. There has been discussion between the government and others about overseas use of the facility, but I do not think anything has transpired as yet.

Certainly, the facility has been used by other entities, including Kangaroo Island SeaLink, CSA, and the SeaRoad Shipping organisation for multiple vessels survey and maintenance activities. I think the Waverider Energy and Oceanlinx Limited use the facility. They constructed their prototypes—I think that had a colourful ending. The 2014-15 AWD project will remain in peak production, but Defence SA will continue to support block and mast deliveries, as well as keel block alignments, and the facility is open for business should any approach be made from third parties for access. It is a significant capability for us.

The CHAIR: Was that your last question or is this your last question?

Mr VAN HOLST PELLEKAAN: I have one more which could be taken on notice, Chair. Page 196: would the minister advise how much money has been spent in 2013-14 and is budgeted to be spent in 2014-15 on consultancies, and also on grants and subsidies, and where they went to last year? I am happy to receive that on notice, if that helps the Chair.

The Hon. M.L.J. HAMILTON-SMITH: In the full year 2013-14, around $353,753 was spent on consultants. When a contract is executed during the year in accordance with the DFT Accounting Policy Framework, Defence SA assesses whether the engagement is a contractor or a consultant.

The Defence SA expenditure on consultant services is generally for specific strategy policy advice. Recent and forecast expenditure is as follows: in 2012-13, the actual expenditure was $224,000; in 2013-14, the budget was $384,000; in 2014-15, it is $82,000. In 2013-14, estimated consultant expenditure was $372,000, largely to US-based Fletcher Rowley—no relation?

Mr FLETCHER: No relation.

The Hon. M.L.J. HAMILTON-SMITH: —to provide strategic advisory services in relation to positioning Techport Australia as a strategic contingent facility for US Navy voyage and emergent repair and maintenance and crew R&R—that partly addresses the shadow minister’s earlier question. This consultancy has now concluded.

The US Voyage Repair strategy is ongoing, with Defence SA in dialogue with the US government and Navy representatives and intermediaries. Final details of 2013 expenditure on consultants will be published in both the Defence SA and Auditor-General’s annual reports.

Mr VAN HOLST PELLEKAAN: The other part of my question was about grants and subsidies, and again I would be happy to take it on notice, Chair, but I did ask that.

The Hon. M.L.J. HAMILTON-SMITH: There are two key grants: one to the DTC, which I have addressed in an earlier question, and there is earlier funding given to the AWD Systems—

Mr VAN HOLST PELLEKAAN: Sorry, minister, the DTC was coming from another—

The Hon. M.L.J. HAMILTON-SMITH: No, it is a grant; it is effectively included in—

Mr VAN HOLST PELLEKAAN: But not one of these on these lines because I think, if I understood, you said it was coming from the Our Jobs program.

The Hon. M.L.J. HAMILTON-SMITH: It is a grant provided by government, so I will give you a complete answer which includes all the grants and subsidies, including one of the AWD Systems Centre.

Mr VAN HOLST PELLEKAAN: That would be great; thanks very much.

The CHAIR: There being no further questions, I thank the minister and his advisers and declare the examination of the proposed payments closed.