Defence SA, $18,636,000

Membership:

Mr van Holst Pellekaan substituted for Mr Whetstone.

Mr Goldsworthy substituted for Mr Tarzia.

Minister:

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

Departmental Advisers:

Ms J. Barbaro, Acting Chief Executive, Defence SA.

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

Mr F. Eske, General Manager, Defence Industries, Defence SA.

Mrs M. Davis, Manager, Marketing and Communications, Defence SA.

Mr K. Naughton, Chief of Staff.

The Hon. M.L.J. HAMILTON-SMITH: I thank everyone involved in preparing for today on both sides of the house and staff. I am accompanied today by the acting CE of Defence SA, Ms Julie Barbaro, on my right. Mr Rob Barnett, General Manager, Corporate Services, is on my left. Also here are Mr Fred Eske, General Manager, Defence Industries, and Madeleine Davis, Manager, Marketing and Communications.

I will make some brief opening remarks before throwing it open so that the shadow minister can have a clear run at it. I want to use estimates today as an opportunity to state the South Australian government's position on the forthcoming defence white paper. That document, which is expected in the third week of August, is going to be the most important job statement this state and this country has considered for a very long time. It is very important that it not only defend the nation but that it defend jobs.

There are a number of things the South Australian government will hope to see in the white paper, and that affects everything we are here to discuss today in terms of budget. The first thing is that the submarines and frigates must be built in Australia. The South Australian government wants the white paper to rule out an overseas build of submarines or frigates, or a hybrid build where half of them are built overseas and half of them are built here. We believe that a hybrid build cannot be trusted. To tool up an overseas dockyard for an initial two or three submarines will invite a later decision to complete the entire run overseas.

So, that is our first point: they must be built in Australia, both frigates and submarines. The second is that the shipbuilding industry needs a continuous build. That means that there must be a continuous deal flow of surface ships and submarines; that means that we will need to have 12 submarines, not eight with a suggestion that there might be four to follow at a later time. History tells us that never happens. We were promised a fourth air warfare destroyer and it did not come. When the Oberons were built, there was a suggestion that there be further submarines and they never happened. It must be 12 submarines. Only in that way can we guarantee a continuous build, and it must be a continuous build of both submarines and frigates. That is the second point: a continuous build.

The third point is that there must be at least 70 per cent Australian content in whatever we build. We need to define what an 'Australian build' means. For the Collins, the commitment was to 70 per cent of the Collins submarines being Australian; some part of that was South Australian and other parts were around the nation, but 70 per cent was Collins. In the case of the Anzac frigates, 82 per cent of the Anzac frigates was local—some component of it was from New Zealand because we were building for them as well—and 82 per cent for surface ships is a reasonable guide, but it should be a minimum of 70 per cent. That flows through to major projects like LAND 400 and combat vehicles, a $10 billion project. In our view, it really should have had around 70 per cent local content, whereas it actually has zero content in mandated terms, and that is unacceptable.

Those are the three key things we want to see from the Defence White Paper. It is not too late. The National Security Committee of cabinet is meeting later this week to make sure that this white paper not only defends the nation but defends Australian jobs. We need both submarines and frigates to be built in Australia, the shipbuilding industry to have a continuous build of both surface ships and submarines, and for there to be a minimum of 70 per cent local content.

If those three things are delivered in the white paper, that would be fantastic news for Australian industry and Australian jobs, and that will have a big impact on the budget papers, and the budget outcome highlights we are talking about here today, because the focus of everything we are doing with our budget in Defence SA at the moment is focused towards winning the submarine and frigate work for our own country first and South Australia second.

We cannot do it without Victoria, without Western Australia and without New South Wales. The whole suggestion that we are wanting all that work for South Australia just does not wash. If you look at the frigates, the air warfare destroyers, a good part of them have been built in Victoria and New South Wales, at Forgacs and Williamstown; so the other states and South Australia are in this together.

However, we do believe that the sums of money that we are talking about here—$250 billion over 30 years, $50 billion for the submarines alone and 120,000 man years of work—are that big that these decisions cannot be left to Defence alone and Canberra alone: they must be made in consultation with the states—we provide the workforce, we provide the infrastructure, we provide the universities and the TAFEs that make it all possible, and we have invested $350 million almost down at Techport to make it all a prospect for the future. We want to be part of the decision, and I think all the states and territories would agree that it is so important that we all need to be involved.

They are the things we are looking for from the Defence White Paper, which is going to be such an important document for this nation and for this state. With those remarks, I am very happy to open up the estimates hearing straightaway for the opposition.

Mr VAN HOLST PELLEKAAN: I will make a brief opening statement, too, on behalf of not only myself as the shadow minister but also the opposition. Let me say to start with that I agree with absolutely everything that the minister has just said. To his credit, he has not done today what he and some of his colleagues have done on other occasions, that is, to try to make it seem as if the opposition has a different view—because the state opposition actually has exactly the same view. We understand how important defence industries are in our state with regard to both the economy and jobs but also, very importantly, to the fact that it is the work that creates the equipment, and in some cases the services, that support our armed services overseas.

I think we have every right to have a very large share of that work. As the minister said, we provide the workforce, the technology and many other things. South Australia actually also provides the armed forces personnel who are working on our behalf as a nation, both within Australia and overseas, so we have every right to ask for that sort of broad thinking when it comes to actually making decisions.

Of course, it is a very complicated situation. It is very difficult to have the federal government and the Department of Defence as the customer and also as an organisation that needs to make—and, in my opinion, should be making—decisions for our nation as a whole at home, not only defence decisions but economic decisions as well.

There are a lot of complicated interrelationships. It is not simple and we all know that, but the opposition is in lock step with the government with regard to the outcomes that we are working for. Where we differ, though, is that we are not trying to use this issue as a political football. We are working quietly and constructively to the very best of our ability with the defence minister, with his team and with the federal government more broadly.

Let me just say again, because this should be very clearly understood by everybody who has an interest in this issue, that we are looking for exactly the same outcomes, but we are not trying to use the media in the way that the government is. If the federal government makes the decision we want, the state government will claim credit for it because they made a lot of noise in the media, and if the federal government does not make the decision we want the state government will say, 'See, you heard us in the media; we tried everything we possibly could.' We are looking for exactly the same outcome.

With regard to defence industries more broadly, let me just thank all those people who contribute, from the small all the way through to very large companies in our state. Also, let me put on record my appreciation and thanks to the Defence Teaming Centre and the board chair, Jack Mahoney, and CEO Chris Burns for the work they do.

With regard to complications, I would also like to say that in my opinion one significant impediment to the issue we are dealing with at the moment with regard to submarines—and, of course, that is not everything in defence industries—is the fact that the federal government, the taxpayer, owns ASC, and ASC being so integrally connected is another complicating factor. My personal opinion is that a component of the productive way forward is for the federal government not to own ASC into the future.

That is no criticism of ASC management, their workforce or what they have achieved: it is just a complicating factor of this whole business. I can understand that there might be desires in Canberra to have control, but that control needs to be taken very selectively and very carefully, and I think that is an issue that really needs to be dealt with as part of this bigger picture. I will finish by putting on record my congratulations to Mr Andy Keough who, I understand, has been successful in being selected as the new CEO of Defence SA. I wish him all the best in that role.

My first question, referring to Budget Paper 4, Volume 1, page 195, is on workforce strategy. Minister, can you provide your and your department's best and latest understanding of exactly how many people are working directly in the defence industries sector in South Australia? Also, of those people, how many are directly involved in naval vessel building or sustainment?

The Hon. M.L.J. HAMILTON-SMITH: I thank the shadow minister for that question. As he knows, Defence SA is the lead agency for target 43 in South Australia's Strategic Plan, which is, 'Increase defence and defence industries annual contribution to our economy to $2.5 billion and employment of 37,000 people by 2020', with a milestone of $2 billion and 28,000 people by 2013.

Obviously, decisions that will be made in Canberra about submarines and surface ships will determine largely whether or not that is achievable, because a lot of the decisions are out of our hands. The defence sector, industry and government combined, employment remains steady. At 31 December 2012—these are the latest thorough figures we have, and they are a couple of years old—South Australia's defence sector employed 28,666, up from 26,882 in 2010-11.

There may have been change since then, but we have not been able to adequately assess that at this point. The 2012 result is above the milestone of 28,000 by 2013, but I do recognise that, with up-to-date information, things may have moved.

South Australian-based companies earned defence-related revenue of around $1.95 billion in 2012. This revenue figure is a slight increase on the 2010-11 result of $1.8 billion and is directly attributable to the air warfare destroyer project. The defence industry directly engaged 4,985 full-time equivalent people in 2012, down from 5,189 FTEs in 2010-11, reflecting the end of the major armoured vehicles program offset by increases in the AWD program. The defence industry is estimated to have contributed around $1.014 billion to the state's economy in 2012, up from $972 million in 2010-11.

As we know, the commonwealth is set to increase defence spending over the medium to longer term, but how that washes out depends very much on the white paper. Meeting the 2020 targets will be a challenge without a strong commonwealth commitment to a continuous deal flow for local industry and local industry participation in projects. Understanding the impact of defence industry activity on our economy and employment numbers assists the state government to identify workforce trends and to develop and implement policies to support the advanced manufacturing sector.

Mr VAN HOLST PELLEKAAN: Thanks, minister, and, yes, I do understand that what happens with the submarine build will certainly have a big impact, but I do not believe that the industry or the state or federal government would have been aware of any commitment from the federal government with regard to submarines back in 2011 when the state government set its target of 37,000 people, so I think it is then fair to ask: putting the submarines aside for just one minute, how is the government tracking to achieve that target?

The Hon. M.L.J. HAMILTON-SMITH: First of all, just on that point, up until about a year ago, the state government and every other observer of these matters across the nation was understanding that the frigates and submarines would be built in Australia. The former federal government was planning to build an Australian submarine—12 of them. There was a change of government. In the lead-up to that election, the current federal government promised that there would be 12, so everyone has been working for many years on the basis that there would be 12 submarines built in Australia and a frigate to flow on from the air warfare destroyer.

So, the projections that we set did reflect the presumption that there would be ongoing submarine work. If the submarines are built offshore, we would expect that these job figures will not be achieved. There will be a dramatic dive off in the number of jobs in defence in the state. Similarly, if the frigates were built overseas along the LHD model where, with the helicopter-capable ships, 80 per cent of them were built in Spain at Navantia at Ferrol and only 20 per cent of the work was done here, there will be an even further dive off.

The other thing that has changed that is really worrying in regard to our job criteria is the current federal government has moved the goalposts on projects like LAND 400 as well. At the time these job projections were made, everyone was expecting that LAND 400 would be let as an entire offering of up to 1,100 vehicles.

Mr VAN HOLST PELLEKAAN: Back in 2011, those were the assumptions, were they—when the target was set?

The Hon. M.L.J. HAMILTON-SMITH: I can get further information. The LAND 400 was variously described as a project of up to 1,100 vehicles, then the numbers dropped to about 800. It was to be let as one tranche. I think, when we determined these job prospects, there was a sense that LAND 400 would be a much bigger offering than it has turned out to be, let in a different order.

Since then, the commonwealth decided to tranche LAND 400 into component parts with the first section being around 250 vehicles and then subsequent sections. There might be more information on this in the white paper; we will see.

The other important thing is that when these job figures were projected there was an expectation that there would be a level of local industry content in the LAND 400 offering. I visited General Dynamics in London, Canada, and GDLS are one of the parties bidding for LAND 400. I also visited Rheinmetall in Kassel, Germany, when I first took over as minister. Both of them told me the same thing which is that they have large organisations there to deal with local industry participation from their customers and that when nations turn up with an order they naturally have the local industry participation plan team there to build that in.

An example I was given in Kassel, Germany, was of a plant that was built in the Netherlands to build only 200 Rheinmetall vehicles, which is a similar-sized run to our first tranche of LAND 400. On that basis of a rate of production of one vehicle per week, they built a factory in the Netherlands to produce one vehicle a week for four years to fill the order, and then the factory moved into sustainment of that vehicle. So, they have actually built a capability in the Netherlands, and the Netherlands government required that.

What our government has done, what the current coalition government has done, is required zero local industry participation in LAND 400—zero. As you heard from my opening remarks, we would have liked to have seen 70 per cent; that would have ensured that we had something like the Netherlands. A factory might have been set up in the electorate of the member for Giles in Whyalla; it might have been set up in Port Augusta in my honourable friend's electorate, the shadow minister's electorate; or it might have been set up in Davenport. It could have been set up anywhere.

But by not requiring any local industry content, the federal government has signalled that the bidders do not have to put a single Australian job in if they do not want to. They can literally ship them out here, load them out, put a numberplate on and drive it away; and that has changed the ground rules for LAND 400. Now we did not know that when these job figures were forecast. So, decisions being made in Canberra are affecting those job figures. At the time when they were crystallised, we were all working on the theory that we had an Australian government that would be backing Australian industry participation. Now there are questions about LAND 400 and questions about submarines, so it will affect it.

In regard to trying to excise submarine and shipbuilding jobs from the figures, I would have to come back to you with more accurate information, but I can tell you today that the AWD project, which is now around its peak, involves 2,300 highly-skilled jobs directly employed in South Australia out of 3,120 in the national project workforce; that the AWD project will meet its Australian industry involvement target of 50 per cent—not enough in our view—about $2.3 billion of which will be spent in South Australia; and that over peak, through until 2015-16, the AWD project is estimated to directly and indirectly contribute an average of $317 million per annum and 2,943 jobs to the South Australian economy. But they are just indicative figures for the AWD project alone. I imagine submarines would be far more.

Goran Roos has organised, on our behalf, economic modelling done out of Victoria which demonstrated that the submarine project would be worth 120,000 man years of employment, much of it in South Australia should it be built here. If I can come back with further information, but it might involve consultants and some fairly detailed number crunching to try and excise the shipbuilding figures because it is a complicated set of figures.

Mr VAN HOLST PELLEKAAN: With regard to LAND 400, you mentioned having visited GDLS and Rheinmetall; have you visited or met with any of the other potential bidders, and what have you or the government offered the potential bidders as encouragement to build the LAND 400 vehicles here in South Australia?

The Hon. M.L.J. HAMILTON-SMITH: The answer is, yes, I have met with other bidders. I have certainly met with BAE. I met with BAE in London and I have also met with them here in Adelaide. The other bidder, Patria, I have not met, but my agency has. We are in negotiations and dialogue with all of the bidders. As you know, BAE have a strong presence in South Australia as do GDLS, which, I think, have about 100 people working here at the moment on vehicle programs of one form or another.

In regard to negotiations with each of them, the state government has a well-publicised plan for a land combat vehicle systems park, which we would like to see constructed out in the north near Edinburgh air base. We developed our offerings for LAND 400 when we were hoping that there would be up to 1,100 vehicles and a high level of Australian industry content. I must say, the tranching of the program and the fact that the Coalition government did not demand or require any local industry participation really narrowed the honeypot significantly. Suddenly, there was uncertainty about how many jobs, if any, would be on the table to justify a state government contribution. It gets back to the question of how much are you prepared to offer to buy a job.

It raises the interesting prospect that if you have a federal government in Canberra which does not see the value in requiring Australian industry content in a $10 billion vehicle program, why should the state taxpayers be asked to chip in and pay for what the federal government should have been doing, which is requiring Australian industry content. When you are a minister trying to justify to the Treasurer a commitment to support something like LAND 400, it does not help when your own federal government has not been prepared to get behind the program by requiring Australian industry content. In that respect, the federal government, I think, has let the program and Australian workers and Australian industry down significantly on the matter of LAND 400.

I must say that Rheinmetall and GDLS, when I visited them, and BAE as well, I am sure, were in gobsmacked disbelief that the Australian government did not require local industry content in the program. I think it was GDLS that told us—and I stand to be corrected—that every other customer they negotiated with, as government, required local industry content. They could not believe that there would be a government anywhere in the world that did not require local industry content, but we have got one. That changed things significantly.

On the details, we remain committed to our land combat vehicle systems park, and we have made a confidential proposal that involves assistance to each of the bidders. That has been done on a confidential basis. Obviously, we are competing with other states for this work, and the companies themselves are competing with one another, so it is not appropriate for me to detail any further what it comprises. The bids, I understand, close on 4 September, so perhaps after that time we may be able to be more fulsome in our explanation of what has been on the table. As you know, there will be a down-select process there at some point, and the number of participants will be narrowed. I sincerely hope that we will be able to attract that work here.

I think we are quite competitive. Our focus as a state government is to not get into a competition with other states. Our view is that the important thing, with Australian defence work, is to get the work into Australia so that Australian businesses and Australian workers get it. We would be delighted if a bit more of the LAND 400 work came to Australia, whether it was Victoria, Queensland or South Australia. Ideally, of course we would prefer as much of the work to be in South Australia as we can, but if it is Melbourne or Queensland, South Australian companies we will still have a chance to bid for subcontract work within that program.

We will be aiming to get a slice of the action and, similarly, if it were to be built in South Australia, then Victorian or interstate companies likewise. We are in this together. We are a team, team Australia, and we would rather see the work done in Australia first but, of course, we have made an offer to try and bring the project here. The important thing about that is, if we get the first tranche here, whoever wins it will be very well positioned to bid for the subsequent tranches of LAND 400 further down the track, and that is where the true benefit may lie.

Mr VAN HOLST PELLEKAAN: Yes, it would be good if the request for tender included a requirement for local content. It is worth putting on the record that one of the key considerations when evaluating the tender will be the amount of local work. That is clearly in there, so it is not as if the federal government has ignored that entirely. I accept what you are saying about confidentiality with regard to the support packages that you have offered to the various bidders. Can you advise whether you have put the same offer to each of the bidders?

The Hon. M.L.J. HAMILTON-SMITH: Yes, we have. We have been completely straight with each of the four bidders. They have been offered exactly the same offering. We are not picking winners or losers here. We have been open to all of the bidders. I must say that the team—Julie, Fred and others on the team and Mr Callen, our land officer—have all done a brilliant job in dealing with those four bids.

Mr VAN HOLST PELLEKAAN: I understand that this package would be considered in the context of being an investment, but what would the all-up cost of this package be to the taxpayer?

The Hon. M.L.J. HAMILTON-SMITH: I cannot really indicate that to you without breaching the terms of the confidentiality agreement that we have entered into with each of the companies and without foreshadowing to other states what we have on the table and therefore disadvantaging Australian businesses and workers and South Australian businesses and workers, so it is probably not appropriate for me to elucidate on that at the moment.

Mr VAN HOLST PELLEKAAN: In a similar vein, with regard to future submarines, of the three countries/companies that are participating in the competitive evaluation process, what has the state government offered to them in the way of support packages to encourage them to build the submarines here? We all understand that there are three offers required, so let's just focus, if you would, on the local build perhaps.

The Hon. M.L.J. HAMILTON-SMITH: I thank the shadow minister for his question. First of all, we as a state government and I personally have been very active in pursuing this project for South Australia and Australia. Again, our approach to the challenge of submarine and frigate work has been that the important thing is to get the work to wherever in Australia. It is about Australian jobs and Australian industry.

Next is to get the best slice of that work for South Australia, but we have entered into a partnership, if you like, with Victoria, in particular, to work together on this because, regardless of where it is based, both of our states and our workers and our industries will benefit. That is the approach we have taken. It is a collegiate approach with our fellow states.

Secondly, one of the first things I did was to go to Ferrol in Spain to visit the Spanish shipyard doing the LHD in the frigate. I have also been to France to talk with DCNS. I have been to Germany, to Kiel, and looked at the German offering, which is substantial. I have not yet been able to arrange a visit to Japan, but my officers have. Mr Eske and Mr Andrew Jackman attended in Japan some weeks ago and we have had multiple conversations with the Japanese in one form or another about their offering. I am arranging a visit there later in the year, hopefully in September, and the indications we are getting from Japan are that they are happy to receive a visit. I note that the Hon. Nick Xenophon was up there a couple of weeks ago. I think it is very important that the Japanese offering engage.

The state government is agnostic on the issue of which model is chosen and we would be happy to see German, French or Japanese. That is a decision for the Navy. It is a decision for the coalition of the federal government. Our line in the sand, though, is that the work must be done in Australia. As I have indicated, at least 70 per cent of that work should be done here, and we will not be wanting a hybrid build or an overseas build.

In regard to your specific question focused on what assistance package, we have not negotiated anything with any of the bidders, nor has any request of a specific nature been made by any of the bidders, except that we have indicated to all of them that we will do whatever it takes or whatever we can to assist with their bid and inquiries. We have made our good offices available to them. Defence SA has facilitated visits and reached out to make sure that we help them to do whatever they can and to assist in whatever way we can to make sure that they connect up with local companies, workers, unions and so on.

Further, the Premier has indicated publicly (noting your earlier point about ownership of the shipyard) that the South Australian government would be prepared to enter into a discussion with the commonwealth and any successful bidder about the future ownership of the shipyard, including our $350 million investment down there. We have signalled to all the bidders that we would be happy to have that on the table. That is money we could return to the South Australian taxpayer—we do not think we need to own a shipyard—but I do think it was an intelligent investment by the state government, years ago, to make that Techport investment, otherwise we would not even be in the frame, and we are in the frame.

The answer is: there is no specific offer that has been sought or made. However, if we were successful in winning the submarine and frigate work to South Australia, I expect there would be an infrastructure commitment in some form, but the exact shape of that is yet to be determined; who would contribute and what form that might take, I think we are too early in the process at this stage to be sure about that.

Mr VAN HOLST PELLEKAAN: Can you commit that you would make the same offer, once those negotiations proceeded and were concluded, to all three bidders?

The Hon. M.L.J. HAMILTON-SMITH: Yes. We are, as I have said, agnostic on the question of which design is selected. That is for the Navy and the federal government. Of course, there are issues, as there always are, with language if you are dealing with a country that operates in another language. All the three bidders operate in another language, so they are considerations that the commonwealth and the Navy need to make when they select.

I am sure they are all very good submarines. Our job is to protect South Australian businesses and South Australian workers and their futures and to grow the state of South Australia. This is the biggest job decision this state has faced since World War II, and we have been elected to bat for the people of South Australia so it is our job to put our best foot forward, not necessarily to fulfil the dreams of others. We are looking to the dreams and wishes and aspirations of our own people here at home in South Australia.

Mr VAN HOLST PELLEKAAN: Moving forward two pages to 193, the budget last year said that the expected completion date for the common user facility at Techport was December 2014. When was that completed and were any additional expenses incurred?

The Hon. M.L.J. HAMILTON-SMITH: I will have a go at it initially and, if I need any support, I might ask Ms Barbaro or Mr Eske to elaborate. The approved budget for the CUF was $254.552 million. As at 31 May 2015, $253.963 million had been expended on the project. Installation was completed of a cathodic protection system to mitigate corrosion on the wharf and ship lift piling, and this system is now in operation and works commenced on the construction of a new building to provide office accommodation, changerooms, ablutions and other amenities for the maintenance staff employed at the common user facility since it began operations in 2010.

There are six maintenance staff currently employed, envisaged by the original CUF operating concept. Appropriate accommodation was never provided under the initial CUF construction. Personnel are currently in temporary demountable accommodation. Construction of a new building is expected to be completed in August 2015.

There were some expansion works. In 2012-13 the state government committed $2 million to expand direct access to the CUF at Techport. Works in late 2012 have now been completed. Works undertaken include site utilities including power, water, sewerage, stormwater, site lighting, CCTV surveillance and communications, laydown areas and fencing to land on the western side of Mersey Road.

The strategic site is immediately across the road from the existing CUF site and reserved for future naval shipbuilding work under an MOU with the commonwealth. The land is currently being utilised by ASC for the laydown of parts associated with the air warfare destroyer (AWD) program and the ability to accommodate multiple naval programs, including a second shipbuilder if required, at Techport remains critical to the commonwealth to provide for ongoing competition within Australia's naval shipbuilding industry. A central remedial dredging of the shiplift pocket to maintain operations and meet state contractual obligations in relation to AWD has been underway.

Funding of $1.1 million was initially allocated in the 2014-15 budget; however, this has been deferred to 2015-16 following a request from the ASC and the delay will allow the ASC to undertake maintenance dredging of their own shiplift at the same time. In these circumstances ASC and Defence SA will be able to share the costs of a combined dredging program which are now planned to commence in quarter one 2016. By the way, the CUF was delivered on time and on budget in February 2010 in line with the AWD program schedule. It includes a 213-metre long wharf, 13,500-tonne capability shiplifts (largest in the southern hemisphere), a runway and dry berth, ship transfer system, and associated admin and operational infrastructure.

Mr VAN HOLST PELLEKAAN: So, if it is completed in August this year it will be eight months late but it will be 100 per cent completed, the expansion.

The Hon. M.L.J. HAMILTON-SMITH: I will ask Rob to answer this.

Mr BARNETT: Yes, the completion of that admin building is really the last component.

Mr VAN HOLST PELLEKAAN: Thanks, Mr Barnett. Minister, with regard to the government's and the opposition's strong desire to have submarines built here in South Australia—as much of them as possible built here in South Australia—are you familiar with a letter that was written by then acting defence industries minister, Jack Snelling, in January this year to the Premier recommending that the state government adjust its approach for the way in which it interacts with the federal government to give South Australia the best opportunity to win as much of that business as possible?

The Hon. M.L.J. HAMILTON-SMITH: I am no doubt aware of it but I would have to see the letter. You have given a paraphrasing of what you think is in the letter. I would have to see the letter.

Mr VAN HOLST PELLEKAAN: It is a letter provided under FOI to me from 5 January this year—so presumably that would have been the health minister as acting defence minister while you were on holidays at that time of year or something similar. Essentially, what it says is that he recommends—and this is a quote—to the Premier that:

The three-point plan release…provides an opportunity to reset productive State-Commonwealth dialogue on naval shipbuilding matters, as does the appointment of a new Minister for Defence.

That being minister Andrews. What I am getting at is that the acting defence minister clearly had a view that the way negotiations and discussions and the relationship between state and federal government was developing was not in the best interest of the state. I have never been in government but I assume that for an acting minister to write something like that to the Premier, while acting in the role, is reasonably unusual, so he must have felt fairly strongly about it. I think anybody who looks and listens to the media would agree that the state government's approach has not changed. Is that because, minister, you disagree with what minister Snelling recommended?

The Hon. M.L.J. HAMILTON-SMITH: I probably drafted the letter, which would be quite the norm. I will have a look at it and I will get back to you. We have, as a government, reviewed and reorganised our approach to the commonwealth on multiple occasions in the last 12 months. I probably drafted that letter. I would have to see it but whatever you have just read I would probably agree with completely.

The point of it was that the former minister, after the canoe comments, made an absolute—I will be measured in my commentary, but he was gone. I felt that the appointment of a new defence minister presented an opportunity for us to reset our negotiations with the commonwealth on this issue, and we have, and may I say that I have found minister Andrews good to deal with.

Let me just go back and give you some background here, and I will be quite frank, I think the current federal government has been arrogant in its dealing with this state, and other states, on defence issues. I think the presumption was that these decisions would be made by the Prime Minister and the federal government without consultation with the states and the states would dutifully do whatever the commonwealth told them to do.

That was the attitude. If that meant the loss of thousands of jobs in South Australia and if that meant that people who owned small businesses who were contractors in the defence industry would lose their homes and their businesses, well who cared? I think that was their attitude. That was certainly the feeling I got under the former defence minister.

We reached out to the commonwealth in multiple ways because we wanted to have an intelligent and collegiate dialogue with the commonwealth on submarine and naval shipbuilding, but I can tell you this: the minute I found out and we as a government found out that the federal government that we have today was seriously considering building 12 submarines, using $50 billion of the Australian taxpayers' money in somebody else's country, creating jobs and enterprise for kids in somebody else's country rather than our own, writing away the jobs of young South Australians, I tell you what, any sense of collegiate conversation went out the door.

The Premier and I, with industry and the unions, had some very frank discussions and I can tell you that we, as a state government, are not going to sell South Australia down the line because somebody in Canberra thinks it would be a good idea to build submarines overseas, using our people's money, so that our navy goes to sea in technology that has been built and sustained overseas, denying putting them at risk and putting Australian jobs at risk.

We saw a change of ministers as an opportunity and we have been engaged with both ministers, but I would say this: the federal government will get along much better with the South Australian government by engaging with us collegiately and professionally, as we have sought to do, than it would be by ignoring us. If you ignore the state government then the state government has lots of ways to get its point of view on the public and national agenda. It is much better to deal with us professionally and collegiately than it is to deal with us through the media.

So, I probably drafted that letter. I would be very happy to see it. I am sure I have before. There are no surprises there. I think we saw the change of federal ministers as being a great opportunity to improve our relationships. But I will tell you this, and I will put this as politely as I can: what the Australian people expect from their politicians is they expect us to deal with one another professionally and in their best interests.

They take a very dim view of partisan warfare, where a party of one political persuasion in Canberra chooses to thumb its nose at a state government simply because that state government is of another political persuasion. They do not want a Coalition government in Canberra to run roughshod over a state Labor government just to score political points, and I must say to you that over the last 12 months there has been plenty of that. We will stick up for ourselves and we will stick up for South Australia.

Can I add that the Australian people expect the Minister for Defence in Canberra to deal collegiately and professionally with the Minister for Defence Industries in South Australia regardless of political persuasion, party membership or allegiance. We owe it to the people of South Australia to serve them, not each other or any political agenda. In my view, under the former minister for defence, the Coalition let the Australian people down in that regard. The current Minister for Defence has done much better.

But I can tell you that I, as the Minister for Defence Industries, and this state government will fight while there is breath in our body to save the jobs and businesses of South Australia. We will argue our case to the commonwealth in whatever way we can, preferably face to face.

Mr VAN HOLST PELLEKAAN: Minister, you know from my opening statement that the opposition believes in that principle exactly as you have just outlined it.

However, getting back to the substance of this letter which you say you drafted, and I accept that, given that you drafted it and that you believe these sentiments, even though they have gone out under minister Snelling's signature, any observer of this issue, whether from within defence, from within defence industries or as a layperson watching from the outside, would have to know that the South Australian government's approach when dealing with the federal government has not changed at all. Does that mean that the Premier disagreed with this recommendation which you wrote and minister Snelling signed off on?

The Hon. M.L.J. HAMILTON-SMITH: No, I tell you what: I will have a look at the letter and I will get back to you because I think a number of the assertions you have just made—your paraphrasing or interpretation of the letter—are, in my view, completely wrong. I will read the letter and I will provide my own interpretation of what it says, not yours, because I think yours has been framed with a political view. I do not think there is anything remarkable in that letter; I agreed with it, actually. I think it was a great opportunity with a new minister, and we did reach out and I did meet with minister Andrews quite early in his tenure, and I am meeting with him again very shortly, and we have quite a constructive dialogue.

I would simply say this: if Liberals want to put the Liberal Party ahead of the best interests of the state, they do every worker and every business in this state a disservice. I would simply say this, and I will be subtle: I would expect every state Liberal MP to be telling the Prime Minister and the Minister for Defence in Canberra to deal as professionally and capably with me and with the Premier as they can in the best interests of our state. If there is any smart alec who would advise anyone in Canberra not to deal with the Premier or myself for any reason, then they are simply chewing up South Australian jobs and South Australian businesses. That would be extraordinarily unprofessional.

You lost the last election and things are where they are. Let's now do everything we can to advance the cause of Australian workers and Australian businesses by working together. That is what I have offered to do and the Premier has offered to do from the very beginning of this dialogue. Let me tell you something: when you find out that you have a federal government that has moved the goalposts and that is going to build 12 submarines overseas and take all that work away from Australian workers, there is only one position you can take. I heard what the shadow minister said about the state Liberal Party agreeing with us that we should build the submarines here. I and the state government have said that publicly, forcefully and energetically. We have disagreed with the federal government. Why haven't you? Why hasn't the state opposition?

Mr VAN HOLST PELLEKAAN: We have actually made our point of view very clear, publicly and privately, and you know that to be the case.

The Hon. M.L.J. HAMILTON-SMITH: I am not sure that is the case.

Mr VAN HOLST PELLEKAAN: What this is actually about is whether it is better to work with them to get the best result or against them to get the best result, and we clearly have a different view on that, as I said in my opening statement.

My next question, referring to Budget Paper 4, Volume 1, page 194, is about grants and subsidies. Did the former CEO of Defence SA, Malcolm Jackman, propose or discuss with the minister a plan to cut funding for DTC in September? While the minister is finding the appropriate notes, I will quote from—not paraphrase—an email between senior Defence SA staff at the time, dated 28 September:

None of these seems palatable options but if the focus must be on costs then there will be consequential negative impact on what we are being asked to achieve in terms of growth. Right now, my inclination is to reduce DTC funding.

That is the reason for asking whether the then CEO discussed that with you, minister.

The Hon. M.L.J. HAMILTON-SMITH: Let me talk about the Defence Teaming Centre.

Mr VAN HOLST PELLEKAAN: Did he discuss it with you or not?

The Hon. M.L.J. HAMILTON-SMITH: First of all, the Defence Teaming Centre provides a very important support framework for defence industries, and the state government and the DTC enjoy a close working relationship, as we do with the union movement. The DTC represents industry; the union movement represents workers. We have provided quite a bit of support to the DTC. That includes funding that you might refer to as baseline funding, as well as funding for certain other activities that the DTC undertakes—industry and enterprise development activities and acts to serve its membership base.

DTC provides a key leadership role in South Australia in supporting workforce development training and skills acquisition in the state's defence industry. The state, through Defence SA, has provided funding to the DTC to help it with an industry advocacy, sustainability and workforce development program.

Mr VAN HOLST PELLEKAAN: Minister, did you discuss cutting their funding?

The Hon. M.L.J. HAMILTON-SMITH: I am getting to that. I am just explaining how important the DTC is to what we do. The four-year funding agreement—

Mr VAN HOLST PELLEKAAN: We know that. We accept that.

The Hon. M.L.J. HAMILTON-SMITH: I am just making sure you know all the facts.

Mr VAN HOLST PELLEKAAN: It was in my opening statement.

The ACTING CHAIR: Order! He is allowed to answer the question in any way he sees fit. If he wants to give you background information, he is allowed to do it.

The Hon. M.L.J. HAMILTON-SMITH: The four-year funding arrangement concludes on 30 June 2016 and totals $1.97 million. In addition, the state is partnered with the DTC—and this was an election promise—in a $0.5 million per annum election commitment totalling $1.063 million to better integrate South Australia's automotive capabilities into the defence sector.

A grant of $325,000 over 2014-15 and 2015-16 has also been provided to the DTC to support the state's naval shipbuilding advocacy program. The funding is released quarterly to the DTC, contingent on satisfactory performance against an agreed annual project plan, which details planned outputs and initiatives.

I could go into more detail, but the thrust of it is: have there been vibrant interactions within government about our support for the DTC and what form it should take? Of course, there have been. There always are and there have been since the DTC was formed. The important thing for today's hearing is to know what decisions the government has made in regard to its support for the DTC and I have just enunciated them to you.

Mr VAN HOLST PELLEKAAN: I have lots more questions but, unfortunately, because of the time, I need to ask the member for Kavel to read the omnibus questions onto the record.

Mr GOLDSWORTHY: The omnibus questions are:

1. Will the minister provide a detailed breakdown of expenditure on consultants and contractors above $10,000 in 2014-15 for all departments and agencies reporting to the minister listing the name of the consultant, contractor or service supplier, cost, work undertaken and method of appointment?

2. For each department or agency reporting to the minister in 2014-15, please provide the number of public servants broken down into heads and FTEs that are (1) tenured and (2) on contract and, for each category, a breakdown of the number of (1) executives and (2) non-executives.

3. In the financial year 2014-15, for all departments and agencies reporting to the minister, what underspending on projects and programs (1) was and (2) was not approved by cabinet for carryover expenditure in 2015-16?

4. Between 30 June 2014 and 30 June 2015, will the minister list the job titles and total employment cost of each position with a total estimated cost of $100,000 or more which (1) has been abolished and (2) which has been created?

5. For each department and agency reporting to the minister, please provide a breakdown of attraction, retention and performance allowances as well as non-salary benefits paid to public servants and contractors in the years 2013-14 and 2014-15.

6. For each year of the forward estimates, please provide the name and the budget of all grant programs administered by all departments and agencies reporting to the minister and, for 2014-15, provide a breakdown of expenditure on all grants administered by all departments and agencies reporting to the minister listing the name of the grant recipient, the amount of the grant, the purpose of the grant and whether the grant was subject to a grant agreement as required by Treasurer's Instruction 15.

7. For each year of the forward estimates, please provide the name and budget for each individual program administered by or on behalf of departments and agencies reporting to the minister.

8. For each year of the forward estimates, please provide the name and budget for each individual investing expenditure project administered by or on behalf of all departments and agencies reporting to the minister.

9. For each department and agency reporting to the minister, what is the budget for targeted voluntary separation packages for the financial years included in the forward estimates by year and how are these packages to be funded?

10. What is the title and total employment cost of each individual staff member in the minister's office as at 30 June 2015, including all departmental employees seconded to the ministerial offices and ministerial liaison officers?

The ACTING CHAIR: There being no further questions, I declare the examination of the proposed payments completed.