Submarine Program

Mr PICTON (Kaurna) (15:20): My question is to the Minister for Defence Industries. Can the minister tell the house how government assistance for the Future Submarine program impacts on the economy?

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence Industries, Minister for Veterans' Affairs) (15:20): I thank the member for Kaurna for the question because members would be aware that the Productivity Commission today criticised the level of government assistance for the submarine construction program in its latest review of trade and assistance. The commission's conclusions are made in 2½ pages of observations in a broader 85-page review of government assistance to industry. They don't seem to be very interested in the future of the defence and submarine project.

Members interjecting:

The Hon. M.L.J. HAMILTON-SMITH: Off they go, showing about as much interest in jobs and investment as they have from the outset. The commission is an agency of the Australian government located within the Treasury portfolio and it undertakes a variety of research, some extensive, some cursory. The commission's review of the defence industry policy statement and the submarine decision is made with several caveats. The assumptions on which it is based are flawed. The commission says at the outset:

It is difficult to ascertain whether the intended support is an increase in what would have been provided had previous programs continued, as previous funding arrangements were not transparent.

That is strike 1: it is a limited analysis. The commission says:

The recent decision to build the new submarines locally at a reported 30 per cent cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance…

The analysis is based on a reported per cent cost premium. That is not their figure: it is someone else's. The figure comes from RAND, a report titled 'Australia's naval shipbuilding enterprise: preparing for the 21^st century', which was released in April 2015. RAND said that by adopting a continuous build program, and reforming shipbuilding practice, the current 30 per cent cost premium could be reduced by half by midway through the Future Frigate program.

As we know, the federal government has adopted the concept of a continuous build, so the Productivity Commission's underlying assumption of a 30 per cent cost premium is already halved. Since the time of the RAND report, the productivity at Australia's only naval shipbuilder, ASC Osborne, has improved markedly. This was natural, as they moved from first of class to follow-on ships. The commission's 30 per cent assumption, which it admits is hypothetical, now looks very wobbly indeed—strike 2.

Finally, the commission states that its conclusions are based on a local spend of just 50 per cent. The federal government is on the record stating that at least 90 per cent of the project will be local—strike 3. While there is a role for innovative think tanks such as productivity commissions, it should be careful when making a sweeping statement that the decision to build submarines in Australia is 'a major step back from the historical reduction in using government procurement preferences as industry policy'.

I remind members of the comprehensive analysis commissioned by the Weatherill government in 2014 and carried out by the National Institute of Economic and Industry Research. The report used detailed cost data on building overseas and locally. It gathered and checked numerous Australian overseas reports. My agency, Defence SA, will be writing to the Productivity Commission to counter the assumptions, falsehoods and hypotheticals contained in its 2½-page analysis to make sure that the sweeping statements of today don't become accepted as the presumed wisdom.

The fact is that this project is going to stimulate innovation, stimulate jobs, generate tax revenues and benefits across the board that have not been identified by the Productivity Commission. Its report is not complete and should not be relied upon. This is a great project for Australia, and taxpayers' money very well spent indeed.