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Our politicians are repeating mistakes they made with the car industry and GMH

By Brendan O'Reilly - posted Wednesday, 8 April 2020


By comparison, the US Navy in December 2019 signed a US$22.2 billion contract for nine new 'Block V' Virginia Class fast attack nuclear submarines. The much cheaper US nuclear submarines will be built from 2025 to 2029. Our 12 will not arrive until between the mid-2030s and the early 2050s, by which time they risk being 'obsolete'. The exorbitant cost (2.35 times more to build each), delayed delivery, concerns about ASC, whether we actually need to order twelve, whether the subs have adequate range, and their performance relative to much faster nuclear submarines, have all raised serious doubts.

It has been leaked that breaking the submarine contract would involve a $404 million fee. This may be a justifiable price to pay to get out of an increasingly unattractive and expensive acquisition.

Australia will also acquire nine anti-submarine warfare frigates from the end of the next decade under a deal with (UK designer) BAE Systems worth A$35 billion (A$ 3.9 billion each or US$26 billion in total). The ships will be built by ASC Shipbuilding in South Australia, using local workers and Australian steel, under the Turnbull government's continuous naval shipbuilding programme.

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The United Kingdom budgeted £8 billion (A$14.4 billion or A$1.8 billion each - less than half the cost of ours) around the same time for eight of BAE System's Type 26 frigates, the basis of its Australian design. In America, where Navantia and Fincantieri are bidding to build up to 20 guided missile frigates, the US Navy has put a price tag of $US950 million (A$1.265 billion each) for second and subsequent vessels (about one third of what the RAN is paying).

The chief executive who oversaw the construction in the 1990s of the navy's current fleet of frigates has raised concerns that Australian taxpayers are spending billions of dollars more than necessary. Dr John White's comments (which only state the obvious) follow a highly critical auditor-general's report which warned the Turnbull government that its shipbuilding program faced "high to extreme risks" of cost blow-outs and delays.

Our domestic submarine and naval shipbuilding industries (like our car industry) were always too small to be viable and cost-competitive. Given this and the industries' appalling past record, they should be closed down, except for a maintenance component. Buying these items overseas, at far less cost and with better timeliness and quality assurance, makes much more economic and military sense.

Both industries are completely reliant on Australian government purchases of their entirely uncompetitive products. At one time (around 2015) it was widely believed that many within the federal coalition wanted to facilitate the demise of the ASC. Pity they did not prevail over those (on both sides of politics) wanting to continue pork-barrelling South Australia. There might have been be a better chance of this happening (now that Christopher Pyne and Malcolm Turnbull have left the political scene), except that the government has signed contracts.

Electricity generation is another area of massive subsidy and waste, though the government-mandated switch to renewable electricity rather than protection from overseas competition is the real issue.

Australia is throwing up to $2.8 billion a year in subsidies at renewable energy. Despite this, our electricity consumers are still paying some of the highest electricity prices in the world. Australia has ruled out using nuclear energy, even though it is a far more cost-effective non-greenhouse alternative, and can provide continuous base-load power. The taxpayer is now subsidising some (previously viable) industries that are now uncompetitive because of expensive electricity.

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The Alcoa smelter in Portland in Victoria receives substantial government subsidies following the end of cheap power (from the now closed Hazelwood electricity plant). It reportedly will continue operating, for now. The smelter received $200 million in Australian Government subsidies as part of a four-year package ending in 2021. Green groups also claim that the smelter also receives undisclosed cross-subsidies worth "up to $1 billion a year" from the State Government.

Tomago Aluminium, which consumes 10 per cent of NSW's power, told the NSW government that the viability of its plant is under threat unless power prices can be controlled. (The Tomago smelter produces 25 per cent of Australia's primary aluminium.) Mining giant Rio Tinto says its three Australian Aluminium smelters, which employ more than 2,600 workers, are not sustainable at current power prices.

Snowy 2.0 is a pumped storage project, which is supposed to provide a solution to the problem of storing excess renewable electricity for when it is needed. The federal government announced the project without a market assessment, cost-benefit analysis or indeed even a feasibility study.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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