Australian shipbuilding plan

From those of us who long lamented the waste of taxpayer dollars propping up the automotive industry, it’s time to declare “come back, all is forgiven”. Perhaps it’s not too late to throw a few billion at Detroit and Tokyo to get them to stay because, compared to its replacement, automotive protectionism was bargain basement stuff.

In unveiling its Naval Shipbuilding Plan today, the government gave some hard numbers to the cost of propping up Australia’s uncompetitive naval construction sector and the diminishing number of Liberal-held seats in South Australia. And they’re horrific. To build a succession of frigates, patrol boats, submarines and smaller naval craft in Australian shipyards in coming decades, the government has committed to spend at least $195 billion, not merely on building the vessels, but in upgrading shipyard infrastructure to handle the task (the cost of maintaining the vessels is a whole, and much larger, separate bucket of money). The big-ticket items are the $50 billion submarine contract and the $35 billion future frigates project, both of which will be built in Adelaide, although the future frigates project still awaits a decision on a successful tenderer.

Today’s plan also reveals the government needs to invest in the upgrading of the Adelaide shipyards in order to accommodate multiple builds. That will cost at least $1.2 billion — although the upgrades haven’t even been designed yet, meaning the cost is almost certain to increase. Worse, the vessel construction schedule is dependent on those upgrades being completed by late 2019, meaning there’s no room for delays. That $1.2 billion is likely to end up looking fanciful when time comes for the Australian National Audit Office to write the inevitably scathing report of how the upgrades were mishandled.

According to the plan, it will sustain 5200 jobs when construction reaches a peak in the mid-2020s. That’s what we’re getting in terms of employment for spending $195 billion on local construction. The plan notes the famous RAND report that found “the cost of building naval ships in Australia was 30-40 per cent greater than United States benchmarks, and even greater against some other naval shipbuilding nations”. Assuming RAND’s lowest estimate, 30%, we’re spending nearly $60 billion more than we need to over the coming decades (and more beyond) for 5200 jobs. That’s around $11.25 million a job, or about $1 million a year over a decade. In contrast, back around 2010, we were spending about $10,000 a year to support around 50,000 automotive manufacturing jobs.

[Protectionism provided few jobs and made life tougher for working families]

But according to the plan, we’re missing the point. What the government is doing is investing so that that 30-40% gap can be closed. 

“RAND judged that the premium could be reduced if both Government and the industry were prepared to reform. Government would need to change its demand profile for new naval vessels and reform its acquisition and contracting processes. Industry would need to reform its workplace cultures and institute productivity improvements across the board. Both sides of the demand-supply relationship would need to work more collectively – in partnership — to deliver a more productive and cost-competitive industrial capability. The Government accepted the RAND principles and is making the necessary investment in a strategic national capability for naval shipbuilding and sustainment.”

So, we’re spending $195 billion over the next ten years on local naval construction so that we spend less on naval construction. It’s a kind of fiscal equivalent of fighting for peace (or as the Plan puts it, all this extra defence spending is “part of the Australian contribution to global peace”). So let’s assume that the government is wildly successful and reduces the RAND gap by three-quarters. We’d still be spending tens of billions for 5000 local jobs.

[Productivity Commission warns we’re spiralling into protectionism]

But it isn’t the only interesting twist on protectionism in the document. We’re building so many vessels locally that we won’t have enough workers to build them. We’re not just propping up existing jobs, we’re creating new ones to subsidise. Better yet, many of those jobs are going to be filled by… foreign workers. Yes, even though it’s only a few weeks since the Prime Minister announced the faux-bolition of 457 visas, the plan says we’ll need lots of foreign workers:

“Selected shipbuilders are expected to bring into the Australian shipyards workers from their home companies who are familiar with their specific production techniques and processes. These workers are likely to fill middle management and supervisory roles and will be essential to the process of knowledge transfer to the Australian naval shipbuilding industry.”

You’ve got to hand it to Australia — we’ve invented a form of protectionism that involves looking after foreign workers. So, everyone’s a winner. Except the poor taxpayer.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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