Defence Department’s ‘cheeky’ accounting hides real cost of $50 billion Future Submarine program

DEFENCE is being “a bit cheeky” by declaring our Future Submarines will cost $50 billion — but the real cost will be a lot higher, the Australian Strategic Policy Institute says.

• OVERALL COST: Submarines to top $150 billion with sustainment
• THE METHOD: How ASPI worked out cost
• WTF?: Defence insiders ask

DEFENCE is being “a bit cheeky” by saying the Future Submarines will cost $50 billion when it’s $79 billion once you account for inflation, the Australian Strategic Policy Institute says.

ASPI estimates that once you include inflation over the decades of the project, the real cost is about $29 billion higher than $50 billion in 2016 dollars.

The Federal Government has come to a similar conclusion.

Defence considers the $50 billion figure to be consistent with the $79 billion figure because in official documents the $50 billion figure has a ‘greater than’ symbol in front of it.

“What they’re saying … is we said ‘greater than $50 billion’ and $79 billion is greater than $50 billion," ASPI defence analyst Marcus Hellyer said.

“Once you take inflation into account that number starts to look more like $79 billion.

“They are the same thing expressed differently … which is, I think, a little cheeky.”

The Federal Government’s Integrated Investment Plan lists the Future Submarines as costing “>$50 billion”, and $50 billion is the commonly used amount.

Defence usually uses “out-turned” costs for projects, meaning inflation across the life of the project is taken into account. That ensures enough money is put aside for the future.

Mr Hellyer examined the schedule for the Future Submarine rollout and used Defence’s own inflation figure of 2.5 per cent to come up with the $79 billion figure.

He said he wouldn’t “die in a ditch” to say it was exactly $79 billion but that it was a conservative estimate based on a range of assumptions. He also went to pains to point out it is not a blowout in costs, and nothing materially has changed, it’s just a matter of cheekily using a lower figure when the higher one would usually be used.

Defence Minister Christopher Pyne confirmed nothing had changed in the cost of the project.

“The entire acquisition cost for the Future Submarine Program is $50 billion in constant dollars,” he said.

“Since this budget was established for the program following completion of the Competitive Evaluation Process, this has not changed. The Future Submarine Program is on budget and on schedule.”

The confirmation of the numbers come after claims of “blowouts” in the cost of the Future Submarine project caused four South Australian crossbench Senators to call for the existing deal with France’s Naval Group to be scrapped in favour of a cheaper option.

The main “blowout” they point to is a separate amount that will go to sustaining the submarines once they are built.

They point to issues with the Strategic Partnering Agreement between Australia and France as another reason to change tack.

Centre Alliance’s Rex Patrick and Stirling Griff, Australian Conservatives Cory Bernardi and Independent Tim Storer have joined forces to call for another look at a modified off-the-shelf option, an option rejected at the beginning of the process.

“There is no question we need submarines and there is no question that they should be built in SA; the questions being asked here are about the government’s fiscal responsibility to taxpayers,” Senator Patrick said.