Albanese government must rethink submarine spending commitment

It would be a lovely idea.

Return to the real world, however, and I do wonder how we will raise the money for this project because (unless you're in deep space) the money's got to come from somewhere. And that's the rub.

Defence Minister Richard Marles told the same conference such a capability would "give the adversary pause". Many of us would hope expenditure of up to $200 billion would do something more than that. Vice-Admiral Mark Hammond asserts the submarines would change the risk calculation for any adversary. Again, probably true, but it's a bit pusillanimous given the massive cost. The real issue is working out how it's to be paid for because (except in the wondrous fairyland of free-thinking ideas) dollars can only be spent once.

So that's why I quickly turned to the Australian Strategic Policy Institute's budget brief.

Senior analyst Marcus Hellyer hasn't just gone over the current allocated spending with the magnification of fine-tooth comb, he's also stood back and taken a wide overview of the funding model into the future. Unfortunately, the result is bad news. It's simple. We can buy the submarines, sacrifice something (perhaps the army?), or say goodbye to either tax cuts, the NDIS, or paying back the deficit. Hellyer calls this the "hard truth" and points out "there's no pot of gold to cover increased defence spending".

Or, as 'Whingeing Wendy' put it in an Labor advertisement from the 1990s: "Where's the money coming from, Mr Howard?" It's a good question, particularly as we're going to have huge difficulties simply affording the units we're fielding today without huge increases in Defence's allocation.

Inflation isn't simply playing havoc with your household budget. Hellyer notes its also "rapidly eroding Defence's buying power by billions of dollars every year". Nor is the Aussie dollar (now at its 20-year low against the US greenback) likely to spring back anytime soon, but that's not all. The ADF also requires an extra 1600 people every year until 2030. Recruiting these people will be tough for an organisation that's already finding it extremely difficult to add just an extra 300 per year. How will it get enough personnel to operate the new weaponry - pay people more? And where will that money come from? Who wants a pay cut?

The person you'd hope might have an answer is of course, tah-dah, Marles. As he's proposing the spending he must have worked out how this circle will be squared. Unfortunately, however, the massive discrepancy between stated ambition and actual resources doesn't appear to have occurred to the minister. Talking like a big spender is guaranteed to earn him kudos with his American friends, the top brass, and everyone else who lacks the imagination to see he's enthusiastically seized the driving wheel and is pressing the accelerator but without the wit to realise he's very nearly run out of petrol.

To put it more precisely, which specific government programs will Marles cut to fund his submarine dream; Anthony Albanese's fiscal nightmare?

Perhaps the best way to explain this simply is to look at the current Defence budget, something Hellyer's work makes easy. The allocation this year is $48.7 billion - 1.96 per cent of GDP. That's a lot of money. Of that, however, some 66 per cent ($14.2b to pay the workforce and $17.7b on operations) goes on simply marking time. This still leaves $16.8b, but unfortunately much of this is eaten away before an item of equipment is even delivered. The first inexorable rule of Defence procurement is it costs about one-third more if you want to 'buy Australian' (which, of course, our governments always do).

The second golden rule is new equipment costs about one-third more to operate than whatever it's replacing. That's because it's more complex, requiring better-trained staff, servicing, or other on-costs like expensive munitions. But even this the shrinking pool of money still on the table is being eaten away faster than it's being topped up because the requirements are growing exponentially.

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Ukraine has demonstrated, for example, an immediate need to invest in HIMARS (together with extra ammunition), drones (operational and tactical), active cyber, and missiles. Then there's offensive signals interdiction, robust communications gear, and more. None of these capabilities are cheap and none (with the partial exception of cyber) currently budgeted for. Cancelling current projects isn't the answer, either. Abandoning the Apache helicopter purchase, for example (because the modern battlefield is too lethal for these systems) would save $4.2b. But the cost of replacing this aircraft with armed UAVs will end up being greater than the amount saved. Then there's the cost of facilities. Improving these will swallow $3.3b this year with a similar (or greater) allocation required every year into the future. Not only is the cost of modernising the forces not cheap; it becomes more expensive every year.

Yet even this isn't the real problem. New challenges abound. Any hope of keeping global warming to 1.5 degrees is long gone; the question today is if it will be possible to limit it to a (civilisation-ending) 2 per cent. This changes the nature of the immediate threat from interstate warfare to combating boats full of climate refugees. The inevitably of climate change means the cost of fighting fires, battling floods and droughts is simply going to increase.

How do expensive submarines fit into this picture? The answer is simple. They don't.