As Australia’s nuclear submarine-led defence strategy threatens to fray, strategists say it’s time to evaluate whether the military and economic case of the tripartite deal still stacks up.
The defence tie-up with the US and UK, called Aukus, is estimated to cost up to $368bn over 30 years, although the deal could become even more costly should Donald Trump renegotiate terms to meet his “America first” agenda.
The current deal, struck in 2021, includes the purchase of three American-made nuclear-powered submarines, the construction of five Australian-made ones, as well as sustaining the vessels and associated infrastructure.
Such a price tag naturally comes with an opportunity cost paid by other parts of the defence force and leaves less money to address societal priorities, such as investing in regional diplomacy and accelerating the renewable energy transition.
This choice is often described as one between “guns and butter”, referring to the trade-off between spending on defence and social programs.
Luke Gosling, Labor’s special envoy for defence and veterans’ affairs, last year described Aukus as “Australia’s very own moonshot” – neatly capturing both the risks and the potential benefits.
Opportunity cost
Sam Roggeveen, director of the Lowy Institute’s international security program, says there are cheaper ways to replicate submarine capabilities, which are ultimately designed to sink ships and destroy other submarines.
These include investing in airborne capabilities, more missiles, maritime patrol aircraft and naval mines, he says.
“If you imagine a world without Aukus, it does suddenly free up a massive portion of the defence budget,” says Roggeveen.
“That would relieve a lot of pressure, and would actually be a good thing for Australia.”
Roggeveen coined the term “echidna strategy” to argue for an alternative, and cheaper, defence policy for Australia that does not include nuclear-powered submarines.
Like the quill-covered mammal, the strategy is designed to build defensive capabilities that make an attack unpalatable for an adversary. The strategy is meant to radiate strength but not aggression.
“The uncertainty that Aukus introduces is that we are buying submarines that actually have the capabilities to fire Tomahawk cruise missiles on to an enemy land mass,” says Roggeveen.
“That is an offensive capability that’s ultimately destabilising. We should be focusing on defensive capabilities only.”
Those advocating for a more defensive approach, including Albert Palazzo from the University of New South Wales, point out that it is more costly to capture ground than it is to hold it.
The argument has been bolstered by Ukraine’s ability to stall the advance of a larger adversary, aided by its use of relatively cheap underwater and airborne drones.
On the question of alternative uses for the submarine money, the Center for Strategic and Budgetary Assessments recently asked teams in Washington and Canberra to consider how Australia might rebalance its defence force structure over the next decade.
In the experiment, four out of the six teams – including all three Australian teams – opted to cancel the nuclear submarine deal, citing concerns about British industrial capacity, complexities of the program and the delivery timetable.
Social cost
Total defence funding is forecast to nearly double in dollar terms over the next decade, from $56bn in this financial year to $100.4bn in 2033-34.
The increase in defence spending as a share of the economy is less pronounced, but still marked: from 2% now to 2.4% over the same period.
Saul Eslake, an independent economist, says higher defence spending is coming at a time of substantially higher demands on the public purse across a range of areas, from aged care, to disability services and childcare.
Eslake says government spending is now 1.5 to 2 percentage points higher than the average through the decades leading up to the pandemic, the equivalent of $55-70bn a year in today’s dollars.
At some point, Australians will need to grapple with how to pay for this extra spending, or to find areas where programs can be cut.
“The consensus across the political divide, and whether the public wants it or not, is that there will be more spending on defence,” Eslake says.
Political cost
While expert opinion divides over whether nuclear-powered submarines are the best strategic option for Australia’s long-term defence strategy, there’s a separate question over whether the submarines will be delivered.
There is a substantial risk associated with a project that spans three countries over three decades and involves huge sums of money.
The Aukus costing recognises some of this: of the $368bn estimated cost over 30 years, $123bn is classed as “contingency”.
In other words, an extra 50% has been added to the cost estimate to try to account for the risk of cost blowouts, which is more than 10 times the usual contingency on big projects.
Australia may find it needs to draw on that contingency sooner than expected should terms be renegotiated with Trump in the US’s favour.
As part of the agreement, Australia has already committed billions of dollars to help build up the manufacturing capacity of the US and UK.
The financial cost of the nuclear-powered submarine program is so high that Marcus Hellyer, from Strategic Analysis Australia, has described it as the country’s “fourth service”, sitting alongside the navy, army and air force.
Hellyer says many of the risks linked to the deal, including questions over US submarine production capability and whether Australia will have enough nuclear-qualified submariners, still remain almost four years after the agreement was struck.
“There are serious risks around this and the risk picture is not a particularly comfortable one at the moment,” he says.
Hellyer says the heavy investment in traditional assets, including submarines, leaves Australia with a limited ability to invest in emerging defence technologies.
“We don’t have a lot of flexibility because so much of our investment budget is tied up,” he says.
“Unfortunately, it’s tied up in things that won’t be delivered for a decade or more.”
