A new report has for the first time exposed the extent of the economic impact that building submarines overseas would have on local government regions – identifying the real winners and losers.

Expert modelling has also been used to pin point the difference in tax recoupment figures, which were previously not considered when comparing domestic or overseas build scenarios.
The South Australian Economic Development Board commissioned the expert analysis from the independent National Institute of Economic and Industry Research to assess the economic ramifications of purchasing 12 submarines overseas (eg. the Japanese Soryu class) to replace Australia’s existing Collins class vessels as compared to building the submarines in Australia together with a foreign design partner.

The Minister for Defence Industries Martin Hamilton-Smith said that the clear conclusion of the report is that there would be no difference in the price for the submarines if they were built overseas as compared to built in Australia. However it would have a devastating economic ripple affect throughout Australia if the contracts went overseas.

“This report provides a clear breakdown of the cash and jobs implications that this decision would have on local council regions throughout Australia and I encourage each council to contact the Economic Development Board for more information.”

The economic report found that under any scenario, the cost of a new fleet of submarines would be borne by Australians and there are two separate components to this cost. The first is the impact on the Commonwealth Government (see Table 1) and the second is the impact on the economy (see Tables 2 and 3).

Table 1 indicates two significant benefits to the Government from building in Australia:

First, an estimated $5.5 billion of tax is recouped by the Government. Under the “no change to budget” assumption in this model, this reduces by $5.5 billion, the need to cut other Government programs to cover the cost of the submarines.

Second, if the submarines are bought overseas there is a $6.2 billion increase in the cost to the Australian Federal Government if the AUD mean exchange rate reverts to a purchasing-power parity of $0.74 US cents as compared to the models of $0.92 US cents. This cost excludes the hedging cost (estimated at around $3 billion for a Japanese purchase) and the pricing of the counter party risk reduction in counter party risk.

Table 2 summarises the more favourable economic impact on the Gross Domestic Product (GDP) of Australia and on the Gross Regional Product (GRP) of the States and Territories from building in Australia.  The table indicates that Australia is “better off” by around $21 billion and that every State and Territory benefits.

Table 3 summarises the difference in impacts between the two scenarios as relates to average jobs over the life of the program. The table indicates that Australia is “better off” by more than 3,000 jobs per year for 40 years and that every State and Territory benefits.