Productivity Commission misleads on submarines, say critics

Image: DCNS

A Productivity Commission review criticising the decision to build submarines locally has been disputed by the SA government, Australian Industry Group and others.

As The Australian Financial Review and others reported earlier this week, the Productivity Commission’s Trade & Assistance Review 2014 – 15 was scathing of the Future Submarines agreement, calling it “a major step back from the historical reduction in using government procurement preference as industry policy.”

The PC report used a much-cited 30 per cent claimed premium from a Rand Institute report on building submarines in Australia, which SA defence industry minister Martin Hamilton-Smith said was both dated and inflated.

The Rand Corporation report estimated construction at 15 per cent more expensive for a continuous build and the 30 per cent figure was for an intermittent build, said Hamilton-Smith

The Commission also neglected to consider spill-over and tax impact. AAP reports that an estimated $21 billion benefit to the national economy would come through the contract.

“You can’t just look at the sticker price – and this is what the Productivity Commission has done in its assessment – and say, ‘Couldn’t we save money by buying overseas?’” Hamilton-Smith told The AFR.

“When you add those [tax] revenues back into the picture, you get a completely different sum.”

The Ai Group said that submarine building as industry protectionism was a “false argument”.

“Australian business needs to be competitive, or as competitive as it can be to gain the skills and to take the potential out of this project that we believe that it has,” Ai Group CEO Innes Willox told the ABC.

Industry minister Christopher Pyne said the 30 per cent premium was “wrong”.