We need more defence capability long before the first SSN arrives
18 Jun 2024|

AUKUS is the great polariser of Australia’s national security community. Supporters are accused of risking too much for one capability; critics are accused of being unhelpful or lacking belief in Australia.

All this misses the point. We have about 1000 days before a possible conflict breaks out over Taiwan. That is the deadline the American military has set itself to prepare, US defence sources tell me, and Australia must do the same. Yet in choosing to acquire nuclear-powered attack submarines (SSNs), we are incurring a greater opportunity cost to the rest of our defence budget than any other country.

We must adapt our funding model to reduce that opportunity cost and prepare the Australian Defence Force for the possibility of conflict within the decade. That means leveraging private capital to rapidly acquire new defence capabilities before the delivery of the first Australian SSN.

We can also look to Ukraine for inspiration in how to adapt quickly. Its application of inexpensive uncrewed aircraft and boats has been an example—one that has been vastly faster and cheaper than our SSN program.

The opportunity cost of SSNs

Six nations have SSNs: the United States, China, Russia, Britain, France and India. Each has a larger economy than Australia, and some spend larger fractions of their economies on defence.

The smallest of those economies is Russia, whose GDP is just 15 percent larger than Australia’s, but whose defence budget is almost 2.5 times larger. The next smallest is France, whose GDP is 75 percent larger than ours, and whose defence budget is 74 percent larger.

Why does this matter? Because the size of the economy limits the federal budget, which limits the defence budget. For Australia, acquiring SSNs incurs an opportunity cost inversely related to the size of our economy, unless we make cuts to other areas in government spending, take on more debt or better harness private capital.

Under Defence’s current Integrated Investment Plan all additional funding over the next decade will be consumed by the SSNs, the general-purpose frigate program and exchange rate compensation, as reported by Australian Defence Magazine.

By choosing to acquire SSNs, Australia is now largely unable to provide new funding for other defence capabilities, other than the general-purpose frigates. There is no new money in the budget for medium-range ground-based air defence, a fourth F-35 squadron or a range of other capabilities that have been axed to make way for SSNs. The Australian economy is just not big enough.

We have already seen significant drops in defence industry workforce and turnover in the past financial year. And key programs have been cut from the acquisition program, such as mine countermeasures, which are vital to protecting our sea lanes.

Yes, the government is still acquiring other things for the Australian Defence Force; yes, some of those deliveries have been accelerated. But that is not enough. The maritime domain will soon consume a greater proportion of our defence budget than land, air and cyber combined. Our strategy may not be solely contingent on submarines, but it will be far, far more contingent on submarines than ever before.

This is not about Australia’s self-belief, as some commentators, including Jennifer Parker, argue. It is the inescapable financial reality of AUKUS.

Alternative approaches

So, what other opportunities are out there?

Well, Ukraine has just used cheap sea drones, uncrewed aircraft and cruise missiles to force the Russian Navy to withdraw to the eastern shore of the Black Sea. Kyiv has protected its shipping lanes and denied a much larger naval power access to its maritime approaches. This is the same strategic effect we want AUKUS to eventually achieve, but it will take us decades to get there. It took Ukraine less than two years and it cost a lot less than SSNs.

Meanwhile, since the US military is preparing for conflict over Taiwan to begin roughly 1000 days from now, that’s how long we have to give the ADF the capabilities it requires in case an Australian government decides that defending the island is in our national interest.

On this timescale Australian SSNs, due to begin arriving in 2032, are irrelevant. To meet this deadline Australia must harness private capital to deliver small, smart, cost-effective capabilities like those Ukraine has used, especially those that can be delivered within 1000 days. Australian companies like C2 Robotics and Ocius, for example, can deliver a large number of cheap, effective uncrewed submarines and uncrewed boats at speed.

First, that means redefining environment, social and governance standards to include national security and remove this common barrier to private investment in military technologies.

Second, that means creating a wider understanding of defence as a financial asset class through open forums, including: the specific capabilities Defence is seeking; the associated risk/return profiles; exit strategies; and the roles of growth versus venture capital. The takeover of Marand by CHAMP Private Equity is a good case study.

Third, private funds will not invest in defence if they do not understand it. Yet the Department of Defence routinely refuses to answer even basic media questions. Defence ministers must change this behaviour if Defence is to compete for investment against transparent asset classes like clean energy.

Fourth, we should use faster co-funded acquisition models that can quickly turn prototypes into production contracts. This creates advantageous entry points for private capital investors—provided the first three steps are already met.

But before all that, it means escaping the simplistic, for-or-against polarisation of the AUKUS debate.