Unpacking the cost of our nuclear-powered submarine program
Treasure needed to pay for submarines

The AUKUS submarines will eat a large chunk of Australia's national treasure, with consequences for other defence capabilities.

Written by

Marcus Hellyer

The government has said that the cost of buying and operating our eight nuclear-powered submarines (SSNs) will be between $268 billion and $368 billion ‘over the life of the program’. But what does that staggeringly large number mean?

The government has suggested we not focus on that figure arguing that if you take any large program, add up the cost over several decades and then apply inflation (or out-turn it, to use the bureaucratic term), it’s inevitably going to be a very large number. Ministers have said that it’s more useful to regard the cost as being 0.15% of GDP averaged out over the life of the program, telling us that’s ‘less than 10%’ of the Defence budget. While it’s good that the government has provided some numbers at this early stage of the program, we should exercise some caution around these figures.

The first thing to note is that for much of the ‘life of the program’ we’ll have very few actual nuclear submarines available for operations. According to the government’s plan, we’ll have none for the first decade, until the first Virginia class submarine is transferred from the US Navy around 2033. Then we’ll grow to three Virginias over the second decade. At the start of the third decade (2043), the first Australian-made SSN AUKUS is scheduled to be delivered. At the end of the third decade (around 2052) we get to a combined fleet of seven—three Virginia subs and four SSN AUKUS—but still not the full target of eight.

In short, for much of the first two decades, an averaged-out spend of 0.15% of GDP on the nuclear submarine program doesn’t get us much undersea capability at all. We’ll still be relying on the ageing Collins conventional submarines, which are budgeted separately from the SSN program.

Certainly the spending in the 2020s and 2030s builds the foundation for the later full capability but it’s a path that eats a lot of money before we see anything. That’s the problem with all Defence megaprojects; they consume huge amounts of cash before they deliver anything useful. Since the SSN enterprise will be more of a giga-project, that amount will be enormous. The government has said that the cost will be between $50-58 billion over the first decade. Recall that that just gets us to the handover of the first Virginia class submarine from the US Navy.

If we are serious about understanding what percentage of national wealth the SSN capability will require in the long term, we need to look at the annual cost when a mature capability of something close to the full eight boats is in service and the industrial enterprise that is delivering nuclear boats at the rate necessary to sustain that capability is up and running. That won’t be until the 2050s.

It’s difficult to know what that figure will be. If we extrapolate from the operating cost of the navy’s Collins class fleet and the annual cash flow expected to build the cancelled Attack class, we are probably looking at an annual figure in current day dollars of $6-8 billion. That may even understate the cost, considering we are going to average over $5 billion per year over the coming decade when we won’t have any SSNs in service and will only be starting to build the first boat. Moreover, all the indications are that the AUKUS SSN will be a very large submarine indeed, potentially over 10,000 tonnes, and size drives cost with military equipment.

$6-8 billion is more like 0.25%+ of GDP. That still may not sound like much, but more importantly for practical purposes and consequences, it’s around 12-17% of the current Defence budget. The army, navy and air force each have absorbed around 20-22% of the total Defence budget in recent years. So even 10% represents close to half of the navy’s budget. An SSN enterprise consuming around 15% of the total Defence budget would eat the navy.

There are two choices to address this. The government can grow the Defence budget dramatically to keep the cost of the SSNs down to a manageable percentage of the total Defence budget. The defence funding model that the previous government left behind (and the current government has continued with so far) was growing from around 2.0% to 2.2% of GDP over the decade—but that was a trajectory designed to accommodate a larger, more powerful defence force that didn’t include SSNs. Additional funding on top of that would be required for SSNs. So far the current government has made no commitment to that.

The alternative is to rebalance funding with Defence. There clearly isn’t room to rebalance just within the navy if the government still wants the $45 billion Hunter-class frigate, or amphibious ships to move the Army to crisis spots, or capable patrol vessels for border protection, or mine hunters to keep ports open, or new autonomous underwater systems, and so on. So that means moving funding from the other services and functions such as intelligence agencies or Defence Science and Technology.

That’s what the government has said it is doing in the near term. The SSN program is costing $9 billion over the four years of the forward estimates. Cancelling the French Attack-class submarine program freed up $6 billion in that period, but Defence is going to have to find a lot more than the $3 billion gap since much of the savings from the Attack program have already gone on other priorities, such as the huge new REDSPICE cyber program. It’s strange that at a time of strategic uncertainty when the government is anxious to get new capability into service quickly, it is stripping money out of other areas to put towards a program that won’t deliver any time soon. Recall again, in that critical first decade we will be spending $50-58 billion on SSNs for no in-service capability.

Moreover, if the other services are going to have to absorb a lot of the $268-368 billion over the longer term, what will be the effect on Defence’s overall force structure? For decades Defence has extolled the benefits of a ‘balanced force’ with funding spread evenly between the services, providing a wide range of different capabilities and options for the government. We could now be moving to a more focused force that can perform ‘impactful projection’. But what will Defence have to give up? Hopefully we’ll see when the Defence Strategic Review is made public in the next few weeks.

Dr Marcus Hellyer is Head of Research at Strategic Analysis Australia