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Monday, 26 February 2018
Page: 1806

Dr MIKE KELLY (Eden-Monaro) (13:06): I am pleased to be able to speak on these appropriation bills and adjustments to the current government's budget—in particular, in relation to some disturbing dimensions that we need to see addressed. In my opinion, we are not seeing these issues dealt with, and they are leading to a serious credibility issue in relation to this government's approach to the budget. The first of these relates to our defence spending and the design, planning and implementation of projects. I also want to address continuing and serious misrepresentation by the Minister for Defence Industry and the government. I also want to speak about the Snowy Hydro 2 project, where there are some very important issues that need to be pointed out in relation to the government's budget projections and arrangements.

As I mentioned, the first issue relates to concerns around the budget and defence spending. There was a lot of debate around the so-called two per cent of GDP figure as a target for defence spending. The Minister for Defence Industry and Mr Abbott—as the previous Leader of the Opposition and then Prime Minister—made a lot of hay out of the comparison with the spending of the Rudd-Gillard government and saying that it was lowest level since 1938. The irony of that was that in 1938 there was a conservative government, which included Sir Robert Menzies. At that time the state of our defence capability and our ability to deal with the threats we were facing at the time were seriously degraded.

I am very proud of my great-grandfather, who ran for Eden-Monaro in 1940 and whose son, my grandfather, was in the Army at that time and fought in the Middle East and Java and became a prisoner of the Japanese on the Burma-Thai railway. In 1940 my great-grandfather was very agitated about what had become of Australia's capacity and he said:

We're seriously perturbed over the manufacture of munitions and mechanical equipment for our soldiers. We do not want our soldier sons

—including his own—

to be ill - equipped. We want them to have at least an equal chance.

He also highlighted:

Had our government—

that is, the conservative government at the time—

not sold, leased or dismantled our docks, this job could have been done. Manufacturers who have contracts for making various parts are complaining that they cannot get their money for the work done.

Another matter hampering our war effort is the fact that our shipping line was sold, our trawlers were sold and the invaluable boats and information gained by Australians in this industry is now in the hands of foreigners.

How tragic it is that those errors and mistakes were to be replicated at least another two times within our very short experience, over the last 20 years or so, in this parliament, in this building.

In particular, I'll firstly dispel this reference to this target of two per cent of GDP because, in effect, it was the Howard government that only averaged 1.78 per cent in all of its four terms and in fact fell to 1.68 per cent in 2007, its last year of government. That was the lowest level of GDP spending since 1938. As you review actual expenditures and actual data post budgets, it turns out that Labor's lowest budget was 1.69 per cent. So it was actually the Howard government that was the lowest since 1938 as far as these comparisons are even relevant. You are talking about percentages of GDP which are relevant to the size of the economy and expansions and contractions in the economy. There is no way that the economy of 2007 to 2013 is in any way comparable to the size of the economy back then with the vast difference in expenditure in real terms that the Labor government committed to in our time in government and during the Hawke-Keating years. In fact, during the Hawke-Keating years the percentage of spending never fell below very high levels of spending and, in fact, routinely was above two per cent and reached 2.31 per cent at one point.

But what was more important during that time was the planning and investment in Australia's defence capability. When I talk about that, I also must refer to the fact that during Labor's time we were the ones who actually came closest to that two per cent target since the Hawke-Keating years at 1.94 per cent. But we were presented with a problem, and this goes to exploding the myths that the Minister for Defence Industry is happy to run around. I saw him just recently at an industry dinner again parroting his comments that under Labor there were no ships commissioned and that we had put our shipbuilding in a parlous situation. This is completely false. The truth is that it was under Labor that we built our modern shipbuilding capacity. It was Labor that brought home the last two of the Adelaide class frigates to be built in Australia to give us a platform to go from there in building our capacity. We then rolled that into the Anzac frigate class construction process, giving our nation very serviceable and fine vessels through that project. Then that was added to by the Collins project, which for the first time gave Australia a submarine-building capacity. All of these projects together were really building us a wonderful platform to have a world-class efficient shipbuilding industry.

But then when the Howard government came in there was none of that. There was no follow-on from any of that investment—none at all. Perhaps the most heinous related to the submarines. For a very complex, difficult platform like a submarine you need a long lead time for planning. To give you an example, the replacement planning process for the Oberon class submarines began in 1978 and construction of the Collins commenced in 1990. So it was a 12-year span. It's a complicated platform. The planning for the replacement of the Collins class submarine should have begun before the last boat hit the water in 2003, but nothing was done under the Howard government. There was not one thing done to prepare for the replacement of our submarines and so when we got into government in 2007 we had to start from scratch. So to say that there was no result in our six years in government with the long span of planning that is required for these platforms is just a complete joke and a furphy.

In addition to that, we inherited the failure to plan and prepare for the redundancy of our supply vessels. It's famous now that neither of our support vessels were able to respond to Cyclone Yasi, for example. Serious underinvestment also followed and compounded this problem in sustainment and maintenance both for those supply vessels but particularly in relation to the Collins. By the time we hit government in 2007 we could barely get one boat in the water at any one time. We had to immediately inject $700 million into addressing that deficiency in our sustainment and maintenance. We did so and got to a much higher rate of availability by the time we were finished.

But then we went through our due diligence in replacing the Collins. We invested a lot of effort into the service life extension process for the Collins to see how much time we could get out of them so that we could roll that into the future submarines. We also did a lot of learning on deep-cycle maintenance which enabled that extension, including hull cutting and the like. But we also progressed in selecting the combat system, the AN/BYG-1 combat system, which is now the system that will go into the submarines. We made that decision. And we made the decision for a specified land based propulsion testing facility for the two things you wrap a hull around. We also spent $266 million on developing all of the lead-in activities that are necessary for making a decision on the submarines.

So then what happened? We were ready to roll and then the Abbott government came in and there was that famous captain's pick period. He wanted to get a Japanese Soryu submarine. There was not any process involved in that until he was forced by his own backbench into this really rapid bizarre process, which no-one had ever heard of before—the competitive evaluation process. Again that was trying to steer the result towards these Japanese submarines, which weren't suitable for Australia's needs. When Mr Abbott was removed from office at least that process was put on a sounder footing, but there was a huge delay, a huge loss of time, and huge extra costs are now involved.

Additionally, one of the key decisions made by the Labor government that I was pleased to be a part of was the commitment to building our supply vessels in Australia. That was a critical decision that needed to be made to deal with the so-called valley of death that would have emerged in our shipbuilding capability. Labor invested $1 billion to resuscitate our skills and get up our capacity and productivity in those shipyards, but it was all blown away by the current government. I commissioned advice from the department on the replacement of the supply vessels—the SEA 1654 project. I will quote what the department advised me on that project. They said:

A full in-country build for SEA 1654 could provide critical workflow to Australia's naval shipbuilding sector across all three shipyards, avoiding the costly decline of specialist skills between completion of the LHD and AWD projects and the start of Future Submarines.

They advised:

… optimisation of in-country shipbuilding work would require some trade-off between cost, risk and schedule benefits for both the Commonwealth and industry to overcome the national shipbuilding valley of death and retain critical skills. Construction of whole blocks in country rather than overseas could commence at multiple shipyards relatively quickly. With recent experience in ship consolidation, ASC could commence consolidation of the whole modules at Techport Australia as soon as the second AWD is launched in quarter 1 2016.

In other words, when you look at all of this—the avoidance of the valley of death and the speed with which the supply vessel construction could have been done—under the department's advice, we could have been consolidating blocks for the final phases of construction of the first vessel right now. Instead, we saw the Abbott government first try to hand this off to the Koreans. He was asking the Koreans to build a Spanish design. It made no sense, even putting aside the fact that they should have been built here. Fortunately, the Turnbull government made the decision of sending those off to Spain so that at least the Spanish were building their own vessel. Ultimately, the critical crime here is that those vessels should have been built in Australia. That is the objective advice I have from Defence.

Let's not hear any more nonsense from the Minister for Defence Industry about Labor not commissioning a vessel. In fact, we did commission a vessel. It's called HMAS Choules, which was the only vessel available to respond to Cyclone Debbie, so just as well we did. The irony is that, under the five years of this government, they haven't commissioned a single main fleet unit, so their own rhetoric flies in their own face.

The final issue I would like to mention is Snowy 2. I'm fully supportive of this concept. It's been on the books for 30 years. The Snowy Hydro team—Paul Broad and his crew—have done an excellent job of getting this up and running as a proposal. They made an initial bid for ARENA funding for feasibility studies in February last year—well before Malcolm Turnbull discovered this project. ARENA made an independent decision to assist them with that—$8 million I think of the $29 million that was required.

They will be able to raise the finance for the construction of the project, but there are a number of things that the federal government needs to attend to. Firstly and most importantly, there is $2 billion of extra transmission costs that are critically important for South Australia in any event, because we know that the lack of a second interconnector is a vulnerability for South Australian electricity. This will be the platform that enables the critical south-east corner of Australia—New South Wales, Victoria and South Australia—to transition to 100 per cent renewable energy. Critical to that will be the transmission aspect. Critical to the investment flow will be the government guaranteeing the risk on that transmission before those financial decisions are made by midyear. The government has to now get on with consolidating what is required for the transmission costs.

There was also this floating of the idea of a Commonwealth buyback of the Snowy scheme. We haven't heard any more of that. There's nothing reflected in these bills about the agreement of the states and the $5 billion or $6 billion that will be required to do that. Certainly, we wouldn't be opposed to that, as long as the privatisation processes that were previously sought aren't sought by the coalition ever again. The other aspect that needs attending to is that it's likely that the project will need some sort of dividend holiday from the stakeholders, and we've heard nothing from the federal government on that.

This report, the Marsden Jacob Associates report on the feasibility of the Snowy scheme, which I think all journalists should read, deals with the economics and market issues here. It bells the cat on this government completely. It talks about the fact that this project will only be truly feasible and truly beneficial if you commit to an aggressive renewable energy target. It talks about a long-range commitment of 60 per cent by 2040. It specifically says:

… the higher market benefits in the LT Commitment scenario reflect the greater utilisation of Snowy 2.0 in shifting energy as required under the scenario of higher renewable generation …

Really, it critically fits only within the concept of Labor's current renewable energy policy, and it's all spelt out in the report, as is the belling of the cat on the so-called carbon capture and storage plant. It specifically says that there's nothing commercially deployable in the space of carbon capture and storage, there's not likely to be anything close to that before 2030 and, even then, it will be viable only with a carbon price. That's what it says specifically in black and white in this report.

It also highlights the fact that these major power stations are going to be falling over by 2032. The future of coal—thermal generation—is clearly reaching its termination. There's a lot of urgency needed out of this government in adopting the measures in this report to deal with not only energy security, market stability and lower cost for consumers but the future of our children as well in climate change measures.