The Debate Papers: Does AUKUS Pillar I provide capability ‘bang for buck?’

Since the announcement of Australia’s acquisition of nuclear-powered submarines, Australian commentators have been engrossed in conversation about the breathtaking cost of the project.

In this instalment of The Debate Papers, Peter Jennings AO PSM
and Jennifer Parker consider whether a fleet of AUKUS submarines offer value for money for the Australian Defence Force.

The Debate Papers provides a platform for learned voices to argue issues affecting the United States and Australia. These counterpoints traverse topics such as economics, foreign policy and politics.

Australia’s insurance policy: AUKUS Pillar I provides ‘bang for buck’

Jennifer Parker is an Expert Associate at the National Security College,
an Adjunct Fellow at the University of New South Wales and the Nancy Bentley Associate Fellow in Indo-Pacific Maritime Affairs at the Council on Geostrategy

Breaking down the figures of Australia’s ambitious nuclear-powered submarine project and debunking the myths of cheaper alternate capability options.

Australian ambition to acquire nuclear-powered submarines is not a new concept. From a strategic, operational and tactical perspective, it makes sense, given Australia’s vast maritime domain and extensive maritime vulnerabilities. Aside from the obvious hurdle of United States support, the question has always been one of opportunity cost, or put crudely, ‘bang for buck.’

Cost of nuclear-powered submarines

To address the ‘bang for buck’ question, you must start with the ‘buck’: how much will Australia’s acquisition of nuclear-powered submarines cost? If yelled into a press pack, you would quickly hear the answer $368 billion — but that answer would be wrong.

Cost comes in many forms: impacts on workforce, infrastructure, defence industry and timeframes are all encompassed in the ‘cost’ of the project. But let’s talk monetary cost for a moment — the eyewatering $368 billion initial price tag. It’s tempting to argue that you can acquire a B-21 for just under a billion dollars,¹ yet we are paying $368 billion for 8 submarines. This is an emotive comparison, but it is one that is invariably wrong. For want of a better analogy, its comparing apples and oranges.

A key problem with discussion around defence project costs is that the arguments are almost invariably comparing different metrics. To understand cost, it is critical to understand key variables, including the time period it is over and whether the costed amount includes sustainment, infrastructure, workforce costs etc. These are seemingly mundane but exceptionally important issues.

So with that in mind — what does the government’s quoted $368 billion dollars cover?

Significantly, the projected cost of Australia’s nuclear-powered submarine pathway is not $368 billion dollars — it’s $244.7 billion over a period of 31 years from 2023-24 to 2054-55.² The difference between the $244.7 billion and the quoted $368 billion is a $122.9 billion contingency figure, representing 50% of the project.

Contrary to the persistent comments that $368 billion dollars is likely an underestimate, it is in fact a deliberate 50% overestimate.

Every defence project in the Integrated Investment Program (IIP) is allocated a contingency. Contingency amounts are effectively unfunded reserves that can be drawn on with approval should an ‘unforeseen’ event occur.³ Think of them as a margin applied for project risk.

Most defence projects in the IIP are assigned between 5-10% contingency. DEF 1, the project name for Australia’s plan to acquire nuclear-powered submarines has been assigned a 50% contingency. This means the risk is acknowledged in the funding profile. Contrary to the persistent comments that $368 billion dollars is likely an underestimate, it is in fact a deliberate 50% overestimate.⁴

Does this mean that costs won’t change? No — AUKUS is highly complex and the cost estimate spans 31 years, so the notion of identifying the ultimate cost with certainty is laughable. But it does mean that the risk has been accounted for to date.

The amount of $244.7 billion accounts for much more than the acquisition of 8 submarines. It includes the whole of program costs — like workforce, infrastructure, regulatory requirements, and the cost of sustaining these submarines and their supporting facilities until 2055.

This is important to understand because, when critics argue that Australia should acquire B-21 Bombers at a cost just under a billion dollars an aircraft⁵ or a French Barracuda class conventional-submarine at $2.5 billion per submarine,⁶ the quoted price for alternative capabilities doesn’t include the cost of the whole program or the cost of sustaining that program.

Is AUKUS eating the defence budget?

When it comes to cost, long term costs are invariably less reliable. So, whilst it’s important to put the often quoted ‘$368 billion’ dollar figure into perspective, a more accurate assessment is the cost over the near to medium term.

Delivery of the submarine optimal pathway is costed at a window of $53-63 billion dollars from 2024-25 to 2033-34, including acquisition, sustainment and supporting infrastructure.⁷ The breakdown of this figure is not publicly available, but reportedly contains whole of program costs, including those entailed with both the execution of Submarine Rotational Force West (SRF-W) and the delivery of the first Virginia-class submarine. These 2 capability milestones are significant because they debunk the erroneous claims that AUKUS won’t deliver submarine capability for 40 years.⁸

Whilst it’s important to put the often quoted ‘$368 billion’ dollar figure into perspective, a more accurate assessment is the cost over the near to medium term.

In response to the 2023 Defence Strategic Review (DSR), the announcement of the AUKUS submarine optimal pathway and the planned expansion of the surface combatant fleet, the current government announced in May 2024 that it would increase the Australian defence budget by $50.3 billion over the decade.⁹

The 2020 Defence Strategic Update (DSU) agreed a defence budget growth profile of 5-6% per annum, which would have equated to an uplift of approximately $716.4 billion over the decade.¹⁰ The uplift in the defence budget announced in May 2024 will provide for defence spending of $765.4, providing approximately an additional $49 billion beyond the DSU growth profile over the next 10 years.¹¹

The Attack-class submarine program that preceded AUKUS was expected to cost approximately $30 billion over the next 10 years.¹² The nuclear-powered submarine optimal pathway costs an additional $33 billion over the same timeframe.

The increased defence budget committed to by the current government more than accounts for the gap between the planned Attack-class spend and the AUKUS submarine optimal pathway. Overall, the AUKUS Pillar 1 spend over the total decade roughly accounts for 7-8% of the defence budget.¹³ Defence’s most expensive project, yes — but eating the defence budget? Hardly.

This isn’t to say that the defence budget is adequate or increasing in the right timeframe — it just means that AUKUS Pillar 1 isn’t consuming the defence budget. Of course, the acquisition of nuclear-powered submarines won’t address all of the Department of Defence’s capability issues — but that’s a different conversation.

But are there cheaper alternatives?

Well — yes, but not any that would deliver the same degree of capability and control over those capabilities that Australia desires.

There has been a plethora of alternatives put forward. Proposed alternatives include outsourcing the functions required of Australian submarines to a permanent UK and US presence, effectively giving up Australia’s ability to operate submarines becoming a “pit stop power”;¹⁴ acquiring 40 conventional submarines;¹⁵ acquiring B21 bombers — the list goes on. Some have suggested ceasing the acquisition of submarines altogether and investing in combatting climate change, healthcare and education. There is neither space, nor the desire to breakdown every proposed alternative here, so I’ll address some key elements.

Australia’s 2020 DSU, 2023 DSR and 2024 National Defence Strategy, alongside the strategic documents of Australia’s allies and partners, have one thing in common: a recognition that the world order is changing rapidly and that conflict in the Indo-Pacific, although not inevitable, is increasingly possible. Whilst national social welfare and combatting climate change are incredibly important, they will not protect Australia’s national interests in a worsening strategic environment.

On the outsourcing question — it is simply not logical that Australia, an island nation, would outsource its maritime security. There is a reason Australia has established its submarine service 3 times in its history; every time we have considered foregoing the capability it has become apparent that they provide an asymmetric advantage for a maritime nation.

There is a reason Australia has established its submarine service three times in its history; every time we have considered foregoing the capability it has become apparent that they provide an asymmetric advantage for a maritime nation.

The argument that the current capability plan to acquire nuclear-powered submarines should be replaced with the acquisition of B-21s or additional conventional submarines is a dangerous one. AUKUS, whilst in essence a capability transfer pact, is also central to Australia’s deterrent signalling. The signalling effect of AUKUS cooperation has been palpable, marked by China’s extensive efforts to release misinformation about the pact and lobby the International Atomic Energy Agency to obstruct it.

Whatever its risks, right now Australia’s plan to acquire nuclear-powered submarines is on track.¹⁶ Whilst it may not always remain so, changing course without a catastrophic failing of the plan would fundamentally undermine the signalling element of AUKUS and the trust Australia’s AUKUS partners hold in Australia.

Submarines provide a vast array of capabilities from intelligence to surveillance and reconnaissance to mine-laying to maritime strike to land-strike to anti-submarine warfare. In the maritime domain they are unrivalled. Whilst acquiring B-21s could substitute some of the strike elements of submarine operations, they would fail to fulfill the remaining functions. Could a series of capabilities address the spectrum of these functions? Maybe. But not with the versatility of submarines and there is no guarantee that a collection of these mythical capabilities would be cheaper. This is not to say that Australia should not invest in long-range strike options such as B-21s, but it should not do so at the expense of submarines.

As for the suggestion of a greater number of conventionally powered submarines, a number of challenges make this proposal imprudent. Major impediments would include crewing, industrial capacity to build them or buy them in a strategically relevant timeframe, and most significantly, the likelihood of this being a more expensive approach than the AUKUS pathway. The unique nature of Australia’s maritime domain and the distances and depths involved mean that Australia cannot just operate any submarine, invariably it needs to be larger and more capable than the average conventional submarine. Australia’s operating environment is dramatically different to that of submarine producing countries like Japan and Germany.

Let’s remember — Australia went down the path of attempting to acquire 12 conventional submarines from France. This was not orders of magnitude cheaper than Australia’s planned acquisition of nuclear-powered submarines.

At the time of cancellation, the acquisition cost for the French Attack-class submarine was listed as $90 billion, which did not include sustainment, supporting facilities or a contingency allocation.¹⁷ The life of type sustainment costs until 2080 were quoted as $145 billion, but again this did not include supporting costs such as infrastructure and workforce.¹⁸

The nuclear-powered optimal pathway is costed at $244.7 billion until 2055. The Attack-class fleet of conventionally-powered Barracuda submarines was costed at $235 billion until 2080, but this was known to be an underestimate.¹⁹ With rough maths you can see that increasing an order like this from 12 to 40 conventional submarines would be no cheaper than Australia’s nuclear-powered submarine pathway and clearly unsustainable from a workforce perspective.²⁰

Capability speed

The Attack-class program with all its challenges was due to deliver its first submarine in 2036 and its final submarine in 2054.²¹ Under the nuclear-powered submarine optimal pathway, Australia will have Australian sailors and officers operating from HMAS Stirling in US and UK submarines from 2027. This is of course not ideal, as the tasking of SRF-W will not be controlled by Australia. However, from a wider regional perspective, SRF-W will have a net regional effect far earlier than the previously planned 2036 timeframe of the first Attack-class submarine.

Under the optimal pathway, Australia will be operating two Virginia-class submarines, with a third on its way, before the first Attack-class submarine was due to be delivered. The optimal pathway will provide a capability quicker than Australia’s abandoned plan to acquire conventional submarines, and most certainly quicker than any new plan could deliver at this point.

So, does the current optimal pathway provide ‘bang for buck’?

Australian-owned and operated submarines are critical to Australia’s defence as a maritime nation. The current plan, whilst expensive and risky, is presently on track and delivers capability to service earlier than any prior plan. Whilst it is more expensive than the Attack-class project, it is not orders of magnitude more expensive nor is it ‘eating’ the defence budget. At this point in the journey, it certainly does provide ‘bang for buck.’

Better bangs for the bucks? Possible alternatives to AUKUS

Peter Jennings AO PSM is a Director of Strategic Analysis Australia,
the former Executive Director of the Australian Strategic Policy Institute
and a former Deputy Secretary for Strategy in the Department of Defence

We need AUKUS to succeed but not at the price of gutting the current Defence Force. The Government needs to spend more on some ‘plan Bs’ strengthening today’s force and adding more strike capability.

No one really knows what the real cost of the optimal pathway for Australia’s nuclear-powered submarine (SSN) fleet will be. In March 2023, the Albanese Government floated a figure of $268-$368 billion to be spent over 3 decades.²² In October 2023, Vice Admiral Jonathan Mead, Director General of the Australian Submarine Agency, walked into Parliament’s Defence Estimates Committee with a 178-page briefing pack — later released under the Freedom of Information Act — that excluded the $368 billion figure and dryly advised that “there are a range of complex variables that will affect costs over the life of the program.”²³

It may have been more direct to say that the cost of the SSN optimal pathway is essentially unknowable. This is a build that will take decades, involve industrial complexity never seen in Australia, and require a workforce yet to be developed both for the Navy and industry. Good luck trying to predict what the real cost of this will be! Defence can no more predict it than it can accurately estimate Australian GDP over 30 years. We do know that it is going to be an astonishingly large sum of money. A slightly more meaningful figure is presented in the IIP. The government claims that it will invest between $53-$63 billion in the program over the decade to 2033-34, split between the SSN fleet and infrastructure. This includes the purchase of 3 Virginia-class submarines, the first of which is “expected to be delivered in the early 2030s.”²⁴

So the first SSN capability will arrive, optimistically, after something like $63 billion has been spent. Judged in terms of a real military capacity to deliver high explosives onto a target, this offers a very limited bang for the bucks involved. Taxpayers and military planners are justified in asking if this is the best possible way we can spend such large sums of money on defence capability.

AUKUS needs to succeed. By virtue of geography, Australia requires significant submarine capabilities to act as a deterrent or as a formidable war-fighting system. However, I am concerned that funding an SSN project that will not materialise for a decade is coming at the expense of adequately funding the current Australian Defence Force (ADF). The government has cancelled or reduced a significant number of equipment programs across the ADF including the early retirement of the HMAS Anzac and the decision not to upgrade the rest of the ANZAC class fleet. Other decisions have included cancelling a range of air defence programs, cutting planned numbers of armoured vehicles from 421 to 129, and grounding and then scrapping Army’s helicopter lift capability.

Certainly, other defence spending options could deliver a strengthened ADF much sooner than the mid-2030s. The reality is that a total defence spending envelope of 2.1-2.3% of GDP is not nearly sufficient for Australia, given its worsening strategic outlook. At that level of spending the government can choose either to deliver the AUKUS SSN, or it can sustain the current ADF with its current growth and capability plans, but the funding is not there to do both things simultaneously.

How would I spend the AUKUS money differently? The first priority would be to strengthen the ADF as much as possible in a three to five year time frame.

How would I spend the AUKUS money differently? The first priority would be to strengthen the ADF as much as possible in a 3-5 year time frame. This aligns force structure priorities to the apparent closeness of the strategic threat. Defence planners previously maintained that Australia could depend upon 10 years of warning time ahead of a regional conflict. Since 2020, successive Australian governments have warned that we are well within this time frame. China’s military build-up and aggressive behaviour present the obvious risk. Yet bizarrely Defence Minister Richard Marles maintains that preparing for a threat in the later 2020s is “obviously not the strategic cat that we are trying to skin.”²⁵

None of the ‘effects,’ to use the military term, that an SSN provides are unique to SSNs. Anti-submarine warfare, land and maritime strike, persistent surveillance and other roles can be done by other systems in various combinations. In fact, combinations of systems may well deliver those effects more reliably, more sustainably and sooner than an Australian SSN fleet.

Here I suggest 5 investment priorities that would provide more immediate bang for the Defence buck. I would like to see these addressed in addition to the SSN investment rather than as an alternative. If one is forced to make the choice, it is surely vastly more important to deter or defeat the looming threat in the later 2020s than to focus on the future force of the later 2030s.

First, the government must stem the catastrophic loss of ADF personnel, where currently there is attrition of 500 to 600 service people a month. The only thing more costly to Defence than paying for people is suffering the absence of them. The government has rightly recognised this “workforce crisis” but has nothing to offer by way of a solution other than the intent to “develop a new comprehensive workforce plan in 2024.”²⁶ People are leaving the ADF because they can see capability is being cut to pay for a future force. That is hardly an incentive to service today.

If one is forced to make the choice, it is surely vastly more important to deter or defeat the looming threat in the later 2020s than to focus on the future force of the later 2030s.

Defence pay levels must be re-thought. Government should also consider implementing additional tax incentives for service personnel and strategies to support the education of spouses or children of serving personnel. To put a number to this: an annual $30,000 package of additional salary, tax and education benefits for the 69,000 ADF personnel planned for 2030 amounts to just over an extra $2 billion annually. Without these people to deliver and use the IIP’s equipment, the whole Defence enterprise collapses.

Second, government should talk seriously with the United States about acquiring 2 squadrons of the B-21 stealth long-range strike bomber. This would deliver a formidable deterrence and offensive capability towards the end of the 2020s, well in advance of the planned SSN procurement. This idea has been on the periphery of force structure considerations for a decade but has faced resistance from an Air Force focused on the F-35 fighter.

The B-21 will have the capability to carry a wide range of missiles including air-launched cruise missiles. Unlike conventional or nuclear submarines, the B-21 has the flexibility to reload for multiple sorties and operate from many different airfields. Australia would then be able to spread long range strike capability over the 3 services and multiple platforms. Moreover, its infrastructure, re-supply and logistic support capability would support US Air Force operations in the Indo-Pacific — strengthening a coalition deterrence framework.

In the United States, there are 6 B-21s in early-stage production. This is proven technology and Australia has an extensive history of operating long-range strike bomber aircraft in the form of the F-111. The B-21 will cost around $1.129 billion per plane (US$750 million).²⁷ A purchase of 20 aircraft will cost in the range of $22.5 billion. Let’s double that to $45 billion to cover basing, crewing, weapons, and sustainment — that’s a bit over 12% of the cost of the SSN fleet.

Moreover, the stealth and range of the B-21 means much of the huge but repeated cost of modern munitions can be displaced onto the one-off acquisition cost of the aircraft. A B-21 carrying 50 relatively simple $50,000 munitions will provide far more strike capability far more cost effectively than a single $2 million long range strike missile launched from an SSN or an entire squadron of F-35s. And those simpler munitions can be produced at scale in Australia.

My third and fourth suggestions are combined: the government is hurting Australian small and medium-sized enterprises (SMEs) in defence industry by choosing to engage only with the major defence industry primes and not letting contracts to SMEs. In the absence of contractual commitments, many of these businesses who form the intellectual core of future AUKUS Pillar II innovation will fold or move to the United States. It is ironic that even while Australian defence spending slowly grows, Australian industry SMEs are fighting to survive Defence’s glacial procurement processes and unwillingness to support collaborative and rapid innovation.

In December 2023, Strategic Analysis Australia helped the Sovereign Australian Prime Alliance develop defence industry policy recommendations. These recommendations included the establishment of a $1 billion annual budget line item to build industrial capability in SMEs by the simple means of letting contracts.²⁸ To this I would add an additional $1 billion a year to support rapid innovation for AUKUS Pillar II capabilities.

The fastest way to develop Pillar II technologies is to put the requirement into the hands of Australia’s Joint Operations Command, US INDOPACOM and the British Strategic Command — that is, the organisations supporting operational forces. These entities need to be AUKUS Pillar II champions, looking to get the technology into the hands of warfighters as fast as possible. An annual Australian spend of $2 billion to support SMEs, push for faster innovation and for quickly fieldable military kit would help offset the current Defence fixation on the far-distant future force. Currently there is no funding allocation for Pillar II projects. The absence of money for Pillar II in the IIP means there is no incentive for the Defence capability development process to fund industry work.

We have already seen the impact that ‘the small, the smart and the many’ — think of tens of thousands of drones — have made in the war in Ukraine. Defence needs to move beyond its scepticism of these systems and its deeply engrained attachment to exquisitely complex and expensive crewed systems.

We have already seen the impact that ‘the small, the smart and the many’ — think of tens of thousands of drones — have made in the war in Ukraine. Defence needs to move beyond its scepticism of these systems and its deeply engrained attachment to exquisitely complex and expensive crewed systems. Australian SMEs are world leaders in autonomous military systems, and already make guided weapons, advanced electronic warfare systems and sensors. It is evident that relatively limited degrees of autonomy can deliver major benefits. Decision makers must realise that this is not science fiction, but current reality, and invest accordingly. Spending a significant part of the $2 billion on the rapid delivery of such systems would provide real world capability as well as transform Australia’s defence industrial base.

My fifth proposal is to develop an Australian-produced armoured vehicle for the Army which delivers new combat power. The Defence Strategic Review’s recommendation to cut the Redback infantry fighting vehicle (IFV) from 450 to 129 units has left a technology and capability gap in the Army that will not be easily filled.²⁹ I do not think it is viable for an Army of 28,500 regulars to maintain just a single armoured combined-arms brigade. If the Army doesn’t develop a new concept around mobile hitting power, it will be relegated (as in reality it has been already) to a second-tier deliverer of regional humanitarian assistance and disaster response.

Accepting the critique that the IFV was too heavy, the challenge should be to find innovative capabilities that add to both Army mobility and hitting power. Industry should lead this effort and Defence should facilitate a fast-tracked innovation process, building on the lessons we can draw from the Ukraine war. The government claimed to save “up to $10 billion” from cutting the Redback IFV.³⁰ That could be the notional allocation for a lighter, punchier capability.

In total, my alternate priorities add a regular annual spend of $2 billion for people initiatives, and $2 billion for AUKUS Pillar II and contracts for SMEs. For the sake of this exercise, let’s assume the costs of investment in B-21 and support elements capability as $4.5 billion a year over a decade and the Redback replacement as $1 billion a year over a decade. Altogether, these initiatives would total $9.5 billion a year. Is there any substance in these dollar figures? About as much as the projected SSN costs. If the government’s $368 billion estimation for SSNs over 30 years is to be taken seriously, the average annual spend is $12.26 billion.

I would argue that the capabilities I’ve proposed offer more bang for the buck than the AUKUS SSN program. Minimising ADF attrition and growing the military underpins all capability. B-21s bring more hitting power into Defence more quickly. The other measures push for innovation and a stronger industrial capability and seek to find a battlefield role for the Army which is surely necessary and something of a vacant space in current defence thinking.

The better approach would be to regard these proposals as additions rather than alternatives to SSN, but this would not be achieved without accepting the need for higher defence spending. The pathway to delivering SSN is long and risky. We need multiple ‘plan-Bs’ to spread risk and diversify military capabilities. A prudent approach to national security would not be to put all of Australia’s capability eggs in one basket. Why do successive Australian governments, the Defence Department and the ADF all persist in pretending that only one solution is appropriate? That makes no sense.

As it stands, the government is risking capability by squeezing a costly SSN program into a budget that was never designed to accommodate an investment of this size. This is not a viable approach even in the short term, does nothing to address the strategic risks we face in this decade and is haemorrhaging people who are leaving a force that is being smashed to bits by mad budget cuts that put the mythical future force above the present day ADF.³¹