Australian Economy

Albanese and the AUKUS booby trap

Make no mistake: Anthony Albanese, in the bright Californian sun this week, was doing more than putting the nation on an economic and strategic war footing; he was rendering his political opponents back home defenceless.

The domestic politics of the multibillion-dollar, three-decade time line of the AUKUS nuclear-powered submarine project has the Dutton-led Coalition as much in its sights as any potential threat from China.

AUKUS was the booby trap Scott Morrison thought he was setting for Labor back in September 2021, when he sprung the deal on a surprised nation in a three-way hook-up with then British prime minister Boris Johnson and the United States president, Joe Biden.

Albanese recognised the strategy straight away and hastily convened a shadow cabinet and then caucus meeting to wave through support. It denied Morrison the chance to run a campaign on the Liberals’ traditional political killing field of national security.

Albanese is now making it completely his own. On Tuesday he said the agreement “represents the biggest single investment in Australia’s defence capability in our history”. He reached back into that history, bypassing Morrison and his Liberal predecessors, to arrive at Labor’s John Curtin, who redefined Australia’s relationship with the US in the darkest days of World War II, and to his successor, Ben Chifley.

He said “the scale and complexity and economic significance of this investment is akin to the creation of the Australian automotive industry in the post-World War II period”.

Not to be missed is the subtext that the Liberals closed down that automotive industry and Albanese now would restore the benefits the nation lost in Joe Hockey and Tony Abbott’s costly decision.

Albanese said the “investment will be a catalyst for innovation and research breakthroughs that will reverberate right through the Australian economy and across every state and territory”.

The prime minister spent much more time putting defence spending at the heart of his government’s manufacturing strategy than he did talking about deterring threats. In fact, he, like Biden, didn’t even mention China. That was left to Britain’s Rishi Sunak, the one leader most remote from China’s immediate sphere of contested influence.

It is worth noting that the British Conservative prime minister’s rhetoric was more in line with the approach Morrison and Peter Dutton took ahead of last year’s election, which backfired badly on them.

Albanese is determined to steal the security mantle from the Liberals and turn their “come hell or high water” support for AUKUS into a weapon that would also take from them their other default strength as “better money managers”. The $368 billion total project cost – which Defence Minister Richard Marles admits is “a guesstimate” – will define the economic management debate from here on.

We got a sense of Albanese’s mindset last Sunday, before he left India for the gala AUKUS launch in the US. The prime minister was responding to a question about the eye-watering cost of the project, at that time speculated to be a much lower $220 billion.

Still smarting from the opposition’s attacks on him for breaking a promise on superannuation, the prime minister was blunt. Albanese linked the need to spend “whatever you need to on defence” with the need for budget repair.

The budget is already projected to have unending structural deficits of an estimated $50 billion a year; the nuclear submarines and their associated infrastructure will add several billions more. In a checkmate to Liberal attacks on Labor’s underspending on defence, Labor is more than matching the Morrison government’s commitment of 2 per cent of GDP. Marles says it is more likely to reach 2.2 per cent.

The prime minister accused the opposition of a “frankly juvenile response” in voting against a modest trimming of overly generous tax concessions for wealthy superannuants. The $2 billion in savings is a start towards the long process of filling the budgetary hole.

A senior minister in the government says Albanese will not tire from reminding Australians who were the major excavators over the past decade – and their refusal to play a responsible part now filling it. Albanese said, “You can’t have a circumstance whereby you’re left a trillion dollars of debt, a trillion dollars of Liberal debt, and they’re not prepared to take any action whatsoever to repair the budget”.

On Monday night, appearing on the ABC, Dutton was asked by Sarah Ferguson if he was prepared “to think outside the usual partisan box to give the government leeway to make budget savings?” He said the simple answer was “yes” although he added “there will always be points of difference about where spending priorities lay”.

Dutton nominated efficiencies in the National Disability Insurance Scheme as a place to make up budget savings, while at the same time warning Albanese and Marles not to “cannibalise” army or air force budgets in looking for their nominated $3 billion of savings over the next four years.

Who can be blamed for thinking the priorities of the Liberals haven’t changed much from their search for $8 billion of draconian savings when targeting the most vulnerable people on government support payments through the illegal robo-debt scheme.

The shadow attorney-general, Julian Leeser, boasted at the weekend that the Coalition government had committed to $270 billion of defence spending by 2030. “We’ve demonstrated that you can provide for defence expenditure without raising taxes,” he said. He forgot to mention you can do that only if you raise massive borrowings and head to a trillion dollars of debt.

According to the Parliamentary Budget Office, the Coalition also overpaid an estimated $20 billion to businesses and churches in the JobKeeper program, devised at the height of the pandemic panic, which it did nothing to recoup.

These paragons of fiscal virtue make no call on wealthier Australians or bigger businesses to make a contribution to the nation’s security by forgoing any of their massive tax concessions or deductions – which the recent Tax Expenditures and Insights Statement put at around $175 billion a year in forgone revenue.

If ever there were a time to rethink repealing the stage three tax cuts, you would think now would be it. The $240 billion over 10 years would go a long way to paying for the submarines. Despite this, Albanese and Treasurer Jim Chalmers say the government’s position not to scrap them “hasn’t changed”. Dutton is certainly in no mood to let them off the hook.

Dutton, like Morrison, somewhat disingenuously claims Albanese knew AUKUS was coming when he made the pre-election promise. He may have, but no one knew the estimated final cost until the complex negotiations were completed in recent months.

The reality is that if the government is forced to rely only on borrowings or savings, then health, education and social security, along with other outlays, will face the axe, surely an unpalatable option for a Labor government. Repealing stage three would also fly through the senate. The Greens and most of the crossbench have flagged their support. That includes Jacqui Lambie and her colleague, Tammy Tyrrell. Ironically, it was Lambie’s crucial vote that saw the cuts legislated in the first place.

The treasurer has two budgets to go before any decision to change the position on the tax cuts is made, but doing it in May 2024, just two months before they are due to come in, and during an election year, could require more courage than we have seen so far.

There is no fracturing in the Labor cabinet or caucus over the AUKUS commitment. How to pay for it is being left to the treasurer and Finance minister. But this unity of purpose over the submarines does not extend across the party.

Former prime minister Paul Keating told the National Press Club the commitment “represents the worst international decision by an Australian Labor government” since former leader Billy Hughes pushed for conscription in World War I.

Keating says Labor Party branch members “will wince” when they see their party returning to our former colonial masters to find security. He completely rejects strategic assessments that China is a military threat to Australia. He says that’s the view of “ning-nongs” in the Australian defence and security establishment.

Keating’s former colleague in government and former US ambassador Kim Beazley disagrees and says AUKUS is a most welcome development in our security arrangements.

Defence Minister Richard Marles, who Keating thinks is an “unwise minister”, says, “We are witnessing the biggest conventional military build-up we have seen since the end of the Second World War and it is happening within our region and it is not Australia which is doing that.” He says failing to respond “would see us condemned by history”.

Former senior Defence official and strategic expert Hugh White doubts the project will succeed, saying it is “too problematic on many fronts”. Similarly, Allan Behm, a former adviser to Foreign Minister Penny Wong, doesn’t believe the rationale for the three to eight submarines is a credible deterrent. He doesn’t think a future Australian government would find going to war over Taiwan was very smart, even if the US demands it.

This might be so, but Albanese is counting on AUKUS to do a job on his opponents well before then.

This article was first published in the print edition of The Saturday Paper on
March 18, 2023 as “AUKUS and them politics”.

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