Mark Riley: Colossal AUKUS submarine deal cost could sink tax cuts and Prime Minister’s credibility

An intriguing prospect has quickly broken through the surface of the AUKUS submarine deal. What if the first target sunk by Australia’s nuclear-powered fleet wasn’t an enemy predator but the stage three tax cuts?

This could even occur years before a single rivet is driven into a single SSN-AUKUS sub.

SSN, for those wondering, stands for submersible ship nuclear.

It is one of many things we have learnt this week about these mystical mammoths of the sea.

Paul Keating’s volley of anti-submarine missiles at the National Press Club will make selling the merits of the program more difficult.

But finding the money to meet the cost will be the biggest challenge.

The process of estimating that price tag seems to be as simple as taking the largest number conceivable and adding a hundred billion.

When Scott Morrison first put up the periscope on the AUKUS deal just 18 eventful months ago, he warned it would cost more than the $90 billion diesel sub-contract that Malcolm Turnbull had struck with French President Emmanuel Macron.

Which, come to think of it, means the stage three tax cuts could be the second target the program sinks. The French deal was surely the first. And the political body count from that was high — including Morrison’s.

Morrison’s government estimated that the AUKUS deal could cost taxpayers about $140 billion, while independent assessments put it closer to $170b.

That number steadily climbed until reports this week warned that it could be north of $200b.

That, as it turns out, was a conservative estimate.

The number the Albanese Government has settled on is $268b over 30 years. And that’s really only an opening bid.

Senior government figures concede the final tab will probably blow out to billy-o like every defence contract since Australia purchased its first horse-drawn gun carriage.

They warn the deal with the US and Britain could well rise from $268b to as much $368b.

What’s the odd hundred billion dollars between friends and allies, hey?

Whatever the final cost, the task of meeting it will be enormous. Treasurer Jim Chalmers says his May Budget will cover the first $9b by redirecting the $6b saved by capsizing the French deal and adding another $3b from savings elsewhere in defence.

This is where the Opposition’s bipartisan support for the program ends. Peter Dutton says: “We can’t let Labor cannibalise the defence force to pay for AUKUS.”

That has set up a fiscal fight in the short term. The long-term question is how to pay beyond the coming budget cycle.

And that’s where the stage three tax cuts come into frame. Many in Government, including Mr Chalmers, seem to have been searching for a reason to ditch them since coming to office.

The subs deal could provide one. But using it would come at considerable political cost.

Stage three will largely favour the well-off, delivering 75 per cent of the benefits to the top 25 per cent of wage earners.

Ditching it would save $254b over a decade. That is roughly $750b over the 30-year life of the subs program, enough to pay for it and return hundreds of billions more for other services.

Another possibility would be to retain stage three but reduce the benefits at the top end to just save enough money to cover the subs deal.

But severe danger lurks beneath the surface of both these options.

When I asked Mr Albanese in the first weeks of his government why he wouldn’t abandon his election promise and ditch stage three in light of the “cost of living crisis”, he gave a short, emphatic answer: “Because my word is my bond!”

And there’s the problem. If Mr Albanese were to now break that bond he would pay a heavy political price.

The risk? That the Prime Minister’s credibility would be another target sunk by the nuclear-powered subs before they even hit the water.