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As Christopher Pyne toured the Austal shipyard in Western Australia, the newly installed Defence Industry Minister said the Government's aim with building submarines in Australia was to make the country into a defence industry hub.

"We are making defence industry one of our fundamental inputs into capability in Australia in defending our nation," he said.

"We want defence industry helping to drive our defence capability."

But the Productivity Commission has now said without a better product to justify the extra cost of building submarines at home, "productive resources (labour, capital and land) are diverted away from more efficient uses".

In other words, the billions of extra dollars spent on building submarines in Australia instead of buying them from Germany, Japan, or France could be better spent on developing the industries of the future.

Mr Pyne did flag that industries of the future would still be developed.

"These capabilities in defence easily translate across into the commercial sector, providing export dollars, providing jobs and driving growth in our economy," he said.

South Australia, with its heavy reliance on old-world industries, has long been a problem child for politicians of all persuasions.

With the Government having bitten the bullet and allowed the heavily subsidised car industry to walk, the $50 million bailout of Arrium to keep its Whyalla steelworks open shows the political reality of keeping voters happy will trump painful structural change.

Submarines premium being paid 'a major step back'

In its latest report on Trade and Industry Assistance, the Productivity Commission said the 30 per cent cost premium to build submarines in South Australia is "a major step back from the historical reduction in using Government procurement preference as industry policy".

"It's hardly surprising that the state with the most protectionism — South Australia — also has towards the highest unemployment rate, some of the lowest growth and is a significant net recipient of Government subsidy," said Simon Cowan, research manager at the Centre for Independent Studies.

"It's literally just a small niche industry being protected to the tune of billions of dollars a year. It just doesn't make sense from any perspective other than how do we try to shore up votes in Adelaide."

According to its research, the Productivity Commission said the effective assistance being given to the companies who will build Australia's next generation submarines is "higher than the peak historical levels recorded for the automotive and textiles clothing and footwear industries prior to the significant economic reforms of protection".

Productivity Commission presents false argument: AIG

However the Australian Industry Group, which represents the manufacturing sector, said the submarine deal is not protectionism but nation building.

"I think that's just a false argument and what it doesn't take into account is the overall benefit for the economy, for the job creation that this project provides," AIG chief executive Innes Willox said.

"Nobody's asking here for a blank cheque.

"Australian business needs to be competitive, or as competitive as it can be to gain the skills and to take the potential out of this project that we believe that it has."

Meanwhile, the Productivity Commission has also taken aim at assistance to the rural sector, saying the decision to boost the Rural Research and Development program by $100 million could crowd out the private sector.

The Commission says when regular government response to drought or flood are cheap loans for farmers, they encourage less efficient farmers to stay in the industry when leaving may be of more benefit to both themselves and the economy.

"We are seeing dangerous attempts to backslide in agriculture, certainly in renewable energy," Mr Cowan said.

"There's again a push towards government intervention, government strategy and using Government procurement as a way to backdoor protectionist policy."

-来自 ABC NEWS

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