‘We don’t have limitless resources’: Australian government prepared to scale back defence projects

Richard Marles has signalled the Australian government is prepared to scale back some defence projects to fund others in a major shake-up, declaring "we don't have limitless resources".

The deputy prime minister said the government would weigh up "how best we can use the resources that we have to make sure that we have a defence force which maximises Australia's capability".

In his first substantive interview of the year, Marles refused to rule out the possibility Australia's first nuclear-powered submarines could be built offshore before production in South Australia can ramp up.

Asked whether Australia might subsidise expanding US shipyards so the first boats could be ready sooner, Marles said: "We need to be growing the net industrial capability of the three nations [the US, the UK and Australia] if we want to have this capability in a timely way."

The government is due to receive the final report of the defence strategic review, headed by the former defence chief Angus Houston and the former Labor minister Stephen Smith, within weeks.

The government has committed to an overall increase in defence spending, but there has been speculation a long-planned army project for up to 450 infantry fighting vehicles could be scaled back or scrapped.

Scrapping the project, worth up to $27bn, would trigger controversy within the army, which has argued it needs a replacement for Australia's Vietnam war-era armoured personnel carriers.

The review is widely expected to focus on other priorities including missiles, fighter jets and cybersecurity together with the nuclear-powered submarines.

Without confirming specific projects, Marles gave a hint there could be a shift in priorities when asked whether the government had the stomach to cancel, delay or scale back certain programs.

"We will make the decisions that we need to make," he said.

He said the defence review would be as significant as the sweeping review by former defence official Paul Dibb in the mid-1980s. "Now, if you're talking about a review as big as any in the last 35-plus years, well, you need to be ready to take the consequent decisions," Marles said.

"In a rational world, the size of defence spending is a function of strategic complexity and strategic threat. We obviously have a lot of that. And we're rational people.

"The first step here is to look at the defence strategic review. It's obviously being done in the context of understanding that we don't have limitless resources."

Marles warned that the unfolding great power contest between the US and China would have "a huge impact on Australia" but he said it was "not the cold war".

"China is our largest trading partner, we want to have a productive relationship with China and we are deeply economically tied to China."

He said the defence force's role would be much broader than simply defending Australian territory, because "a lot can happen to us before anyone seeks to place a foot on our continent".

Without naming China, he said Australia needed to think about "how we hold any potential adversary at risk at greater distance from our shores", including the equipment needed to project power in the region.

Marles said "the rules of the road in the South China Sea" were "critically important to our national interest" because of the high trade flows through the contested region.

"We've had a very significant presence in the South China Sea for decades and we will continue to assert the UN Convention on the Law of the Sea in that body of water as we do around the world."

Marles hit back at claims by the former prime minister Malcolm Turnbull and some analysts that the Aukus submarine plans would erode Australia's sovereignty by increasing dependence on the US.

"Well, sovereignty is obviously a really important issue, it's one we've been very mindful of throughout the process," Marles said.

"The outcome of this process is one which, in my view, greatly enhances Australian sovereignty. And the fundamental reason for that is that the greater the capability Australia has to defend itself, the greater the sovereignty, and this is a very significant capability that we're looking at developing."

The three Aukus countries are expected to announce in March the broad details of how Australia will acquire at least eight nuclear-powered submarines, after an 18-month study initiated under the Morrison government.

Marles said he was confident about dealing with any potential gap in Australia's capability as it shifts from its Collins-class diesel-electric fleet, despite recent concerns from US senators about America's own crowded production line.

He said moving to nuclear-powered submarines was "a national endeavour that will take place over decades" and some elements would not be known right away. But he said the March announcement would reveal "the direction we're going, the shape of it [and] the rough order of magnitude in terms of cost".

Marles said Australia was focused on developing its own production capability in Osborne, South Australia, "as quickly as we can".

Pressed on whether the first submarines might have to be built offshore, Marles said people would have to wait to see the details.

"If there is any capability gap that arises, we've made it really clear we need to be looking at how we can plug that and I'm confident we'll have answers to that."