Loading Replay Replay video Play video Play video One option to be unveiled in a speech to the Lowy Institute will be the complete closure of the navy facilities at Potts Point, opening the land to commercial development and dramatically increasing berthing access for cruise liners. Mr Rudd will pitch the proposal as a sensible strategic plan to move defence facilities closer to any further threat from Australia's northern approaches. "It makes sense in strategic terms.": Government source. It is understood he favours scaling back Garden Island and possibly closing it over time, even though this is likely to bring him into conflict with military chiefs.

The plan has also been criticised by NSW Premier Barry O'Farrell, who said on Tuesday that closing the base would devastate the state's economy. A senior government source said: ''The idea of moving our naval assets north has been talked about for years and it makes sense in strategic terms to have our military assets in the north. ''This is going to require a lot of consultation and planning. We need to start getting serious about that planning because it's a very large undertaking involving a lot of communities.'' The move is likely to be applauded by Sydney's tourism and cruise ship industries, which have long argued the navy should move further north, allowing Garden Island to be developed for benefit of Sydney's economy. However, it is understood that Defence is opposed to any relocation because of the massive cost involved. Defence sources say it would not be money well spent at a time when military funding is languishing at historically low levels.

The move also represents a U-turn for the government, which said in the May Defence white paper it would not proceed with long-term planning to establish a naval base in Brisbane because of the massive cost. The paper estimated the cost at $6 billion, to cover buying land, ensuring environmental protection, dredging, and relocating staff - all of which suggested ''establishing a fleet base in Brisbane would be challenging and require significant continued investment''. Mr O'Farrell said a 2011 review found Garden Island injected $470 million a year into the NSW economy and employed 6700 people, including up to 4000 jobs at the naval base. ''My concern today waking up to this news, without any advice beforehand, off the back of a defence review that said 'don't change the current arrangements', is this is going to be devastating for those families whose loved ones work there,'' he told ABC radio. ''And it's going to be devastating for the state's economy.''

Mr O'Farrell said even if Garden Island was used for tourism, it would never support the number of defence and private industry jobs associated with the base. The bulk of Australia's naval assets are at Garden Island's Fleet Base East and Perth's Fleet Base West. Brisbane does not have a deep water port. But under the changes, Brisbane rather than Sydney would become the home of the two new Canberra-class landing helicopter dock ships, which will be acquired in 2015 or 2016 and will be the largest ships operated by the Royal Australian Navy. The powerful new air warfare destroyers could also be based at Brisbane instead of Sydney.

Loading Last year's Defence Force Posture Review found there would be benefits in creating a ''supplementary base'' on the east coast to take pressure off Sydney. However, it said Garden Island remained a ''highly effective home port location for navy vessels''. Garden Island includes the Captain Cook graving dock for ship maintenance and HMAS Kuttabul base, which provides administrative, training and logistics support.