The Abbott government is considering scaling back Australia’s long-held plans to build 12 new submarines – a reduction that would yield billions of dollars in savings to the budget.

The government is also preparing to reveal that rather than design the new submarines in Australia – an option favoured by Labor – Defence could buy an off-the-shelf design from abroad.

New vision: Defence Minister David Johnston will outline the government’s plan for submarines to replace the ageing Collins Class fleet. Credit:AFP

And while the Coalition looks favourably on directing most of the building work to Adelaide, it will demand that the government-owned shipbuilder ASC – based in the South Australian capital – make a sound case to win the work, potentially opening the way for the submarines to be built overseas, effectively ending homegrown naval ship-building.

The dramatic shift in a key area of defence policy could reap the government massive savings. Designing 12 submarines in Australia is expected to cost up to $40 billion.