The navy could reap a financial windfall under a proposal that would give it lucrative port and passenger tax revenue in exchange for the release of much-needed passenger cruise ship wharfage at Garden Island.
Premier Barry O'Farrell signalled at a Tourism and Transport Forum function last week that in a joint initiative with federal Treasurer Joe Hockey, revenue from cruise ships would go to naval coffers rather than the NSW Treasury as an incentive for the navy to release more berths to cruise ships.
In the 2013-14 summer cruise season, just ended, 260 passenger ships visited Sydney Harbour. The NSW government pocketed millions of dollars from a newly introduced $20 cruise passenger tax.
Many large cruise ships visiting Sydney are too tall to pass under the Harbour Bridge to berth at the new White Bay Cruise Terminal, so wharf access is at a premium.
Mr O'Farrell said: "The good news is that Joe Hockey gets it. The better news is that with the assistance of [NSW] Treasury, he's making sure that the Australian navy get it, which will mean the revenue will go to navy, not to Treasury."
Unless more berths are made available in Sydney for cruise ships, in the future passengers may have to go ashore via tenders from ships anchored in mid-harbour, or diverted to Port Botany, which one large line, Royal Caribbean Cruises, is considering as an alternative to crowded Sydney Harbour.
"We would utilise facilities at Port Botany if they became available and we would make the passenger experience work, and work well," said Gavin Smith, Royal Caribbean's regional vice-president for Asia-Pacific.
"Sydney needs another terminal capable of servicing the world's biggest ships on the eastern side of the Sydney Harbour Bridge."
Under an agreement negotiated by the Gillard government in 2012, the navy guaranteed space for three cruise ships for two summer cruise seasons - 2012-13 and 2013-14 - at its Garden Island base. But the cruise industry has been campaigning for a more permanent solution at Garden Island.
However, any plan to increase the number of passenger ships berthing at Garden Island is strongly opposed by the Australia Defence Association. Neil James, the executive director of the association, said Garden Island was already crowded and was set to become more so with the arrival of two new Canberra LHD (Landing Helicopter Dock) amphibious transport ships.