After last year's drastic spending cuts, there are aspirations for moderate growth (2% of GDP) in Defence spending. Treasurer Wayne Swan's budget speech stated that "this Budget funds the core defence capabilities required to protect Australia's national security interests". Following the Budget, there is still little clarity on how the aspirational 2% target can be achieved.

Key Defence announcements

11 days ahead of the Budget, the Government released the 2013 Defence White Paper (White Paper). Brought forward a year, the new White Paper was intended to provide an updated roadmap for the realignment of Defence's strategic priorities, particularly given the significant cuts to Defence expenditure in the aftermath of the Global Financial Crisis.
In this year's Budget, the Federal Government has allocated $113 billion to Defence over the next four years (compared to $103 billion which was allocated across the forward estimates period in the 2012-13 Budget).

In the wake of criticism following the significant cuts in Defence spending of $5.5 billion during last year's Budget, the Federal Government has also committed to increasing Defence spending in future Budget allocations to 2 per cent of GDP. The White Paper stated this was: "a long-term objective that will be implemented in an economically responsible manner as and when fiscal circumstances allow."1

Australian Strategic Policy Institute defence analyst Dr Mark Thomson has calculated this year's Defence spend at 1.57% of GDP, rising to 1.67% of GDP by the fourth year, far below the 2% target.

The Federal Government Budget Papers claim that Defence spending this year: "reaffirms the Government's commitment to Australia's national security and interests, and provides Defence with the resources it needs to deliver on the priorities in the 2013 Defence White Paper".2

Key Defence funding announcements in the Budget include:

  • Growler purchase – replacing the previous plan to upgrade 12 of the RAAF's 24 Super Hornets with the purchase of an additional 12 Boeing Super Hornets, configured in the electronic warfare Growler version EA-18G Growlers resulting in costs of almost $3 billion over nine years. The costs for this project are to be met from existing resources within the Defence budget, with an additional $200 million to be provided for the project in 2014-15.
  • Australian Cyber Security Centre, announced in January 2013 – costs for this Centre are to be funded from existing resources from contributing agencies (including Defence).
  • ADF Operations – allocation of an additional $618 million funding for ADF operations around the world, including an additional $585.7 million over the next four years for Operation Slipper (Australia's military contribution in Afghanistan and the Middle East).
  • Defence Abuse Response Taskforce – re-allocation of resources within the Defence budget as part of the Government's response to the DLA Piper Report of the Review of allegations of sexual and other abuse in Defence. This includes an allocation of $83.9 million over the next two years for reparation payments and $37.1 million to fund an independent taskforce.
  • Improved mental health services for current and former ADF personnel – this year's Budget provides $26.4 million over four years within Department of Veterans' Affairs to expand access to mental health services for current and former ADF members and their families.
  • Personnel reductions – reduction of 327 civilian staff across the Department of Defence and Defence Materiel Organisation. This is the second tranche of the 1000 personnel reductions announced in last year's Budget. However, Defence and ASIO have been exempted from the $580 million in cuts to public service executive level jobs required by this year's Budget.

What's missing?

Comparing the Budget to the White Paper announcements, there is a lack of detail around funding for the core capabilities. Funding arrangements for key Defence capabilities discussed in the White Paper not specifically detailed under this year's Budget Papers included:

  • Future Submarines Program:
    • Purchase of 12 new submarines to be built in Adelaide
    • Submarine Propulsion Energy Support and Integration Facility – a new land based facility to be built in Australia intended to provide research and testing support for the Future Submarine's Program.
    • Future Submarine Industry Skills Plan.
  • Replacing HMAS Sirius, HMAS Success and the Armidale-class patrol boats and the current S 70B-2 Seahawk naval helicopters fleet.

The lack of funding detail for the Future Submarines Program is particularly stark. Under the White Paper, the Government has ruled out "off-the-shelf" options to purchase submarines using existing European designs with evolved Collins Class or new design options only to be further explored. This has essentially "removed the two least expensive, least risky, (probably) fastest and least capable options (off-the-shelf) from the potential solution"3 which is to be contrasted with the fiscal challenges outlined in this year's Budget.

This decision is, however, consistent with the Government's broader themes of jobs and growth displayed during the Budget as the decision provides for an ongoing maritime industry in Adelaide. While the time-scale for the delivery of these submarines has been shifted from 2030 to 2038, extending the life of the Collins class submarines for one full operating cycle, it is not yet clear what the cost of these new submarines will be. There was no specific budgetary allocation for the Future Submarines Program outlined in the 2013-14 Defence Budget Papers after last year's allocation of $214 million for design studies.

How will the return to Defence spending growth be achieved?

The White Paper's response to the fiscal challenges appeared to be focused on the continuation of the internal reform program within Defence:

"Defence must ensure that it is spending every dollar of the Defence budget wisely and well. This involves making the right decisions in shaping capabilities and delivering them on time and on budget. It means structuring Defence to be streamlined and efficient to eliminate waste and ensure maximum funding can be directed to defence capability."4

But there is arguably only so far that a 'do more with less' approach can go.

The first 3 years of the Strategic Reform Program (SRP) has yielded $3.3 billion in Defence budget cost reductions through improvements in Defence planning, accountability and productivity.5 Finding additional savings beyond that initial phase of SRP activity will be difficult.

Concluding Remarks

Between the Budget and the White Paper, the Government has arguably sidestepped the challenge of matching capabilities and funding. It has made Defence funding commitments subject to better economic times but not addressed what is realistic to achieve in capability terms in the context of the fiscal reality right now.

Footnotes

1 See White Paper, paras 1.17, 7.17 and Chapter 7 more broadly.

2 See Federal Government Budget Paper No. 1: Budget Strategy and Outlook, Page 1-7.

3 Andrew Davies, The Strategist, Australian Strategic Policy Institute, 'Future Submarines', 3 May 2013.

4 See for example, White Paper para 9.3. See also paras 1.18, and 7.11 and Chapter 9 of the White Paper more broadly.

5 See White Paper, para 9.7.

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