Budgeting for Australian defence in a global pandemic - Fiscal & Monetary Policy

COVID-19 may be Australia's ‘new and invisible enemy', but other threats to national security have by no means gone away. The 2020-21 Federal Budget demonstrates a clear commitment from the Australian Government to defending against foreign and domestic threats. What does the allocation for defence in the Budget mean for Australia's security and economic recovery moving forward?

As part of Australia's COVID-19 Economic Recovery Plan, the Australian Government has been vocal about its commitment to keeping Australians safe, while at the same time protecting the nation's economic interests.

Despite pressures stemming from the COVID-19 recession, the 2020-21 Budget gives effect to the Government's plan to grow the defence budget to 2% of GDP in the 2020–21 financial year. Dr Marcus Hellyer, ASPI Senior Analyst for Defence Economics and Capability, noted recently that the continual growth of the defence budget is linked to how quickly the economy recovers from the pandemic.

The 2020-21 Budget reflects the Government's continued investment in the following key areas of national security:

Boosting the capability and potency of the Australian Defence Force (ADF). The Government will invest $270 billion over the next ten years to upgrade the capability and potency of the ADF. This includes investment in more lethal and long-range capabilities to hold adversary forces and infrastructure at risk, further away from Australia, including longer-range strike weapons, offensive cyber capabilities and area denial capabilities.
Enhancing Australia's cyber resilience and surveillance. The Government has also recognised the risks posed by malicious cyber activity against Australia, which continues to rise in sophistication and scale. The Government will invest $1.7 billion into its 2020 Cyber Security Strategy, which includes $1.4 billion over the next decade to enhance the cyber security capabilities provided by the Australian Signals Directorate and the Australian Cyber Security Centre.
Creating and supporting jobs in Australia's defence industry. While the focus of the Treasurer's Budget Speech with respect to defence was on national security, the Government's investment in Australia's defence industry will be critical to the country's economic recovery. To support its economic recovery efforts, the Government will bring forward $1 billion in projects to support jobs for Australians in the Australian defence industry. The investment package will include increased funding of over $110 million for defence innovation, industry grants, skilling and micro credentialing, and cyber training for the defence industry.
Delivering support to the Southwest Pacific. The Government will invest a further $124.3 million over 10 years to support the Pacific Step-Up through increased investment in security infrastructure in the Pacific. This investment includes a joint Australia-Solomon Islands project to construct a border and patrol boat outpost in Solomon Islands' western provinces. Australia's support for a border and patrol boat outpost will enhance infrastructure and security cooperation between the countries, and support Solomon Islands' border security.

What's next?

Insights into the Australian Government's strategic objectives for the future of Defence can be taken from the 2020 Defence Strategic Update and 2020 Force Structure Plan, which were released on 1 July 2020.

The Defence Strategic Update is a ten year funding model with a 20 year outlook that aims to provide the defence industry with the certainty to plan ahead and support the ongoing development of critical defence capability. This ten year funding model provides defence, including the Australian Signals Directorate, with funding of $575 billion over the decade to 2029-30.

In his address on the Defence Strategic Update, the Prime Minister stated that Australia currently faces a tense environment of increasing strategic competition, particularly from the Indo-Pacific region, and the introduction of more sophisticated military systems. Accordingly, the Government has set three strategic objectives to guide all defence planning, including force structure, force generation, international engagement and operations. The three strategic objectives are to:

Shape Australia's strategic environment.
Deter actions against Australia's interests.
Respond with credible military force, when required.

We can expect Australia's next Defence White Paper, which is due to be released next year, to shed more light on the shift in defence objectives.[1] While the Government has committed to broadly maintaining the funding line established in the 2016 Defence White Paper, it stresses that Australia's strategic environment has deteriorated more rapidly than anticipated at the time, and the Government's strategic objectives need to adapt accordingly.

Given the Government's increased investment in defence capabilities, we can expect to see increased jobs in the Australian defence industry, coupled with a surge in the demand for offshore and local defence suppliers. The focus of the Australian Government will be on procuring the ‘best kit for the best value', with maximum input from the Australian defence industry. The Shadow Assistant Minister for Defence, Meryl Swanson MP, states that she would like to see more Australian defence suppliers win contracts, however the focus will be on whether those suppliers can provide the best defence capability when compared to their offshore competitors.

There is a close nexus between the defence aspects of the 2020-21 Budget and the broader budget strategies to lead the nation towards the path of economic recovery. Notably, the Government has dedicated $1.5 billion over four years to the Modern Manufacturing Strategy to allow Australian manufacturers to scale up and create more jobs. The Government will support projects within six National Manufacturing priorities, which include defence and space, and has also pledged its commitment to bolstering its supply chain security, prompted by the global disturbance caused by the COVID-19 pandemic. The Modern Manufacturing Strategy will present a host of new opportunities for suppliers, and could potentially involve increased trading opportunities and closer partnering with near neighbours such as the Association of Southeast Asian Nations (ASEAN) and Pacific Island nations.

While the long-term impacts of COVID-19 remain to be seen, it is clear that the pandemic has deeply altered the economic trajectory of the country and the world at large, with implications for Australia's prosperity and security. In light of this shifting landscape, it is important that the Federal Government places Australia in a strong position to defend any foreign and domestic threats to security, now and into the future.

Footnote

¹ The last Defence White Paper was released in 2016. Since 2009, the expectation has been that White Papers will be released every five years.

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