The Thomas Perspective

One of the most revealing (and concerning) elements of Defence’s admission in its incoming government brief (the ‘Red Book’) to new Defence Minister Smith, was that the bulk of the $797m savings achieved in 2009/10 – along with much of the $1,016m set in place for 2010/11 – comprise a continuation of the Defence Savings Program that commenced prior to the Strategic Reform Program (SRP), now being put into play.

The Government has also on at least two occasions taken the opportunity to rip as much cash out of Defence as it can, in the process of clawing back windfall gains in new military capability acquisition budgets due to the progressive appreciation of the Australian dollar. Close to a billion dollars was sucked out of 2009/10 allocations in end-2009 Defence Portfolio Additional Estimates (PAES) – adding up to $3.6bn over the Forward Estimates. The recent Mid-Year Economic and Financial Outlook (MYEFO) revealed further cash withdrawals assuming a A$0.985c mark to the US dollar, and cutting Defence net capital investment by $387m in 2010/11 ($1.4 billion over four years), mostly due to Forex movements. Recall, $8 billion was previously extracted from these provisions, and pushed out to 2016/17 & 2029/30.

In simple cash terms, although Defence will continue to benefit from the 2009 Defence White Paper’s fixed funding model – 3% average real growth to 2017/18 and 3.3% average real growth from 2018/19 to 2029/30 – MYEFO’s tabulation of general government expenses by function indicates that coming after the zero growth in nominal current year Defence appropriations canvassed in the PAES, the next three years (2011/12 to 2013/14) contain reductions of at least 3% each year. Total additional dollars withdrawn is $2.107 billion.

Attempting in its own way to perhaps fend off this unending cash grab (and in advance of MYEFO preparation), Defence cautioned the new Minister in its incoming government brief, saying under the heading ‘Fat & Bloated’ perception of the Defence Budget – “Defence consumes approximately 9% of government outlays, and this is typically seen either as largely discretionary spending, or at least more capable of being financially reshaped than other government agencies.”

Further, it said “there still exists a view that despite the $44.9bn of funds invested in DWP’09 and $20 billion (gross) identified in the ‘Pappas’ Audit, there is ‘plenty of fat’ within Defence. These views, although ill-conceived, render Defence an obvious target for any major budget shaping.” Official documents also note Defence’s support to ADF units deploying on military operations and humanitarian missions “continues to be the highest priority for acquisition and sustainment.”

Prime Minister Gillard has most recently indicated Australia is committed to Afghanistan for the long-term (ie: >10 years), and although the mix of forces and nature of mission may change over that period, it is about time that the Defence budget was structured in parallel with the SRP roll-out to reflect such statements, given it has not been done that way in the past. To illustrate – Australia’s commitment to Afghanistan in 2009/10 was $1,083.6m, and forecast as $118.7m the next year.

Tabling of the 2010/11 budget saw that revised upwards eight-fold, to $915.6m, but for 2011/12, it was still only $207.2m. Hopefully, when Prime Minister Gillard and Defence Minister Smith return late-November from the NATO-ISAF Summit in Lisbon, some real honesty – in terms of visiblity of the costs of the Afghanistan mission – can be provided across the 2011/12 Forward Estimates. In that way, industry will gain a better picture of what might be left over for non-operational new military capability acquisitions listed in the Defence Capability Plan, which even Defence now openly admits is “under pressure”.

Trevor J Thomas
Editor-in-Chief