Budget Review 2012–13 Index

David Watt

With a number of major measures either flagged by the Government or leaked to the media, the 2012–13 Defence budget holds few surprises.[1] The overall Defence Budget has been cut by $5.5 billion across the Forward Estimates (to 2015–16). Total Defence funding for 2012–13 will be $24.2 billion, down from the estimated actual outcome of $26.3 billion for 2011–12.[2]

Despite these significant cuts, the Government has made clear that funding for operations remains exempt from the cost-cutting and that Australian Defence Force (ADF) members serving overseas will not suffer any adverse effects as a result of the reductions.[3] The table below indicates the main savings in the Defence Budget across the Forward Estimates.

Table 1: Expenditure reduction measures: Department of Defence: 2012–13 to 2015–16

Expenditure reduction measures 2012–13 to 2015–16	$ millions
Defence Capability Plan	1658
Approved Major Capital Investment Program	1305
Major Capital Facilities Program	1210
Reduction in Administrative Costs (Travel, consultants and consumables)	438
1000 APS Workforce Reduction (66% in 2012-13)	360
Early Retirement of C-130H aircraft	251
Navy and Army Gap Year (ceased)	91
One year delay to rollout of ADF Family Health Program	50
Workforce Policy Changes	46
Minor Capital Projects	45
Total	5454

 

The Budget was delivered at the end of a week of important defence announcements. On 3 May 2012 the Prime Minister and the Minister for Defence announced that there would be a new Defence White Paper during 2013 (one year ahead of schedule).[4] In addition, the Minister released the Force Posture Review which will feed into the new White Paper and have implications for future expenditure.[5] The announcement of the new White Paper sets out a number of reasons for the decision to move on this, some of which have clear budgetary implications. These include the likely reduction in ADF personnel serving overseas as Australia’s engagement in Afghanistan declines and Australian troops are withdrawn from the Solomon Islands and East Timor; the Defence Force Posture Review; and the effects of the Global Financial Crisis.

In addition, the media release highlights the $1.6 million underspend announced at the time of last year’s budget and the need ‘to ensure that Defence spending is calibrated against an up to date assessment of short and longer term priorities’.[6]

Table 1 above indicates that while reductions to the Defence Budget have been spread across the portfolio, just over half will come from the large budget areas of procurement and capital facilities. As the Defence Minister said on 3 May:

… there’s a general rule of thumb. In any budget with Defence if there are movements, if there are savings … 50 to 60 percent of that comes from capability.[7]

Some detail concerning the specific nature of the cuts was provided by the Defence Ministers in their Budget media releases and pre-Budget announcements. These include the deferment of purchasing the Joint Strike Fighter and the cancellation of the proposed purchase of self-propelled artillery. It is worth noting that of the 19 savings measures announced by the Government which concern capability, 14 refer to procurement projects that have been delayed or deferred, rather than being cancelled outright.[8] Procurement issues in this year’s Budget are dealt with in the ‘Defence Capability Plan review’ section of this Budget Review.

Nearly half of the Major Capital Facilities savings ($550 million) are due to occur in 2015–16, at the end of the Forward Estimates period, and it is difficult to say if this should be considered a ‘cut’ or a ’deferral’. While it did not recommend new bases, the Force Posture Review did suggest that a substantial amount of upgrading would be required to existing bases.[9] Funding will be required to respond to these recommendations. There has as yet been no formal Government response to the recommendations of the Force Posture Review, so it is unclear what impact this would have on the Defence Budget.

In its review of the 2011–12 Defence Budget, the Australian Strategic Policy Institute (ASPI) noted that in each Budget since 2009 (which was delivered just days after the public release of the 2009 DWP) the Government has deferred at least some expenditure.[10] ASPI states that between 2009 and 2011 a total of $11.7 billion in expenditure was deferred to a later date. ASPI’s Budget Director Mark Thomson has said that the deferrals this year bring the figure since 2009 to around $17 billion.[11]

The 2009 DWP promised real growth of 3 per cent in the Defence Budget out to 2017–18. If this growth figure is applied to Defence’s estimated budget in 2009–10 ($26.6 billion), the Department’s budget in 2012–13 should be in the order of $31 billion.[12] Clearly, this has not happened and it is difficult to see how the 3 per cent average real growth can be realised short of a major rebound in the world economic situation leading to substantially increased Government revenues during the coming years. Presumably, the recently announced 2013 Defence White Paper will revisit this issue.

Given the volume of commentary last year pointing to the difficulty the Government was likely to encounter in keeping its ambitious procurement plans on track, it is unsurprising that this year some commentators have consigned the 2009 DWP to history. As Mark Thomson of ASPI says:

Plans to put in place the so-called Force 2030 are in tatters… The 2009 defence white paper is dead.[13]

The Australia Industry Group appears to agree:

It is essential that the new Defence White Paper is more realistic, offering opportunities for Australia’s defence industry to participate fully in equipping and sustaining the ADF.[14]

Perhaps then, as defence commentator Derek Woolner states, ‘Australians … have now been told that the decade of post-9/11 terror is over, and with it the era of high defence spending’.[15]

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