Defence materiel

Budget Review 2014–15 Index

Nicole Brangwin

The 2014–15 Budget reflects the Abbott Government’s commitment to ‘repair Labor’s reckless under-investment in Defence’ by dedicating more funds to major equipment purchases for the Australian Defence Force.[1] The Budget aims to achieve $1.2 billion in savings over four years with the savings being directed towards Defence capability.[2] Furthermore, $1.5 billion will be brought forward from 2017–18 and distributed across financial years 2013–14 to 2016–17.[3] The Approved Major Capital Investment Program (AMCIP) will be a significant recipient of these funds as the Government seeks to accelerate the program and avoid the potential for capability gaps to develop.[4] The funding shift from expenses to capital expenditure aims ‘to improve Defence capability’.[5] This means spending more on equipment while implementing efficiencies such as reducing public service staff numbers in the Department of Defence.

Three major projects—Growler electronic attack aircraft, Romeo maritime helicopters and naval anti-aircraft long-range missiles—will receive immediate funds this financial year totalling $500 million.[6]

The Defence Materiel Organisation’s (DMO’s) total net resourcing for 2014–15 will be approximately $12.8 billion.[7] While the recent Commission of Audit report recommended that the DMO be re-integrated into the Department of Defence, this Budget did not include any structural changes to the DMO.[8] However, the Commission’s recommendation is being considered as part of the First Principles Review of Defence.[9] The ongoing DMO Review will also feed into this process.[10]

The Strategic Reform Program (SRP), introduced by the Rudd Government in 2009, aimed to achieve $20 billion in savings across Defence over ten years. This included finding savings through Smart Sustainment, one of the SRP streams.[11] This Budget noted that Smart Sustainment has achieved $1.4 billion in savings.[12] As this was the only reference to SRP in this year’s Budget, the fate of the SRP as a whole is unclear. However, the Budget did state that further reductions as part of the Smart Sustainment initiative would yield another $63.6 million in savings over four years.[13]

Approved and unapproved major capital investment

The AMCIP contains projects that have received Second Pass approval from the Government, are worth more than $20 million each and have been passed to DMO to manage. The unapproved program (also known as the Defence Capability Plan—DCP) contains projects worth more than $20 million each that are scheduled for Second Pass consideration by the Government and managed by the Defence Capability Group (DCG).[14]

The total AMCIP budget for 2014–15 is around $5.4 billion and the DCP budget for the same period is $671.5 million, with the DCP budget expected to significantly increase by 65.6 per cent each year over the forward estimates, reaching just over $3 billion in 2017–18.[15] The capacity of Defence’s capability development as a whole (Program 1.12) is forecast to incur substantial incremental increases in expenses across the forward estimates, including a significant increase in employee and supplier expenses.[16]

As part of the unapproved DCP, last year’s Budget listed 12 projects waiting for First Pass approval and 17 for Second Pass.[17] This year’s Budget only lists five projects for First Pass consideration and 12 for Second Pass.[18] Notably, the SEA 1000—future submarine project is listed separately as a DCP project ‘in development for possible Other Approval Consideration that may be considered within the Financial Year 2014–15 … ’[19] It is anticipated that the Government’s decision on this project, and many others, will be announced in the 2015 Defence White Paper.[20] A new 10-year outlook version of the public Defence Capability Plan is expected to follow the release of the Defence White Paper, providing a better account of the Government’s major capital equipment proposals.[21]

Future capability

Defence’s top 30 approved projects attract an overall total budget expenditure of around $47.2 billion.[22] Some of the key programs include the:

  • build program for three Air Warfare Destroyers (AWD) which has an approved budget of $7.8 billion. However, almost $5.2 billion has already been spent. The program has run over budget and is currently being assessed by an independent review team.[23]
  • Future Submarine acquisition program which currently has an approved budget of $235 million.[24] Of particular note, the Defence Portfolio Additional Estimates Statements 2013–14 (PAES) stated that the Government had ‘suspended work on Military off the shelf design options’ and would focus on Option 3 (evolved Collins) and Option 4 (new design) submarines.[25] This approach was also confirmed in this Budget.[26]
  • acquisition of 72 Joint Strike Fighter (JSF) aircraft, of which 14 had been approved by the Rudd Government in 2009 and a further 58 approved by the Abbott Government in April 2014.[27] The Budget notes the major risks to the JSF program include ‘the establishment of an electronic warfare reprogramming capability and the stand-up of sustainment systems and facilities required to support Australian operations’.[28]

The Government’s March 2014 announcement to acquire an unknown number of Triton Unmanned Aircraft System (UAS) from the United States has not been included in this Budget. The UAS has yet to successfully complete development with the US Navy.[29]



[1].           D Johnston (Minister for Defence), Budget 2014–15: Defence capability, media release, 13 May 2014, accessed 16 May 2014.

[2].           Australian Government, Budget measures: budget paper no. 2: 2014–15, 2014, p. 76, accessed 16 May 2014.

[3].           Ibid., p. 229.

[4].           Ibid.

[5].           Australian Government, Budget strategy and outlook: budget paper no. 1: 2014–15, 2014, pp. 6–16, accessed 16 May 2014.

[6].           Budget measures: budget paper no. 2, op. cit., p. 76.

[7].           The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Portfolio budget statements 2014–15; budget related paper no. 1.4A: Defence Portfolio, 2014, p. 136, accessed 16 May 2014.

[8].           National Commission of Audit, Towards responsible government: phase one, February 2014, p. xxii, accessed 16 May 2014.

[9].           Australian Government, ‘2013 election commitments: implementation plans’, Department of Defence, 2013, p. 2, accessed 16 May 2014.

[10].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., p. 144.

[11].         Smart Sustainment involves a collaborative approach by DMO, Defence and Defence industry to find efficiencies in sustainment. Defence Materiel Organisation (DMO), ‘Defence smart sustainment reform stream’, DMO website, accessed 16 May 2014.

[12].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., p. 144, and L Rayner, ‘The Defence Strategic Reform Program’, Parliamentary Library briefing book: key issues for the 43rd Parliament, Parliamentary Library, Canberra, 2010, accessed 14 May 2014.

[13].         Budget paper no. 2, op cit., p. 76.

[14].         M Thomson, The cost of Defence: ASPI Defence budget brief 2013–14, Australian Strategic Policy Institute, Canberra, 2013, p. 34.

[15].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., p. 19.

[16].         Ibid., p. 62.

[17].         Australian Government, Portfolio budget statements 2013–14: budget related paper no. 1.4A: Defence Portfolio, 2013, p. 118, accessed 16 May 2014.

[18].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., pp. 117–118.

[19].         Ibid., p. 118.

[20].         D Johnston (Minister for Defence), ‘Address for the ASPI conference’, transcript, 9 April 2014, accessed 16 May 2014.

[21].         Australian Government, The Defence White Paper, Department of Defence website, accessed 16 May 2014.

[22].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., p. 150.

[23].         Ibid., p. 159.

[24].         Ibid., p. 150, and Australian Government, Portfolio additional estimates statements 2013–14: Defence Portfolio, 2014, p. 125, accessed 16 May 2014.

[25].         Ibid., p. 125.

[26].         Portfolio budget statements 2014–15, Defence Portfolio, op. cit., p. 161.

[27].         Ibid., p. 158.

[28].         Ibid.

[29].         Royal Australian Air Force, ‘Triton acquisition announced’, Air Force News, 17 March 2014, accessed 16 May 2014.

 

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