Defence budget overview

Budget Review 2015–16 Index

David Watt

The 2015–16 Defence budget contains few, if any, examples of new spending and might be characterised as ‘steady’. This is because the Government made a number of major announcements prior to the Budget and is expected to be making more later in the year. The First Principles Review, which was released on 1 April 2015, has informed the Government’s decisions concerning the structure of the Defence portfolio.[1] The Defence White Paper will be released later in 2015 in conjunction with the long-awaited successor to the 2012 Defence Capability Plan which will, according to the Government’s budget brochure, also contain a Naval Shipbuilding Plan. These documents are expected to set out the Government’s long-term strategic plans for capability acquisition and will dominate major policy announcements in the Defence sphere during 2015.[2]

Given this, the 2015–16 Budget is very much about the dollars and not much else. The Government continues to increase the Defence budget in a manner that is broadly in line with its pre-election commitment to set expenditure on defence at 2 per cent of GDP by 2023–24. The growth in funding in 2015–16 is a 4 per cent increase in real terms and should mean that defence spending is over 1.9 per cent of GDP next year.[3]

Table 1: Total defence funding ($ billion)

 
2013–14
2014–15
2015–16
2016–17
2017–18
2018–19
2015–16[4]
30.1 (est. actual)
32.1
31.1
33.6
36.0

Source: Portfolio budget statements 201516: budget related paper no. 1.4A: Defence Portfolio (see footnote 4)

Having noted the funding increase, there are a few things about its composition that should also be highlighted. Much of the increase is attributable to the cost of military operations (discussed below) and the $732 million for foreign exchange supplementation. Foreign exchange supplementation, which maintains the Department of Defence’s buying power in the face of the declining value of the Australian dollar, is provided on a ‘no win/no loss’ basis and does not improve the department’s position in real terms. This supplementation follows the $320 million allocated for the same purpose in 2014–15.[5]

In addition, the headline figure includes $805 million which would have been appropriated directly to the Defence Materiel Organisation (DMO) if the Government had not accepted the recommendation of the First Principles Review to reintegrate the functions of the DMO back into the Department of Defence. For more on the Defence Materiel Organisation, see the Library’s Budget Review article on Defence capability.

In regards to the ratio of defence expenditure to GDP, defence analyst Mark Thomson has already noted that this has been ‘boosted by slower than expected economic growth’.[6] In other words, if the GDP pie is smaller and Defence expenditure continues to grow, then the proportion of expenditure on balance is greater. Thomson also points out that the 2 per cent target will require seven years of compounding real annual growth of 4.2 per cent.[7] This figure will be lower in succeeding years if Treasury forecasts are correct about the size of the Australian economy: 1.83 per cent in 2017–18 and 1.86 in 2018–19.[8] It is also true that 2 per cent of a smaller GDP will not improve Defence’s buying power overseas when it comes to capital equipment acquisition. Certainly, the usefulness of the 2 per cent target remains the topic of debate by experts in the field.[9]

Budget measures and operations

In addition to the supplementation for foreign exchange mentioned above, this year’s budget measures include $751.2 million for operations. This is detailed in the following table.

Table 2: Funding for operations 2015–16 ($ million)[10]

Operation Okra
(Australia’s contribution to the international coalition against ISIL in Iraq)
359.8
Operation Accordion
(support activities across Australia’s involvement in the Middle East)
189.3
Operation Highroad
(Australia’s contribution to the NATO-led ‘train advise and assist mission in Afghanistan)
115.1
Operation Manitou
(Australia’s contribution to the international maritime effort to combat piracy and related illegal activities in the Middle East region)
40.3
Operation Resolute
(Defence’s contribution to border protection)
48.1

Source: Portfolio budget statements 201516: budget related paper no. 1.4A: Defence Portfolio (see footnote 10).

The cessation of Operation Slipper (Australia’s military mission in Afghanistan) at the end of 2014 has not facilitated a reduction in spending or the tempo of military operations overseas. The 2014–15 Mid-Year Economic and Fiscal Outlook (MYEFO) revealed funding to support Operation Okra at a cost of $260.8 million for 2014–15, as well as $63.2 million for Operation Accordion for the same period. In addition, there is funding of $46.4 million for the Department of Foreign Affairs and Trade (DFAT) to run its embassy in Baghdad (DFAT also received $64.1 million for the embassy in Kabul).[11] Involvement in the Middle East and Afghanistan continues to cost Australia substantial sums of money.

Defence Cooperation Programme (DCP)

The Defence Cooperation Programme is budgeted to rise from an estimated actual expenditure of $90.6 million in 2014–15 to $106.5 million in 2015–16.[12] This features a substantial increase (from $25.3 million to $37 million) in funding to Papua New Guinea as well as $2.2 million for the resumption of the Defence relationship with Fiji (suspended after the 2006 coup).

Another notable feature of the DCP is the Pacific Patrol Boat Programme. Through this program, between 1987 and 1997, Australia provided 22 patrol boats to the 12 Pacific island countries which are part of the DCP. On 5 March 2015 the Minister for Defence announced a tender process which will lead to the supply of 21 new—Australian-made—steel-hulled patrol boats to replace the current vessels being used by the Pacific island nations.[13] The total cost of the project is $594 million, with $22.1 million allocated for 2015–16.



[1].          Department of Defence, ‘First Principles Review: Creating One Defence’, 1 April 2015.

[2].          Australian Government, Budget 2015–16: defending Australia and its national interests, Department of Defence, 2015, p. 6.

[3].          M Thomson, Budget 2015: a good one for Defence, The Strategist, Australian Strategic Policy Institute weblog, 13 May 2015.

[4].          Australian Government, Portfolio budget statements 2015–16: budget related paper no. 1.4A: Defence Portfolio, p. 17.

[5].          Australian Government, Portfolio supplementary additional estimates 2014–15: Defence Portfolio, p. 3.

[6].          M Thomson, op. cit.

[7].          Ibid.

[8].          Defence Budget Special Issue, Australian Defence Business Weekly, vol. 17, no. 20, 13 May 2015, p. 3.

[9].          R Smith, ‘Defence spending: a better measure for holding government to account’, Lowy Interpreter weblog, 2 May 2014.

[10].       Portfolio budget statements 2015–16: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 18.

[11].       Australian Government, Budget measures: budget paper no. 2: 2015–16, 2015, pp. 95–96.

[12].       Portfolio budget statements 2015–16: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 127.

[13].       K Andrews (Minister for Defence), Tender announced for Pacific Patrol Boat replacement project, media release, 5 March 2015.

 

All online articles accessed May 2015. 

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