Defence budget overview

Budget Review 2017–18 Index

David Watt

With most major Defence-related announcements made well before the 2017 Budget, there are no surprises in this year’s Budget. The Budget largely delivers on the Government’s plans set out in the 2016 Defence White Paper (DWP) with funding tracking in line with the White Paper’s projections.

Table 1: comparison of DWP funding projections with Government funding to defence[1]

$billion 2016–17 2017–18 2018–19 2019–20 2020–21
2017–18 PBS 32.0 34.7 36.0 38.7 42.0
DWP 32.3 34.2 36.8 39.0 42.4

Source: 2016 Defence White Paper and Portfolio budget statements 2017–18: budget related paper no. 1.4A: Defence Portfolio.

The Australian Strategic Policy Institute has stated that the 2017–18 figure represents 6 per cent growth in real terms and 1.9 per cent of GDP.[2] The Government’s own figures for expenditure on the Defence function indicate that it is 6.5 per cent of total Government expenditure.[3]

Measures and adjustments

The Defence operations budget for 2017–18 has grown to $903.1 million from the estimated actual expenditure in 2016–17 of $794 million.[4] This includes $453.6 million for Operation Okra (the ADF’s contribution to combating Daesh in Iraq and Syria) and $222.2 million for Operation Accordion (the ADF’s support operation in the Middle East). This brings the total expenditure on Okra to $1,252.6 million and $691.5 million for Accordion.[5] The $83.5 million for Operation Highroad, the ADF’s mission in Afghanistan (now $222.2 million in total), may suggest that Australia is committing to the missions in Iraq, Syria and Afghanistan for some time to come.

Defence will receive $34.2 million in additional funding to provide security support for the Commonwealth Games and the Queen’s Baton Relay.[6]

The Minister for Defence’s budget media release notes the ongoing importance of the Defence Force Ombudsman (DFO), the role of which is to be expanded to include making orders for reparations payments in cases of serious abuse. The Budget provides $12.6 million during 2017–18 and a further $19.5 million across the out years towards the running of the DFO. Defence will absorb this cost. Defence will also be contributing to the Commonwealth Redress Scheme for Survivors of Institutional Child Sexual Abuse but the figures for this have been withheld.[7]

Budget Measures: Budget Paper No. 2: 2017–18 reveals that the Government expects savings of $2.7 million for the Department of Immigration to result from the leasing of two Cape Class patrol boats to Defence.[8]

The large amount of funding to supplement Defence for foreign exchange fluctuation which has been included in the last three budgets, has significantly reduced this year. It has been reduced by $92.2 million in the 2017–18 Budget, with a further $235.1 million reduction planned in the forward estimates for next year. The portfolio budget statement (PBS) does not explain the reason for this and the Government does not publicly forecast exchange rate fluctuations as part of the budget process.

The PBS and Budget Paper No. 2 state that the Government will provide equity injections to enable Australian Naval Infrastructure Pty Ltd to ‘facilitate the development and construction’ of infrastructure at the Osborne shipbuilding facility. This money is being provided through the Department of Finance and Defence but the amounts are suppressed for commercial-in-confidence reasons.[9] Budget Paper No. 2 does state that Defence will offset the cost of the increase to Public Debt Interest (PDI) which will result from the Government borrowing money to fund this measure. Australian Naval Infrastructure Pty Ltd is the result of the intention to separate ASC into three parts—shipbuilding, submarine sustainment, and infrastructure—which was announced by the Government on 11 October 2016.[10]

Materiel

The Integrated Investment Plan (IIP) will grow to $200 billion across the next decade (it was $195 billion when the IIP was released in February 2016). The PBS states that the IIP has been updated to reflect ‘the best available information in respect to project planning, delivery reality, cost estimates, phasing, and other important judgments and assumptions critical to the delivery of the capital investment portfolio’. This update is not currently publicly available.

With a substantial pipeline of 20 projects awaiting first pass approval and a further 37 needing second pass approval, Cabinet’s capacity to appropriately assess and decide on their progression might well prove challenging.[11] The Parliamentary Library has previously commented on these pressures in its 2016 Parliamentary Library Briefing Book—45th Parliament.[12]

The 2017–18 Budget marks the first appearance of the Future Submarine project (SEA 1000) in a PBS, which has a budget of $935 million for ‘planning and mobilising to deliver a rolling acquisition program’.[13] Among other things, this will involve establishing a ‘Resident Project Team’ in France to oversee the design of the boats by DCNS in France, but it also provides funding for work at the construction facilities in Adelaide.

Similarly, the Future Frigate program design and construction phase is listed in the PBS and has a total budget of $335 million. Three designers—BAE Systems with the Type 26 Frigate; Fincantieri with the FREMM Frigate, and Navantia with a redesigned F100—were short-listed to refine their designs. All three received a Request for Tender in March 2017, and a decision is due in 2018.[14]

On 18 April 2016, the Prime Minister and Minister for Defence announced that second pass approval for the Future Frigates would take place during 2018 and construction would begin in 2020.[15] However, it has been suggested that this might not happen until 2022.[16]

Also listed for second pass approval is the offshore patrol vessel (the Government’s replacement for the Armidale Class patrol vessels). As is the case with the Future Frigates, the Government has announced a short list of three possible shipbuilders: the Damen Shipyards Group (Netherlands), the Fassmer Shipbuilding Company (Germany), and Lurssen Defence (Germany).[17] Once the Government has selected the builder from these three companies, construction is expected to commence during 2018.[18]  The likelihood of this timetable coming to pass has been questioned by respected defence journalist Kym Bergman.[19]

The Government has allocated $995 million under ‘Maritime Operational Support Capability’ (SEA 1654) for two replenishment ships to replace HMAS Success and HMAS Sirius. During May 2016 the Government entered into a contract with Spanish company Navantia to supply these vessels based on its Cantabria class design.[20] The construction part of this project is underway.



[1].          Australian Government, 2016 Defence white paper, Department of Defence, 2016, p. 180; Australian Government, Portfolio budget statements 2017–18: budget related paper no. 1.4A: Defence Portfolio, 2017, p. 19.

[2].        M Thomson, ‘Budget 2017: the highlights’, The Strategist, blog, Australian Strategic Policy Institute, 10 May 2017.

[3].        Australian Government, Budget strategy and outlook: budget paper no. 1, 2017–18, pp. 6-51 to 6-53.

[4].          Budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 21.

[5].          Ibid., p. 21.

[6].        Australian Government, Budget measures: budget paper no. 2: 2017–18, 2017, p. 126.

[7].          Ibid., p. 146.

[8].        Ibid.

[9].          Ibid., p. 187.

[10].       M Cormann (Minister for Finance), C Pyne (Minister for Defence Industry) and M Payne (Minister for Defence), Supporting Australia’s future shipbuilding capability, media release, 11 October 2016. No details have been released as to which entities will be involved in the other two elements of shipbuilding and submarine sustainment.

[11].       Budget related paper no. 1.4A: Defence Portfolio, op. cit., pp. 117–18.

[12].       D Watt, ‘Defence capability’, Parliamentary Library briefing book—key issues for the 45th Parliament, Parliamentary Library, Canberra, August 2016.

[13].       Ibid., p. 127.

[14].       Ibid., p. 128.

[15].       M Turnbull (Prime Minister) and M Payne (Minister for Defence), Continuous naval shipbuild, media release, 18 April 2016.

[16].       A Davies, ‘Future Frigates: not so fast’, The Strategist, blog, Australian Strategic Policy Institute, 3 May 2017.

[17].       M Turnbull (Prime Minister) and M Payne (Minister for Defence), Continuous naval shipbuild, media release, 18 April 2016.

[18].       Ibid.

[19].       K Bergmann, ‘Construction to start in 2018? We don't think so’, Asia Pacific Defence Reporter, December 2016–January 2017, p. 29.

[20].       M Payne (Minister for Defence), Replacement replenishment vessels, media release, 6 May 2016.

 

All online articles accessed May 2017. 

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