Defence budget overview

Budget Review 2018–19 Index

David Watt

This brief should be read in conjunction with the companion brief on Defence capability which will deal with capability purchases and assistance to defence industry.

As was the case last year, the 2018–19 Defence budget has little in the way of new announcements. This is because the Government has been announcing policy decisions and promised expenditure regularly for the last two years.

In their media release setting out the Defence budget for 2018–19, the Minister for Defence and the Minister for Defence Industry summarised the Government’s various Defence policy announcements in areas as diverse as operations, the Integrated Investment Program, naval shipbuilding and supporting local industry through investment in the extensive Defence estate.[1] The media release focuses on how much money the Government is spending in each of these areas and its vigorous pursuit of the goals set out in the 2016 Defence White Paper (DWP). A great deal of money is starting to flow to Australian industry, but, nonetheless, some questions do arise.

The first of these is how well Defence is tracking to achieve the funding priorities set out in the DWP. The following table sets out the funding specified in the 2016 DWP and the total Defence funding in the last two Portfolio Budget Statements.

Table 1: DWP funding projections compared with Government funding to defence.[2] The PBS figures represent total Defence funding minus own-source revenue.[3]

$ billion 2017–18 2018–19 2019–20 2020–21 2021–22
2018–19 PBS 35.2 35.6 37.3 40.6 44.2
2017–18 PBS 34.7 36.0 38.7 42.0
2016 DWP 34.2 36.8 39.0 42.4 45.8

Source: 2016 Defence White Paper, Portfolio budget statements 2017–18: budget related paper no. 1.4A: Defence Portfolio and Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio.

It is apparent that the Government will need to increase funding to Defence still further to hit the target of 2 per cent of GDP by 2020–21. The Government has re-profiled $500 million from the forward estimates into the current financial year. In addition, the transfer of funding from Defence to the Australian Signals Directorate (ASD) (see below) amounts to $3.3 billion across the forward estimates.[4] Other fluctuations in the budget forecast include $645 million additional funding for Defence operations and $244 million in foreign exchange supplementation.[5]

The Portfolio Budget Statement (PBS) confidently asserts that ‘the Defence budget, inclusive of the ASD, will grow to two per cent of Australia’s Gross Domestic Product by 2020–21’.[6]

The Government’s own figures for expenditure indicate that 6.4 per cent of total government expenditure is on Defence.[7]

On the issue of the 2 per cent of GDP target, the Australian Strategic Policy Institute’s Marcus Hellyer has said:

The government may be planning to get into surplus in 2019–20, a year earlier than it looked like last year, but that doesn’t mean it has also brought forward its commitment to increase the Defence budget to 2% of GDP by 2020–21. That might be asking a little too much. So the main news out of this year’s budget is that the government is standing by its 2016 Defence White Paper commitment.

So 2% is now only a hop, skip and a jump away. The hop from last year to this was a healthy if not spectacular nominal increase of $1.2 billion, up to $36.4 billion for Defence, which translates into a 1.4% increase in real terms. Next year’s skip is slightly better, but that will still leave a big jump of nearly $3.4 billion, or a 6.2% increase in real terms, to hit the magical 2% in 2020–21.[8]

Budget measures

In addition to the budget measures mentioned above, the 2018–19 PBS contains total funding for operations of $750 million.[9] This is not dissimilar to last year’s PBS, but with a $150 million decrease in funding for Operation Okra being the notable feature.

There are six operations listed in the PBS, including Operation Augury, which is Defence’s contribution to counter-terrorism operations in the Philippines—it first featured in the 2017–18 Additional Estimates. Funding for individual operations is usually provided in each PBS for the relevant financial year but the amounts stated in the forward estimates are usually much less than the actual funding. It is likely that this is done for national security reasons, but Operation Augury takes this a step further by marking the funding ‘not for publication’ (nfp).[10]

However, we do know something of Defence’s work in combating terrorism in the Philippines. During 2017, Australia sent two AP-3C Orion aircraft to provide surveillance support to the Philippines military and also provided ‘mobile training teams’ to provide urban warfare counter-terrorism training.[11] During November 2017 the Prime Minister stated that there were 80 ADF personnel in the Philippines.[12]

Australian Signals Directorate

One obvious change in the Defence PBS results from the creation of the Australian Signals Directorate (ASD) as a statutory body from 1 July 2018. This change is the result of a recommendation made in the 2017 Independent Intelligence Review. Signals intelligence has been carried out within the Department of Defence since the 1940s but this is the first time this function has been carried out within its own agency.[13] As a result of the change, ASD gets a section of its own in the PBS, which indicates that funding for 2018–19 is $827.3 million.[14]

Although the PBS states that the Average Staffing Level for ASD is ‘not for publication’, the data on staffing of agencies contained in Agency Resourcing: Budget Paper No. 4 shows a reduction in the Defence APS full-time workforce of 1,127 with a note that this is ‘due to machinery of government changes and other Government decisions’.[15] It is therefore possible that this reduction in staffing is related to ASD. The 2016 Defence White Paper claimed that ‘enhancements to intelligence, space and cyber security capabilities will involve 800 new APS positions’.[16] These were to be offset by reductions elsewhere, but given ASD’s need to employ specialised staff, presumably some of these positions will go to ASD.

Defence workforce

The Defence APS workforce will fall from 17,800 in the current year to 16,373 in 2018–19 as a result of machinery of government changes.[17] This is a change from last year’s Defence PBS which forecast Defence APS staffing to be 18,200 in 2018–19. [18] Defence’s APS workforce has fallen to the forecast level of 16,373 from 20,648 in 2010–11.

The ADF approved average funded strength (the number the Government has agreed to fund) will rise from 58,596 for the current financial year to 59,794 in 2018–19 and is projected to reach 61,027 by 2021–22. The 2016 Defence White Paper proposed that the ADF grow to approximately 62,400 personnel over the decade.[19]

The total Defence workforce for 2018–19 is expected to be 76,167.[20]

[1].          M Payne (Minister for Defence) and C Pyne (Minister for Defence Industry), A safer Australia-Budget 2018–19 Defence overview, media release, 8 May 2018.

[2].          Australian Government, 2016 Defence white paper, Department of Defence, 2016, p. 180; Australian Government, Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, p. 19; Australian Government, Portfolio budget statements 2017–18: budget related paper no. 1.4A: Defence Portfolio, p. 19.

[3].          Own-source revenue is removed because it is, in essence, double counting. If Defence derives revenue from the sale of goods that it has already been funded to purchase, then the revenue is not new money. See The Australian Strategic Policy Institute, The cost of Defence, ASPI Defence Budget Brief 2017–18, 2017, p. 39.

[4].          Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 20.

[5].          Ibid., pp. 19–20.

[6].          Ibid., p. 5.

[7].        Australian Government, Budget strategy and outlook: budget paper no. 1: 2018–19, pp. 6–9.

[8].          M Hellyer, ‘2% of GDP: just a hop, skip and a jump away’, The Strategist, blog, Australian Strategic Policy Institute, 9 May 2018.

[9].          Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 21.

[10].       Ibid.

[11].       M Payne (Minister for Defence), Philippines and Australia agree to enhanced counter-terrorism cooperation, media release, 24 October 2017.

[12].       M Turnbull (Prime Minister), Press conference with Senator the Hon Marise Payne, Minister for Defence and the Hon Christopher Pyne MP, Minister for Defence Industry Canberra, ACT , transcript, 24 November 2017.

[13].       Background can be found in: C Barker, Intelligence Services Amendment (Establishment of the Australian Signals Directorate) Bill 2018, Bills digest, 94, 2017–18, Parliamentary Library, Canberra, 2018.

[14].       Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 164.

[15].       Australian Government, Agency resourcing: budget paper no. 4: 2018–19, p. 185.

[16].       2016 Defence white paper, op. cit., p. 150.

[17].       Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 24.

[18].       Portfolio budget statements 2017–18: budget related paper 1.4A: Defence Portfolio, op. cit., p. 20.

[19].       Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, op. cit., p. 146.

[20].       Ibid., p. 27.


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