Defence capability

Budget Review 2018–19 Index

Nicole Brangwin

Given the large number of defence capability announcements made since the release of the 2016 Defence White Paper in February 2016, one might be forgiven for losing track. This year’s Budget does not contain any new announcements in addition to those already made prior to the Budget, so this brief aims to take stock of progress in the ever-broadening defence capability sphere.

The pace of major defence capability announcements made by the Australian Government since the release of the 2016 Defence White Paper suggests many of the proposed capabilities outlined in the Integrated Investment Program which accompanied the White Paper have the potential to be achieved.[1] Conversely, the speed at which decisions are being made on expensive, complex, long-term projects continues to raise concerns about the level of scrutiny applied by Cabinet and whether some of these projects might potentially appear on the Projects of Concern list.[2]

The overall cost attached to the Integrated Investment Program was originally $195 billion over ten years to 2025–26.[3] This figure was revised upwards in the 2017–18 Budget to $200 billion out to 2027–28.[4] The explanation for the $5 billion revision was that it reflects ‘the best available information in respect to project planning, delivery reality, cost estimates, phasing, and other important judgments and assumptions critical to delivery of the capital investment portfolio’.[5]

Defence has for some time been criticised for declining transparency in its reporting of capability issues. The application of the two-pass approval process to the major capital investment program is absent from this year’s Budget and the program’s estimated budget for approved and unapproved projects is indistinguishable as both streams are lumped together under the same line item—Major Capital Investment Program over the forward estimates totals $41,106.6 million.[6] Greater visibility of the unapproved Major Capital Investment Program and associated costs not only better informs an industry that is expected to ramp up to meet Defence’s strategic requirements, it also allows the Parliament to scrutinise these decisions on behalf of the public. The Australian Strategic Policy Institute has monitored the level of transparency over the years and Marcus Hellyer recently noted:

...there has been a significant decline in transparency in Defence, particularly in its capital program. Defence isn’t reporting project approvals in the annual report or additional estimates statements in anything resembling a comprehensive fashion. And now it’s no longer including a list of planned project approvals for the coming year in its portfolio budget statement (PBS). So we can’t know what approvals are coming up or whether they’re actually approved. That’s not to mention that there’s no coverage at all of the information and communications technology (ICT) program. It’s really an abysmal situation.[7]

Since the release of the 2016 Defence White Paper, the Government has published a series of policies, plans and strategies with specific funding figures attached. These include the:

  • National Shipbuilding Plan worth $90 billion in new frigates ($35 billion) offshore patrol boats
    ($3–4 billion) and submarines ($50 billion), over $1 billion in shipyard infrastructure modernisation and around $25 million towards skilling and growing the workforce.[8] The re-profiling of $500 million in defence expenditure to financial year 2018–19 is said to help align defence funding with projects such as the naval shipbuilding program[9]
  • Defence Export Strategy establishes the Australian Defence Export Office and an Australian Defence Export Advocate position (former Defence Minister David Johnston was recently appointed to this position), and provides $3.8 billion towards a Defence Export Facility and $20 million per year to implement the strategy.[10] This year’s Budget confirmed that $80 million over four years would be allocated from existing resources, including $6.3 million per year to support the work of the Defence Export Office. In addition, $4.1 million per year will be allocated to expanding the Centre for Defence Industry Capability grants program and $3.2 million to the Global Supply Chain program and[11]
  • Defence Industrial Capability Plan establishes Australia’s sovereign industrial capability priorities and includes various initiatives such as the Naval Shipbuilding College (worth $62 million over three years) and $17 million towards funding the sovereign industrial capability priorities grants program.[12] This year’s Budget confirms the $17 million figure over the forward estimates, totalling $68 million from existing resources.[13]

Defence’s Net Capital Investment primarily relates to military equipment and is expected to reach $3.8 billion in 2018–19 and continue to grow to $8 billion by 2021–22.[14]

Defence Cooperation Program

Under the Defence Cooperation Program (DCP), Papua New Guinea (PNG) continues to receive the largest amount of funding, allocating $42.7 million in 2018–19, an increase of around $3 million from the previous Budget. The ADF is assisting the PNG military with security aspects for the upcoming APEC meeting, to be held in PNG November 2018.[15]

The DCP as a whole received a boost in this Budget, from $128 million in 2017–18 to $164 million in 2018–19.[16] This is mainly due to the Pacific Maritime Security Program for which Western Australian company Austal has been contracted to build 21 Guardian Class patrol boats. PNG is expected to be the first recipient of the new boats in 2018.[17]

Major acquisitions

As mentioned above, the list of projects slated for first or second pass approval (and sometimes combined) under the Integrated Investment Program has been excluded from this Budget. The Defence Annual Report 2016–17 noted that during that financial year:

...74 capability-related submissions were approved by Government against an initial plan of 62 (as given in the 2016 Defence White Paper). Fifteen of those submissions received first pass approvals, 31 received second pass approvals, 15 received other types of Integrated Investment Program project approvals, and 13 approvals were granted for submissions that provided advice to Government on current and future capability.[18]

In 2017–18, the Portfolio Budget Statements for Defence showed there had been 20 first pass approvals and 37 second pass approvals (plus two ‘other’ approvals) during that financial year.[19] The Portfolio Additional Estimates Statements for 2017–18 provided a minor update showing three second pass approvals and two ‘other’ approvals (no first pass approvals were noted).[20]

The Projects of Concern list was last updated in February 2018 when the Government announced the Air Warfare Destroyer and the Collins Class submarine projects had been removed from the list.[21] There are possibly four projects remaining, two of which are related to the OneSKY civil military air traffic management system (CMATS).[22]

Defence is contributing to the Airservices-led OneSKY project to develop a national CMATS. Airservices is expected to cover 57 per cent and Defence 43 per cent of the acquisition costs of $1.2 billion.[23] In the Budget, the Defence approved project expenditure component for phase 3 is listed as $974 million, substantially more than 43 per cent of the total cost.[24] This possibly accounts for the Government’s approval of an additional $243 million earlier this year.[25] As the agreement between all parties to the project was only signed in February 2018, following protracted negotiations, Defence has so far spent $155 million and another $116 million is earmarked for 2018–19.[26] This project is still on the Projects of Concern list but is expected to be reviewed in light of recent progress.[27]

Naval shipbuilding

In February 2016, the Defence White Paper confirmed that Australia would acquire 12 conventional submarines to replace the Collins Class submarines (which cost over $500 million per year to sustain).[28] In April 2016, DCNS (now Naval Group) from France was selected as the preferred international design partner for Australia’s Future Submarine program.[29] The successful design is the Shortfin Barracuda Block 1A.[30] Overall investment in the ‘rolling acquisition’ program is worth $50 billion.[31] In this year’s Budget, the Future Submarine Program is at phase 1B with an approved budget of $2.2 billion.[32] The most recent announcement about Defence’s most ambitious acquisition was made on 3 May 2018 and stated that the critical design work will be moved from France to South Australia from 2022. Initial design work is ongoing.[33]

The Budget also notes that a decision on the Future Frigate program is expected before the middle of 2018 and the Offshore Patrol Vessels are to commence construction in 2018 as per the Naval Shipbuilding Plan.[34]

[1].          Australian Government, 2016 Defence white paper, Department of Defence, 25 February 2016.

[2].          A Davies, ‘Defence acquisition: kicking the can down the road’, Australian Strategic Policy Institute, blog, 14 February 2018; D Watt, ‘Defence budget overview’, Budget review 2017–18, Research paper series, 2017–18, Parliamentary Library, Canberra, 2017; D Watt, ‘Defence capability’, Briefing book: key issues for the 45th Parliament, Parliamentary Library, Canberra, 2015.

[3].          Australian Government, 2016 Integrated Investment Program, Department of Defence, February 2016, p. 9.

[4].          Australian Government, Portfolio budget statements 2017–18: budget related paper no. 1.4A: Defence Portfolio, 2017, p. 117.

[5].          Ibid., p. 117.

[6].          Australian Government, Portfolio budget statements 2018–19: budget related paper no. 1.4A: Defence Portfolio, 2018, p. 22.

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

[8].          Australian Government, Naval shipbuilding plan, Department of Defence, 16 May 2017, p. 80.

[9].          Australian Government, Budget measures: budget paper no. 2: 2018–19, 2018, p. 83.

[10].       Australian Government, Defence export strategy, Department of Defence, 29 January 2018, pp. 17–18.

[11].       Budget measures: budget paper no. 2: 2018–19, op. cit., p. 82.

[12].       Australian Government, Defence industrial capability plan, Department of Defence, 23 April 2018, pp. 8 and 64.

[13].       Budget measures: budget paper no. 2: 2018–19, op. cit., pp. 82–83.

[14].       Australian Government, Budget strategy and outlook: budget paper no. 1: 2018–19, 2018, p. 6-48.

[15].       Asia-Pacific Economic Cooperation (APEC), ‘APEC 2018 Papua New Guinea’, APEC website. The Defence Portfolio Budget Statements did not refer to APEC specifically, rather it mentioned assisting PNG with its ‘Major Event Security capabilities’. Portfolio budget statements 2018–19: Defence Portfolio, op. cit., p. 118.

[16].       Portfolio budget statements 2018–19: Defence Portfolio, op. cit., p. 118.

[17].       Ibid.

[18].       Australian Government, Annual report 16–17, Department of Defence, p. 123.

[19].       Portfolio budget statements 2017–18: Defence Portfolio, op. cit., pp. 117–119.

[20].       Australian Government, Portfolio Additional Estimates Statements 2017–18: Defence Portfolio, 2018, p. 85.

[21].       M Payne (Minister for Defence) and C Pyne (Minister for Defence Industry), Air Warfare Destroyer project removed from projects of concern list, media release, 1 February 2018.

[22].       Department of Defence (DoD), ‘Projects of Concern update’, DoD website.

[23].       Senate Rural and Regional Affairs and Transport Legislation Committee, Official committee Hansard, 26 February 2018, p. 109.

[24].       Portfolio budget statements 2017–18: Defence Portfolio, op. cit., p. 125.

[25].       Senate Foreign Affairs Defence and Trade Legislation Committee, Official committee Hansard, 28 February 2018, p. 75.

[26].       Portfolio budget statements 2018–19, Defence Portfolio, op. cit., p. 125.

[27].       Joint Standing Committee on Foreign Affairs, Defence and Trade, Official committee Hansard, 4 May 2018, p. 38.

[28].       Australian Government, 2016 Defence white paper, op. cit., p. 90.

[29].       M Turnbull (Prime Minister) and M Payne (Minister for Defence), ‘Future submarine program’, press release, 26 April 2016.

[30].       Naval Group, ‘The Shortfin Barracuda Block 1A’, Naval Group website.

[31].       M Turnbull (Prime Minister) and M Payne (Minister for Defence), ‘Future submarine program’, op. cit.

[32].       Portfolio budget statements 2018–19, Defence Portfolio, op. cit., p. 129.

[33].       M Turnbull (Prime Minister), M Payne (Minister for Defence) and C Pyne (Minister for Defence Industry), ‘Submarine design to move to Australia’, media release, 3 May 2018.

[34].       Portfolio budget statements 2018–19, Defence Portfolio, op. cit., p. 130.


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