Budget Review 2020–21 Index
David Watt and Nic Brangwin
Defence was in the relatively unusual situation of having
some certainty about its budget well ahead of the actual Budget day. This is
because the Government set out its funding plans for Defence through the rest
of the current decade in the 2020 Defence Strategic
Update (DSU), which was released on 1 July 2020. Effectively, the
DSU was an update to the 2016
Defence White Paper and took the 2016 DWP’s ten-year defence funding model
out to 2029–30. If fulfilled, the ten-year funding model will provide Defence
with $575 billion to 2029–30. The Government provides Defence with this
enviable level of certainty about its funding in part because, as the DSU makes
clear, Australia’s strategic situation has deteriorated in recent years, but
also because the range of complex acquisition programs that Defence is running
requires long-term financial commitment to see them to fruition.
This year (2020–21) also marks the point at which the
Defence budget surpasses 2 per cent of GDP. This number has been a largely
symbolic target and, as set out in the 2016 DWP and repeated in the DSU, will
now be abandoned in order to ensure that defence funding will not be subject to
fluctuations in Australia’s GDP.
As has been the case since in recent years, the Government
has continued to adhere, with only minor fluctuations, to the funding model set
out in the 2016 DWP and the 2020 DSU. The following table sets out the DSU’s
projected funding against this year’s PBS figures.
Table 1: total defence funding—Defence
Strategic Update and Portfolio Budget Statement (PBS) ($ million)
Source: Department of Defence,
2020 Defence strategic update, 2020, p. 54; Australian Government, Portfolio budget statements 2020–21: budget related
paper no. 1.3A: Defence Portfolio,
Government funding to Defence has risen by around $3.5
billion between 2019–20 and 2020–21. This is an 8.9 per cent rise in nominal
terms and once the forecast for inflation is taken into account, 7 per cent in
real terms (calculated by deflating the nominal expenditure figure by the June
quarter Consumer Price Index, which may differ from the methodology used in the
Defence receives a little more than the DSU funding line in
the current year (largely because of funding for operations), but gets a little
less across the forward estimates. This seems mainly to relate to a reduction
in funding to compensate for foreign exchange fluctuations—which amounts to
$2,227.6 million across the forward estimates. The nature of this funding
means there is no impact on Defence’s buying power.
One new and useful table in the PBS is Table
4b on page 21, which provides a breakdown of Defence’s budget by ‘key cost
categories’. The table makes clear the growth in the proportion of the Defence budget
that is going into capability acquisition. The Force
Structure Plan that accompanied the DSU stated that capability
acquisitions would reach 40 per cent of the Defence budget by 2029–30. As
the Australian Strategic Policy Institute (ASPI) has pointed out in volume one
of its Cost
of Defence 2020–21, this is a historic high and represents a 148 per cent
nominal increase from 2019–20.
This growth is apparent in Figure 1 below, which sets out
the breakdown of the amounts for 2023–24.
Figure 1: key cost categories
forecast for 2023–24
Source: Parliamentary Library
estimates; Australian Government, Portfolio budget statements 2020–21: budget related
paper no. 1.3A: Defence Portfolio,
There are no new major capabilities announced in the Budget,
but with so many large capability acquisitions underway and promised funding of
billion across the decade, this is not surprising. Table 55 in the PBS
(pp. 113–22) outlines the top 30 acquisition projects by 2020–21 forecast
expenditure and reveals:
- By the end of 2020–21 the Royal Australian Air Force (RAAF) should
have accepted 41 of its proposed 72 F-35A Joint Strike Fighters and more than
half of the approved budget of $16.7 billion budget will have been spent.
- The Air Warfare Destroyer program expects to declare final
operational capability by June 2021 and most of its $9.1 billion budget will
have been spent by that time.
- The purchase of the two replenishment vessels from Spanish
shipbuilder Navantia is expected to take a major step with the delivery of both
ships to Australia and the bulk of the $1.1 billion budget spent during the current
- Other major shipbuilding projects—in particular the Hunter Class
Frigates and Attack Class Submarines—are much closer to the start than they are
to completion, with the bulk of the expenditure still very much in the future.
- Construction of the Offshore Patrol Vessels, the evolved Cape
Class Patrol Boats and the replacement Pacific Patrol Boats, is underway with forecast
expenditure of $464 million during the current year.
In relation to the Attack Class submarines and Hunter Class
Frigates ASPI’s Marcus
Hellyer points out that both underspent against their targets last year, particularly
the frigates. Earlier in 2020 there were suggestions that the Hunter
Class project is experiencing schedule slippage. Defence has denied there
is a problem and it appears the first
steel will be cut in 2022 at South Australia’s Osborne shipyard for what
will become HMAS Flinders. However, given the importance of the frigate build
to the Government’s plans for continuous shipbuilding, even a potential delay
must be of concern.
Defence is receiving supplementation of $80 million for the
current year relating to deployments in support of the COVID-19 response. Defence
itself has to find the $1 billion that the Government wants to spend to
‘accelerate defence initiatives to speed the COVID recovery’. This includes
increasing the employment of Reservists who have lost their jobs as a result of
the pandemic; a $300 million estate works program in regional Australia;
accelerated sustainment programs across a range of Australian Defence Force (ADF)
capabilities; and the acceleration of some capability platforms. This measure is
listed in Budget
Measures: Budget Paper No. 2: 2020–21, but was previously announced
by the Government on 26 August 2020.
Defence has been given an additional $10.6 million (out of
$17.7 million) across the forward estimates as a part of establishing the Joint
Transition Authority to better assist ADF members as they leave military service
and transition to civilian life. The creation of the Joint Transition Authority
was recommended by the Productivity Commission in its 2019 report A
Better Way to Support Veterans (for more details, see the Veterans’
Affairs article elsewhere in this Budget Review).
Other measures include $124.3 million across ten years for
infrastructure in the Southwest Pacific as part of the Pacific Step-up program
(see also the Budget Review 2020–21 brief, Australia’s
Foreign Aid Budget 2020–21). The establishment of a Joint Strike Fighter
Industry Program will support Australian businesses seeking work on the JSF
support and sustainment. Both measures are to be funded from the existing
last Ministerial Statement on Defence operations was delivered to
Parliament on 5 December 2019. At that time the ADF was involved in ‘17 active
operations and activities’. Outcome 1 in the 2020–21 PBS
lists 21 international and domestic military operations; of which six are in
the Middle East, six in the
Indo-Pacific, four in Australia, two in Africa (Mali and South Sudan), one in
central Asia (Afghanistan), one in Europe (Cyprus), and one in the Antarctic.
Since the last Ministerial Statement, some operational
deployments have begun to draw down. In the Middle East, Operation Okra Task
Group Taji (Iraq) and the Air
Task Group (Iraq and Syria) completed their missions, the number of ADF personnel
deployed in Afghanistan halved to 150, and it remains to be seen whether or
not the Royal Australian Navy (RAN) replaces
HMAS Toowoomba in the Middle East maritime region.
Defence is supplemented for
the cost of operations on a ‘no-win no-loss’ basis, meaning operations
funding covers the additional costs required to conduct operations, such as
operating costs and urgent equipment acquisitions. Forward estimates for
operations funding is typically underfunded in the PBS due in some part to
operational security and the unpredictability of military operations. Only
those operations that receive funding on a no-win no-loss basis are included in
the Budget; smaller operations, such as contributions to peacekeeping missions
(up to $10 million), are funded from within the Defence budget.
The net additional cost of operations in 2020–21 is around
$727.8 million. This includes funding for the COVID-19 response, but the
largest proportion is attributed to Operation Okra in the Middle East. Given
the drawdown of task groups in Iraq and Syria, operations funding for Middle
East missions is likely to be significantly reduced in future years.
In 2019–20 workforce was the most expensive item in the
Defence budget, at a cost of more than $12.8 billion (see the key
cost categories breakdown in the 2020–21 PBS).
While workforce costs will continue to increase—totalling more than $55.7
billion over the forward estimates—capability acquisition and sustainment costs
will surpass this, bringing the workforce share of the overall budget down from
32.9 per cent to 27.6 per cent over the forward estimates, as Table 2 below
Table 2: workforce planned
expenditure ($ million)
|| 12 877.9
|| 13 410.5
|| 13 766.9
|| 14 108.3
|| 14 481.3
|Total Defence planned expenditure
|| 39 157.7
|| 42 612.4
|| 45 590.6
|| 49 508.4
|| 52 457.6
Source: Australian Government,
Portfolio budget statements 2020–21: budget related
paper no. 1.3A: Defence Portfolio,
While Defence prepares a new Defence Strategic Workforce Plan
(DSWP) for consideration by the Government in 2021, the 2020 Force
Structure Plan (FSP), released with the DSU on 1 July, contains an initial
ADF workforce increase of 800 permanent personnel (RAN 650; Army 50; RAAF 100)
and an increase of 250 in the Australian Public Service (APS) civilian
workforce (which excludes additional growth in the Australian Signals Directorate,
ASD). The DSWP is expected to be released in late 2021 and will include plans
to grow the workforce between the years 2024 and 2040. Developing the science,
technology, engineering and mathematics (STEM) workforce appears to be a
priority area for future workforce planning.
workforce total is:
- 59,109 permanent ADF
- 21,189 Reserves and
- 16,129 APS (excludes ASD personnel).
8 and 9 in the PBS (p. 26) reveal that by 2023–24 the planned workforce
total is expected to be:
- 62,726 permanent ADF
- 22,040 Reserves and
- 16,456 APS (excluding ASD personnel).
The FSP earmarked
investment of around $6.3 to $9.4 billion from 2030 to 2040 for the
‘recapitalisation of Reserves’ to boost training commensurate with the
permanent force and develop the capacity to more rapidly deploy the Reserves.
All online articles accessed October 2020
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