Defence budget

Laura Rayner
Foreign Affairs, Defence and Trade Section


While ‘most departments would be happy if they can stay a little ahead of the annual inflation rate of around 2.5 per cent’,[1]

the 2007–08 Defence Budget at $22 billion, represents an increase on the previous year of 10.6 per cent or $2.1 billion. This is the seventh consecutive budget that has met or exceeded the commitment to a 3 per cent per annum real growth in outlays made in the 2000 Defence White Paper.[2]

Despite this, for Defence to meet its financial commitments over the long term it has to hope that the promised increase in real growth will not be undercut by any weakening in the economy or any loss of political will if (or when) hostilities cease and deployments lessen. It has to hope that it can overcome its military recruitment and retention problems and the skills shortage in defence industry and that money will continue to be available to cover ‘spiralling capital equipment and personnel costs’ which are ‘rising by about 4% and 5% a year’.[3]

Taxpayers will also have to hope that the Proust Review’s concerns are unfounded and that Defence’s ‘current comparative wealth’ does not mean ‘that there are now less concerns about efficiency than in the past’.[4] 

Retention and recruitment

On 15 December 2006 the Prime Minister announced a raft of measures costing $1 billion to increase recruitment and improve retention of military personnel. The 2007–08 Budget increases this promised spending twofold, with an additional $2.1 billion over ten years aimed at boosting recruitment and retention.

The Government is caught between its decision in August 2006 to increase the ADF by 6000 personnel to 57 000 over the next decade to meet what it sees as ever increasing future regional and global security challenges, and the strength of the civilian labour market which is not just competing with the ADF for new employees, but luring away military personnel who can earn good salaries without the stress military life can put on families or the dangers of active service. 

The December 2006 reforms included $226 million over the next seven years ($38.3 million for 2007–08) for retention bonuses and allowances for those with critical skills and high value experience as well as two measures aimed at new recruits: $371 million ($26.5 million for 2007–08) to streamline recruitment; and $306 million over 10 years for a military gap year scheme for school leavers (but not beginning until 2008–09 with $8.2 million). A total of $112.5 million was also programmed for five years for the Navy Sea Change program, with $17.3 million for 2007–08.  This was the first phase of measures aimed at increasing recruitment from around 4700 personnel to 6500 a year and reducing the current separation rate from around 11 per cent per annum to below 10 per cent. A drop of 3 per cent would reduce separation rates by 500 per year.[5]

In April 2007 the compulsory retirement age for permanent military personnel was increased from 55 to 60, at the same time the potential recruitment pool was increased by lifting the age limit for recruitment from 51 to 56.

There are some early indications of success for the first phase of the ADF’s recruitment and retention strategy with an 86 per cent take–up of the Army expansion bonus and an 81 per cent acceptance of the $25 000 bonus offered to those in critical employment categories. The ADF has recruited 1004 more full–time and Reserve personnel than at this time last year, with an overall full–time and Reserve entry of 86 per cent.[6]

The 2007–08 Budget includes another eight measures aimed at increasing recruitment and reducing separation rates over the next decade. Three of these, totalling $399 million, could be said to be targeting new recruits: $227.8 million ($24.6m for 2007–08) for marketing and branding the three services to attract young people; $100 million ($10m for 2007–08) to enhance and expand the Defence Force Cadet scheme; and $71 million ($5m for 2007–08) for a new Defence Apprenticeship scheme to assist 16 and 17 year olds to begin an apprenticeship and then join the ADF.

The other five Budget initiatives, which at $1673 million make up the bulk of the funding, might make the ADF more attractive in the longer term, but they are aimed essentially at retaining existing personnel: $863.8 million (beginning with $40.9m in 2008–09) for a new home loans assistance scheme; $585.4 million (beginning with $59.7m in 2008–09) for a modern and more flexible pay structure for other ranks; $124.5 million ($4.4m for 2007–08) for transition and career advice aimed at encouraging retention and re-enlistment; $86.5 million ($1.9m for 2007–08) for the Navy’s Sea Change program to relieve navy personnel of some port duties and extend deployment allowance to submariners; and $12 million ($0.6m for 2007–08) for medical officer professional development.

While Defence is trying to ‘grow’ the ADF by recruiting an extra 1800 new personnel each year for the next decade, the new spending announced in December 2006 and in the Budget indicates that Defence’s monetary emphasis is on retaining its existing force. The latest attitude survey of military personnel indicates that while a significant proportion of military personnel (34.9 per cent Navy, 31.2 per cent Army and 24.7 per cent Air Force) report that they are actively looking at leaving the service, its findings also demonstrate that these are not the highest dissatisfaction figures of the last few years. In addition, ‘actively looking at leaving’ does not necessarily translate into actual separations as separation rates have been relatively steady over the past few years.[7]

  On the other hand, the rate of loss of new recruits within the first twelve months of service did increase between 2002–03 to 2004–05 across all three services. The Navy’s drop–out rate for recruits rose from 6.8 per cent to 16.4 per cent; the Army’s rose from 18.8 per cent to 21.6 per cent; and the Air Force’s from 9.8 per cent to 11.6 per cent.

Equipment acquisition

Two items of interest in the Budget relating to defence procurement are the Government’s decision to purchase twenty-four F/A-18F Super Hornet aircraft and the necessity of reprogramming a substantial percentage of the acquisition budget to later years.

Super Hornets

The capital expenditure project which Defence has highlighted in the Portfolio Budget Statement (PBS) as a Project of Interest is project AIR 5349 phases one and two—the unexpected acquisition of twenty-four F/A-18F Block II Super Hornets from the US as a stopgap measure in case of ‘an air combat capability shortfall during the transition to the JSF [Joint Strike Fighter]’.[8] 

The Super Hornet decision was so sudden, with both its first and second pass approvals happening on 1 March 2007 (mirroring the first and second pass approvals for the C–17 procurement on 1 March 2006), that it did not make it on to the PBS table of the top 30 Defence Materiel Organisation (DMO) projects by 2007–08 expenditure. This is despite the 2007–08 Budget allocation of $621 million being the highest estimated expenditure for the year by a factor of nearly 50 per cent more than its nearest rival.

The timing of the Minister’s first public suggestions that the Government was considering buying or leasing the 24 Super Hornets coincided with Australia signing up to the second phase of the JSF development program, but it was advice to the Minister from the chief defence scientist on the risks associated with flying the F-111s beyond 2010 that evidently prompted the Super Hornet decision.[9]

  Despite this, it has been reported that the Defence Department ‘backed by the RAAF, told Cabinet it did not want the Super Hornets’.[10]

Certainly their purchase adds to the debate and controversy surrounding the proposed acquisition of up to one hundred F-35 Joint Strike Fighters.

There is an apparent inconsistency within the Minister’s Budget press release about the Super Hornet.[11]

  On the one hand, the introduction of the Super Hornets is timed to coincide with the withdrawal of the F-111s; on the other hand, the press release states that introduction of the aircraft poses a relatively low risk transition because of the considerable similarity in support, training and tactics to the current F/A-18 fleet.  However, while there will be some similarity between the F/A-18 A/B Hornets (the current aircraft) and F/A-18Fs (the Super Hornets), the Super Hornets will be replacing the F-111s, not the existing F/A-18s; and, as well as air crew training, it is the workforce supporting the F-111s at Amberley which will have to transition to the new fighter. However, the Air Force does see the Super Hornet offering low risk transition to the stealth and network–centricity of the F-35.[12]

As well as the change from the F-111s to F/A-18F Super Hornets, the Air Force is facing a number of other major capability transitions over the next decade or so: the introduction of the F-35 Joint Strike Fighter from 2013 to 2018; the retirement of the older F/A-18 Hornets from 2014; and the subsequent retirement of the Super Hornets in around 2020, with the current Air Force leadership keen to have a fourth squadron of F-35s.[13]

 Reprogramming of the Capital Investment Program

In 2007–08, $1.113 billion of major capital equipment project spending in current and forward estimates, ‘has been reprogrammed into later years due to industry capacity and schedule slippage’.[14]

This is listed in the PBS on page nine under two line items: ‘reprogramming of approved capital investment program’ (-$615 million); and ‘further reprogramming of approved capital investment program’ (-$378 million), both in 2007–08 with no explanation of why the separation or which projects are contributing to these variations. Elsewhere the PBS explains that the -$615 million represents ‘reprogramming of the Approved Major Capital Investment Program due to industry capacity issues and slippage of approved projects’.  The -$378 million is made up of -$350 million of ‘reprogramming of the Approved Major Capital Investment Program following a review of the estimates in the 2007–08 Budget to reflect industry capacity issues and reprogramming of project schedules’, and -$28 million of ‘reprogramming of the Major Capital Facilities funds from 2007–08 to later years’, evidently facilities for the Enhanced Land Force.[15]

 Current slipped expenditure on the Airborne Early Warning and Control (AEW&C) system and the M113 tank upgrade projects is noted in the 2007–08 PBS as the reason behind an expected higher level of expenditure between 2008–09 to 2010–11.[16]

Slippage in these two projects caused Defence to reprogram -$390 million to later years in the 2006–07 Defence Portfolio Additional Estimates.[17]

The DMO’s performance target in 2007–08 for its Output 1.1—Management of Capability Acquisition, is $4827.5 million.[18]

The reprogramming of -$993 million for 2007–08 represents a 16 per cent variation in the planned expenditure on capital equipment in this one year.  That is, it is an underspend of 16 per cent before money has been appropriated for 2007–08.  This disclosure loses some of its impact without a clear and detailed explanation of which projects have brought this about, and why—how much of this is down to projects which are problems for DMO and how much is in the nature of normal updating of project estimates?


Defence will struggle to translate the 2000 White Paper commitment of 3 per cent real growth into greater security for Australia, unless Defence is successful in promoting greater recruitment and retention in the ADF, and problems in acquisition, such as those which have caused Defence to have to reprogram $1.1 billion, are overcome.


 [1].     B. Toohey, ‘Nelson armed with cash’, Canberra Times, 13 May 2007, p. 24.

[2].     ‘‘Business as usual’ security agenda awaits election campaign goodies:’s 2007/08 Australian defence and national domestic security budget analysis’, Weekly Newsletter, Vo.9, no. 19, 9 May 2007.

[3].     P. Walters, ‘Sustained build-up in pace of spending’, Australian, 9 May 2007, p. 9.

[4].     Report of the Defence Management Review, [the Proust Review], Canberra, the Department, 2007, p. vii.

[5].     J. Kerin, ‘Bid to sell the soldier’s life’, Australian Financial Review, 15 December 2006, p. 7.

[6].     Angus Houston, Speech to RUSI conference Wednesday 16 March 2007, Defence media release CPA 70515/07, 16 May 2007.

[7].     Department of Defence, 2005 Defence attitude survey: summary of results, Canberra, the Department, May 2006, p. 18.

[8].     Portfolio Budget Statements 2007–08: Defence portfolio, Section Two—Defence Materiel Organisation, p. 254; Brendan Nelson, Joint Strike Fighter, media release, 002/07, 1 February 2007.

[9].     Australian Associated Press, ‘Super Hornets spell end of F-111s’, 6 March 2007.

[10].   Toohey, op. cit.

[11].   Brendan Nelson, Budget 2007–08: Super Hornet bridging air combat capability, media release B05/2007, 8 May 2007.

[12].   G. Ferguson, ‘$6B for Super Hornet’, Australian Defence Magazine, April 2007, Vol. 15, No. 4, p. 24.

[13].   Presentation by Air Marshal G Shepherd, Chief of the Air Force, to the RUSI Conference on 16 May 2007.

[14].   G. Barker, ‘Generous allocation reflects confidence in economy’, Australian Financial Review, 9 May 2007, p. 17.

[15].   Portfolio Budget Statements 2007–08: Defence portfolio, op. cit. pp. 41–42, 69.

[16].   Portfolio Budget Statements 2007–08: Defence portfolio, op. cit. p.68.

[17].   Portfolio Additional Estimates Statements 2006–07: Defence portfolio, p. 45.

[18].   Portfolio Budget Statements 2007–08: Defence portfolio, op. cit. p. 251–254.