Nicole Brangwin and David Watt
Total funding
Table 1: total Defence funding and major programs
(billions)
|
2018–19
est. |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
Total Defence funding* |
37.56 |
38.74 |
41.79 |
45.62 |
49.60 |
% GDP |
1.93 |
1.93 |
2.01 |
2.10 |
2.19 |
Capital Investment Program |
10.59 |
11.77 |
14.34 |
16.97 |
19.04 |
Capability Sustainment Program |
11.43 |
12.09 |
12.61 |
13.44 |
15.08 |
Sources: Portfolio
budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio
(pages 17 and 162) and Australian Government, Defence
White Paper, 2016 (p. 180).
Notes:
* Total Defence funding in this
brief comprises figures for Current year’s appropriation, Defence (Table 1.; p.
17) plus Current year’s appropriation, ASD (Table 66; p. 162) plus Appropriations
– contributed equity (Table 66; p. 162).
GDP figure calculated by
Parliamentary Library.
- Each Defence Budget since 2016 has been set, more or less, in the
direction laid out by the 2016
Defence White Paper. The White Paper promised an additional $29.9 billion
in funding for Defence across ten years to 2025, and linked this to expenditure
of $195 billion in defence capability across the same period.
- In the 2017–18
Budget, the $195 billion figure was revised upwards, to $200
billion to 2027–28.
- In addition, the White Paper stated that Defence funding would
increase to 2 per cent of GDP by 2020–21.
- Broadly, the Government has remained on track to achieve the
White Paper aims, and the 2019–20 Budget maintains this position (Table 1). Of
course, the funding rise does not have to be a steady upwards gradient. The White
Paper states:
The funding growth path to reach two per cent of GDP by
2020–21 will be aligned with the organisational and capability priorities in
this Defence White Paper. Over the next two years, while the First Principles
Review is being implemented and reforms are being institutionalised, the
Defence budget will grow gradually. After this period of reform, the rate of
funding growth will increase towards the end of this decade to deliver the
capabilities set out in the White Paper. [p. 179]
- The Australian Strategic Policy Institute’s (ASPI) Marcus
Hellyer notes that the 2019–20 figure is a year-on-year rise of 1.2 per cent
in real terms, and that total Defence funding will have to rise by
approximately 5 per cent if the Government is to reach the target of 2 per cent
of GDP.
- There are few new funding announcements in the Defence Budget.
This is to be expected because the Government set out its plans in the White
Paper and its associated documents; and the acquisition of Defence capability
is a long-term venture, which does not allow for much change across short
timeframes.
- The February 2019 Portfolio
Additional Estimates Statements revised the 2018–19 figure for total Defence
funding to $36.7 billion, up from the original 2018 budget figure of $36.2
billion. This revision appeared to result from a significant rise in the amount
Defence was compensated for foreign exchange movements. In 2018–19, foreign
exchange supplementation was projected to be $476.6 million, and the
supplementation was projected to rise across the forward estimates to $941.5 million
in 2021–22. Since Defence buys approximately 65 per cent of its capital
equipment overseas, it is particularly exposed to falls
in the value of the Australian dollar. The Defence Portfolio Budget
Statements 2019–20 (PBS) contain figures for foreign exchange that remove some
of the supplementation from the forward estimates and, to an extent, increase the
amount for supplementation for 2018–19 and 2019–20 (p. 18). The PBS does
not provide an explanation for the change.
- Defence makes a ‘not-for-publication’ contribution to the equity
injection to Australian Naval Infrastructure, as well as the Government’s new
whole-of-government Cyber
Uplift policy.
- Funding for operations is $703.6 million—a fall from the forecast
2018–19 figure of $792.7 million. This decrease is mainly due to winding
back operations in Iraq, and no funding in this year’s Budget for what appears
to be the cessation of Defence’s contribution to fighting terrorism in the
Philippines (Operation Augury).
Capital investment, capital
facilities and capability sustainment programs
Table 2: Capital Investment Program (billions)
|
2018–19
revised
est. |
2019–20 |
2020–21 |
2021–2022 |
2022–23 |
Major Capital Investment Program* |
8.0 |
8.7 |
10.9 |
12.8 |
14.6 |
Capital Facilities Program |
1.9 |
2.0 |
2.3 |
2.9 |
3.1 |
Capability Sustainment Program – total |
11.4 |
12.0 |
12.6 |
13.4 |
15.0 |
Sources: Portfolio
additional estimates statements 2018–19: Defence portfolio and Portfolio
budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio.
Note:
* Includes approved and unapproved
projects.
- The 2016
Defence White Paper states that capital investment will grow to 39 per cent
of the Defence budget by 2025–26 ($23.0 billion) and sustainment costs are
expected to increase from 25 per cent to 28 per cent ($16.4 billion) of the
Defence budget in the same period (p. 181).[1]
- Given the continuous and rolling build programs for the Future
Frigates and Future Submarines, and the increased costs of sustaining ageing
equipment to avoid a capability gap, this level of investment is likely to put
significant pressure on the Defence budget for decades to come.
- Since last year’s Budget, the estimated Major Capital Investment
Program figures out to 2020–21 have somewhat reduced, by around a billion
dollars each year. However, by 2022–23, the program budget is expected to ramp
up to $14.5 billion.
- As the Major Capital Investment Program line item does not
delineate between approved and unapproved projects, the figures contained in
Table 55 of the PBS provide some indication of estimated costs associated with
the approved projects (p. 121). The total approved acquisition projects
estimate for 2019–20 is $8.6 billion (Gross Plan—the money needed if all
projects were to be delivered as planned). Minus the forecast shortfall
(Management Margin Slippage) of almost $1.5 billion, Defence estimates the
payments required for approved projects will be around $7.1 billion in
2019–20.
- On the release of the Defence
Portfolio Additional Estimates Statements 2018–19 (Defence PAES)
in February 2019, ASPI’s Marcus Hellyer noted
that adjustments to the Major Capital Investment Program suggest ‘that
delays to new equipment projects originally scheduled for approval’ in 2018–19
might be one of the factors that ‘account for the decline in capital equipment
spending since the [2018–19 budget]’. This might also be the case with the
2019–20 Budget.
- Capital facilities spending continues to grow with approved
projects for the development and redevelopment of facilities to accommodate the
ADF’s new capabilities—such as the F-35A Joint Strike Fighter aircraft ($105.3
million) and the P-8 Poseidon maritime surveillance aircraft ($181.2 million); and
upgrades to existing facilities—such as the Joint Health Command Garrison in
various states and territories ($131.8 million) (pp. 131–36).
- Capability sustainment expenditure is expected to increase due to
ongoing estate and infrastructure management, including garrison support and
maintenance ($2.9 billion); as well as capabilities for Navy ($2.4 billion),
Army ($1.7 billion) and Air Force ($3 billion) (p. 20).
Policy announcements
- The Naval
Shipbuilding Plan (released 16 May 2017) stated that funding for new naval
ships and submarines will cost around $90 billion. The development of modern
shipyard infrastructure will cost more than $1 billion and initiatives to grow
a skilled workforce in this sector will cost up to $62 million.
- The Commonwealth-owned Australian Naval Infrastructure Pty Ltd
(ANI) was established to develop and manage Australia’s naval shipyards; the
expenditure associated with this development is not published in the Budget.
The Defence PAES 2018–19 noted variations to Defence funding that
included additional equity for ANI; however, the figures attached to the budget
measure were not published ‘due to commercial sensitivities’ (p. 18). The same
statement was made in the Defence Portfolio Budget Statements 2019–20
(p. 18) and the Department
of Finance Portfolio Budget Statements 2019–20 (p. 19).
- Work at the site of the Future Frigates shipyard at Osborne South
in South Australia is progressing and recent statements suggest that more than
half of the Government’s $1 billion pledge to develop modern shipyard
infrastructure has been spent. The ANI
Statement of Corporate Intent 2018–19 estimated the cost of
expanding and refurbishing Osborne South Shipyard in South Australia would cost
$535 million. At the February 2019 Finance Portfolio Senate
Estimates hearing, the Head of ANI, David Knox, noted that the predicted
spend at Osborne South was now $560 million (p. 11). Work is scheduled for
completion by ‘the end of the first quarter’ in 2020, when construction of the
Future Frigates (Hunter Class) is scheduled to commence.
- Details about work at the Osborne North site, where the Future
Submarines (Attack Class) will be constructed, are still under consideration
(pp. 12–14).
Workforce
Table 3: Defence workforce
|
2017–18
actual |
2018–19
est. actual |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
ADF Permanent Force |
58
475 |
58
665 |
60
090 |
60
585 |
61
027 |
61
402 |
APS Staff (FTE) |
17
728 |
16
010 |
16
272 |
16
195 |
16
167 |
16
163 |
Reserves (headcount) |
20
022 |
20
150 |
20
450 |
20
750 |
21
100 |
21
450 |
(% change) |
|
|
|
|
|
|
ADF Permanent Force |
– |
– |
2.43 |
0.82 |
0.73 |
0.61 |
APS Staff (FTE) |
– |
– |
1.64 |
–0.47 |
–0.17 |
–0.02 |
Reserves (headcount) |
– |
– |
1.49 |
1.47 |
1.69 |
1.66 |
Sources: Defence
Annual Report 2017–18 (pp. 80–83) and Portfolio
budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio
(pp. 23–24).
- The 2016
Defence White Paper aims to increase the ADF workforce to 62,400 personnel
by 2024 and the APS workforce to 18,200 full-time equivalent (FTE) staff. The
Reserve force is to be maintained at around 19,500 paid and active personnel
(p. 23).
- Table 3, summarising figures in the 2019–20 Budget, shows that
Defence continues to aim for the White Paper target of 62,400 ADF personnel;
but not the APS workforce, which is expected to stabilise at around 16,200 FTE
positions over the forward estimates (p. 21). The Reserve force is expected to
grow over the forward estimates, in the number of allocated reserve services
days and active Reserve members (p. 24).
[1].
Sustainment is the ‘provision of the appropriate goods and services
required to achieve readiness and sustainability goals for the life of the
Defence Element. Defence Sustainment involves the provision of in service
support, including repair and maintenance, engineering, supply and replacement
parts, configuration management and disposal action. Sustainment can apply to
platforms (ships, aircraft, vehicle fleets), commodities (clothing, combat
rations, munitions) or services (calibration, provision of maritime target
ranges)’. See Department of Defence submission to the Joint Committee of Public
Accounts and Audit Inquiry
into Defence sustainment expenditure, February 2017, p. 2.
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