Changing economic and political power dynamics in the Indo-Pacific region present a number of strategic challenges and opportunities for Australia in the coming decades.
To respond to these challenges, the Australian Government has developed a series of long-term plans for the future capability of Australia’s defence forces.
This chapter examines Australia’s strategic outlook and current defence capability planning processes, and measures to improve their efficacy and address key risks.
Australia’s strategic outlook
Recent analyses by the Department of Foreign Affairs and Trade and Department of Defence highlight the complexities of Australia’s current strategic outlook.
2017 Foreign Policy White Paper
The Australian Government’s 2017 Foreign Policy White Paper (Foreign Policy White Paper) considers the significant trends shaping the world and the implications for Australia over the next decade.
The Foreign Policy White Paper highlights that the international order established after the Second World War, shaped by US power and global leadership and characterised by an increasingly integrated economy and development of international rules and institutions, is under pressure from significant forces of change.
The Foreign Policy White Paper highlights that in our Indo-Pacific region, economic growth continues to re-shape our strategic landscape. In particular, the growth of China is ‘accelerating shifts in relative economic and strategic weight’, with China’s power and influence in parts of the region ‘growing to match, and in some cases exceed, that of the United States’. It suggests that the future balance of power in the Indo-Pacific will depend on the actions of the US, China, major powers such as Japan and India, as well as major Southeast Asian powers such as Indonesia and Vietnam.
These changing power dynamics will have significant implications for Australia’s military and defence capabilities. The Foreign Policy White Paper identifies the key risks to Australia’s security, freedom and values will be from terrorism and violent extremism, increasingly sophisticated cyber threats, people smuggling and foreign interference in Australian decision-making.
The Foreign Policy White Paper highlights that in a ‘more contested and competitive world’, Australia will require ‘strong defence and national security capabilities’. It emphasises the importance of the strength of Australia’s Defence Force to respond to security crises in our region, support global security (including operations to combat terrorism) and undertake humanitarian and disaster relief operations.
The Foreign Policy White Paper predicts that over the next 20 years, Australia’s ‘capability edge’ will significantly diminish as a larger number of regional armed forces ‘will be able to operate at greater range and precision’. In response to these changes, the Australian Government notes it is:
… delivering a more capable, agile and potent Australian Defence Force (ADF). Our particular focus is modernising our maritime capabilities and further integrating the ADF so it can apply force more rapidly and effectively.
2016 Defence White Paper
The Australian Government’s 2016 Defence White Paper (White Paper) similarly highlights the significant impact of economic development in the Indo-Pacific region on Australia’s strategic outlook to 2035.
The White Paper emphasises that Australia faces complex security challenges and greater uncertainty in our strategic environment over the next 20 years. The White Paper identifies the following six key drivers that will shape the development of Australia’s security environment to 2035:
the roles of the United States and China and the relationship between them, which is likely to be characterised by a mix of cooperation and competition
challenges to the stability of the rules-based global order, including competition between countries and major powers trying to promote their interests outside of the established rules
the enduring threat of terrorism, including threats emanating from ungoverned parts of Africa, the Middle East and Asia. Australians will continue to be threatened by terrorism at home and abroad. The spread of extremism and violence is likely to be worsened by foreign terrorist fighters returning from conflicts to Australia and other countries in our region
state fragility, including within our immediate neighbourhood, caused by uneven economic growth, crime, social, environmental and governance challenges and climate change
the pace of military modernisation and the development of more capable regional military forces, including more capable ballistic missile forces
the emergence of new complex, non-geographic threats, including cyber threats to the security of information and communications systems.
In response to this complex and uncertain outlook, the Government’s strategic defence policy is to develop:
… Defence’s capabilities and agility to take a more active role in shaping regional affairs and to respond to developments which threaten our interests; while strengthening our alliance with the United States and developing our partnerships with other countries.
This policy is outlined in the Government’s strategic defence framework, which sets out three key strategic defence interests and objectives. Figure 3.1 sets out Australia’s Strategic Defence Framework.
Figure 3.1: Australia’s Strategic Defence Framework
Source: 2016 Defence White Paper, p. 68.
The Committee recognises that Australia is facing an uncertain strategic future caused by significant economic and geo-political changes in the Indo-Pacific region. The Committee recognises that there is no single solution to these interrelated challenges, which will continue to evolve and change rapidly.
The Committee agrees that Australia’s defence capabilities must be developed to respond to these complex challenges. The Committee recognises this capability development will require significant long-term investment and support.
The Committee acknowledges that the strategic assessments underpinning the Foreign Policy and Defence White Papers are highly classified. However, the Committee considers that for Parliament to meaningfully consider and contest ideas about Australia’s strategic environment and future challenges it will need access to this information, which is not currently available to parliamentarians or the public.
Defence capability planning
As discussed in Chapter 2, since the Vietnam War, Australian Governments have set out long-term defence capability plans in strategic policy white papers. The first defence white paper, released in 1976, set out a five-year funding outlook and sought to establish self-reliance as the primary focus of Australia’s defence policy. Subsequent white papers were released in 1987, 1994, 2000, 2009, 2013 and 2016 in response to changes to Australia’s strategic environment.
The Australian Government’s current defence capability planning processes have recently undergone significant reform and are outlined the 2016 Defence White Paper.
Current defence capability plans
Officials from Defence told the Committee that Defence’s planning processes are set out in detail in its corporate plan and strategy framework. Officials further noted that:
… the 2016 Defence White Paper and the First Principles Review underpin our annual corporate and investment planning processes. From these documents, the department develops a series of enterprise-level plans and directions that detail the capabilities, activities, business processes and readiness of the organisation. We also adjust priorities according to government policy direction and changes in strategic and budgetary circumstances.
Strategy Framework 2017
Defence’s Strategy Framework 2017 (Strategy Framework) outlines how Government guidance and direction on strategic policy, including capability planning, is delivered across Defence. The Strategy Framework highlights the key documents guiding the Government’s strategic defence policy.
Defence officials told the Committee that the Strategy Framework:
… strengthens the link between strategy and planning, as called for in the Government’s First Principles Review. To implement the Government’s policy direction, more detailed classified policy guidance is provided by a range of strategy policy documents within the Strategy Framework.
Figure 3.2 illustrates how these documents feed into Defence’s planning framework.
Figure 3.2: Defence Enterprise Performance Management diagram
Source: Department of Defence, The Strategy Framework 2017, p. 4.
In its Review of the Defence Annual Report 2015-16, the Committee expressed concern about the challenges it faced in measuring the implementation of Defence’s reform programs arising from the First Principles Review, and proposed a new methodology to ‘achieve better longitudinal parliamentary oversight of the Department’s performance’.
The Committee remains concerned about the lack of metrics available to measure Defence’s in‑year and long-term progress in implementing the various plans outlined in the Strategy Framework. The Chair of the Defence Sub-Committee outlined these concerns to Defence officials:
One of the issues that this committee, in particular, faces is in trying to grapple with the Defence Strategy Framework and how we assess it and how we progress against it not just in year but longer term plans. One of the frustrations we have is that the Strategy Framework is an amalgam of many different processes and documentation, and they don't always neatly flow from one to the other in terms of metrics.
Defence officials highlighted that its plans to implement the government direction are outlined the Defence Planning Guidance, which is the Department’s highest-level classified policy document. The Defence Planning Guidance expands on the White paper and provides classified guidance on the missions expected of the ADF, and contains Australia’s Military Strategy. Defence explained that it has developed a rolling review process for the Defence Planning Guidance which will ‘culminate in annual updates endorsed by the Defence Strategic Policy Committee’. Defence noted that the rolling review will include:
… meeting regularly with stakeholders to understand how Defence is progressing against the tasks and priorities set by Government, and to help promote a policy-led and strategy-driven culture across Defence through interactive engagement.
The Committee supports Defence’s efforts to implement an internal process to review and monitor the implementation of the Defence Planning Guidance. However, the Committee is concerned that as this information classified, it not available to the Committee and the Parliament.
The Committee considers that key flaw in the Strategy Framework is its in‑year focus and lack of available metrics to measure its long-term implementation.
The key strategic documents highlighted in the Strategy Framework are discussed in detail below.
First Principles Review
As discussed in its review of the Defence Annual Report 2015-16, the Committee strongly supports the implementation of the recommendations of the 2015 First Principles Review of Defence (FPR). The Defence Sub-Committee continues to monitor the implementation of the FPR through its review of the Defence Annual Report 2016-17.
The FPR was a comprehensive, end-to-end review to ensure Defence is fit for purpose, able to respond to future challenges and able to deliver against the Government’s defence strategy. The FPR highlighted the need for extensive reform of Defence, including a ‘significant capability modernisation program’, and made 75 recommendations, including establishing a ‘One Defence’ business model and establishing a single end-to-end Capability Life Cycle to maximise the effective operation of military capability.
In the 2017 Ministerial Statement on the implementation of the FPR, the Minister for Defence, Senator the Hon Marise Payne, noted that the reforms introduced in response to the FPR have laid the foundation for the 2016 Defence White Paper and related documents.
2016 Defence White Paper
In February 2016, the Government released the most recent Defence White Paper, together with the Integrated Investment Program and Defence Industry Policy Statement. Together these documents set out the Government’s plans to fund and build Australia’s defence capabilities over the next decade.
The White Paper asserts that a ‘more capable, agile and potent force supported by an effective Defence organisation’ is essential to protect Australia’s security and prosperity. Through the White Paper, the Government has committed to investing in new defence capabilities to meet these security challenges.
The plans set out in the White Paper are based on a Force Structure Review that assessed Defence’s future capability needs and developed the forced structure required to achieve Australia’s defence objectives. The Minister for Defence, Senator the Hon Marise Payne, noted that the White Paper aims to deliver the capability modernisation program foreshadowed by the FPR.
The White Paper outlines the Government’s key priorities against the following six capability streams:
Intelligence, Surveillance, Reconnaissance, Space, Electronic Warfare and Cyber;
Maritime and Anti-Submarine;
Land Combat and Amphibious Warfare;
Key Enablers (including critical infrastructure, information and communications, technology, logistics, science and technology and health services); and
The White Paper outlines the Government’s long-term funding commitment across these capability streams to upgrade and modernise Australia’s defence capability. Under the ten year funding model, defence spending would increase to $42.4 billion by 2020-21, which is around two per cent of Australia’s Gross Domestic Product (GDP). Significantly, the White Paper asserts that the funding model will not be subject to any further adjustments as a result of changes to Australia’s GDP growth estimates to ‘strengthen Defence’s long-term budget and planning certainty’.
The White Paper commits investment in new capabilities across defence, including:
a continuous naval shipbuilding program commencing with nine future frigates and 12 offshore patrol vessels
twelve new regionally superior submarines, with the commitment to maximise Australian industry involvement in acquisition and sustainment
enhanced intelligence, surveillance and reconnaissance, space, electronic warfare and cyber capabilities
advanced training, modern equipment, healthcare and logistics systems to support Australian Defence Force personnel
comprehensive upgrades to infrastructure across Australia to support Defence’s larger future force, including key bases, training and testing ranges, and fuel and explosive ordnance facilities
modernised information management, operational communications, and command and control systems.
In particular, the Government has committed to a major investment in modernising and enhancing the potency, range and capacity of Australia’s maritime capabilities – the greatest recapitalisation of the Royal Australian Navy since the Second World War. This includes an investment of over $89 billion in a new generation of submarines, surface warships, surveillance aircraft and support vessels.
Integrated Investment Program
With the White Paper, the Government released for the first time a 10-year Integrated Investment Program (IIP). The IIP is a detailed capability investment plan for the future force, including major acquisitions of new weapons, platforms and systems as well as investment in information and communications technology, infrastructure and the enabling workforce.
The IIP aims to facilitate the whole-of-capability and whole-of-life approach to investment recommended by the FPR. The integrated approach to capital investment set out in the IIP aims to ‘reduce the risk of incomplete or fragmented approaches to investment’.
The IIP allocates approximately $195 billion in the decade to 2025-26 to fund investment of the future force. The IIP notes that many investments will extend beyond this decade, such as the future submarines and frigates. Figure 3.3 outlines the approximate division of investment planned over the decade across the six capability streams.
Figure 3.3: Ten year division of investment by capability stream to 2025-26
Source: 2016 Integrated Investment Plan, p. 24.
As noted above, the Committee considers that the most significant flaw in the Strategy Framework is the inability to track long-term implementation of the IIP.
Defence Industry Policy Statement
The White Paper recognises that the successful delivery and sustainment of enhanced defence capabilities will require closer collaboration with Australian defence industry and science and technology research organisations.
The Defence Industry Policy Statement (DIP Statement) released with the White Paper sets out the Government’s policy to improve the way that capability requirements are linked with the capacity of Australia’s defence industry to develop a highly skilled and internationally competitive Australian defence industry base.
Significantly, the DIP Statement recognises industry as a discrete Fundamental Input to Capability (those essential inputs that are combined to achieve capability). The DIP Statement notes that:
The recognition of industry as a Fundamental Input to Capability will ensure Defence fully considers the industrial capabilities and the capacity of Australian businesses—micro, small, medium and large—to deliver Defence capability, including operational capabilities and the full spectrum of support functions.
The DIP Statement sets out the following four key objectives:
Delivering Defence capability. A more focused, coordinated and transparent relationship between Defence and industry is required to maximise delivery of Defence capability.
A new approach to Defence innovation. Defence will transform the way it approaches innovation, streamlining its engagement with industry and academia, simplifying access to Defence research funding, and creating a seamless link between capability needs, smart ideas and innovation in Australian industry.
Driving competitiveness and export potential. The Government will maximise opportunities for competitive Australian businesses, building export potential, depth of skills and diversification for the Australian defence industry.
Cutting red tape. The Government will streamline tendering and contracting procedures, and rationalise the industry programs to cut red tape and make it simpler and less costly for Australian industry to support Defence, aligned with implementation of the First Principles Review: Creating One Defence.
The DIP Statement sets out specific measures to implement this new defence industry policy, including:
streamlining defence industry and innovation programs under two broad initiatives funded at around $1.6 billion to 2025-26;
providing industry with an earlier and stronger voice across the capability life cycle;
develop a more agile capability development and procurement process;
provide certainty of Government investment plans;
improve systems to identify and manage strategically critical capabilities.
The DIP Statement and IIP are designed to ‘provide industry with confidence to invest in the required skills, infrastructure and technologies to support the ADF into the future’.
The Committee notes that the objectives of the DIP Statement broadly align with the recommendations from its 2015 inquiry into Australian defence industry and exports, which aimed to adjust Defence’s capability development and procurement policies ‘to work with industry to identify, and then help sustain, those elements that represent fundamental inputs to capability’.
Naval Shipbuilding Plan
On 16 May 2017, the Government launched Australia’s first Naval Shipbuilding Plan (Shipbuilding Plan) which sets out the strategic plan to ensure that the investment in new naval capabilities set out in the White Paper and IIP can be delivered.
The Shipbuilding Plan sets out plans for a national ‘naval shipbuilding enterprise’, based on close partnerships between Government (at Commonwealth, State and Territory levels), industry and the workforce. The Shipbuilding Plan aims to develop the following four key enablers:
a modern, innovative and secure naval shipbuilding and sustainment infrastructure;
a highly capable, productive and skilled naval shipbuilding and sustainment workforce;
a motivated, innovative, cost-competitive and sustainable Australian industrial base, underpinned initially by experienced international ship designers and builders who transfer these attributes to Australian industry; and
a national approach to delivering the Naval Shipbuilding Plan.
Through the Shipbuilding Plan, the Government has committed to significant investment in Australia’s naval shipbuilding enterprise, including:
around $90 billion in new naval ships and submarines;
more than $1 billion in modern shipyard infrastructure; and
more than $25 million in workforce growth and skills initiatives.
Defence Industrial Capability Plan
On 23 April 2018, the Government released the 2018 Defence Industrial Capability Plan (Capability Plan) which sets out the Government’s long-term vision to ‘build and develop a robust, resilient and internationally competitive Australian defence industry base that is better able to help meet defence capability requirements’.
The Capability Plan connects the policy framework established in the DIP Statement with the strategies and plans established to develop Australia’s sovereign defence capability. Figure 3.4 outlines how the Capability Plan connects defence industry policy.
Figure 3.4: Defence Industry Policy Agenda
Source: 2018 Defence Industrial Capability Plan, p. 14.
Through the Capability Plan, the Government’s goal by 2028 is to ‘achieve an Australian defence industry that has the capability, posture and resilience to help meet Australia’s defence needs’. The Capability Plan states that realising this goal will require achieving three complementary elements:
provide the best capability to the Australian Defence Force;
maximise Australian industry involvement in the acquisition, operation and sustainment of our defence capability; and
optimise innovation, international competitiveness and cost effectiveness within our industrial base.
Efficacy of strategic planning processes
The Committee heard significant support for the long-term funding commitments set out in the White Paper, and their alignment with the recommendations of the FPR. Thales Australia submitted that the White Paper, IIP and DIP Statement:
… signalled an unprecedented alignment between defence policy, from the 2015 First Principles Review to the 2016 Defence White Paper, and Defence Industry Policy Statement and long term budget commitments to acquisition and sustainment.
Submitters supported the strategic approach to approaching capability planning set out in the White Paper, IIP and DIP Statement. Ms Kate Louis told the Committee that the Australian Industry Group (Ai Group) Defence Council, representing the Defence industry, was supportive of the Government’s strategic approach to:
… inform what is most important to Australia and the government and our national interests, then flowing that into an Integrated Investment program, into a DIPS and into a Defence Industrial Capability Plan. That seems to me to be a really important structure to underpin our strategy, our capability, our resources and, then, what industry needs to do. And having it driven out of strategy and not just by interests and certainly not just by picking things randomly is really important ... I know there's a lot of work, a huge amount of work, underway, and Defence is to be commended for that.
However, the Committee heard that these processes could be improved through measures to improve transparency and industry involvement.
Submitters suggested improving transparency of the existing capability planning documents, particularly the IIP and Naval Shipbuilding Plans. Dr Andrew Davies from the Australian Strategic Policy Institute (ASPI) told the Committee that improving transparency would enrich political and public debate on defence policy:
The informed debate that happens both in parliament and in the wider polity … is richer and better for more information being available. There is some information that is rightly the prerogative of the executive, for a whole variety of security reasons; there is a lot of information that I think could be usefully much more widely promulgated.
Ai Group and the Chamber of Commerce and Industry WA (CCIWA) suggested that the IIP should be ‘clear, transparent, detailed and regularly updated’ and ‘available on-line’. The South Australian Government submitted that increased detail would improve transparency:
There is … significant additional detail required in the IIP, such as a more detailed scope and precise timings of milestones (e.g. First Pass, Second Pass, Request for Tender), to provide the confidence to industry to make key investment decisions. This added level of detail also increases the transparency of the process and assists in holding the Department of Defence and Federal Government accountable for timely execution of taxpayer-funded defence programs.
Similarly, Raytheon Australia highlighted the importance of regularly updating the IIP. Mr Gerry Wheeler told the Committee:
… as national security threats evolve, the integrated investment plan should also evolve and change at the discretion of the government of the day … we regard this commitment to a living document to be in our national interest and far more important than any vested interest industry may have in seeing a regular detailed publication.
In addition, Raytheon Australia suggested that regularly updating the IIP would assist in educating members of Parliament on Defence planning processes:
Releasing a regularly updated IIP would allow industry, parliamentarians and the public to understand how this living document is evolving in response to changing circumstances, priorities and technologies. At the political level this would certainly have the effect of providing more useful information to parliamentary committees and increase the available knowledge base for members and senators.
Ai Group and CCIWA also suggested improving the transparency of other capability planning documents, particularly through:
updating the Naval Shipbuilding Plan to set out Australian industrial and workforce requirements;
early publication of the proposed Defence Industrial Capability Plan, ‘clearly articulating the sovereign industrial capabilities and their management’; and
clearly articulating proposed acquisition strategies through the Smart Buyer process for each Defence project.
Ms Louis from the Ai Group Defence Council told the Committee that these changes:
… would help underpin certainty for both national security and business investment purposes. It's been such a huge and welcome investment in defence industry, it requires a different paradigm of thinking for us to succeed.
Raytheon Australia also suggested a number of measures to improve transparency of planning processes, such as tabling the progress of National Security Council considerations of individual projects and releasing Defence’s company ‘scorecards’ to relevant oversight bodies, including parliamentary committees:
The Department of Defence has an established practice of measuring company performance according to a scorecard process where success against benchmarks including cost, schedule and technical performance is assessed … At the very least the company scorecards should be made available to members of the Investment Committee within the Department whenever a major evaluation is being considered, along with the members of the National Security Committee when final selection decisions are taken. Further, there is a strong public interest that members of the Defence Sub Committee of the Joint Standing Committee on Foreign Affairs, Defence and Trade also be provided with the scorecards on a confidential basis to inform them on how the portfolio of defence projects are being executed by industry.
The Committee notes that improving transparency of Defence’s internal processes is a key aim of Defence Sub-Committee’s proposals to reform interaction with Defence. In its Review of 2015-16 Defence Annual Report, the Committee acknowledged that:
… the balance that must be achieved between transparency of the Integrated Investment and sustainment programs and the dynamic, risk-based management required to introduce, sustain and in time dispose of high tech systems and capability. It is clear while reform is progressing well, in 2018, the Department of Defence must do more, both in public and classified material (Committee-in-Confidence), to enable the Parliament and external stakeholders to understand and provide oversight of one of Government’s largest expenditure programs.
Submitters suggested that planning processes could be improved through greater consultation and engagement, particularly with community groups and the general public.
Some submitters expressed concerns that Defence did not adequately consult with the general public in developing the White Paper. Professor Richard Tanter submitted that the White Paper public consultations were marked by a ‘consistent pattern of avoidance of serious public consultation by the department’:
While recognized experts and interested industry groups are usually invited to closed consultation sessions in major cities, community groups that have an expressed interest in the defence matters under discussion in the White Paper process are, in my own experience on occasion as both an ‘expert’ and as a representative of community groups, normally either not notified of ‘public meetings’ (even if they have registered for this purpose) or notified in cursory fashion a matter of days – or even a day - before the promised meeting.
Professor Tanter suggested that this ‘recurring practice’ suggests:
… a deep-rooted Defence attitude of disdain towards community consultation and diversity of involvement in policy development, and a determination to maintain a highly limited circle of acceptable policy consultation.
Similarly, the Marrickville Peace Group shared Professor Tanter’s concerns that community groups are:
… increasingly excluded from processes that decide the Australian military’s future. It appears to us that, for the simple reason that we are civilian, we are perceived as having nothing of significance to contribute.
Submitters also highlighted the need for greater engagement with industry groups in the early stages of planning. Ai Group and CCIWA suggested that planning processes could also be improved through:
… early and meaningful engagement with industry in the force design cycle and implementation of Industry as a Fundamental Input to Capability as a documented part of this engagement process.
Risks to capability planning processes
The Committee notes that the White Paper highlighted the need to secure long-term funding commitments to develop and implement capability plans over the next decade and beyond.
The Committee heard that strategic uncertainty is one of the key challenges to delivering long-term capability plans. The FPR highlighted a key challenge for Defence is to deliver significant capability modernisation ‘against a backdrop of strategic uncertainty’, including:
… rapid technological change; budget uncertainty; substantial economic growth in our region; and increasing demand for military responses to various regional and expeditionary crises.
The Committee heard that the most significant risk to the long-term capability plans set out in the White Paper, IIP and DIP Statement is budget uncertainty.
The FPR identified budget uncertainty as one of the three root causes preventing positive change in Defence, noting that the $18.2 billion removed from the Defence budget since 2009-10:
… has led to reactive planning, deferred military capability and a hollowing out of enablers such as estate and information and communications technology.
Similarly, the White Paper noted that between 2009-10 and 2013-14, $18.8 billion of defence funding was handed back to Government which led to the deferral of acquisition of new capabilities, ageing equipment and underinvestment in critical enablers such as information technology and military bases.
Some submitters expressed concern about the impact of short-term, politically motivated budget decisions on the development of Australia’s defence capabilities. Air Commodore (ret’d) Ted Bushell AM expressed concern that ‘Australia’s defence has become merely another financial and public relations pawn in the cut-throat competition to attract popular votes’.
Submitters expressed particular concern about securing budget stability and certainty for the plans set out in the White Paper over the next decade and beyond. Submitters expressed particular concern about the opportunity costs of short-term changes to budgets and priorities between electoral cycles. Mr Mike Nicolaides, Assistant National Secretary of the Australian Manufacturing Workers’ Union (AMWU) told the Committee:
… the parliamentary life cycle—and, with it, the tendency for the different political parties to seek to distinguish themselves one from the other—does not sit comfortably with the capability development life cycle. It does not promote the certainty … necessary for a viable and long-lasting defence industry policy.
Some submitters suggested that changing budgets and priorities in the short-term can have a negative impact on investment in the defence industry and business confidence. The Ai Group Defence Council submitted:
… Defence spend can be significantly impacted through the election cycles with adverse consequences for Defence, industry and the economy.
Similarly, the South Australian Government noted that the impacts of uncertainty on the defence industry:
The Defence industry has raised concerns over the long-term stability of the industry policy, noting the recent history of limited support to Australian industry. The impact of this instability is most acute in industry programs with long development timeframes, such as naval shipbuilding.
The Committee heard that budget uncertainty also has a negative impact on workers in the defence industry, many of whom are former servicemen and women. Mr James Baker from Boeing told the Committee that many former ADF members view working in the defence industry as ‘an opportunity to continue serving and continuing the fulfilment of the pledge that they made to the defence of Australia’. Mr Baker noted:
The more assurance that we can give to our people that they're going to have a program that will last the distance the better. When that program comes to an end, we will have longer lead time to give them some time to plan their lives. When we have programs that come to an end and there is uncertainty about what's coming next or whether a program is going to get up after the next election, it has real effects on real people, and we want to try to reduce that.
Competition between states and territories
The Committee notes state and territory governments have introduced their own defence strategies to support the development of the defence industry to meet Australia’s capability needs. The South Australian, Tasmanian and New South Wales Governments all made important contributions to the inquiry outlining the details of these strategies.
However, the Committee heard concerns that competition between states and territories for defence contracts could have a negative impact on the long-term national interest. Mr Gerry Wheeler from Raytheon Australia told the Committee:
Few could deny that the level of rivalry between the states for defence work has become almost hysterical, if not destructive … What has got completely out of hand is the way some other states have used parochial local media to prosecute their own individual cases to win federal government work with scant regard to any national interest. On occasions this has appeared to crowd out both the interests of other states and a proper consideration of the individual capabilities the Commonwealth may be seeking to acquire.
The Committee heard particular concerns about the LAND 400 Phase 2 program (see Box 3.1).
Box 3.1: LAND 400 Phase 2
Defence’s LAND 400 program will acquire and support the next generation of Armoured Fighting Vehicles (AFVs). The program will deliver replacements for the Australian Light Armoured Vehicle (ASLAV) and M113 Armoured Personnel Carrier (APC) fleets, and provide specialist Manoeuvre Support Vehicles (MSV) to properly enable Army’s combat brigades to undertake joint land combat.
The $5 billion LAND 400 Phase 2 project will deliver over 200 new Combat Reconnaissance Vehicles (CRVs) to replace the ASLAV fleet.
The two shortlisted companies for the LAND 400 Phase 2 closed tender evaluation were BAE Systems Australia (BAE) and Rheinmetall Defence Australia (Rheinmetall). BAE announced Fishermans Bend, Victoria and Rheinmetall announced Brisbane, Queensland as their preferred assembly sites should the win the contract.
On 14 March 2018, the Australian Government announced that Rheinmetall had won the tender to build 211 new CRVs and would create 1450 jobs across Australia.
The Committee heard concerns about the public debate between the Queensland and Victorian Governments on where the project would be based. Mr Gerry Wheeler from Raytheon told the Committee:
This should be a contest between two very good, very capable firms—BAE and Rheinmetall. Instead it's a contest between the states of Queensland and Victoria. Those two states did not put in a tender, and I think it's a bad thing that the public discussion is focused on the two states. I certainly don't blame the two companies involved at all, but I think the discussion has been taken away from them, and I think false hopes have been raised. It may not be an intentional thing on the part of the states, but it's certainly permeating the media.
Mr Wheeler expressed concerns that competition between states is distorting the public debate over the capability:
You have one state saying that it will generate 450 jobs and a billion dollars worth of economic activity. Another state is saying it will generate thousands of jobs and $5 billion worth of economic activity. For the same project, generating the same number of 225 combat reconnaissance vehicles, how does that work? I just don't think there's a proper examination of these issues and there certainly isn't a proper public discussion about the capabilities that the ADF is going to get through that project.
Air Marshal (ret’d) John Harvey AM, Defence Advocate for Defence NSW told the Committee that states and territories should work with the Commonwealth to facilitate ‘constructive competition’:
… competition can be a very good thing, but we need to ensure any competition is constructive rather than destructive. I suggest that constructive competition is that which leads to a net benefit for Australia, whereas destructive competition leads to a net loss to Australia.
In its Review of the Defence Annual Report 2015-16, the Committee noted it will continue to monitor the implementation of the LAND 400 program.
The Committee recognises and supports the significant reforms the Australian Government has introduced to Defence capability planning through the 2016 White Paper, IIP and DIP Statement. The Committee welcomes the strong basis these plans provide for the vital modernisation of the ADF and delivery of key capabilities.
The Committee recognises that the one of the most significant risks to these long-term capability plans is short-term budget instability. The Committee agrees the three-year electoral cycle presents significant risks to long term funding commitments. Any changes in funding over the forward estimates would have a significant impact on the ability of Defence to deliver these key reforms.
The Committee is also concerned by the impact of destructive competition between states and territories in bidding for Defence contracts. The Committee agrees that constructive competition between states and territories helps to ensure that the successful delivery of Defence capability projects. The Committee agrees that the Commonwealth, states and territories must work together to encourage constructive competition aimed at delivering the best capability to serve Australia’s national interest.
The Committee strongly supports any measures that would address these challenges and contribute to the successful implementation of the force modernisation outlined in the White Paper.
In particular, the Committee recommends that the Australian Government investigate measures to encourage constructive competition between states and territories in bidding for and supporting defence capability projects.
The Committee recommends that the Australian Government investigate measures to improve cooperation and coordination between the Department of Defence and states and territories to encourage constructive competition aimed at delivering the best capability to serve Australia’s national interest.
As highlighted in its Review of the Defence Annual Report 2015-16, the Committee remains concerned about the availability of information on the progress of how these key reforms are being implemented across Defence.
The Committee recognises advice from Defence that it has developed a series of internal plans under the classified Defence Planning Guidance to track the progress of these reforms. However, the Committee remains concerned that this information is not accessible to the Parliament.
The Committee agrees with submitters to this inquiry that the capability planning processes outlined in the White Paper, IIP and DIP Statement would be strengthened by greater transparency on how they are being progressed. The Committee agrees that these plans, particularly the IIP, should be ‘living documents’ that are regularly reviewed, updated and publicly reported on.
The Committee considers that providing parliamentary committees, such as the Defence Sub-Committee, access to this kind of classified information is integral for providing appropriate oversight and scrutiny of Defence’s progress in administering the almost $200 billion of expenditure to deliver these vitally important capabilities over the next decade. The provision of this information would facilitate contestability and debate and enable parliamentary committees to lead well-informed internal debate and public discussion of key issues in Australia’s defence policy such as whether the current level of funding is appropriate, and whether major projects are progressing as planned.
The Committee notes that a model for allowing parliamentarians to access classified information is currently demonstrated by the Parliamentary Joint Committee on Intelligence and Security (PJCIS). The Committee’s proposal for applying this model to Defence policy is outlined in detail in chapter 6.