Coalition Senators' Dissenting Report

1.1Coalition senators disagree with the decision of the Labor senators to close this report without any hearings or opportunity for feedback from Australia’s Defence Industry about the consequences of the Albanese Government’s Defence Strategic Review (DSR) and subsequent Defence budget decisions over the past two years.

1.2There is abundant evidence that Australia’s Defence Industry has been harmed by the disconnect between the rhetoric of the Albanese Government and the reality of their priorities and decisions which have had consequences for Defence capability and contracts with Industry.

1.3Australian SMEs which had invested in capability to provide or at least be key supply chain partners for contracted capabilities are still reeling from the flow-down impacts of project cancellations, delays or descoping. In the shipbuilding space alone, the cuts to the Hunter Class program, the Offshore Patrol Vessel program, the cancellation of the ANZAC TRANSCAP program and the ‘no change’ edict regarding the offshore build of the General Purpose Frigate represent both decreased capability for the RAN and an increased risk to the viability of Australian industry. The Chair of the Australian Industry Defence Network in June this year highlighted that:

We are in the valley of death for ship building that we hoped to avoid, land systems that we started discussion on before 2000 have had decisions made and wound down. The future is here and the speed is now. I had hoped to give an uplifting speech on how well industry is doing to meet the speed, and demands of defence, but I don’t receive those phone calls from industry telling me how great businesses are doing. There are numerous challenges.[1]

1.4Beyond the obvious impact to Australia’s shipbuilding industry and their related supply chain industrial base of the decision to commence the build of the General Purpose Frigate overseas, the direction from this Labor Government that there will be ‘no changes’ to the frigates design, ignores previous signed agreements with Australian capability partners and actually increases the risk to serving members of the RAN. In May this year, the Head of Navy Capability stated that:

But what government is saying to us is ‘if it’s good enough for another navy, it’s good enough for our navy’. And for me…the only way I was going to get capability quickly was to say we’ve got to do a no-change programme.[2]

1.5These directions ignore the fact that the Albanese Government’s Defence Minister, Richard Marles signed the final stage of the Enterprise Partnering Agreement (EPA) with Saab Australia (Saab) confirming their role as the nation’s sovereign combat management system (CMS) provider for the Royal Australian Navy’s (RAN) Surface Fleet because of the world leading, sovereign capabilities it offered to the RAN.[3]

1.6In combination, the CEAFAR radar and the 9LV combat system provide Australian ships with world leading anti-ship missile defence (ASMD) capability. Despite this signal that Australian sovereign capabilities such as the 9LV and the CEAFAR radar were valued by the Australian Government, the decision to build three general-purpose frigates offshore and to not allow any change from the reference design has had a financial impact and again caused significant disquiet and uncertainty within Defence Industry as to whether policies, promises and even signed undertakings from the Albanese Labor government have any credibility at all.

1.7In the November 24 media headlines such as ‘Cancel culture: Labor’s defence plans in disarray with axing of satellite project’[4] highlighted the most recent impact of inadequate funding for Defence and the impact on both prime contractors and the many Australian SMEs who had invested significant capital in being part of the bid team. The November Senate Estimates explored in detail the Albanese Government decision to ‘curtail’ the tender process for JP 9102. The announcement of a preferred tender and assertion of the criticality of this sovereign capability caused not only the prime contractor but a number of SMEs to make at risk investments in order to be ready to deliver the required capability in line with the required timeframe. The Australian industry sector and prime contractors are again discussing sovereign risk and the need to apply a risk premium to tendering for Defence work if they even remain active in the sector.

1.8The cumulative effect of the DSR and the cuts and re-profiling of Albanese Government budgets have led to a decline in the number of people employed in Australian industry, as the percentage of funds that are spent decrease within Australia and increase on overseas purchases.

1.9The rhetoric of the Albanese Labor Government in respect to utilising Australia’s industry sector to help build sovereign capability that is resilient to supply chain shocks, and which will prepare Australia to face the threats identified by both the Defence Strategic Update of 2020 and the Defence Strategic Review of 2023, does not match the reality experienced by Australian Industry. There is less investment, more risk and consequently less confidence in the Albanese Labor government and Defence as a customer.

1.10In a statement released following the surprise ‘curtailment’ on JP 9102, the Space Industry Association highlighted there would be job losses as a result and the wasted time and capital lost by companies working on the proposal since 2017.

While other OECD nations see sovereign space capability as critical to creating high-tech, high-value jobs and a military advantage, in our own backyard we seem to be doing the exact opposite.[5]

1.11Decreased capability (e.g. ASMD) and job losses are already becoming a reality with ADM reporting a decline in industry workforce since 2022.

Figure 1: Percentages of Defence and non-Defence against total workforce numbers from 2017-2023, with data gathered from the ADM Top 40 Defence Contractors surveys

Source: Australian Defence Magazine, Losing the defence industry workforce, Keira Joyce & Kylie Leonard 15 February 2024.

1.12An unwillingness to back its sober rhetoric with real money is undermining the Labor Government’s national security credentials at home and abroad. It now threatens to hollow out a defence force struggling to do more with less.[6]

1.13The Government’s decision to slash orders for Infantry Fighting Vehicles for the Army is as much a response to stem unease within Labor ranks about rising defence spending as it is an attempt to offset the cost of acquiring long-range missile capabilities. It is a call some defence experts warn is fraught with risk.[7]

1.14Finally, the recommendations in the Interim Report (additional comments) highlighting the need for reform to governance of procurement remain unaddressed. The need for substantial change is addressed in an industry led paper published in December 2023[8] which articulates eight key priorities for reform.

1.15There is clear evidence that the decision by the Labor Senators to close out this report without addressing the many concerns which continue to be raised by Australian industry is once again an attempt to maintain a rhetoric that is not matched by reality.

Senator Claire Chandler

Deputy Chair

Liberal Senator for Tasmania

Senator the Hon David Fawcett

Liberal Senator for South Australia

Footnotes

[1]Mr Carl Quarterman, address given at the Australian Industry Defence Network Annual Gala Dinner, Canberra, 25 June 2024.

[2]Naval News, Australian Navy Capability Head: ‘Zero-Change’ Is Right Strategy For Tier 2 General Purpose Frigate, 28 May 2024 (accessed 28 November 2024).

[3]Militrayleak.com, Saab Cements Its Role As Royal Australian Navy’s Combat Management System Provider, 11 September 2024 (accessed 28 November 2024).

[4]Ben Packham, ‘Cancel Culture leaves Defence in disarray’, The Australian, 5 November 2024, p. 6.

[5]Defence Connect, Industry may not deal with Defence after JP 9102 axing, says SIAA,5 November 2024 (accessed 28 November 2024).

[6]Lowy Institute, Labor’s hard-won security credentials hang in the balance, 30 October 2023 (accessed 28 November 2024).

[7]Mark Dodd, ‘Moves to throttle back Army’s capabilities fraught with danger’, The Mandarin, 6 November 2023 (accessed 28 November 2024).

[8]NOIA Group, et al., Developing Australia’s defence industrial base: A time for urgency, optimism and action, December 2023 (accessed 28 November 2024).