The 2023 defence strategic review ^[1], which sets out how Australia can sustain its security and sovereignty, has been handed to the government. In terms of the concept of warning time developed in the 1987 defence white paper ^[2], we’ve moved from a force structure designed to deal with ‘escalated low-level conflict’ to one able to engage in ‘more substantial conflict’. The ‘force in being’ now must handle high-level threats to our interests in the region while facing the prospect of attacks on the homeland. Warning time is now close to non-existent. It’s clear that the defence-of-Australia concept is evolving to one of ‘deterrence at a distance’ intended to block entry to our immediate approaches.

Defence Minister Richard Marles made this clear in a speech ^[3] to the Sydney Institute last year:

Australia’s defence capabilities cannot meet those of major powers. Australian statecraft is only viable if it is underpinned by the ability to project force and power: to deter military threats, and defend Australia’s national interests in our immediate region.

And so I believe the cornerstone of future Australian strategic thought will be impactful projection. We must invest in targeted capabilities that enable us to hold potential adversaries’ forces at risk at a distance and increase the calculated cost of aggression against Australia and its interests. And we must be able to do this through the full spectrum of proportionate response.

The 1987 study was about layered defence starting in our area of direct military interest, defined geographically as the archipelago to our north and then back to the continent. The distinction between that and our then area of strategic interest, roughly Southeast Asia and the northeast Indian Ocean, is now blurred. Our weapons systems were tailored to a highly mobile army across our north supported by an air force deployable from northern bases with submarines and surface warships directed towards the four choke points through the archipelago. They were backed up by an effective surveillance system a key part of which was our over-the-horizon radar ^[4] network. These are still important, but the focus now will be on missiles deployed with all three services in large numbers, and mines. A key element will be nuclear-powered submarines capable of lengthy deployments at the furthest ranges.

The problem for Marles is that funding of this program comes off a massively reduced financial base. That’s a consequence of a post–Cold War peace dividend effectively being taken when none was justified. In 1987, defence had around 9% of the total budget, and about 2.5% of GDP. As significant in funding the 1987 program was a policy permitting the Defence Department to keep the product of sales and privatisations. While the privatisations didn’t raise large amounts of money, the removal of effective subsidy obligations did, as did reforms to practices in the factories remaining government owned. As I recollect, this added about 3% real growth in outlays. Nothing like that is available now.

It’s important to remember that nothing created in the force structure and facilities in the 1987 white paper related to Cold War contingencies. That point was made frequently through it. While contributions could be drawn for allied efforts from the force structured for the defence of Australia, those contingencies would not determine that structure.

The paper contained detailed arguments on how new facilities, weapon systems, personnel deployments and industry related to dealing with capabilities evolving, or deployable, within our area of direct military interest. They were seen as affordable—just—within the budgeted amount. There was no peace dividend to be taken or justified. And yet from the 1990s it was taken—and it massively depleted the defence base.

In terms of weapon systems, the effect can be seen most directly in the navy. An original submarine decision to have an essential eight saw two simply disappear, though controversy also influenced that. The 17 major combat vessels—three guided missile destroyers, six guided missile frigates and eight Anzac-class frigates—was the proposed force structure, but that idea, too, disappeared. That force had been designed to patrol the routes through the archipelago. We acknowledged they weren’t quite enough, but hoped the New Zealanders would take four Anzacs and that would provide the numbers. Our new air warfare destroyers were supposed to replace the DDGs. Nothing did. They replaced the six FFs. In capability terms, it was a massive peace dividend.

Marles doesn’t simply confront a funding base massively lower than that in 1987. He confronts the cost of 25 years of underfunding on the 1987 target. Peerless ASPI senior analyst Marcus Hellyer confirmed for me in contemporary budget terms the two figures then and now. He pointed out that if we used the ‘expenses method’ and went from 6.1% to 9%, the 1987 figure in contemporary terms would yield a massive increase of nearly 50%, to $18 billion—from $38.3 billion to $56.3 billion. If the ‘appropriation method’ were used and went from 7.77% to 9% of payments, it’s about a 16% increase to $7.8 billion—from $48.6 billion to $56.3 billion.

That would be an $8 billion increase in the next budget. Contemplate what our defence forces would look like now if we threaded that $8 billion back over 25 years. It’s likely that the critical Sky Guardian ^[5] program of armed drones would not have been cancelled to help pay for the REDSPICE ^[6] cybersecurity program. So we move from ‘defence of Australia’ to ‘deterrence from Australia’, which bears an enormous burden having been severely short-changed.

Defence funding will need a massive rethink. It’s dangerous to make the long-term, but essential, nuclear submarine program the enemy of our ability to defend ourselves now. Assuming we survive the next 25 years, those submarines are a long-term guarantee. It might be sensible to carve them out of the general defence vote and run them transparently separately. Maybe carve out REDSPICE, too. It serves broader government purposes. We are very good at cyber. However, we have already seen the expense of developing it seriously damage the defence program. That program needs the bulk of the missing funding restored, however close the government is prepared to bring future spending to the previous levels. The submarines eventually will need much more.

When looked at in macro terms, an extra $10–15 billion on the outlays side of the budget isn’t great. When viewed in fraught Expenditure Review Committee (ERC) meetings, a billion-dollar proposal—let alone $10 billion—will meet howls of anguish. The two most frightening expressions in the English language are the orders ‘fix bayonets’ and ‘offsets must be offered for the costs of new policy’. In ERC terms, they are related.

Defending the country is the main and exclusive constitutional duty of the federal government. Paul Keating as treasurer once told me he wanted to consider defence last at ERC meetings because if the committee needed the odd $100 million it could be obtained from defence forward guidance. Now it needs to be considered first if this review is going to do the job it was established to do. With the massive and very necessary demands on the government, that will be very difficult. Still, a start should be made.