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The National Commission of Audit’s report ^[2] created quite a stir last week; pension ages to rise, family payment to fall, and a new model for federation. For those who lack the time to study the Commission’s five volumes, a summary of recommendations for Defence is here ^[3]. The recommendations fall into three categories:

First, in the politest way possible, the Commission recommends that the government base defence spending on an analysis of capability options and strategic risks rather than adhere to its commitment to spend 2% of GDP. This is a sound recommendation ^[4], but it’s not one that the government is likely to embrace publicly given the politics of promises.

Second, there’s a series of discrete recommendations about a grab-bag of issues, including budget processes, ministerial directives, reintegrating DMO into Defence, professionalisation of Capability Development Group, new performance indicators, sale of ASC Pty Ltd, privatisation of Defence Housing Australia, closing the Military Superannuation and Benefits Scheme, ceasing the Skilling Australia Defence Industry Program, and assessing the potential of the Defence Science and Technology Organisation for outsourcing.

The pros and cons of the various recommendations will be explored in the forthcoming ASPI Defence Budget Brief. For the moment, it’s sufficient to observe that they are mostly secondary matters in the broader landscape of defence reform—despite being of vital interest to those affected.

Third, and most importantly, the Commission recommends two further reviews of Defence in addition to the government’s already planned ‘first principles’ review of structures and processes. The first is a Portfolio Agency Audit designed ‘to comprehensively assess efficiency and effectiveness across all aspects of an agency’s operations, programmes and administration’. The second is a report from the Secretary ‘on current management structures and spans of control, and opportunities for improvement’. Defence has been selected to go first, but other agencies will eventually come under similar scrutiny.

The two proposed reviews supersede several specific recommendations from the Commission about Defence’s staffing and structure. It would make no sense, for example, to ‘reduce the staffing size of Defence headquarters in Canberra, including senior staff, to 1998 levels’ while reviews of Defence’s structure and staffing are underway. For the moment, Defence has been given a reprieve.

So what comes next? Surely it’s time to start the ball rolling on the next round of defence reform.

The first step should be to combine the three proposed reviews of Defence into one. It would be ludicrous to have clipboard-wielding consultants bumping into each other in the hallways of Russell Offices on overlapping missions. With the Audit Commission report done and dusted, there’s no excuse for further delay; set the terms of reference, appoint a team, set a deadline, and get on with it.

Key issues for that combined Review to cover would include:

• Defence’s structure, processes and staffing, including all aspects of the civilian and military workforce. While it might be politically expedient to quarantine military positions from scrutiny, they represent more than three-quarters of the Defence workforce and are the most expensive on a per-capita basis. The multiple military headquarters maintained by the ADF are likely to be every bit as overstaffed as those on Russell Hill.
• The future of Defence’s shared services business model and the role of the Service Chiefs. There’s an inherent tension between the efficiencies delivered by organisation-wide shared services (such as information technology, communications, and facilities maintenance) and the clearer accountability of having the three Services manage their own support in-house. Given the progress made in recent years, I think the best option is to further exploit the existing model. Others believe that returning control to the Services is imperative—particularly in the case of materiel sustainment. This issue must be resolved.
• The future of the Defence Materiel Organisation (DMO). Increasingly more radical schemes for revamping DMO have been doing the rounds in the media. The government needs to develop a plan for DMO, either within the forthcoming broader review of Defence or as an ancillary exercise. In doing so, it’ll be important to consult closely with industry (while remembering that they have a vested interest in creating a pliant and weak commercial counter-party ^[5]).

Once the Review is underway, the government can have a look at some of the Commission’s discrete recommendations—there’s plenty that’s not contingent on matters to be covered by the Review—and try to get some early runs on the board. The Abbott government came to power with a strong defence reform agenda; it’s time to get on with the task. The sooner they make a start, the better the prospects for meaningful reform in this term of government.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Department of Defence ^[6].