^[1]Surprise—national security agencies are now expected to face a threat growing in capability and intent and the government will reconsider whether they will do so with only slightly less money.

The Prime Minister’s National Security Statement shone a light on a range of counter-terrorism measures and noted the release of the Counter-Terrorism Machinery Review ^[2] commissioned last August. To the surprise of few, the review reports that our security agencies have identified risks to national security outcomes if their base funding continues to be eroded (by between 1.25 and 4%).

The review’s authors provide an assessment of the impacts of the government’s efficiency dividend (ED) in terms of frontline staff reductions and diminished collection and analytical capabilities. To this end, the report recommends that

the ED be removed from the operational activities of the Australian Customs and Border Protect Services (ACBPS), Australian Federal Police (AFP), Australian Security Intelligence Organisation (ASIO) and the Australian Secret Intelligence Service (ASIS), and for the ED to be completely removed from the Office of National Assessments (ONA) and Office of the Inspector General of Intelligence and Security (OIGIS).

The government has agreed to reconsider the application of the ED. If accepted, the changes are expected to cost in excess of $180 million dollars over the next two years.

Since 1987, the ED has been a central principle in successive Australian budgets. I’d argue that initially the ED resulted in reductions to inefficient expenditure in non-operational areas within national security agencies, which was long overdue. As the number of non-operational efficiencies available to decision makers decreased, cuts to operational expenditure became inevitable and, finally, commonplace.

To address the effects of reductions in expenditure, national security agencies developed new policy initiatives to obtain sufficient funding to offset risks to national security. For 10 or so years a delicate equilibrium of cuts and then ‘just in time’ policy initiatives was maintained. The budget reality of the last two years has seen a drastic reduction in the availability of new funding—which is resulting in incremental reductions in national security capability.

Whilst some cynics might view the review’s ED recommendations as a means of increasing national security spending by stealth, I believe that it’s a modest step towards capability maintenance. By freeing the national security agencies’ operational programs from ED, attention can be directed towards addressing the challenge of funding increasing employee costs and capability development. Maintenance of operational capability in the national security space is not cost neutral. In the current dynamic threat environment, substantive resource investment is required to maintain the effectiveness of many of our existing national security capabilities. The changes, if adopted, will go some way to reducing budgetary pressures for agencies, though they won’t ensure the necessary investments in research and development.

The delivery of effective strategies to disrupt potential terrorists will require more than an extinguishment of the ED. If ASIO is to address its 400 high priority counter-terrorism investigations (double last year’s number), serious new investments in capability and research are required. Similarly, the disruption of potential terrorist threats will need an increase in operational intelligence collection and analysis. The ED recommendations are good news to the national security agencies, and to operational capability, but further investment will be required if the tenets of the PM’s national security statement are to be achieved.

John Coyne is a senior analyst at ASPI. Edited image courtesy of Flickr user Michael Verhoef ^[3].