{"id":57178,"date":"2020-07-02T13:34:03","date_gmt":"2020-07-02T03:34:03","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=57178"},"modified":"2020-07-02T13:40:11","modified_gmt":"2020-07-02T03:40:11","slug":"is-the-money-for-defences-new-force-structure-old-or-new","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/is-the-money-for-defences-new-force-structure-old-or-new\/","title":{"rendered":"Is the money for Defence\u2019s new force structure old or new?"},"content":{"rendered":"
<\/figure>\n

The big question heading into the defence strategic update<\/a> that Prime Minister Scott Morrison launched yesterday was what impact the Covid-19 crisis would have on the defence budget. The answer is none whatsoever. Ministers had said that despite the crisis, the government was committed to the funding model set out\u00a0 in 2016 defence white paper. The government has now put that down on paper.<\/p>\n

To recap, in the 2016 white paper<\/a> the government provided a 10-year funding line that would not change, regardless of fluctuations in GDP. Granted, the defence budget would hit 2% of GDP in 2020\u201321, but it wasn\u2019t pegged mechanically at that level beyond then. In fact, even before the double whammy of bushfires and Covid-19, it was looking like the defence budget would hit around 2.2% of GDP towards the back end of that 10-year funding model. Depending on the size and duration of the hit to the economy caused by Covid-19, the funding line could reach 2.4% of GDP even if the Defence Department didn\u2019t get a single dollar more than the government promised in 2016.<\/p>\n

As I\u2019ve noted before<\/a>, if the government changed its policy and pegged the budget strictly at 2% of GDP, Defence would take a massive funding cut in coming years, rendering its force structure plans unachievable.<\/p>\n

So those who favour a robust defence force will be pleased to see that the 2020 update preserves the 2016 funding model out to 2025\u201326 and extends it for a further four years. As table 1, shows, the new model is virtually identical to the old one out 2025\u201326. If we extrapolate the old model for four more years at the same rate of growth shown in its last three years, we can see that it\u2019s virtually identical to the additional four years provided in the update. In fact, over the 10 years, the two models are within 0.14% of each other.<\/p>\n

Table 1: 2016 white paper funding model versus 2020 update funding model<\/strong><\/p>\n\n\n\n\n\n\n\n
<\/td>\n2020\u201321<\/strong><\/td>\n2021\u201322<\/strong><\/td>\n2022\u201323<\/strong><\/td>\n2023\u201324<\/strong><\/td>\n2024\u201325<\/strong><\/td>\n2025\u201326<\/strong><\/td>\n2026\u201327<\/strong><\/td>\n2027\u201328<\/strong><\/td>\n2028\u201329<\/strong><\/td>\n2029\u201330<\/strong><\/td>\n<\/tr>\n
2019\u201320 budget\/2016 white paper (A$m)<\/strong><\/td>\n42,151<\/td>\n46,037<\/td>\n50,182<\/td>\n52,877<\/td>\n55,733<\/td>\n58,742<\/td>\n61,914<\/em><\/td>\n65,257<\/em><\/td>\n68,781<\/em><\/td>\n72,496<\/em><\/td>\n<\/tr>\n
Nominal growth rate (%) <\/strong><\/td>\n7.2<\/td>\n9.2<\/td>\n9.0<\/td>\n5.4<\/td>\n5.4<\/td>\n5.4<\/td>\n5.4<\/em><\/td>\n5.4<\/em><\/td>\n5.4<\/em><\/td>\n5.4<\/em><\/td>\n<\/tr>\n
2020 strategic update (A$m)<\/strong><\/td>\n42,151<\/td>\n46,037<\/td>\n50,170<\/td>\n53,318<\/td>\n55,567<\/td>\n58,175<\/td>\n61,239<\/td>\n64,639<\/td>\n69,986<\/td>\n73,687<\/td>\n<\/tr>\n
Nominal growth rate (%)<\/strong><\/td>\n7.2<\/td>\n9.2<\/td>\n9.0<\/td>\n6.3<\/td>\n4.2<\/td>\n4.7<\/td>\n5.3<\/td>\n5.6<\/td>\n8.3<\/td>\n5.3<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Note: Italicised figures represent a hypothetical projection of 2016 white paper funding model<\/em>. <\/em><\/p>\n

So, in short, despite the massive budget deficit caused by the government\u2019s Covid-19 stimulus spending, there has been no reduction to the planned defence budget.<\/p>\n

Does that mean there\u2019s no \u2018new money\u2019? Well, yes and no. It\u2019s the same funding model as before, so there\u2019s nothing new there. But as shown in table 1, the funding line grows at a robust rate that\u2019s highly likely to exceed inflation, so as we go through time the defence budget will grow in real terms. For example, the update confirms that the defence budget will grow in nominal terms by 7.2%, 9.2% and 9.0% over the next three years. What other portfolio can boast such largesse? Near the end of the decade, the growth isn\u2019t as strong, but it should still comfortably exceed inflation.<\/p>\n

The question is, will this funding be enough to afford the force outlined in the new force structure plan<\/a> that accompanies the strategic update? The government appears to have realised that the best defence is a good offence, and that, to quote the update, \u2018requires Defence to develop a different set of capabilities\u2019. That means new or enhanced equipment (such as more robust long-range strike weapons and larger stocks of guided munitions).<\/p>\n

Prioritisation is always necessary, regardless of how much money there is. In his launch speech<\/a>, the prime minister noted that, in preparing the update, the government had \u2018directed Defence to prioritise, to make choices [on], [the] ADF\u2019s geographical focus on our immediate region\u2019.<\/p>\n

That focus and the new capabilities are the right approach for these times. But it\u2019s hard to see how that strategic prioritisation has flowed through to the shopping list of capabilities. While there are a lot of new things on that list, there are only a few minor deletions from the previous investment plan. Defence isn\u2019t giving any existing things up. Overall, there\u2019s no meaningful divestment of capabilities.<\/p>\n

Moreover, the listed cost of some very large projects appears to have gone up. The design and development estimate for the Hunter-class frigates was \u2018>$30 billion\u2019 in the 2016 investment program<\/a>; that\u2019s now $45.6 billion, apparently due to the extended build process needed to sustain continuous naval shipbuilding. LAND 400 Phase 3\u2019s infantry fighting vehicles were \u2018$10\u201315 billion\u2019; they\u2019re now $18.1\u2013$27.1 billion. It\u2019s not explained whether these differences result from a change in accounting approach, an increase in scope, or an actual increase in costs. But with the focus of the new strategy on Southeast Asia and the Pacific, a project acquiring 450 40-tonne vehicles would have to be a candidate for a reprioritising budget haircut, not more money.<\/p>\n

The 2016 investment plan was already crammed full before the additions revealed in the 2020 force structure plan. The only way to acquire new things without increasing the funding model is to delay the acquisition of things that were already in the plan. And despite the update\u2019s assessment that we can no longer rely on 10 years\u2019 warning time, many of the key elements of the future force were already well in the future.<\/p>\n

To acquire these capabilities, the capital budget hits around 40% of the total defence budget by the middle of the decade and then remains there. Personnel, historically the largest of the triumvirate of capital, operating and personnel, falls to 26% over the decade. I\u2019ve suggested previously<\/a> that this split may be unachievable\u2014there\u2019s no point acquiring equipment if you can\u2019t crew or sustain it.<\/p>\n

The new plan does note that there\u2019s unfinished business in the personnel space. It acknowledges more people will be needed, but the government won\u2019t consider exactly how many until 2021. The 800 new uniformed personnel and 250 new public servants provided in the plan are simply a stop-gap. More people may require shifting the balance of funding.<\/p>\n

Overall, confirmation and extension of the 2016 white paper\u2019s funding model is welcome news and demonstrates the government\u2019s commitment to upholding Australia\u2019s sovereignty and security in uncertain strategic and economic times. But if, as the update says, our strategic circumstances are changing much more rapidly than the 2016 white paper assessed and we can\u2019t rely on 10 years of warning time, it hasn\u2019t cracked the nut of how to get capability faster while so much of Defence\u2019s funding is locked up in megaprojects with long delivery timeframes.<\/p>\n

Virtually every high-level strategic document over the past two decades has admitted its predecessor underestimated the rate of change in the region. The strategic update is no different. How is Defence changing its thinking to get ahead of the curve?<\/p>\n","protected":false},"excerpt":{"rendered":"

The big question heading into the defence strategic update that Prime Minister Scott Morrison launched yesterday was what impact the Covid-19 crisis would have on the defence budget. The answer is none whatsoever. Ministers had …<\/p>\n","protected":false},"author":767,"featured_media":57190,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[44,2658,1823,2795],"class_list":["post-57178","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australian-defence-force","tag-coronavirus","tag-defence-budget","tag-defence-strategic-update","dinkus-strategic-update-2020"],"acf":[],"yoast_head":"\nIs the money for Defence\u2019s new force structure old or new? | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/is-the-money-for-defences-new-force-structure-old-or-new\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Is the money for Defence\u2019s new force structure old or new? | The Strategist\" \/>\n<meta property=\"og:description\" content=\"The big question heading into the defence strategic update that Prime Minister Scott Morrison launched yesterday was what impact the Covid-19 crisis would have on the defence budget. 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