{"id":64460,"date":"2021-05-12T15:22:35","date_gmt":"2021-05-12T05:22:35","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=64460"},"modified":"2021-05-12T15:23:36","modified_gmt":"2021-05-12T05:23:36","slug":"defence-budget-climbs-to-44-6-billion","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/defence-budget-climbs-to-44-6-billion\/","title":{"rendered":"Defence budget climbs to $44.6 billion"},"content":{"rendered":"
<\/figure>\n

The 2021\u201322 budget was a \u2018no surprises\u2019 one for Defence. The government set out its plan in the 2016 white paper, reaffirmed it in last year\u2019s defence strategic update and is now providing Defence with the funding it promised to deliver the plan. The size of the budget is as expected and that\u2019s good news, but it\u2019s how it can be spent to acquire more offensive firepower well before the 2030s that matters most. The budget tells us little new here.<\/p>\n

Because defence ministers no longer state the size of the defence budget in their budget night media release, here it is: $44.6 billion. You can find it in Table 4a in Defence\u2019s portfolio budget statements<\/a>. That\u2019s the consolidated number for the Department of Defence ($43,560.7 million) and the Australian Signals Directorate ($1,057.9 million). That\u2019s an increase on 2020\u201321 of 6.1% in nominal terms and 4.1% in real terms.<\/p>\n

Once we take into account things such as foreign exchange adjustments and funding supplementation to conduct operations, that amount is pretty much bang on the government\u2019s funding commitment set out on page 54 of the defence strategic update<\/a>. That\u2019s consistent with the government\u2019s history of delivering on its funding commitments stretching back to the white paper. In short, the defence budget is continuing its solid growth.<\/p>\n

Despite the lack of surprises, there are a few significant things to see here. One is that Defence\u2019s acquisition program is continuing to move a lot of money. I\u2019ve noted several times that much of the growth in the budget is focused on that program. If we take a step back to the 2020\u201321 budget, the government was planning a huge $3 billion (27%) increase in Defence\u2019s acquisition budget, from $11.2 billion to $14.3 billion. Considering Defence had only achieved roughly 5% increases in preceding years, that was very ambitious, particularly in the middle of Covid-19 pandemic that was interfering with global supply chains. Was it overly ambitious?<\/p>\n

In the mid-year budget update<\/a>, it looked like Defence was going to get very close. Alas, it was not to be. On paper, Defence has come up $1.6 billion short. But a big part of that can be accounted for by significant foreign exchange adjustments that reduced the acquisition budget (as the Aussie dollar strengthens, Defence doesn\u2019t need as much cash to acquire equipment from overseas). Regardless, Defence still exceeded its 2019\u201320 achievement by more than $1.4 billion. That\u2019s 12.9% growth, not a bad achievement for a pandemic year.<\/p>\n

It\u2019s a good sign for Australia\u2019s ability to rapidly develop defence capability in the face of increasing strategic uncertainty. Put another way, when the government and Defence send clear and consistent (and funded) demand signals, industry has shown it can respond. That demand signal continues with a $3 billion (25%) increase in the acquisition budget planned for the coming year.<\/p>\n

Defence hasn\u2019t yet provided us with the split between local and overseas spending for 2020\u201321 and 2021\u201322, but it will be interesting to see if Australian defence industry is finally managing to absorb more of the acquisition budget than its historical one-third share. That will be crucial to boosting sovereign industry and military capability and mitigating supply chain risks.<\/p>\n

For those who monitor defence spending as a percentage of GDP, this year\u2019s budget is a lesson in why it\u2019s wise not to obsess about minor changes in those figures. Even though the government is providing the funding set out in the defence strategic update, that doesn\u2019t look as good as a percentage of GDP as it did a year ago. There are two main factors: GDP has recovered much faster than was anticipated in last year\u2019s budget and Defence has received some big nominal reductions to its funding due to exchange rate adjustments. In essence, the denominator has grown while the numerator has shrunk.<\/p>\n

In last year\u2019s budget, Defence spending looked like it would be around 2.19% of GDP for 2020\u201321; it\u2019s come in around 2.04%. Similarly, this year was forecast to be 2.27%; it\u2019s now looking like 2.09%. Don\u2019t fret, those percentages mean nothing; Defence is still getting the money set out in the strategic update (and before that in the 2016 white paper).<\/p>\n

As operations in the Middle East wind down, the cost of operations is the lowest it\u2019s been since before the 1999 East Timor intervention, going from $751.4 million in 2020\u201321 to a predicted $271.5 million in 2021\u201322. Taking into account that $136.2 million of that in 2020\u201321 was Operation Covid Assist, it\u2019s dramatic ramp down.<\/p>\n

The naval shipbuilding enterprise continues its inexorable rise. It didn\u2019t hit its $1.9 billion target for 2020\u201321, but still got to $1.6 billion. This year it\u2019s aiming for nearly $2.5 billion. It won\u2019t get there but should comfortably exceed $2 billion.<\/p>\n

The two biggest spenders in the enterprise for 2021\u201322 are, not surprisingly, the future submarine ($982 million) and future frigate ($655 million) programs. With both some time away from the start of construction, those numbers have a long way still to grow, so the enterprise will most likely exceed $4 billion per year in a few years\u2019 time\u2014and that\u2019s before we take the new shipbuilding programs announced in the strategic update into account.<\/p>\n

Much uncertainty remains around the sustainment cost of the air combat fleet (Tables 27 and 55). The forecast operating cost for the F-35A seems impossibly low. The air force wants to more than double the F-35A\u2019s flying hours in 2021\u201322 while decreasing its total sustainment cost. On paper that results in a decrease from around $49,000 per flying hour in 2020\u201321 to around $18,000 per hour in 2021\u201322. Tell \u2018em they\u2019re dreamin\u2019.<\/p>\n

Meanwhile, the flying cost of the combined Super Hornet and Growler fleet already seemed impossibly large at over $61,000 per hour, but that\u2019s predicted to grow even further to $76,000. Granted, those numbers include spiral upgrades that traditionally would be treated as capital acquisition, not sustainment. But it\u2019s still a very expensive capability.<\/p>\n

Points like that may be individually interesting, but they are all part of the larger and most fundamental question for Defence\u2014and new minister Peter Dutton\u2014of how can $575 billion in projected spending over the decade deliver more capability faster? It\u2019s increasingly clear that procurement projects that won\u2019t deliver until the 2030s need to be supplemented by much faster initiatives that deliver offensive capability in the 2020s (like production of advanced missiles). And that means changed plans and different approaches to capability development and delivery.<\/p>\n

We don\u2019t get many insights from the budget papers into how or even whether this shift is occurring. No doubt Dutton will reveal more around this as he gets to grips with the huge Defence machine and properly aligns acquisition and budget plans with the urgency demanded by our strategic environment.<\/p>\n

Finally, credit where credit\u2019s due. Following on from some significant improvements in the presentation of the portfolio budget statement last year (discussed here<\/a> on page 24), Defence has provided some further additions this year that enhance transparency. The first is that the top 30 acquisition projects table (Table 54) now also includes spending on capability elements other than military equipment such as facilities, information and communications technology (ICT), and science and technology support. This provides a more complete view of the total cost of acquiring capability. In some cases, the cost of the other elements is a very significant component of the total cost. Take the offshore patrol vessel, for example. It\u2019s budgeted at $3.7 billion for the ships themselves, but there\u2019s another $981 million for the other elements, mainly enhanced infrastructure.<\/p>\n

The other addition is that for the first time in any of Defence\u2019s reporting, there\u2019s some information on its ICT program (Table 59). It\u2019s only the top five ICT projects, but that\u2019s a big improvement on nothing at all. Some of those projects are very large by any standard; the Enterprise Resource Planning program that is intended to transform Defence\u2019s business functions has an approved budget of $604 million and a planned spend for this year of $146 million. Since it\u2019s crucial to the success of Defence\u2019s transformation strategy<\/a>, it\u2019s good that there is finally a modicum of transparency around it.<\/p>\n","protected":false},"excerpt":{"rendered":"

The 2021\u201322 budget was a \u2018no surprises\u2019 one for Defence. The government set out its plan in the 2016 white paper, reaffirmed it in last year\u2019s defence strategic update and is now providing Defence with …<\/p>\n","protected":false},"author":767,"featured_media":64465,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[44,120,1823,38],"class_list":["post-64460","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australian-defence-force","tag-budget","tag-defence-budget","tag-department-of-defence"],"acf":[],"yoast_head":"\nDefence budget climbs to $44.6 billion | 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\/defence-budget-climbs-to-44-6-billion\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Defence budget climbs to $44.6 billion | The Strategist\" \/>\n<meta property=\"og:description\" content=\"The 2021\u201322 budget was a \u2018no surprises\u2019 one for Defence. 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