{"id":64687,"date":"2021-05-26T06:00:31","date_gmt":"2021-05-25T20:00:31","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=64687"},"modified":"2021-05-26T10:21:54","modified_gmt":"2021-05-26T00:21:54","slug":"funding-on-track-but-strategic-circumstances-worsening-the-cost-of-australias-defence","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/funding-on-track-but-strategic-circumstances-worsening-the-cost-of-australias-defence\/","title":{"rendered":"Funding on track but strategic circumstances worsening: the cost of Australia\u2019s defence"},"content":{"rendered":"
<\/figure>\n

Once again, the Australian government has delivered exactly the funding it promised in the 2016 defence white paper and 2020 defence strategic update (DSU). If the government was willing to recommit to the white paper\u2019s funding line in the depths of the Covid-19 recession, it was very unlikely to walk away from it now that the economy is recovering faster than expected.<\/p>\n

As shown in ASPI\u2019s 2021\u20132022 Defence budget brief<\/a>, the consolidated funding line (including both the Department of Defence and the Australian Signals Directorate) is $44.6\u00a0billion, which is real growth of 4.1%. It\u2019s the ninth straight year of real growth and, according to the DSU\u2019s funding model, that will continue until the end of the decade.<\/p>\n

Last year, defence funding hit 2.04% of GDP, meeting the government\u2019s promise to restore the defence budget to 2% of GDP by 2020\u20132021. This year, it\u2019s projected to reach 2.09%. Both of those numbers are smaller than predicted a year ago, as GDP has recovered faster than expected. It\u2019s a salutary lesson on why we shouldn\u2019t obsess too much about small changes in percentages of GDP.<\/p>\n

Last year\u2019s budget planned a substantial $3\u00a0billion or 27% increase to Defence\u2019s acquisition spending. That was always going to be challenging in the middle of a pandemic that was disrupting global supply chains. During the year, the government and Defence reprioritised spending, both as a Covid-19 stimulus and to keep projects moving, but in the end the acquisition program ended up around $1\u00a0billion short, once exchange rate adjustments are taken into account.<\/p>\n

Despite that, the military equipment, facilities and information and communications technology acquisition programs all set spending records. Overall, it was a 13% increase on the previous year. That\u2019s quite an achievement in the middle of a pandemic. It\u2019s a very encouraging sign that industry can meet the challenge of \u2018eating the elephant\u2019 presented by the DSU\u2019s growing acquisition program. Australian defence industry did particularly well, according to Defence\u2019s data. Defence\u2019s local military equipment spend grew by a remarkable 35% to around $3.5\u00a0billion. Australian industry isn\u2019t just growing in absolute terms: there are also signs that it\u2019s growing in relative terms compared to the share of spending going overseas. If that continues, it\u2019s evidence at the macro level that the government\u2019s defence industry policy is delivering.<\/p>\n

There\u2019s another $3\u00a0billion increase in acquisition spending planned this year. If the recovery from Covid-19 continues, Defence and industry could come close to achieving it.<\/p>\n

The sustained spending is delivering capability. At the end of last year, the F-35A reached the key milestone of initial operational capability. It will reach its full capability in late 2023 after a 21-year journey. The air warfare destroyer project will also reach full capability very soon. There are substantial upgrades to Defence\u2019s facilities occurring around the country.<\/p>\n

The naval shipbuilding program is aiming to spend $2.5\u00a0billion this year, and its biggest element, the Attack-class submarine project, is looking to hit $1\u00a0billion for the first time. The naval shipbuilding enterprise will most likely reach $4\u00a0billion in annual spending by the time the submarine and future frigate programs are into construction. But that also means that those projects will have spent tens of billions of dollars between them by the time the first submarine and frigate are operational.<\/p>\n

The government\u2019s recent announcement that it will accelerate the establishment of a domestic guided weapons manufacturing capability in Australia was big news. With $100\u00a0billion in investment in guided weapons planned and the policy and industrial fundamentals for local production in place, there are good prospects for a huge leap forward for military and industrial capability and the mitigation of supply-chain risks. Getting it right is important, but Defence should also start quickly with some low-risk projects to produce existing types of weapons.<\/p>\n

But fundamental problems remain in Defence\u2019s capability acquisition system. Earlier this year, Defence cancelled its project to deliver the Submarine Escape Rescue and Abandonment System. After getting into contract and spending what could be close to $100\u00a0million, Defence decided that it had irreconcilable differences with its industry partner.<\/p>\n

The army\u2019s highest priority program, digitisation, also has been put on hold after nearly 15\u00a0years of work and almost $2\u00a0billion spent. Even if it continues, LAND 200 could take another 10\u00a0years to complete\u2014in total, that\u2019s longer than the F-35A. Can Defence keep running projects that take a quarter of a century to deliver?<\/p>\n

Defence\u2019s external workforce is now its biggest \u2018service\u2019, ahead of the army. And there\u2019s a looming iceberg in there. Defence\u2019s acquisition and sustainment budgets are planned to double over the decade. Local acquisition spending alone could grow from $2.6\u00a0billion to around $10\u00a0billion. Defence will need a much larger workforce to run those activities, but its own workforce is capped, so it\u2019s increasingly having to turn to contractors. There\u2019s very little data available on what individual contractors cost, but it could be well over twice the average cost of public servants. Collectively, it could cost $1\u00a0billion more than an equivalent number of public servants today.<\/p>\n

While Defence\u2019s top-level budget breakdown shows that the cost of its workforce is declining as a share of the overall budget, that\u2019s potentially misleading; the costs of growing numbers of contractors show up not in Defence\u2019s personnel budget but in its acquisition and sustainment budgets. It\u2019s hard to tell, but it\u2019s possible that over 10% of Defence\u2019s acquisition budget is going to contractors helping to run projects. Overall, the cost of contractors could explode and eat deeply into Defence\u2019s acquisition budget. Defence needs to fully understand the value-for-money case for using contractors\u2014and it needs to share that with parliament.<\/p>\n

While there are significant questions about how efficiently Defence is spending, there are even bigger questions about whether it\u2019s spending on the right things in the first place.<\/p>\n

We noted last year the fundamental disconnect between the strategic assessments in the DSU and the capabilities presented in the supporting force structure plan. The DSU emphasised the need for long-range strike capabilities that can impose cost on and deter a great-power adversary at distance. Yet the ADF\u2019s strike cupboard is bare, and there\u2019s no clear path to restock it quickly. Huge investment is also planned in capabilities that appear to have minimal deterrent effect on a great-power adversary, such as up to $40\u00a0billion on heavy armoured vehicles.<\/p>\n

The force structure and timelines for delivery are holdovers from previous strategic planning documents developed in circumstances that bear little resemblance to our current one. Fundamental changes to concepts and force structure, such as making greater use of uncrewed and autonomous systems, are occurring only slowly. The vast bulk of investment is still going into small numbers of exquisitely capable yet extremely expensive crewed platforms that take years, even decades, to design and manufacture and are potentially too valuable to lose. Defence needs to take more risk and invest more than half of one percent of its budget in research and development, particularly in distributed, autonomous technologies.<\/p>\n

The government has delivered the steadily increasing funding it promised at the start of 2016. That\u2019s commendable, considering the economic impact of Covid-19. However, in the DSU, it also acknowledged that Australia\u2019s strategic circumstances have deteriorated since 2016\u2014yet Defence\u2019s funding model hasn\u2019t changed since then.<\/p>\n

More funding is needed, but Defence will need to show that it can use it well to deliver capability rapidly. Over the decade, the government is providing $575\u00a0billion in funding to Defence, but in that time it won\u2019t deliver a single new combat vessel. In short, Defence will need to demonstrate that it has absorbed and is acting with the sense of urgency presented in the DSU.<\/p>\n

A final note that shows that part of the DSU\u2019s intent is being realised. The DSU directed Defence to focus on our immediate region. As consequence, operations in the Middle East are drawing down and spending on operations is now at its lowest level since before the ADF deployed to Timor-Leste in 1999.<\/p>\n","protected":false},"excerpt":{"rendered":"

Once again, the Australian government has delivered exactly the funding it promised in the 2016 defence white paper and 2020 defence strategic update (DSU). If the government was willing to recommit to the white paper\u2019s …<\/p>\n","protected":false},"author":767,"featured_media":64690,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[44,120,1114,26],"class_list":["post-64687","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australian-defence-force","tag-budget","tag-defence","tag-defence-spending"],"acf":[],"yoast_head":"\nFunding on track but strategic circumstances worsening: the cost of Australia\u2019s defence | 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\/funding-on-track-but-strategic-circumstances-worsening-the-cost-of-australias-defence\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Funding on track but strategic circumstances worsening: the cost of Australia\u2019s defence | The Strategist\" \/>\n<meta property=\"og:description\" content=\"Once again, the Australian government has delivered exactly the funding it promised in the 2016 defence white paper and 2020 defence strategic update (DSU). 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