Budget: Budget 2013: swings and roundabouts | ADM June 2013

In a nutshell the Budget for Defence this year wasn’t all bad news. Unlike the disaster of last year, there were no drastic cuts and some of the gaps have been slightly filled.

The ghost of the 2009 White Paper will haunt the Budget for years to come with its multi billion-dollar list of capabilities but they are far beyond the forward estimates period of four.

Many funding measures were announced before the release of the Budget with news that government will buy 12 Growlers, leaving the existing 24 Super Hornets as is. The White Paper also confirmed that Australia is still keen on 100 JSFs over the life of the program.

“In the 2013-14 Budget, the Government has provided $113.1 billion (including $1.4 billion for Operations) to Defence over the Forward Estimates, with the Budget growing from $25.3 billion in 2013-14 to $30.7 billion in 2016-17,” according to a Budget statement from the Minister. “This compares to $103.2 billion (including $1.9 billion for operations) in the 2012-13 Budget Forward Estimates.”

This equates to real growth of 2.1 per cent.

“In conjunction with establishing the new funding model for Defence, the Defence budget has been reprofiled over the Forward Estimates for expenditure on priority Capital Investment and Sustainment Programs,” said the statement. “This includes the acquisition of 12 new EA-18G Growler aircraft, as announced in the White Paper, for which the Government will also provide Defence an additional $200 million in 2014-15.”

“For general guidance for Defence planning purposes, the Government has also provided Defence with funding guidance of around $220 billion over the subsequent six years from 2017-18 to 2022-23. This six-year funding guidance is based on the need to continue increasing investment in Defence capabilities as outlined in the White Paper and an assessment of sustainable growth in the Defence Budget after 2016-17.”

This falls roughly into line with the four year Defence Capability Plans and the forward planning of six years under the Defence Capability Guide (DCG). Harmonising these two planning documents with Budget support is a good measure but it remains to be seen how reliable the outer years will become.

Both the Minister and Defence have acknowledged this fact but some guidance on future planning is better than no guidance. Industry can also expect to see an updated DCP before the end of this financial year.

“The Government is also committed to increasing Defence funding towards a target of two per cent of GDP. This is a long-term objective that will be implemented in an economically responsible manner as and when fiscal circumstances allow.”

As Mark Thomson of ASPI has outlined (see P46), he expects that the percentage of GDP that Defence takes will remain between 1.6 and 1.7 per cent over the next 10 years on current plans. There is no great pressing need to increase spending at this time. The 9/11 effect is well and truly over and given the drawdown in operations the ADF is seeing globally, the case for greater funding given other national priorities is not one the government is willing to make to the public at this time.

The Budget statement from the Minister was also keen to emphasise points made in the recent White Paper.

“The Budget will continue to involve:

• no adverse impact on overseas operations;
• no reduction of the number of military personnel in the Army, Navy and Air Force. –  the Government remains committed to maintaining an ADF workforce of approximately 59,000 permanent members;
• no adverse implications for equipment for forces about to be deployed or on deployment; and
• no adverse impact on our enhanced practical cooperation with the US.”

There was also the confirmation of funding for core capabilities. While there has been no explicit outlining of what constitutes a core capability, an educated guess can be made from reading section 3.3 of the White Paper that this is a pretty good list.

“The Budget’s capability activities in 2013-14 will include further consideration of Australia’s Air Combat Capability, P-8A Poseidon maritime patrol aircraft, land mobility, future armoured vehicles, afloat support vessels, communications and interoperability capabilities, intelligence and surveillance systems, electronic warfare, space and cyber,” the Minister’s statement said.

Whether the current government has time before the caretaker period begins in August to consider the range of programs at NSC meetings remains to be seen. There are high hopes that Phase 3 of Land 121 will at least make it through before the election hits.

Submarines
The elephant in the Budget room continues to be the Future Submarine. With true funding for the enormous capability well beyond the forward estimates, planning for the program is underway with a range of studies and facilities in their nascent stages.

“The White Paper highlights the strategic value and importance of Australia’s submarine capability and confirms the Government’s commitment to replacing the existing Collins Class fleet with an expanded fleet of 12 conventional submarines to be assembled in South Australia,” the ministerial Budget statement confirmed.
“The Government has approved over $214 million for further detailed studies and analysis, which builds on work already undertaken, to inform the Government’s decision on the design of Australia’s next submarine.

“The Government has taken the important decision to suspend further investigation of the two Future Submarine options based on military-off-the-shelf designs in favour of focusing resources on progressing an ‘evolved Collins’ and new design options that are likely to best meet Australia’s future strategic and capability requirements.

“The Government has also directed further work on a new Submarine Propulsion Energy Support and Integration Facility in Adelaide.  This land-based facility will substantially reduce risk in the Future Submarine Program by providing the capability to research, integrate, assemble and test the propulsion, energy and drive train systems in all stages of the Future Submarine’s design, build and through-life sustainment.”

The timeline for the Future Submarine program has some wriggle room as it were. Recent testing on the fatigue levels of the Collins Class hulls has concluded that they can run for longer than originally planned. This may have something to do with the fact that some hulls have spent more time out of the water than in it since commissioning.

But the hulls have never been the issue with the class – it has always come down to a question of reliability of the whole system of systems, to use a much-loved Defence phrase. In such an unforgiving environment, taking risks with a submarine system is not an option. If submarines were an easy capability, every nation would have them.

Operations
In line with expectations, operational funding has reduced significantly this year as many operations come to their natural end (see Figure 1 on previous page). That is not to say that the number is insignificant but it is well down compared to the previous decade.

The process of transition to Afghan security leadership in Uruzgan Province commenced in July 2012 and will conclude by December this year with the closure of Multi-National Base – Tarin Kot. As part of this process, Australia’s training and mentoring forces in Uruzgan commenced drawdown and began returning to Australia at the end of 2012.

There are roughly 100 logistics personnel now in Afghanistan working out who and what are coming home when and how. The base will also have substantial remediation work done before handing over to local authorities. See the View from Canberra this month for more on this withdrawl issue.

The successful conclusion of the Timor-Leste national elections in July 2012 marked a turning point for the ADF’s contribution in the fledgling nation under the International Security Force. The ISF concluded its security mission in November 2012 and was drawn down in parallel with the UN mission in Timor-Leste. The ISF drawdown concluded in March 2013. Australia retains 24 Defence personnel in Timor-Leste as part of a bilateral Defence Cooperation Program.

The Australian-led Regional Assistance Mission to Solomon Islands (RAMSI) was established in 2003.  In view of the progress made in restoring internal security and stability, and following endorsement by the Government of Solomon Islands in November 2011, RAMSI is currently transitioning into a law enforcement mission comprised almost entirely of police.

Accordingly, the ADF component of RAMSI is planned to be withdrawn from mid-2013. Australian Federal Police personnel are still on hand and will continue their support for nation building efforts.

Workforce
Almost every element of the Defence workforce is down from the previous year. The only ones with increases are Air Force and APS staff with barely noticeable rises of less than 0.5 per cent. The overall workforce has dropped from 101,927 people the previous financial year to 98,995 this year, a fall of 2.9 per cent.

Greater than expected losses in the civilian sector have helped the efficiency drive, particularly as shared services become more prevalent across the organisation. DMO CEO Warren King recently outlined that while he has an organisation funded for 7,000 people, he employs nowhere near that number. 

He has roughly 400 military positions that are vacant, as the services simply cannot supply the needed technical expertise from their own workforce pool. Indeed, the services are trying to grow and keep these technical skills in their own backyards.

The biggest shock has been the 12 per cent decrease in Army Reserve numbers over the past year. This can perhaps be attributed the brutal cuts the Reserve has seen over the last 12 months in terms of training days. Some of these cuts have been improved as additional funding has been found in pockets but training days are still well down compared to past experience. Figures on how many Reservists transferred to the Australian Regular Army were not provided.

Given the growth targets that the Army  has in mind, the organisation will have to work hard to stem the separation rate that traditionally spikes in the wake of operations winding up. The ADF has been at a very high tempo for the last decade and is coming to a very quick stop in terms of deployments. Defence planners will have their hands full managing this transition over the coming 24 months.

Infrastructure
Long term works for the Enhanced Land Force phases 1 and 2 continue throughout the nation but the heavy lifting for the Defence Logistics Transformation Programs is well under way.  Figure 3 shows the top 5 infrastructure programs by spend in this financial year with Moorebank the centre of attention.

The only thing missing from the list of Approved Major Capital Facilities Projects was any mention of the Mulwala Redevelopment Plan (MRP), listed as a Project of Concern. That was to be found in the Top 30 projects section. MRP has a scheduled budget of $369 million over its lifetime of which $331 has been spent with $24 million budgeted to be spent this year. See P24 for more on MRP as it relates to the Domestic Munitions Manufacturing Arrangements (DMMA).

In the end
There are swing and roundabouts to be caught in this Budget for Defence industry. The long list of deferrals that was seen last year is thankfully missing and a few projects have been moved up, mainly on the shipbuilding front. The Valley of Death in shipbuilding that is so often spoken of is perhaps now a Valley of Pain rather than death per se. This Valley has been talked of within the Defence community for some time now but the issue is only just beginning to hit the mainstream as it were.

There are still painful decisions on the horizon to be made in terms of Land 400, the Future Submarine and timing of the JSF but these are for future Budgets and governments.