The budget honours Tony Abbott’s pre-election commitment to ensure no further cuts to Defence spending and increase over the next decade the current level of Defence spending from 1.6 per cent of GDP – the lowest level since 1938 – to two percent of GDP.
Defence is a big winner from a tough federal budget.
The Government plans to provide Defence with $29.2 billion in 2014-15 and $122.7 billion over the Forward Estimates – up $9.6 billion over the previous government’s forecast.
The budget includes nearly $440 million in 2014-15 for operations in the Middle East, the ADF’s role in border protection and for its provision of security for the upcoming G20 summit in Brisbane.
In this budget, the Government has begun to restore the money to Defence which the previous Labor Government cut by some $20 billion in its two previous budgets.
Australia’s foremost defence budget expert, Dr Mark Thomson, from the Australian Strategic Policy Institute said “the restored funding would leave Defence in a strong position, especially at a time of big cuts elsewhere.”
Projects This budget places on hold a number of equipment acquisition decisions. Defence Minister, David Johnston, indicated that only high-priority projects stand a chance of being approved by the government prior to the Defence White Paper being released in 2015.
This year’s budget details only five projects for First Pass approval in 2014-15 and 11 for Second Pass, down from 12 and 17 respectively in 2013-14.
Projects for First Pass approval include new cavalry reconnaissance vehicles to replace the ASLAVS (Land 400, Phase 2), submarine escape rescue systems (SEA 1354, Phase 1) and counter IED devices (Land 154, Phase 2).
Second Pass approval is planned for, among other projects, Growler airborne electronic capabilities (Air 5349, Phase 3), military satellite capability (JP 2008, Phase 5B.1) and mortar replacements (Land 136, Phase 1).
The budget includes ongoing spending on a number of major projects. These include 12 Boeing EA-18G Growler aircraft, on-going construction of three Air Warfare Destroyers (AWDs) and acquisition of P-8A Poseidon surveillance aircraft. A total of $797 million is for Growler aircraft, $616 million for the AWDs and $324 million for Poseidon.
Future submarines, new frigates and additional armoured vehicles to replace our ageing fleets must await the new Defence White Paper.
Australian Industry Benefit Despite this holding pattern, the announcement prior to the budget to acquire 72 F-35 Joint Strike Fighter aircraft, with an option for an additional 25 aircraft, provided a fillip for Australian defence industry.
Companies, such as Quickstep Holdings and Marand Precision Engineering, are big winners from the JSF program. These companies are fine examples of the shift to a greater level of advanced manufacturing in Australia.
Quickstep has a contract worth $140 million to produce 700 sets of carbon fibre composite parts for the F-35’s vertical tail fins. Each set of vertical tails provided by Quickstep will contain 18 individual parts, including skins, spars and fairings. These and parts from other suppliers will be assembled by Marand, based in Geelong and Melbourne.
When the Quickstep company moved from Perth to Bankstown 15 months ago it employed about 30 people. It now has 120, growing quickly to 150. There are not many manufacturing businesses with that rate of growth at the present time. “I think it is great news,” said managing director, Philippe Odouard.
Cuts – the other side of the ledger Cuts to the Defence Science and Technology Organisation (DSTO) budget are of concern to defence industry. This is a priority national resource, one essential to working directly with defence industry to develop, for example, the equipment and smart systems needed to give the Australian Defence Force a capability edge. Our increasingly risky strategic environment requires this.
DSTO is working on a range of research projects associated with technology critical to the success of Australia’s future submarine program. This work includes developing the stealth capabilities needed to ensure our new submarine fleet is able to operate quietly and effectively. There is no more potent kit in our armoury, one which provides an essential umbrella for the defence of this nation.
Defence will be required to reduce its civilian workforce by 600 in 2014-15, following a reduction of 700 since July 2013. Further staff cuts are expected once two reviews of Defence, including the Defence Materiel Organisation, are completed. These reviews were announced by the Coalition prior to the federal election.
Despite the budgetary pressures, the Abbott Government deserves credit for announcing a budget which gives Defence the resources needed to begin new equipment projects, putting it in a healthier position to keep its promise to restore spending to two per cent of GDP. Australia’s defence industry can therefore expect a brighter future, one which boosts confidence and increases productivity.
* John O’Callaghan is Executive Director of the Australian Industry Group Defence Council
