Defence is to receive record funding of $48.6 billion this financial year, in line with coalition government commitments made with the launch of the 2020 Defence Strategic Update (DSU). But it still may not be enough.
Further, the new Labor government may be tempted to dip into the defence budget to meet other commitments, says Australian Strategic Policy Institute (ASPI) senior analyst Dr Marcus Hellyer.
In this era of rising uncertainty, an increasingly bellicose China, Russian adventurism and economic pressures at home, the defence budget is fully committed to acquiring new capabilities and expanding the Australian Defence Force, he says in the ASPI Defence Budget Brief for 2022-23.
Addressing the issues
Dr Hellyer said the new Labor government will have some significant issues to address and perhaps the biggest will be the size of the defence budget.
It’s already under pressure from inflation, acquisition of new and larger capabilities including nuclear submarines, cost under-estimates and a growing contractor workforce.
Though Labor declared support for the current level of defence funding, it will still need to adjudicate between competing priorities.
“Australians are dealing with the rising cost of living, spikes in energy prices and the grinding pressure of housing affordability, it may be tempting to reduce defence spending in the face of competing budget priorities,” he said.
“However, the government should be aware of the results of doing so. The budget is already full, with no pots of unallocated cash.”
Any short-term windfalls from cancellation of the Attack-class submarines and SkyGuardian armed drones have gone towards the Australian Signals Directorate’s REDSPICE cyber program.
DSU2020 pressures
Dr Hellyer said even holding the defence budget strictly at two per cent of GDP would result in multibillion dollar reductions to the DSU funding line, inevitably leading to cuts in capability.
“Furthermore it’s not clear that the DSU funding line is even sufficient to deliver the current investment plan,” he said.
“That program includes platforms far larger or more numerous than those they are replacing, as well as entirely new capabilities all requiring a much larger workforce.”
Many new capabilities will cost more than anticipated. New nuclear submarines will cost far more than the conventional Attack-class submarines.
Dr Hellyer said Labor’s first order of business should be to understand the affordability of the current plan.
Then it will need to assure itself that the planned force structure is aligned with what the government thinks the ADF should be doing.
Then there’s the people problem, with the former government proposing an ambitious expansion of 20,000 ADF members. Average annual growth is around 300.
Dr Hellyer said in these testing times, the government needed to seize every opportunity to increase capability, even if that means over-ruling Defence’s long-term vision for the future force.
Investing wisely
That could mean doing more with what we’re already getting. For example, new Arafura-class Offshore Patrol Vessels could be equipped with anti-ship missiles, akin to many similar platforms in service around the world.
Dr Hellyer said there were encouraging signs that Defence was looking more to cheaper, disposable, highly autonomous systems which could be produced rapidly by Australian industry.
“Investing more heavily in such systems is a crucial hedging strategy against the risk inherent in the megaprojects,” he said.
“Plus, such systems will figure heavily in future warfare, whatever may become of the megaprojects.”
Defence’s current funding trajectory stems from the 2016 Defence White Paper, when Australia’s strategic circumstances were very different. What then may have seemed plenty of cash for future capabilities doesn’t seem so now.
Dr Hellyer said the defence budget was always full. Defence inevitably over-programmed to ensure that it could still spend all money it received from government. Any additional capability meant some project had to be delayed.
But no longer does Defence enjoy the luxury of a 10-years warning time of emergence of a credible threat, a staple of previous strategic guidance.
“Our warning time has evaporated so we can’t continue to delay the delivery of new or replacement capability to some undefined point in the future, particularly when many of the key capabilities in the DSU are already scheduled for the late 2020s and 2030s,” he said.
Strategic risk
Navy capabilities face substantial risk. Hunter-class frigates won’t be available in useful numbers until late next decade and new nuclear submarines until the 2040s.
By that time, the legacy Anzac frigates and Collins submarines will be getting on half a century old.
One immediate increase in capability could be achieved by up-gunning the OPV fleet, equipping these new 1800-tonne vessels which are just entering service with the Naval Strike Missile (NSM).
As well as the mega-projects, Defence needed to be pursuing simple technologies which can be acquired quickly and in quantity.
“That includes disposable drones that Australian industry can design and produce at scale. It includes the guided weapons that will be consumed in vast quantities in any future conflict and which Australian industry can produce,” he said.
“We are seeing signs of this approach with the announcement of the acquisition of sea mines.”
Lessons to be learned
Addressing the Cost of Defence 2022 launch function in Canberra last week, Dr Hellyer said Australia learned during the Covid pandemic of the perils of relying on global markets for key items and commodities.
“The DSU was in a sense the defence supply chain white paper. As a result, we are spending billions to promote Australian defence industry including establishing a sovereign guided weapons industry,” he said.
“Yet we still subject ourselves to the whims of the international energy market and let it control the price and availability of our own gas and coal resources.”
He said surely energy security should align with national security, with some gas production reserved for consumers.
“How does it make sense to foster Australian defence industry when we are putting Australia’s entire manufacturing sector at risk. The argument seems to be that the world won’t see Australia as a reliable supplier if we reserve some of Australia’s gas for Australians.”
Yet, he said, Western Australia reserved 15 per cent of its gas for domestic use and the rest of the world was still lining up to buy the remaining 85 per cent.
“Probably the single best things we can do to enhance Australia’s security is electrify everything as fast as possible and accelerate the transition to renewables. Xi Jinping cannot turn off the sun,” he said.
A full analysis of the pressures on the Defence budget by Marcus Hellyer will appear in the June issue of ADM.