Defence: expenditure delayed is expenditure denied

In an interview with Lyndal Curtis on ABC NEWS 24 on 22 November 2011 (see here) Defence Minister Stephen Smith commented on the need for Defence to contribute to the savings necessary for the government to bring the budget back to surplus:

LYNDAL CURTIS: If there are savings found in Defence will there be real savings or delaying spending? And could, if there is a delay in spending, could that create a capability gap?

STEPHEN SMITH: Well two things. Firstly, again I won’t get into the detail; people should wait until my MYEFO comes out or, in some respects more importantly, wait until the budget comes out next year before descending into the detail.

But in terms of capability as we know because you’re dealing with a big capability program and you’ve essentially got a capability plan which covers a span of a decade or more, there’s always movement, there’s always moving around. We’ve seen that in the past and there are no surprises there. And that always occurs not just under this Government but under previous Governments – I suspect it always will. What we don’t want to do is to do things that have an adverse impact on capability or on operations and I’ve consistently made it clear as Minister that if Defence does make a contribution to a general budget outcomes then that will not in any way adversely impact upon our operations. Firstly whether that’s Afghanistan, Solomon Islands or East Timor and secondly, we are always very conscious about capability; but there’s always movement on the capability front either as a result of action by industry or as a result of technical or other difficulties. There’s always movement at that station.

The Minister’s assurance that the savings will not have an adverse impact on operations is entirely appropriate and in the short run at least is entirely achievable, but that is only part of the story:

(1)    The corollary of the protection of expenditure required for operations is that the savings will come from a mixture of the capital equipment program and the budget for through life support (maintenance) of valuable, complex equipment, both of which are an essential part of capability.  This has an inevitable consequence for future operations and the military response options available to future governments.

(2)    As the Minister reminded us earlier in the interview:

In the course of the last budget, Defence effectively made a contribution of about four billion dollars over five years to help return the Government to surplus and that was as a result of more effective work we were able to do under our Strategic Reform Program.

(3)    The savings garnered under the Strategic Reform Program were to have funded the very ambitious re-equipment of the Australian Defence Force outlined in the 2009 Defence White Paper, but as the Minister’s remarks make clear, they have instead been harvested as savings.

(4) …The notion that savings merely “delay” defence expenditure (“slip everything to the right”) is a spurious one – in plain English, any savings represent a reduction in expenditure.  In last year’s Budget Defence had its budget reduced by an average of $800 million per annum for five years.  That sounds like real money to me.

(5)    Those savings and the prospect of more in the next Budget make a mockery of the “certainty” that the Rudd Government gave to Defence, in the context of the White Paper, that the Defence budget would increase in real terms by 3.3% until 2018 and 2.3% after that.

Some over-arching comments about the state of the Defence re-equipment program:

(1)    As noted in Defence savings: the impossible dream, I do not think the proposed savings are there.

(2)    Even if they were, nowhere does the Defence White Paper demonstrate that the combination of the $20 billion in savings plus the then projected growth of the Defence budget would be sufficient to cover the cost of the ambitious re-equipment program, let alone the increase in through-life support and personnel costs for an expanded and modernised defence force.

(3)    The reductions in Defence outlays only serve to take the re-equipment program even further from being achievable.

(4)    Delays in decision-making at the National Security Committee of Cabinet are further compromising the program.  To take just one example, as I remarked almost two years ago in Future submarine: no time to waste, the Government was even then bumping up against some severe timelines if it wishes to bring a replacement submarine into service in 2025.  In order to do that we would need to be undergoing sea trials in 2022, and working back from there we would need to be cutting metal in 2016.  That is no longer achievable, so the delays have already committed the Australian public and a future Australian Government to a multi-billion dollar refit of the Collins class submarines, in order to enable us to maintain a submarine capability at all – and that will be a 1990s submarine operating in the demanding environment of the 2020s.  These delays have real consequences.

I think we have arrived at the stage where we need to go back to the drawing board on the Defence White Paper and re-define what it is that we want the Australian Defence Force to do, what capabilities it will need in order to perform its allotted tasks, and what funds Government is prepared to commit to that end. Above all, the stated requirements must be backed up by the necessary resources, or they are just words on paper.