Australia: No surprises in Defence Budget savings

There were no surprises for Defence on budget night, with procurement cuts and delayed defence expenditure released days in advance of the budget. The budget projects Defence will deliver an overall contribution to budget savings of $5.5 billion over the next four years.

Tightening defence spending has become part of routine business, with this year's budget only the latest development in pressure on Defence to re-evaluate capability expenditure.

How $5.5 billion in savings will be achieved in the context of a defence organisation still in the process of grappling with the Strategic Reform Program (aimed at delivering improved accountability and efficiency of spending and, ultimately, savings of $20 billion over ten years) and a four per cent efficiency dividend remains to be seen.

In effect, much of the fight in terms of the hard decisions on defence savings has been deferred for another day. On 3 May 2012, Prime Minister Julia Gillard and Defence Minister Stephen Smith announced the early release of a new Defence White Paper: a year earlier than expected. The 2013 White Paper will provide an updated roadmap for the realignment of Defence's strategic priorities.

Those priorities will need to be revisited in light of the defence cuts, which mean the 2009 White Paper's promise of funding parameters for Defence including "three per cent real growth in the Defence budget to 2017-18" need to be reset.

What is the impact on defence capabilities?

In the lead up to the budget, there was much talk of delivery of the "core" capabilities outlined in the 2009 White Paper. Treasurer Swan's budget speech referred to the defence cuts only once, offering that budget savings were being achieved through: "deferring some defence expenditure while prioritising support for current overseas operations". The budget papers repeat that theme, with the promise of $5.5 billion in savings being put down to: "deferring some Defence acquisitions, adjusting the Defence capital equipment program and delivering further operating efficiencies, while delivering priority 2009 Defence White Paper capabilities".

Among the core defence budget announcements are the following:

DESIGN PHASE for acquisition of 12 new Future Submarines: largest project in Australia's defence history

COST: $214 million
DELAYING, RE-SCOPING OR CANCELLING projects, including two year delay to the acquisition of 12 Joint Strike Fighters ($900 million saving)

SAVING: $1.3 billion
ACQUISITION of Offshore Support Vessel, the MSV Skandi Bergen, to supplement ADF's amphibious fleet. MSV Skandi Bergen will be transferred to Australian Customs and Border Protection Service on introduction into service of first Landing Helicopter Dock

COST: $123 million
DELAYING, RE-SCOPING OR CANCELLING projects in the Defence Capability Plan not approved by the Government including cancelling the self-propelled howitzer ($220 million saving), deferring later stages of the Joint Strike Fighter project involving follow-on purchases in addition to the 14 already approved ($700 million saving)

SAVING: $1.3 billion
ADDITIONAL INVESTMENT in Collins Class submarine sustainment
COST: $700 million
DEFERRING lower priority elements of the Major Capital Facilities Program
SAVING: $1.2 billion
ADDITIONAL FUNDING for Navy fleet sustainment for ADF personnel
COST: $270 million
REDUCTION in administration costs for travel, outsourcing and consumable items
SAVING: $438 million
ACQUISITION of additional C-17A Globemaster III heavy-lift aircraft, increasing Australia's heavy-lift fleet to six aircraft
COST: $280.4 million
REDUCTION of 1,000 APS personnel
SAVING: $360 million
ACQUISITION of 2 additional CH-47D Chinook medium-lift transport helicopters, bringing total Chinook fleet to seven
COST: $39.8 million
EARLY RETIREMENT of the C-130H aircraft
SAVING: $250 million
ADDITIONAL FUNDS for IT remediation activities across Defence
COST: $550 million
WORKFORCE POLICY CHANGES in line with the Strategic Reform Program
SAVING: $46 million

The Defence Force Posture Review

The budget forecasts do not engage with the recommendations of the Defence Force Posture Review released earlier this year. This review's findings included the potential for greater development at HMAS Stirling to support major surface combatant capability and operations, as well as potential to upgrade bases at Edinburgh, Learmonth, Pearce, Tindal and Townsville in support of aircraft operations. Defence Minister Smith says the findings are under consideration, with these matters to be considered in the preparation of the 2013 White Paper.

What are the impacts on Defence personnel?

In the lead up to the budget, Prime Minister Julia Gillard was keen to emphasise that the government would continue to "protect the men and women on the front line". The government has promised that there will be no adverse effects on ADF numbers, equipment provided to ADF personnel or existing overseas operations as a result of the 2012-2013 Budget.

The budget papers stress that while Defence will contribute to Government savings, there will be no adverse impact on operations in Afghanistan, East Timor and Solomon Islands. $1.6 billion has been committed to continuing military and civilian efforts in Afghanistan and the Middle East, $79 million for a presence in East Timor during national elections and $46 million for ADF stability support in the Solomon Islands.

While there have not been any direct impacts on ADF personnel numbers, the budget will have a serious impact on the civilian workforce. The budget papers project a decrease of 192 civilian personnel in Defence and 432 personnel in DMO between 2011-2012 and 2012-2013. For the ADF workforce, the Budget papers estimate an increase of 754 personnel to Defence military numbers, and an increase of 400 Defence Reserve personnel.

One hopes that the cuts to be made to APS personnel have factored in the critical nature of the support the civilian workforce provides to ADF operations. Recent reviews such as the Kinnaird Review, the Mortimer Review, the Rizzo Review and the Black Review have consistently identified a number of cultural, organisational and structural issues across Defence that can only be rectified if sufficient resources are provided. Much of the reform work requires APS support.

Concluding remarks

It remains to be seen how the government will deliver its defence capability priorities for upcoming years in light of the cuts to APS personnel (including in DMO) given that a significant amount of future capability is still under development, including the largest acquisition in Australian Defence history with the future submarines. These are some of the challenges that will be faced by Defence as it gears up for the development of the 2013 White Paper.

It is to be hoped that the presence of the likes of Paul Rizzo on the Ministerial Advisory Group for the 2013 White Paper will ensure that the crucial matter of necessary resources and infrastructure to meet capability requirements will be at the forefront of considerations when further decisions on Defence strategic priorities are made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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