The late 1980s and 1990s were lean years for Defence. Apart from fluctuations due to foreign exchange movements and operational supplementation, defence spending was kept more-or-less constant in real terms across the period. In fact, the Defence budget was higher in 1985-86 ($14.5 billion) than it was eleven years later in 1996-97 ($13.7 billion), as
measured in real 2008-09 dollars.
Because the cost of maintaining military capability exceeds inflation by 2–3%, the Defence budget came under growing pressure as the years went by. To try to close the gap between means and ends, successive governments pursued ‘efficiency’ programs of one sort or another through the 1990s (see Chapter 4 of the 2009-10 ASPI Budget Brief for further details).
Nonetheless, by the end of the decade Defence was in a sad state: the permanent force had shrunk by more than 20,000 positions compared with the mid-1980s; a ‘train wreck’ of block obsolescence was looming with no money in sight for modernisation; the preparedness of the force was poor with many ‘fitted-for-but-not-with’ platforms and others badly in need of upgrade; and logistics was hollow and underfunded. It was against this background that the then government decided in 1999 to develop a White Paper with the aim of putting Defence planning and funding on a sustainable footing.
The tumultuous events in East Timor in 1999 delayed the White Paper until the end of 2000.
But it was perhaps a delay worth having. East Timor was the largest Australian operation since Vietnam and it stretched parts of the defence force severely. In the process, serious shortcomings in equipment, logistics and preparedness were exposed. It’s unlikely that the government would have been as generous in 2000 without the experience of the East Timor operation.
The 2000 White Paper
The only Defence White Paper produced by the Howard government, Defence 2000, sought to achieve a coherent package of strategy, capability and funding for Australia’s defence for the decade 2001-02 to 2010-11. On the capability side, a Defence Capability Plan (DCP) was published that detailed 165 separate phases of 88 capability proposals, valued at around $50 billion, planned for the forthcoming decade.
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The entire package, including new and pre-existing capability, was funded through a decade-long funding envelope that roughly equated to 3% average annual real growth.
Although earlier White Papers had suggested near-term funding levels, never before had a decade-long funding commitment been made—let alone one with a talisman-like goal of ‘3%
real growth’.
Defence 2000 provided more than $30 billion spread across four categories, including:
$21 billion for the purchase of major capital equipment; $3.2 billion to cover the through-life support costs of new capabilities planned to enter service as a result of the DCP; $5 billion to cover an expected annual 2% growth (above inflation) in personnel costs and $1 billion to augment the operating cost baseline in the Defence budget. In addition, Defence was allowed to retain within its annual funding base around $450 million of unspent operational supplementation from East Timor.
The 3% funding commitment was extended out to 2017-18 in the 2006 and 2008 budgets.
Before turning to these and other funding measures from the last decade, it’s worth pausing to look back at Defence 2000 and ask how far Defence has got in delivering the goals set for it.
At the risk of oversimplification, Defence 2000 sought to achieve four things: (1) modernise the ADF by replacing or upgrading ageing assets and introducing new capabilities in select areas; (2) improve the preparedness of the ADF so that it was made up of ‘fully developed capability’ rather than hollow units and fitted-for-but-not-with platforms; (3) boost the capability of the ADF to undertake expeditionary operations in the immediate region; and (4) sustainably align Defence plans and funding.
Of the four goals, the modernisation of the ADF was the least successful. Persistent and widespread delays in the approval and execution of defence acquisitions delayed the delivery of many capabilities, with delays of 4-5 years not uncommon. In part, this reflected a systematic underestimation of costs that ensured there was never going to be enough money to deliver all that was planned. Further delays arose due to insufficient industry capacity, tardy approval of new acquisitions and all too frequent technical problems with equipment under development. In fact, the combination of delayed approvals and delayed projects saw Defence unable to spend all the money it had been given to buy new
equipment. Over the period covered by Defence 2000, we estimate at least $4.4 billion of planned investment was deferred. The actual figures are probably higher but we can’t be sure because the full extent of the deferrals wasn’t disclosed in the 2009-10 Budget.
One area where Defence can claim success is in improving the preparedness of the defence force. While problems remain in some areas such as the submarine and amphibious forces, the trend over the past decade has been favourable. The ADF is now more ready and able to mount and sustain deployments—as evidenced by its current high operational tempo.
Moreover, the capacity of the ADF to conduct expeditionary operations in our immediate region is better now than at any time since the Vietnam conflict. Or at least it will be once the Navy’s amphibious lift capacity is fixed. The unexpected collapse of the amphibious fleet in 2011 showed that the management and internal reporting of preparedness remained poor at least until that point. Of course, we don’t know what we don’t know; there may be problems lurking in areas that haven’t been tested of late.
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As for putting Defence finances on a sustainable footing, it wasn’t long before Defence was struggling to deliver the outcomes sought by Defence 2000 within the funding provided. In 2003, an internal Defence Capability Review recommended cuts to the force structure to contain costs, including the decommissioning of two FFG frigates, the early retirement of the F-111 fleet and the laying up of two mine-hunting vessels. But these cuts failed to bring the books into balance and from 2005 onwards additional funds (amounting ultimately to around a $1 billion a year) were made available to Defence to manage the baseline cost of personnel, estate and logistics. At the same time, savings measures of $200 million a year were imposed on Defence to redirect money towards combat capability.
Boom times: 2002-2008
Bridging the gap between the means and ends of Defence 2000 was only the start of the government’s generosity to Defence. From around 2006, the previous government provided additional money for a range of new capability initiatives, including four C-17 transport aircraft ($3.2 billion), 24 F/A-18F Super Hornet strike fighters ($6 billion), and the Enhanced Land Force initiative, which included adding two infantry battalions to the Army at a cost of
$10 billion over a decade. This additional funding came on top of that provided for new and expanded capabilities in the aftermath of 9/11 and the deployments that followed.
Because official budget figures are invariably given in ‘out-turn’ format that anticipates future inflation and foreign exchange rates, it’s difficult to give a definitive figure for the value of additional funds provided post-2000. The best we can do is to capture the scale of funding using the historical values that appeared in the budget papers at the time,
converted to 2010-11 dollars. The result appears in Figure 3.1.
Figure 3.1: Additional funding 2000 to 2008
Source: ASPI analysis of budget papers and DAR, CPI inflation used 0
2 4 6 8 10 12 14 16
Billion approximate 2010-11$
2000 White Paper funding (including reprogramming)
Additional baseline funding Post-9/11 initiatives
3% growth (2008)
3% growth (2006) Operational
supplementation Extra capability:
C-17 transport aircraft F-18 Super hornets Ehanced Land Force
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Despite all the money flowing into Defence, it remained unclear whether adequate funds were available pre-Defence 2009 to deliver the capabilities sought at that time. On one hand, it looked like not enough money had been set aside to crew and operate the raft of new capabilities under development—hence the $10 billion savings program announced in early 2008. On the other hand, Defence was unable to spend the money it had for both investment and recurrent spending. So much so, that it was directed to absorb $1.1 billion of measures in 2008-09 following an abnormally large windfall from price supplementation (and the embarrassing hand back of $830 million of unspent funds from 2007-08). This was the confusing state of Defence funding prior to the release of Defence 2009.