The overview chapter of the PBS begins with a discussion of Defence’s role; ‘to protect and advance Australia's strategic interests through the provision of appropriately prepared and equipped armed forces’. It goes on to discuss the forthcoming 2015 Defence White Paper and details current initiatives, including operations, force development and international defence engagement. Specific issues noted include continuing operations in the Middle East and Afghanistan, the introduction of new C-27J Spartan aircraft into service, the
reorganisation of the Army under Plan BEERSHEEBA and the continuing delivery of 24 MH-60R Seahawk Romeo helicopters.
2.2: Resourcing [PBS Section 1.2 & 1.3]
The ‘rubber hits the road’ in Sections 1.2 and 1.3 of the PBS, in terms of allocating money to get things done. It contains the resource statements, new budget measures and the funding bottom line.
How much money will Defence get?
On page 17 of the PBS, we get to the heart of the issue. Table 2 gives three key figures for the Defence budget:
• Funding from Government, being those funds formally appropriated to Defence by the government for departmental purposes along with shifts in appropriations receivable (unspent money from previous years). In 2015-16 this will amount to $31,863,262,000.
• Total Defence Funding, being those funds actually available to Defence including appropriations and revenue from other sources and Returns to/from the Official Public Account. In 2015-16 this will amount to $32,695,351,000.
• Total Defence Resourcing, being Total Defence Funding plus those funds appropriated administratively through Defence for superannuation and defence housing subsidies. In 2015-16 this will amount to $37,925,743,000.
Of these three figures, Total Defence Funding is the one most usually quoted as the Defence budget. It represents the funds expended by Defence to deliver the departmental outcomes and maintain the ongoing program of investment in new equipment and facilities. Note, Total Defence Funding does not include administered funds for superannuation and defence housing subsidies.
However, as explained in the last chapter, Total Defence Funding is inflated by a churning of money that delivers no military capability or outcome, and ignores funds appropriated directly to DMO. What’s more, Total Departmental Funding ignores the money which has at times accumulated or been drawn out of the DMO Special Account—in effect transferring money from one year to another. (Although DMO will cease to exist in 2015-16, there’s a transfer of $301 million to Defence that still needs to be included.) We believe that the ASPI Net Defence Spending figure accounts for these issues properly and therefore gives a more accurate picture of how much is being spent on delivering defence capability and outcomes.
Henceforth, we will only present the ASPI Net Defence Funding figure.
39 How much money will Defence receive?
Table 2.2.1 displays Defence funding for the past thirteen, and next four, financial years. Also shown are both the nominal and real year-to-year percentage growth rates.
Table 2.2.1: ASPI Net Defence Funding – real (2015-16$) and nominal
Funds (nominal)
Growth (nominal)
Funds (real)
Growth (real)
01-02 13,191 7.08% 19,069 4.11%
02-03 14,216 7.78% 19,953 4.63%
03-04 15,439 8.60% 21,159 6.05%
04-05 16,224 5.09% 21,712 2.61%
05-06 17,547 8.15% 22,752 4.79%
06-07 19,140 9.08% 24,104 5.94%
07-08 20,038 4.69% 24,413 1.28%
08-09 22,933 14.45% 27,096 10.99%
09-10 25,104 9.46% 28,987 6.98%
10-11 24,403 -2.79% 27,328 -5.73%
11-12 26,381 8.10% 28,877 5.67%
12-13 24,417 -7.44% 26,133 -9.50%
13-14 26,487 8.48% 27,600 5.61%
14-15 30,039 13.41% 30,707 11.26%
15-16 32,090 6.83% 32,090 4.50%
16-17 31,066 -3.19% 30,309 -5.55%
17-18 33,615 8.21% 31,996 5.57%
18-19 36,030 7.18% 33,458 4.57%
Source: 2015-16 PBS, and earlier Defence Annual Reports (DAR).
When calculating the real growth rate, the nominal dollar values of the individual years have been converted to a single base year using the Consumer Price Index (CPI) so as to reflect the opportunity cost incurred by the taxpayer. Note that this is not the deflator used within government to adjust the defence budget from year to year. From 2001-02 until 2009-10 this was the implicit Non-Farm GDP Deflator (NFGDPD) and from 2009-10 onwards it has been fixed at 2.5% in accord with the funding model introduced in the 2009 Defence White Paper.
Those who believe that 3% is somehow a magic benchmark of merit for defence spending should be pleased. The average arithmetic annual rate of real growth in the budget since 2000-01 (the last year prior to the 2000 White Paper) to 2014-15 is 5.0%. Over the same period, the effective compounding annual rate of real growth is 3.8%.
Looking forward, things are not so encouraging. Over the four years covered by the budget and estimates, the average arithmetic annual rate of real growth in the budget from 2015-16 to 2018-19 comes out to be 1.4%. Over the same period, the effective compounding annual rate of real growth is the same.
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These calculated growth figures should be viewed with some caution due to the perturbing effect of operational supplementation, see Figure 2.2.1. A fuller analysis of trends in defence spending appears in Chapter 3 of this brief, including the prospects for the government achieving its promise of 2% of GDP by 2023-24.
Figure 2.2.1: Real Net Defence Funding – 2000 to 2018
Source: 2015-16 PBS, 2014-15 PAES and earlier DAR. 2005 = 2005-06 etc.
What is the Defence share of GDP?
Table 2.2.2 gives Net Defence Funding as a percentage of GDP for recent and future years.
As shown, the share of GDP will rise from 1.87% in 2014-15 to 1.93% in 2015-16. (Last year’s estimate has gone up due to shifts in both foreign exchange, spending and GDP.) Over the following three years, restrained real spending growth and a rising economy will depress the GDP share. Note that, current and recent spending is boosted by high levels of operational supplementation that are not reflected in the latter years of the forward estimates.
Table 2.2.2: ASPI Net Defence Funding as a percentage of GDP
00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 1.74 1.75 1.77 1.79 1.76 1.76 1.77 1.70 1.83 1.94 1.74 1.78 1.60 1.68 1.87 1.93 1.78 1.83 1.86 Source: Analysis of data from 2015-16 Budget Overview, 2015-16 PBS and earlier DAR
What is the Defence share of Commonwealth payments?
Defence spending as a percentage of total Commonwealth payments is shown in Table 2.2.3.
On current plans, Defence’s share of payments will rise slowly over the forward estimates period. Figure 2.2.2 graphs the percentage GDP and share of Commonwealth payments from 1997 to 2017.
Table 2.2.3: ASPI Net Defence Funding as a percentage of Commonwealth payments
00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 6.96 6.99 7.21 7.36 7.29 7.31 7.56 7.37 7.26 7.45 7.05 7.11 6.65 6.52 7.24 7.47 6.98 7.24 7.33 Source: Analysis of data from 2015-16 Budget Overview, 2015-16 PBS and earlier DAR
0 5 10 15 20 25 30 35 40
2015-16 $ (billion)
Operational supplementation Baseline costs
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Figure 2.2.2: Net Defence Funding as a Percentage of payments and GDP
Source: Analysis of data from Budget Overview, 2015-16 PBS and earlier, DAR 2005 = 2005-06 etc.
Changes since the last budget
Since the last budget, measures and adjustments have been undertaken that provide context for this year’s budget. Table 2.2.4 shows the key items from the 2014-15 Portfolio Additional Estimates Statement (PAES) [Table 7, p.17].
Table 2.2.4: Key measures and adjustments from the 2014-15 PAES (million $)
14-15 15-16 16-17 17-18 4 year
total
Operation Slipper 26.7 26.7
Operation Highroad 82.4 82.4
Operation Accordion - extension 63.2 63.2
Operation Okra 260.8 30.9 5.8 297.5
DMO appropriation adjustment 1.5 1.5 1.6 1.7 6.3
Foreign exchange movements 6.3 74.4 23.8 -30.4 74.1
Carried Forward Appropriation -71.4 -71.4
TOTAL 369.5 106.9 31.2 -28.7 478.9
Source: 2014-15PAES. Note: Ten-year totals were not disclosed.
Operational supplementation
Defence is funded on a no-loss/no-win basis for the net additional cost of operational deployments. Additional funding was provided for Operation Slipper ($26.7 million) and Operation Highroad ($82.4 million) in Afghanistan, Operation Accordion ($63.2 million) in the Middle East Region, and Operation Okra ($297.5 million) in Iraq.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9% % Commonwealth Outlays
% GDP
42 Foreign exchange adjustment
Defence is funded on a no-win/no-loss basis for foreign exchange movements. Depending on how the Australian dollar moves relative to currencies that Defence plans to make purchases in, adjustments are made to maintain the buying power of the Defence budget. As a result of depreciation in the value of the Australian dollar during 2014-15, Defence received
$6.3 million in 2014-15 and $74.1 million over the budget and forward estimates.
DMO appropriation adjustment and Carried Forward Appropriation
Due to functions and staff movements between Defence and DMO, DMO received
$1.5 million in the budget year and $6.3 million across the Budget and Forward Estimates.
The Carried Forward Appropriation relates to the drawdown of previous years’
appropriations that have been carried forward.