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 amphibious vessels into service, the reorganisation of the Army under Plan BEERSHEEBA and the US marine training program in Northern Australia.
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 16 of the PBS, we get to the heart of the issue. Table 1 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 2014-15 this will amount to $28,345,811,000.
• Total Defence Funding, being those funds actually available to Defence including appropriations and revenue from other sources. In 2014-15 this will amount to
$29,302,708,000.
• Total Defence Resourcing, being Total Defence Funding plus those funds appropriated administratively through Defence for superannuation and defence housing subsidies. In 2014-15 this will amount to $34,219,310,000.
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. 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. Fortuitously, it does not make a lot of difference; the inclusion of churned money in Total Defence Funding more or less
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compensates for omitting the money appropriated to DMO—around $900 million in each case.
How much money will Defence receive?
Table 2.2.1 displays Defence funding for the past thirteen, and next four, financial years. Also shown are both the nominal and real year-to-year percentage growth rates.
Table 2.2.1: ASPI Net Defence Funding – real (2014-15$) and nominal
Funds (nominal)
Growth (nominal)
Funds (real)
Growth (real)
01-02 13,191 7.08% 18,810 4.11%
02-03 14,216 7.78% 19,681 4.63%
03-04 15,439 8.60% 20,871 6.05%
04-05 16,224 5.09% 21,417 2.61%
05-06 17,547 8.15% 22,443 4.79%
06-07 19,140 9.08% 23,776 5.94%
07-08 20,038 4.69% 24,081 1.28%
08-09 22,933 14.45% 26,727 10.99%
09-10 25,104 9.46% 28,593 6.98%
10-11 24,403 -2.79% 26,956 -5.73%
11-12 26,381 8.10% 28,485 5.67%
12-13 24,417 -7.44% 25,778 -9.50%
13-14 27,027 10.69% 27,636 7.21%
14-15 29,320 8.48% 29,320 6.10%
15-16 30,432 3.79% 29,690 1.26%
16-17 30,472 0.13% 29,003 -2.31%
17-18 32,988 8.26% 30,633 5.62%
Source: 2014-15 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 3.7%. Over the same period, the effective compounding annual rate of real growth is 3.5%.
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 2014-15
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to 2017-18 comes out to be 1.5%. Over the same period, the effective compounding annual rate of real growth is the same.
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 2017
Source: 2014-15 PBS, 2012-13 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 1.71% in 2013-14 to 1.80% in 2014-15. (Last year’s estimate has gone up due to shifts in both foreign exchange, spending and GDP.) Over the following three years, sluggish 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 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 1.71 1.80 1.78 1.70 1.75 Source: Analysis of data from 2014-15 Budget Overview, 2014-15 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.
0 5 10 15 20 25 30 35
2014-15 $ (billion)
Operational supplementation Baseline costs
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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 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 6.58 7.11 7.17 6.86 7.06 Source: Analysis of data from 2014-15 Budget Overview, 2014-15 PBS and earlier DAR
Figure 2.2.2: Net Defence Funding as a Percentage of payments and GDP
Source: Analysis of data from Budget Overview, 2014-15 PBS and earlier, DAR 2005 = 2005-06 etc.
Changes since the last budget
Since the last budget, measure and adjustments have been undertaken that provide context for this year’s budget. Table 2.2.4 shows the key items from the 2013-14 Portfolio Additional Estimates Statement (PAES) [Table 7, p.15].
Table 2.2.4: Key measures and adjustments from the 2013-14 PAES (million $)
13-14 14-15 15-16 16-17 4 year total Defence Budget Rephasing 359.4 304.0 -89.0 -1,000.4 -426.0
Operational supplementation 127.6 4.2 131.8
Free ADF Family Health Care* - - - - $225.4
PNG Regional Resettlement 5.6 5.6
Efficiency Dividend (temp increase) -28.3 -67.6 -106.8 -202.7
Reform Savings -11.9 -15.4 -20.5 -13.1 -60.9
Foreign exchange movements 381.7 428.3 480.8 528.2 1819.0
Carried Forward Appropriation 67.3 67.3
DMO appropriation adjustment 35.6 39.4 41.1 43.5 159.6
TOTAL 965.1 732.2 344.8 -548.6 1,493.5
Source: 2013-14 PAES. Note: Ten-year totals were not disclosed. *Absorbed measure.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9% % Commonwealth Outlays
% GDP
42 Defence Budget Rephasing
A total of $1.1 billion was removed from 2015-16 and 2016-17 allowing $663.4 million to be brought forward to 2013-14 and 2014-15. It’s likely that the money was shifted to address near-term budget pressures, most especially in the capital investment program. The residual -$426 million has presumably been removed from the defence funding envelope.
Operational supplementation
Defence is funded on a no-loss/no-win basis for the net additional cost of operational deployments. Additional funding of $131.8 million over two years was provided for operations in Afghanistan and Middle East Area of Operations (MEAO) as well as for Operation Sovereign Borders.
Free basic health care to all Australian Defence Force family members
According to the budget papers, the ‘Government will provide $225.4 million over four years for a national Australian Defence Force Family Health program commencing in January 2014.
Families of permanent Australian Defence Force (ADF) and continuous full-time service members within Australia will be eligible to be reimbursed for out-of-pocket expenses for Medicare-recognised general practice services. Additionally, each ADF dependant will be able to claim up to $400 per year for allied health services, such as physiotherapy, psychology, dentistry and podiatry’. Defence will absorb the cost of this measure.
PNG Regional Resettlement
This measure relates to the cost of initiatives to deter people smuggling.
Efficiency Dividend—Temporary Increase
This represents yet another (but, as it turn out, by no means the last) increase to the efficiency dividend imposed on ‘non-operational’ components of Defence.
Reform Savings
These savings relate to reforms to APS management and efficient procurement of agency software, presumably a whole-of-government initiative.
Foreign Exchange Movements
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 in 2013-14, Defence received $381.7 million in 2013-14 and $1,819 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
$36.5 million in the budget year and $159.6 million across the Budget and Forward Estimates. The Carried Forward Appropriation relates to the drawdown of previous years’
appropriations that have been carried forward.
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