Defence

Budget Resources

David Watt and Nic Brangwin

Defence funding

Two major Australian Government policy directions underpin the 2023–24 Defence budget – the conventionally-armed, nuclear-powered submarines that Australia will acquire through the AUKUS arrangements, and the recently released Defence strategic review (DSR).

Acquiring and operating the submarines will be a complex and lengthy process and, as outlined below, the Budget takes several early steps towards achieving this across a variety of portfolio areas. See also the articles elsewhere in this Budget review 2023–24, ‘Nuclear’ and ‘Public sector: new entities, and investments in companies’.

The Defence strategic review was released on 24 April 2023. The DSR recommended far-reaching changes to the Australian Defence Force’s (ADF) strategic posture and capability in response to what it termed ‘radically different’ strategic circumstances (pp. 17 and 23). The Prime Minister’s media release accompanying the DSR set out some major priorities:

  • developing the Australian Defence Force’s (ADF) ability to precisely strike targets at longer-range and manufacture munitions in Australia
  • improving the ADF’s ability to operate from Australia’s northern bases
  • initiatives to improve the growth and retention of a highly skilled Defence workforce
  • lifting our capacity to rapidly translate disruptive new technologies into ADF capability, in close partnership with Australian industry
  • deepening of our diplomatic and defence partnerships with key partners in the Indo-Pacific.

Included in the public version of the DSR are the 62 recommendations to which the Government agreed or agreed in-principle. It was reported in the media that the classified version of the DSR contained 108 recommendations.

The DSR was light on detail about the money needed to fulfil the Government’s vision. The review stated on page 96:

The full cost of the Review recommendations will not be able to be fully quantified until Defence has analysed the capability recommendations in the Review and costed them.

The review did foreshadow the reprioritisation of projects within the Integrated Investment Program and noted on page 110:

Funding should be released through the rebuild and reprioritisation of the Integrated Investment Program (IIP) and reinvested into priority Defence projects, programs and activities consistent with the Review.

The scope of this reprioritising is broad and will be time-consuming. The DSR states on page 55:

 …rescheduling delivery, reducing in scale, or divesting programs and previously envisaged core projects not suited for the strategic circumstances outlined in the Review’.

The scale of change envisaged by the acquisition of nuclear-powered submarines and the wide-ranging changes set out in the DSR will be challenging for both the Government and Defence. For the Government, the largest challenge is likely to be the provision of funding. The proximity of the DSR to the 2023–24 Budget means that the DSR is not yet integrated into the Defence budget in a way that reflects the urgency stated by the review.

As set out in the Portfolio budget statements 2023–24: budget related paper no. 1.4A: Defence portfolio (p. 16), total Government funding for Defence and the Australian Signals Directorate (ASD) for 2023–24 is $52,558.8 million. This is broadly on track with the Defence budget projections set out by the Turnbull and Morrison governments in the 2016 Defence white paper and the 2020 Defence strategic update, but does not include any additional funding for DSR priorities.

This means that the Defence measures for 2023–24 are being funded from within Defence’s existing budget and from savings made as a result of the changes to the Integrated Investment Program.

The Minister for Defence’s 2023–24 budget media release summarises this:

Over the next four years, the Albanese Government will invest more than $19 billion to implement the immediate priorities identified in response to the Defence Strategic Review. These include:

  • $9 billion for the nuclear-powered submarine program through AUKUS.
  • $4.1 billion for long-range strike capabilities.
  • $3.8 billion for northern base infrastructure.
  • $400 million to support Australian Defence Force personnel through a new continuation bonus $900 million on defence innovation, to establish the Advanced Strategic Capabilities Accelerator and through AUKUS Pillar 2

These immediate priorities will be delivered within Defence’s existing resourcing, including through an initial $7.8 billion reprioritisation of the Defence Integrated Investment Program.

A further problem for the Government is the impact of inflation on Defence’s buying power. In relation to Defence and ASD funding, Strategic Analysis Australia’s Marcus Hellyer writes:

For 2023–24 the envelope is $52,559 million in consolidated funding for the Department of Defence ($50,086 million) and the Australian Signals Directorate ($2,472 million). That’s a 7.0% nominal increase on 2022-23. Should the government’s prediction of moderating inflation pan out (which is credible but not bankable), that would be a 3.0% increase in real terms. That would definitely be an improvement on 2022-23 when a substantial increase of 8.0% in nominal terms was effectively wiped out by inflation, resulting in a real increase of less than 1.0%. It’s hard to increase capability if your budget is stagnant in real terms.

The Defence Portfolio budget statement reveals something about funding beyond the forward estimates on page 9:

The Government has included a spending provision in the Contingency Reserve for increased Defence funding over the medium term to implement the Defence Strategic Review.

Budget strategy and outlook: budget paper no. 1: 2023–24 expands on this statement on page 207:

The Government has made a provision in the Contingency Reserve for increased Defence funding over the medium term to implement the Defence Strategic Review. Defence funding will increase and rise above 2.3 per cent of GDP in 2032–33, based on current GDP projections.

An explanation of the Contingency Reserve can be found on pages 228–229 of Budget paper no. 1.

Writing in the Guardian, journalist Daniel Hurst puts a figure on this:

Officials confirmed that this additional spending provision was worth $30.5bn between the 2027-28 and 2032-33 financial years.

 In the analysis mentioned above, Marcus Hellyer speculates about the $30.5 billion:

So what’s that $30.5 billion for? It’s not stated, but I was reminded of the numbers that the government briefed to the media when it announced the ‘optimal pathway’ to an SSN capability a couple of months ago. Over the decade, the Attack class would have cost around $30 billion; the SSN pathway is going to cost $50-58 billion. That gap is pretty close to $30 billion.

If this view is correct, Defence will have to consider significant reprioritisation to pay for other DSR capability recommendations.

Budget measures

Table 1 sets out the Defence budget measures and includes a brief description of the measure as well as what as is known about the funding for each of them. Some of the most significant of these measures feature cross-portfolio funding and, where possible, these have been linked to other relevant Parliamentary Library Budget review 2023–24 articles.

Table 1         Significant budget measures

Measure Description Budget funding
Enhancing Pacific Engagement Defence is part of a cross-portfolio $1.9 billion plan to expand Australia’s engagement with the Pacific. See the Budget review 2023–24 article. $923.9 million, to be absorbed by Defence.
Nuclear-Powered Submarine Program – initial implementation Cross-portfolio $4.5 billion over 10 years from 2023–24 (and $482.7 million per year ongoing) to support the initial steps in Australia’s acquisition of a conventionally-armed, nuclear-powered submarine capability. This includes the establishment and ongoing operation of the Australian Submarine Agency, which will manage the regulatory activities, standards and frameworks, and non-proliferation and safeguards arrangements for the Nuclear-Powered Submarine Program. See the Budget review 2023–24 article, ‘Nuclear’. Defence’s part is marked ‘not for publication’ because of commercial sensitivities and will mainly involve transfers to other agencies.
Aid to Ukraine Additional assistance to Ukraine in response to the invasion by Russia. This includes the provision of Bushmaster Protected Mobility Vehicles and unmanned aerial vehicles, infantry training to the Ukrainian Armed Forces and
155 millimetre artillery ammunition to Ukraine as part of a joint initiative between France and Australia. 		$186.9 million across 2 years, to be absorbed by Defence
Advanced Strategic Capabilities Accelerator $3.4 billion over 10 years from 2023–24 to establish the Advanced Strategic Capabilities Accelerator within the Department of Defence to lift capacity to rapidly translate disruptive new technologies into Defence capability, in close partnership with Australian industry. $748.4 million over 4 years, to be absorbed by Defence.
ADF Deployments Funding for assistance operations in Solomon Islands, Ukraine and Vanuatu, and Defence’s contribution to Operation Sovereign Borders. $37.4 million in 2023–24.
Extension of the Defence Industry Pathways Program Extension of the Defence Industry Pathways Program within the WA shipbuilding sector. The program provides 12-month skills development opportunities through which participants gain an understanding of defence industry and obtain a nationally accredited Certificate III qualification. $11.4 million across 3 years, to be absorbed by Defence.
Recognising the Australian Defence Force’s Unique Service to the Nation Funding to support the retention of Defence personnel and support the achievement of Defence’s workforce growth targets. Includes support for the retention bonus pilot and funding for a defence housing feasibility review. $397.4 million over 2 years, to be absorbed by Defence.
Cyber Security Part of a cross-portfolio $101.6 million over 5 years from 2022–23 (and $11.8 million per year ongoing) to support and improve cybersecurity in Australia. $3.9 million in 2023­–24.
Securing a Unique and Critical Defence Capability The Government will acquire an ownership interest in CEA Technologies Pty Ltd to expand its sovereign defence capability and ensure the continued development and supply of equipment critical to Australia’s defence capability. The ownership interest will grow to 100% over a number of phases. This involves Defence and the Department of Finance. The cost is marked ‘not for publication’ due to commercial sensitivities. Journalist Andrew Tillett has written that the cost will be almost $500 million.
Adequate Funding for Oversight of our Intelligence Agencies Defence’s contribution to $25.8 million over 4 years from 2023–24 (and $8.1 million per year ongoing) to bolster oversight of National Intelligence Community agencies. $2.1 million transfer to the Attorney-General’s Department. The ASD will transfer $9.3 million over 4 years.

Sources: Australian Government, Budget Measures: Budget Paper No. 2: 2023–24 and Australian Government, Portfolio Budget Statements 2023–24: Budget Related Paper No. 1.4A: Defence Portfolio.

Workforce

The DSR emphasised Defence’s ongoing ‘significant workforce challenges’ and recommended an ‘innovative and bold approach to recruitment and retention’ (p. 87). Defence workforce pressures were also recognised by the previous government, which set a growth target of 101,000 Defence personnel (ADF and APS) by 2040. This was reflected in the March 2022–23 Defence budget (p. 17), as well as the 2023–24 Defence budget (p. 19).

Table 2 shows the steady increase in the planned workforce allocation of average full-time personnel from 2022–23 across the forward estimates.

Table 2          Defence planned workforce allocation for 2022–23 and forward estimates – average full-time personnel

  2022–23 (est. actual) 2023–24 2024–25 2025–26 2026–27
ADF 58,473 59,673 63,597 64,532 65,595
APS 16,991 17,713 18,669 19,045 19,310
Total 75,464 77,386 82,266 83,577 84,905

Source: Australian Government, Portfolio Budget Statements 2023–24: Budget Related Paper No. 1.4A: Defence Portfolio, 22.

The planned workforce figures from the March and October 2022–23 Defence budgets anticipated an increase in 2022–23 of more than 2,200 ADF personnel, totalling 62,063 that financial year (p. 20 in both Portfolio budget statements). The current budget estimate is nowhere near achieving that level, nor is it planned for in the following financial year. However, an increase of almost 4,000 personnel is planned for 2025–26. This increase is reflected in the planned budget expenditure for Defence’s overall workforce, which totals $77.2 billion from 2022–23 to 2026–27.

Only time will tell whether a new swathe of recruitment and retention initiatives – such as the Albanese Government’s 2 May 2023 announcement offering a $50,000 retention bonus for middle-rank personnel, coupled with DSR recommendations around making ADF pay and conditions more competitive in the current labour market (p. 20) while reducing the contractor workforce – has any meaningful impact on Defence’s workforce dilemmas.

Defence capabilities

The DSR recommended force structure priority areas for developing capability timeframes and accelerating preparedness. These would be scheduled to occur over 3 periods:

  • Enhance Force-in-Being (that is, to make enhancements to the existing force) by prioritising urgent matters from 2023–25
  • Accelerate acquisitions to the Objective Integrated Force (that is, deliver critical capabilities) from 2026–30
  • Deliver the Future Integrated Force (that is, force design and capabilities that might not yet exist) from 2031 and beyond (pp. 65–66).

Prior to Budget 2023–24, the Albanese Government announced some new capability measures, including the acquisition of long-range strike systems – HIMARS (high mobility artillery rocket system) and PrSM (precision strike missiles) worth $1.6 billion – and efforts to develop an Australian manufacturing capability for longer-range munitions as part of the $2.5 billion guided weapons and explosive ordnance (GWEO) enterprise (media release 26 April 2023). These capabilities are mentioned in the 2023–24 Defence budget (p. 9) as part of the Government’s initial focus on 6 priority areas, but are not included as specific line items or in the Top 30 military equipment acquisition list.

Capability acquisition

The current estimate of around $17.6 billion for planned expenditure for the Capability Acquisition Program (which includes approved and unapproved projects) in 2023–24 is a reduction from the previous estimate of $18.4 billion. However, it is expected to increase over the forward estimates to around $19.5 billion by 2026–27 (p. 16). The Capability Acquisition Program includes military equipment acquisition ($12.35 billion), enterprise estate and infrastructure ($4.16 billion), ICT acquisition ($927.5 million) and the minors program ($211.5 million).

There has been significant change to the Top 30 military equipment acquisition projects list appended to the 2023–24 Defence budget (pp. 116–126), with a number of new projects included and others dropped from the list. It is unclear whether the projects have been dropped from the list to make way for new, more expensive projects or whether they have been ‘rescoped’, delayed or cancelled, as the Portfolio budget statement makes no mention. Some projects might have also transferred to the capability sustainment element of the One Defence Capability System. It is likely to become clearer once the Integrated Investment Program (IIP) has been ‘rebuilt’ and published in the second quarter of 2024 as part of the inaugural biennial National defence strategy, which was one of the accepted DSR recommendations (p. 56).

The Portfolio budget statement shows that the total approved expenditure for military equipment acquisition projects (not just the Top 30) is worth $140.4 billion, with around $12.9 billion budgeted for in 2023–24 (p. 126). This is a significant increase since the October 2022–23 Defence budget, which included a total of $131.7 billion worth of approved acquisitions (p. 116).

Table 3 shows that 20 of the previous (October 2022–23 Defence budget) Top 30 approved military equipment acquisition projects received little to no adjustment in the list, 10 new projects were added to the list and 10 were removed. The total cost increased from $69.85 billion to $77.55 billion (p. 126).

Table 3          Top 30 military equipment acquisition program – approved projects(a)

Project Project number/phase Budget October 2022–23 ($m) Budget 2023–24 ($m)
F-35A Joint Strike Fighter aircraft AIR 6000 Phase 2A/B 16,244 16,456
Navy guided weapons sub-program SEA 1300 Phase 1 4,039 6,264
Future Frigates – design and construction SEA 5000 Phase 1 6,121 6,161
P-8A Poseidon Maritime Surveillance aircraft AIR 7000 Phase 2 5,678 5,732
Mounted combat reconnaissance capability (Boxers) LAND 400 Phase 2 5,601 5,657
AH-64E Apache helicopters LAND 4503 Phase 1 4,225 4,393
Offshore Patrol Vessels SEA 1180 Phase 1 3,647 3,664
UH-60M Black Hawk helicopters LAND 4507 Phase 1(b) 3,770 3,372
MC-55A Peregrine aircraft AIR 555 Phase 1 2,285 2,360
Abrams main battle tanks LAND 907 Phase 2(c) 2,202 2,283
MQ-4C Triton remotely piloted aircraft AIR 7000 Phase 1B 2,088 2,134
Protected Mobility Fires (self-propelled Howitzers and radars) LAND 8116 Phase 1(d) 1,306 1,316
Ground based air and missile defence enhancement LAND 19 Phase 7B 1,225 1,233
Tactical training vehicles (completes Phase 3B) LAND 121 Phase 5B 1,167 1,170
Air Warfare Destroyer Aegis upgrade SEA 4000 Phase 6 930 949
Joint counter IED LAND 154 Phase 4 643 653
Hawk 127 Lead-in Fighter Training System AIR 5438 Phase 2(e) 586 586
Multiple tactical data link network JNT 9347 Phase 1 560 565
MQ-28A Ghost Bat uncrewed air system DEF 6014 Phase 2 452 454
Tactical UAV upgrade LAND 129 Phase 3 368 371
Growler airborne electronic attack capability (ALQ-99 tactical jammers) AIR 5349 Phase 3   3,508
Advanced EA-18G Growler aircraft development AIR 5349 Phase 6   3,200
Air-to-air weapons F-35A (AIM-9X Sidewinder and AIM-120D missiles) AIR 6000 Phase 5   902
Enhanced HF communications re-modernisation program JNT 9101 Phase 1   848
Weapons and countermeasures for air combat capability AIR 6000 Phase 3   810
Enhanced maritime strike for air combat capabilities AIR 3023 Phase 1   751
Multi domain joint strike – air launch (JASSM-ER) AIR 6004 Phase 2   558
ADF small arms replacement LAND 159 Phase 1(f)   463
ADF deployable health JNT 2060 Phase 3   401
Special Operations capability enhancement LAND 1508 Phase 1   340
Civil Military Air Traffic System (CMATS) – OneSky AIR 5431 Phase 3 1,010  
Joint air battle management system AIR 6500 Phase 1 339  
E7-A Wedgetail Airborne Early Warning and Control aircraft upgrade AIR 5077 Phase 6 171  
Communications security remediation (ADF radios) JNT 9141 741  
Battlefield command systems LAND 200 Phase 2-A 968  
Hawkei protected mobility vehicles – light LAND 121 Phase 4 1,968  
Additional CH-47F Chinook helicopters LAND 4502 Phase 2 429  
Evolved Cape Class patrol boats SEA 1445 Phase 5 468  
Undersea support vessel SEA 3033 Phase 5 155  
Protected satellite communications JNT 9103 Phase 1 470  
Total top 30 projects (gross plan) military equipment acquisition   69,856 77,555

a. The Portfolio budget statements Top 30 military equipment acquisitions table indicates 2 funding categories (inputs to capability) for each project: ‘1. Military equipment acquisition’ and ‘2. Other project inputs to capability’. The figures presented in this table account for the first funding category only (military equipment acquisition) and represent the total approved project expenditure.

b. This project was included as AIR 9000 Phase 2 in the October 2022–23 Portfolio budget statement.

c. This project also included LAND 8160 Phase 1 in the October 2022–23 Portfolio budget statement, but was removed from the latest Portfolio budget statement.

d. Phase 2 of this project was cancelled in line with the DSR recommendation (p. 122).

e. This project will be re-scoped as part of the Government’s re-prioritisation of Defence capabilities in line with DSR recommendations (p. 119).

f. Includes fighting knives, pistols, rifles, machine-guns and anti-tank guided missile systems.

Source: Australian Government, Portfolio Budget Statements 2023–24: Budget Related Paper No. 1.4A: Defence Portfolio, 116–126.

 

Specialised agencies have been created for Australia to develop and manage some of these new and enhanced military capabilities (see the Budget review 2023–24 article, ‘Public sector: new entities, and investments in companies’. Additionally, this Budget includes proposed investment in infrastructure development, including facilities at various bases to support projects such as LAND 8113 Long Range Fires and GWEO storage (2023–24 Defence budget, pp. 152–153). More specifically, management and oversight of Australia’s nuclear-powered submarine capability will be the purview of the newly created Australian Submarine Agency (ASA).

Nuclear-powered submarine program

Australia’s acquisition of a nuclear-powered submarine (NPS) capability was first announced by the Morrison Government on 16 September 2021 as part of the AUKUS initiative. Consequently, the Attack Class submarine program with Naval Group (France) was cancelled, which cost the Australian Government a total of $3.4 billion (see Official Committee Hansard from Senate Estimates, 9 November 2022, p. 20).

On 14 March 2023, the Albanese Government announced the AUKUS NPS pathway, which involves the acquisition of 3 (possibly 5) Virginia Class submarines from the US from the early 2030s. Meanwhile, Australia and the UK will design and construct the new AUKUS nuclear-powered attack submarine (SSN) for both navies, with the UK to deliver its first SSN-AUKUS in the late 2030s and Australia scheduled to build its first in the early 2040s. While the program is still in the early planning stage, a very broad cost range has been estimated to be 0.15% of GDP, or $268 to $368 billion out to the 2050s.

On 1 May 2023, the Parliamentary Budget Office (PBO) released advice on the whole-of-program cost for the NPS, which shows a total estimated cost of $367.6 billion in out-turned dollars (meaning, in short, this figure incorporates an estimation of future inflation costs and foreign exchange increases over the life of the program. For a more detailed explanation see ANAO’s Defence’s administration of the Integrated Investment Program, p. 71) and includes a contingency of $122.9 billion.

The acquisition of the NPS is listed in this Budget under Program 2.16 (p. 88). The Budget states that $3.326 billion of total costs for the NPS program over the forward estimates ‘are reflected against other Defence programs’ and the final allocation for the NPS capability will be ‘finalised ahead of the establishment of the Australian Submarine Agency on 1 July 2023’ (p. 88). The Budget indicates the NPS program is a cross-portfolio endeavour (as noted in Table 1) but the ‘acquisition, delivery, construction, technical governance, sustainment, and disposal’ of the NPS will be managed by the ASA (p. 10).

Capability sustainment program

In the meantime, the Royal Australian Navy’s Collins Class submarine fleet will undergo life-of-type-extension (LOTE) work (CN10 is the Collins sustainment designation while CN62 is the LOTE designation) at Osborne shipyard in South Australia. The first boat (HMAS Farncomb) is scheduled for LOTE in mid-2026, which is expected to extend its service life to 2038 (p. 132). Under CN62, the fleet is projected to maintain operational capability into the 2040s with a budget estimate of $4.3 to $6.4 billion.

Overall expenditure on the Capability Sustainment Program almost reaches parity with the Capability Acquisition Program in 2026–27, costing an estimated $19.1 billion that financial year (acquisition costs are estimated to be around $19.5 billion) (p. 16). This is likely due to the expectation several capabilities will achieve operational capability.

Estates and facilities

Given all the AUKUS and DSR activity, Defence bases, naval shipyards and military facilities across Australia will be subject to upgrades, redevelopments, expansions and construction work to accommodate new capabilities and technologies as well as the Submarine Rotational Force-West. Some of the highlights include:

As part of the AUKUS deal, Australia also agreed to contribute $3 billion to help expand US and UK shipbuilding capacity over the next 4 years.

 

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