Defence capability

David Watt, Foreign Affairs, Defence and Security

Key Issue
The 2016 Defence White Paper set out a substantial expansion of Australian defence capability. This will require consistency in funding and timeliness in the decision-making and implementation processes. A cohesive relationship between the Department of Defence and defence industry will also be crucial to ensure that projects are appropriately managed.

The 2016 Defence White Paper (DWP) set out the Turnbull Government’s commitment to the acquisition of a wide range of defence capability. This includes an ambitious naval shipbuilding program with 12 new submarines, nine Future Frigates and 12 offshore patrol vessels. The maritime focus will be deepened with the acquisition of fifteen P-8A Poseidon surveillance aircraft and seven MQ-4C Triton unmanned surveillance aircraft. The maritime capabilities will join the purchase of seventy-two F-35A Joint Strike Fighters and the LAND 400 Program delivering new vehicles for the Australian Army.

In fact, the Integrated Investment Program (IIP), released in February 2016 alongside the white paper, lists 200 ‘key investment decisions’. Of these, 35 had been approved by the Government at the time of publication with a further four approved by the end of the 2015–16 financial year.

The ability of Defence to deliver this ambitious program will be reliant on three key factors: funding, process and skills.

Funding

The first is money. The 2016 DWP promised additional funding of $29.9 billion in funding for Defence across ten years to 2025 and linked this to a total expenditure of $195 billion in defence capability across the same period.

There are two potential problems with this largesse. The first is that historically Defence has sometimes found it difficult to effectively spend substantial increases in funding. The Australian Strategic Policy Institute’s Mark Thomson has pointed out that in the eight years after the 2000 DWP, more than $8.4 billion of capital expenditure was deferred. Similarly, between the 2009 and 2013 DWPs, over $10 billion of expenditure was deferred.

The second problem is that the spending commitments of DWPs have, at best, a mixed record of fulfilment. DWPs were published in 1976, 1987, 1994, 2000, 2009 and 2013 and 2016 and of these, only the 2000 version could claim to have fully implemented its planned expenditure. However, the 2000 DWP notably coincided with a period of sustained economic growth, which substantially aided the Government’s ability to deliver appropriate funding.

Other Australian governments have not always been so fortunate. In the late 1980s poor economic conditions led to the Hawke Government not meeting its funding commitments to defence and instead seeking to fund capability via internal savings from within the Defence. Similarly, the Global Financial Crisis (GFC) coincided with the 2009 DWP, making it difficult for the Rudd Government to live up to its substantial funding commitments. Conversely, the Government’s response to the GFC led to restraint in defence funding and the search for savings via efficiencies within defence itself.

Process

A further potential impediment to the fulfilment of the DWP program is the timeliness of decision-making by the Government.

The First Principles Review of Defence criticised project approval processes for being lengthy and expensive. The Review stated that the ‘the average government submission is 70 pages long and takes 16 weeks to move through the Cabinet preparation process and an average of 46 months to progress from first pass initiation through to second pass approval’. The Review recommended a revised process which simplified some aspects of the decision-making process, albeit introducing a new ‘Gate Zero’ entry point (the point in the approval process where a concept is given initial approval to progress for potential consideration at first pass). It also recommended an increase (to $250 million) in the level at which Cabinet consideration is required. The Government agreed to 75 out of 76 of the Review’s recommendations (albeit accepting only in principle the raising of the threshold for Cabinet consideration).

The 2016–17 Defence Portfolio Budget Statement lists 33 Unapproved Capital Projects for first or second pass approval during the year. There are a further 11 in the IIP which were expected to be decided during 2015–16 but do not appear to have been.

Defence annual reports for the last ten years list 208 first and second pass approvals which would suggest that the Government might struggle to process the number of projects mentioned above. Not all projects are of equal importance and, presumably, high priority will be given to the naval shipbuilding program first announced during August 2015. This brought forward the production of the Future Frigate (to 2020) and the Offshore Patrol Vessels (starting in 2018).

The IIP does not provide assistance in judging progress on project delivery because it contains timeframes which appear to reflect the expected life of a project, but does not contain information about milestones within those timeframes. In addition, Defence has had to implement the changes to process while also making a variety of internal structural changes recommended by the Review.

Skills

Much of the white paper capability will be imported from overseas but there is also a growing emphasis on local industry. The capacity of Australian defence industry to deliver on time and on budget is an important aspect to this. This is particularly true of the shipbuilding industry where overlapping programs will place strain on Australian shipyards and the flow of skills necessary to staff them. In the Industry Policy Statement which came with the white paper, the Government sets out its approach to Defence industry and has promised $1.6 billion in funding to ‘build industry skills’ and lift Australian industry competitiveness.

Defence capability

Funding

Process

Skills

Further reading