Total funding

Table 1: total Defence funding and major programs (billions)

Sources: Portfolio budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio (pages 17 and 162) and Australian Government, Defence White Paper, 2016 (p. 180).

Notes:
* Total Defence funding in this brief comprises figures for Current year’s appropriation, Defence (Table 1.; p. 17) plus Current year’s appropriation, ASD (Table 66; p. 162) plus Appropriations – contributed equity (Table 66; p. 162).
GDP figure calculated by Parliamentary Library.

• Each Defence Budget since 2016 has been set, more or less, in the direction laid out by the 2016 Defence White Paper. The White Paper promised an additional $29.9 billion in funding for Defence across ten years to 2025, and linked this to expenditure of $195 billion in defence capability across the same period.
• In the 2017–18 Budget, the $195 billion figure was revised upwards, to $200 billion to 2027–28.
• In addition, the White Paper stated that Defence funding would increase to 2 per cent of GDP by 2020–21.
• Broadly, the Government has remained on track to achieve the White Paper aims, and the 2019–20 Budget maintains this position (Table 1). Of course, the funding rise does not have to be a steady upwards gradient. The White Paper states:

  The funding growth path to reach two per cent of GDP by 2020–21 will be aligned with the organisational and capability priorities in this Defence White Paper. Over the next two years, while the First Principles Review is being implemented and reforms are being institutionalised, the Defence budget will grow gradually. After this period of reform, the rate of funding growth will increase towards the end of this decade to deliver the capabilities set out in the White Paper. [p. 179]

• The Australian Strategic Policy Institute’s (ASPI) Marcus Hellyer notes that the 2019–20 figure is a year-on-year rise of 1.2 per cent in real terms, and that total Defence funding will have to rise by approximately 5 per cent if the Government is to reach the target of 2 per cent of GDP.
• There are few new funding announcements in the Defence Budget. This is to be expected because the Government set out its plans in the White Paper and its associated documents; and the acquisition of Defence capability is a long-term venture, which does not allow for much change across short timeframes.
• The February 2019 Portfolio Additional Estimates Statements revised the 2018–19 figure for total Defence funding to $36.7 billion, up from the original 2018 budget figure of $36.2 billion. This revision appeared to result from a significant rise in the amount Defence was compensated for foreign exchange movements. In 2018–19, foreign exchange supplementation was projected to be $476.6 million, and the supplementation was projected to rise across the forward estimates to $941.5 million in 2021–22. Since Defence buys approximately 65 per cent of its capital equipment overseas, it is particularly exposed to falls in the value of the Australian dollar. The Defence Portfolio Budget Statements 2019–20 (PBS) contain figures for foreign exchange that remove some of the supplementation from the forward estimates and, to an extent, increase the amount for supplementation for 2018–19 and 2019–20 (p. 18). The PBS does not provide an explanation for the change.
• Defence makes a ‘not-for-publication’ contribution to the equity injection to Australian Naval Infrastructure, as well as the Government’s new whole-of-government Cyber Uplift policy.
• Funding for operations is $703.6 million—a fall from the forecast 2018–19 figure of $792.7 million. This decrease is mainly due to winding back operations in Iraq, and no funding in this year’s Budget for what appears to be the cessation of Defence’s contribution to fighting terrorism in the Philippines (Operation Augury).

Capital investment, capital facilities and capability sustainment programs

Table 2: Capital Investment Program (billions)

Sources: Portfolio additional estimates statements 2018–19: Defence portfolio and Portfolio budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio.

Note:
* Includes approved and unapproved projects.

• The 2016 Defence White Paper states that capital investment will grow to 39 per cent of the Defence budget by 2025–26 ($23.0 billion) and sustainment costs are expected to increase from 25 per cent to 28 per cent ($16.4 billion) of the Defence budget in the same period (p. 181).[1]
• Given the continuous and rolling build programs for the Future Frigates and Future Submarines, and the increased costs of sustaining ageing equipment to avoid a capability gap, this level of investment is likely to put significant pressure on the Defence budget for decades to come.
• Since last year’s Budget, the estimated Major Capital Investment Program figures out to 2020–21 have somewhat reduced, by around a billion dollars each year. However, by 2022–23, the program budget is expected to ramp up to $14.5 billion.
• As the Major Capital Investment Program line item does not delineate between approved and unapproved projects, the figures contained in Table 55 of the PBS provide some indication of estimated costs associated with the approved projects (p. 121). The total approved acquisition projects estimate for 2019–20 is $8.6 billion (Gross Plan—the money needed if all projects were to be delivered as planned). Minus the forecast shortfall (Management Margin Slippage) of almost $1.5 billion, Defence estimates the payments required for approved projects will be around $7.1 billion in 2019–20.
• On the release of the Defence Portfolio Additional Estimates Statements 2018–19 (Defence PAES) in February 2019, ASPI’s Marcus Hellyer noted that adjustments to the Major Capital Investment Program suggest ‘that delays to new equipment projects originally scheduled for approval’ in 2018–19 might be one of the factors that ‘account for the decline in capital equipment spending since the [2018–19 budget]’. This might also be the case with the 2019–20 Budget.
• Capital facilities spending continues to grow with approved projects for the development and redevelopment of facilities to accommodate the ADF’s new capabilities—such as the F-35A Joint Strike Fighter aircraft ($105.3 million) and the P-8 Poseidon maritime surveillance aircraft ($181.2 million); and upgrades to existing facilities—such as the Joint Health Command Garrison in various states and territories ($131.8 million) (pp. 131–36).
• Capability sustainment expenditure is expected to increase due to ongoing estate and infrastructure management, including garrison support and maintenance ($2.9 billion); as well as capabilities for Navy ($2.4 billion), Army ($1.7 billion) and Air Force ($3 billion) (p. 20).

Policy announcements

• The Naval Shipbuilding Plan (released 16 May 2017) stated that funding for new naval ships and submarines will cost around $90 billion. The development of modern shipyard infrastructure will cost more than $1 billion and initiatives to grow a skilled workforce in this sector will cost up to $62 million.
• The Commonwealth-owned Australian Naval Infrastructure Pty Ltd (ANI) was established to develop and manage Australia’s naval shipyards; the expenditure associated with this development is not published in the Budget. The Defence PAES 2018–19 noted variations to Defence funding that included additional equity for ANI; however, the figures attached to the budget measure were not published ‘due to commercial sensitivities’ (p. 18). The same statement was made in the Defence Portfolio Budget Statements 2019–20 (p. 18) and the Department of Finance Portfolio Budget Statements 2019–20 (p. 19).
• Work at the site of the Future Frigates shipyard at Osborne South in South Australia is progressing and recent statements suggest that more than half of the Government’s $1 billion pledge to develop modern shipyard infrastructure has been spent. The ANI Statement of Corporate Intent 2018–19 estimated the cost of expanding and refurbishing Osborne South Shipyard in South Australia would cost $535 million. At the February 2019 Finance Portfolio  Senate Estimates hearing, the Head of ANI, David Knox, noted that the predicted spend at Osborne South was now $560 million (p. 11). Work is scheduled for completion by ‘the end of the first quarter’ in 2020, when construction of the Future Frigates (Hunter Class) is scheduled to commence.
• Details about work at the Osborne North site, where the Future Submarines (Attack Class) will be constructed, are still under consideration (pp. 12–14).

Workforce

Table 3: Defence workforce

Sources: Defence Annual Report 2017–18 (pp. 80–83) and Portfolio budget statements 2019–20: budget related paper no. 1.4A: Defence portfolio (pp. 23–24).

• The 2016 Defence White Paper aims to increase the ADF workforce to 62,400 personnel by 2024 and the APS workforce to 18,200 full-time equivalent (FTE) staff. The Reserve force is to be maintained at around 19,500 paid and active personnel (p. 23).
• Table 3, summarising figures in the 2019–20 Budget, shows that Defence continues to aim for the White Paper target of 62,400 ADF personnel; but not the APS workforce, which is expected to stabilise at around 16,200 FTE positions over the forward estimates (p. 21). The Reserve force is expected to grow over the forward estimates, in the number of allocated reserve services days and active Reserve members (p. 24).

All online articles accessed April 2019

• References

  [1]. Sustainment is the ‘provision of the appropriate goods and services required to achieve readiness and sustainability goals for the life of the Defence Element. Defence Sustainment involves the provision of in service support, including repair and maintenance, engineering, supply and replacement parts, configuration management and disposal action. Sustainment can apply to platforms (ships, aircraft, vehicle fleets), commodities (clothing, combat rations, munitions) or services (calibration, provision of maritime target ranges)’. See Department of Defence submission to the Joint Committee of Public Accounts and Audit Inquiry into Defence sustainment expenditure, February 2017, p. 2.

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