The Cost of Defence

ASPI Defence Budget Brief 20122013

$66,167,871.58 $66,167,871.58 $66,167,871.58 $66,167,871.58 $66,167,871.58 $66,167,871.58 $66,167,871.58 $66,167,871.58

Sixty-six million, one hundred & sixty-seven thousand, eight hundred & seventy-one dollars & fifty-eight cents per day

TheCostofDefence ASPIDefenceBudgetBrief201213
Sixtysixmillion,onehundred& sixtyseventhousand,eighthundred& seventyonedollars&fiftyeightcents.
Preparedby: MarkThomson ProgramDirector BudgetandManagement

CovergraphicdrawnbyAndrewDyson. ReproducedcourtesyoftheartistandtheAgenewspaper.

 TheAustralianStrategicPolicyInstituteLimited2012 Thispublicationissubjecttocopyright.ExceptaspermittedundertheCopyrightAct1968,nopartof itmayinanyformorbyanymeans(electronic,mechanical,microcopying,photocopying,recordingor otherwise)bereproduced,storedinaretrievalsystemortransmittedwithoutpriorwritten permission.Enquiresshouldbeaddressedtothepublishers. Notwithstandingtheabove,EducationalInstitutions(includingSchools,IndependentColleges, Universities,andTAFEs)aregrantedpermissiontomakecopiesofcopyrightedworksstrictlyfor educationalpurposeswithoutexplicitpermissionfromASPIandfreeofcharge. FirstpublishedMay2012 PublishedinAustraliaby: AustralianStrategicPolicyInstitute(ASPI) Level2,ArtsHouse,40MacquarieStreet BartonACT2600 Australia Tel:+61(2)62705100 Fax:+61(2)62739566 Email:enquiries@aspi.org.au Web:http://www.aspi.org.au

Noteontitle: Thefigureof$66,167,871.58representsonethreehundredandsixtysixthofreportedTotal DefenceFundingforfinancialyear201213.Thisdoesnotincludefundsappropriatedtothe DefenceHousingAuthority,thoseadministeredbyDefenceformilitarysuperannuation schemesandhousingsupportservices,northeadditionalfundsprovideddirectlytothe DefenceMaterielOrganisation.

CONTENTS
ExecutiveDirectorsIntroduction ExecutiveSummary Chapter1Background 1.1 Strategic Context 1.2 PoliticalContext 1.3 EconomicContext 1.4 DefenceOrganisationandManagement 1.5 NationalSecuritySpending 1.6 MeasuringDefenceSpending Chapter2DefenceBudget201213PBSExplained 2.1Strategicdirection 2.2Resourcing 2.3FundingfromGovernment 2.4CapitalInvestmentProgram 2.5People 2.6OutcomesandPlannedPerformance 2.7FinancialStatements 2.8DefenceMaterielOrganisation Chapter3WhitePapersandMoney Chapter4StrategicReformProgram Chapter5InternationalDefenceEconomics Chapter6TheCostofWar Chapter7AustralianDefenceIndustry Chapter8ReviewingDefence Chapter9SelectedMajorProjects(preparedbyAndrewDavies) Chapter10AustraliasForeignAid AbouttheAustralianStrategicPolicyInstitute Glossary v vi 1 1 4 9 12 16 18
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24 24 28 34 38 58 98 99 109 131 147 175 181 203 229 251 259 261

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EXECUTIVEDIRECTORSINTRODUCTION
ThisisASPIseleventhannualDefenceBudgetBrief.Ouraimremainstoinformdiscussion andscrutinyoftheDefencebudgetandthepolicychoicesitentails. Ashasbeenthecustominthepast,weexplorenewareasinthisyearsBrief.Twonew chaptershavebeenadded.Thefirst,AustralianDefenceIndustry,runsaruleroverthelocal defenceindustrysector.Thesecond,ReviewingDefence,summarisesthemanyreviews undertakenoftheDepartmentofDefenceinthepasttwelvemonths.Itsalongchapter. Wevealsorevampedoursurveyofmajordefenceacquisitionprojectsbyproducing20 onepagesummariespreparedbyASPIsAndrewDavies.Inthefuture,weplantoexpand thisouttoencompass30projects. Finally,someacknowledgementsaredue.Thenotinconsiderabletaskofpreparingthe documentforpublicationhasbeenablytakencareofbyJaniceJohnson.Manyothershave helpedbyprovidingcomments,offeringadvice,andcheckingfacts.Ourthanksgooutto themall. Also,DefencewaskindenoughtolookoverapreliminarydraftofthisBriefandprovide valuablecomments.Thishelpedclarifysomeimportantpointsandresultedinimproved accuracyinmanyareas.OfcoursethisdoesnotinanywayimplythatDefenceendorsesthis documentorevensupportsitsconclusions. MycolleagueMarkThomson,whoistheManagerofASPIsBudgetandManagement Program,hasonceagainpulledtogetherthebriefintheshorttimeavailable.ForthisI extendmysincerethanks.Asalways,responsibilityforthejudgementscontainedhereinlie withMarkandmealone. LastlyweshouldacknowledgethatweatASPIarenotdisinterestedobserversofthe Defencebudget.OurfundingfromgovernmentisprovidedthroughDefenceattherateof eightthousand,twohundredandnineteendollarsandeighteencents($8,219.18)perday. Detailscanbefoundinour201011AnnualReport. PeterJennings ExecutiveDirector

EXECUTIVESUMMARY
Thenumberstellthestory.Nextyearthe defencebudgetwillfallinrealtermsby 10.5%,thelargestyearonyearreductions sincetheendoftheKoreanconflictin 1953.Asaresult,defencespendingasa shareofGDPwillfallto1.56%,thesmallest figurerecordedbyAustraliasincetheeve ofWWIIin1938. AsDefencebudgetsgo,thisyearswas prettysimple.Atotalof$5.5billionwascut fromtheDefencebudgetoverfouryears. Mostofthemoneycamefromreductions incapitalinvestment,$3billionfrom militaryequipmentpurchasesand $1.2billionfromfacilitiesconstruction.A further$438millionisbeingtakenfrom administrativebelttighteningalongwith $360millionfromcuttingciviliannumbers by1,000overtwoyears.

Defence Budget 2012

Defence funding 2012-13: $24.2 billion Share of GDP: Share of Commonwealth spend: Real growth on prior year: Expenditure shares Investment: Personnel: Operating: $4.6 billion (19%) $10.4 billion (43%) $9.2 billion (38%) 1.56% 6.65% -10.5%

Cost of deployments Afghanistan: East Timor: $1.4 billion ($8.0b since 2001) $88 million ($4.3b since 1999)

Solomon Islands: $43 million ($350m since 2003) Key budget measures (4 years) $5.5 billion cut from budget over four years to help deliver a surplus $2.9 billion redirected to meet emerging cost pressures within Defence Adjustments and supplementation (4 years) $519 million returned due to appreciation in A$ $1.4 billion in supplementation for deployments

Naturally,fundingforoverseasdeploymentshasbeenquarantinedfromanyreductionand militarynumbersare(forthemomentatleast)beingkeptatpreviouslyplannedlevels.The onlydirectcutstoexistingcapabilityinvolvetheearlyretirementoftheremainingC130H aircraftoffsetbyyetanotherunplannedC17aircraft,andtheendingoftheNavyandArmy gapyearprogram. Afurther$2.9billionhasbeenredirectedwithinthebudget,predominatelyawayfrom investmentinnewequipment,tomeetkeybudgetpressuresacrossthedepartmentover thenextfouryears.AreastoreceiveadditionalmoneyincludesustainmentoftheCollins classsubmarines($709million),informationtechnologyremediation($550million),Navy fleetsustainment($270million),estateinvestment($224million)andgarrisonsupport service($150million);eachanareafromwhichtheStrategicReformProgramhasclaimedto bedeliveringsavings.Afurther$404millionwillgotomeetcostpressuresinADFhousing, alongwith$332milliontopayfortherelocationofArmyunitsfromMoorebankto HolsworthyashiftimposedonDefenceinthisyearsbudgettomakewayforan IntermodalTransportHub. Notethattwoquiteseparatethingsareoccurringatonce.Ontheonehand,thegovernment hastakenawadofcashoutfromDefencetobalancethefederalbudget.Ontheother, Defencehasraideditscapitalinvestmentbudgettorebalanceitsinternalbudget.Theonly thingthatthetwoactionshaveincommonisthat,ineachcase,itsmostlycapital investmentthatsbeensacrificed.
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TheemergenceofurgentcostpressuresacrosstheportfolioonlythreeyearsaftertheWhite Paperisdisappointingbutnotunprecedented.Thesamethinghappenedin2003whenthe financialplansunderpinningthe2000WhitePaperfellapartandforcedtheDefence CapabilityReview. Onemightsuspectthatthe$20billionStrategicReformProgram(SRP)exacerbatedthe situationthistimearound.Inasensethatmustbethecase,asmanyofthecostpressures representthefailureoftheSRPtocontaincosts.Buttheresmoretoitthanthatforat leastthefirstfewyearstheSRPsavingswereclaimedagainstimplausiblyhighbusinessas usualbaselines,meaningthatthesavingshadmoretodowithaccountingthanefficiency. Consistentwiththis,advicefromDefenceisthattheyareoncoursetofullydeliver $1.3billionofsavingsthisfinancialyear.Yettheyalsoreportthattheyhave$2.9billionof unfundedcostpressuresacrossthenextfouryears. Sowhathappened? Tounderstandwhatsgoingon,itsnecessarytolookacrossthepastthreebudgets.This yearscutsarejustthelastinalonglineofhitsthattheDefencebudgethastakensincethe releaseofthe2009DefenceWhitePaper.Todate,$10.6billionworthofpromisedfunding fromthefirstfiveyearsofWhitePaperhasbeendeferredtopartsunknowninthefuture, $10billioninsavings(aboveandbeyondthosepromisedbytheSRP)havebeencutfrom fundingpromisedbetween2011and2021,andanother$2.5billionofnewinitiativesover thedecadehavebeenimposeduponDefencewithoutfundingoroffsets.Yet,somehow, overthepastthreeyearsDefencehasmanagedtohandback$1.6billioninunspentfunds. Howdiditcometothis?Threefactorshavebroughtaboutthecurrentpredicament: Thegovernmenthasmanifestlyplacedahigherpriorityondeliveringasurplusthanon deliveringastrongerdefenceforce.Itisnoaccidentthatthedeferralsandsavingsspike nextyearandremainsubstantialacrossthesubsequentthreeyears;thisispreciselythe periodoverwhichtheyarestrivingtogetthefederalbudgetintosurplusandkeepit there. Defencehasbeenunabletoinitiateanddelivernewequipmentprojectsatanythinglike thepaceenvisagedinthe2009DefenceWhitePaper.Fortwoyearsinarowweveseen lastminuteopportunitypurchasesusedtosoakupunspentmoneyincludingtwo C17aircraftandtwoamphibious/sealiftvessels.Nonetheless,hundredsofmillionsof dollarsofunspentinvestmentfundshavebeenhandedback,naturallyencouragingthe governmenttodeferplannedinvestment. Thedecadelongfinancialplanattheheartofthe2009DefenceWhitePaperwas flawed,havingbeenbuiltonanincompleteunderstandingofthetruecostofdeveloping anddeliveringcapability.AddtothisfailedreformundertheSRPandasuccessionof furthersavingsandefficiencydividends,andtheunthinkablehasoccurred;theMagic Puddinghasbeenbroken.

Nosinglefactoristoblameforthecurrentsituation.IfthegovernmenthadgivenDefence allthemoneytheyhadpromisedin2009,Defencewouldnothavebeenabletospenditall.
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Conversely,hadDefencebeenabletospendallthemoneythathadbeenpromisedbackin 2009,thegovernmentwouldstillhaverenegedinfavourofanearlyreturntosurplus.The 2009DefenceWhitePaperwasneitherdeliverableinpracticaltermsnoraffordablein politicalterms. Thedevelopmentofthedefenceforceenvisagedbackin2009hasbeenseverelysetback. Forthenexttwoyears,investmentinnewmajorequipmentwillfallbelow$3.5billion, comparedwith$5.5billionin200910.Infact,tofindinvestmentlevelsthislowinreal terms,youhavetogobacktoaroundthestartofthelastdecade.Quiteliterally,amassive chunkhasbeengougedoutofplannedinvestmentoverthenextthreetofouryears.The factthattheF35acquisitionwasdelayedforsensiblereasonsisirrelevant;inthenormal courseofeventstheresultinggapwouldhavebeenbackfilledbyotherinvestment. Somemoneywastakentohelpbalancethebudget,somewastakentomeetcostpressures elsewhereintheportfolio,andsomewasdeferredbecausetherewaslittleprospectofthe moneybeingspentduetomountingdelaysinapprovinganddeliveringprojects.Whatever thereasons,giventheslowprocessofrebuildingmomentuminthecapitalinvestment program(includingthemobilisationofindustrycapacity)wearelookingatalostdecadeof progresstowardsthe2009plansforthedefenceforce. ItcomesasnosurprisethatthegovernmenthasbroughtforwardthenextWhitePaperto 2013.Theplanssetoutin2009areindisarray;investmentisbadlystalled,andthedefence budgetisanunsustainablemess.Notonlyarecostpressuresbreakingout,butpersonnel andoperatingcostsnowdwarfcapitalinvestment. WillForce2030survive2013? Inannouncingthe2013WhitePaper,thegovernmentcitedsixsignificantdevelopments internationallyanddomesticallysincethe2009WhitePaper.Ofthesixfactorslistedtwo areofparticularinterestbecausetheyreflectdownsiderisktodefencespending;the ongoingeffectsoftheGlobalFinancialCrisis(GFC)andtheoperationaldrawdownfrom AfghanistanandEastTimor. Almostbydefinition,anymentionoftheGFCpresagesadiscussionoftightfiscalconditions andtheneedforausterity.Asthegovernmentsmediareleasesaid:Financialcircumstances clearlypresentarealchallengetothe2013WhitePaper.Infact,theeconomyandthe governmentsfiscalpositionhavefaredfarbetterthanexpectedbackwhentheWhitePaper wasfinalisedattheheightoftheGFC.Manypeoplehaveforgottenthat,backin2009,a returntosurpluswasnotexpecteduntil201516.Clearly,itsthegovernmentspriorityfor defencethatsfallenratherthanitsabsoluteabilitytopay. AtleastassignificantisthementionofthedefenceforcedrawdownfromAfghanistanand EastTimor.Australiahascutdefencespendingandscaledbackitsdefenceforceafterevery significantconflictofthepastcentury.Itwouldbesurprisingifwedidnotdosoagain. Itsnoteworthythatthegovernmenthasnotcommittedtoafuturefundingtrajectoryfor Defence.Meanwhile,theoppositionsresistancetothelatestroundofcutstodefence

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spendinghasbeenbothmutedandlacedwithcaveats.Thelongstandingbipartisan approachtodefencepolicyhasbeentrumpedbybipartisanfixationonachievingasurplus. ThegovernmenthassaidthatitremainscommittedtothecorecapabilitiesoftheWhite Paperandhaslistedtencapabilities.Ofthese,sixareunderway,twoaremoderatelypriced upgradesofexistingplatforms,andoneisonlyacommitmenttoconsideranupgrade.The onesubstantiverealcommitmentisthereaffirmationofthepoliticallypotentpromiseto buildtwelvesubmarinesinAdelaide.Buteventherethegovernmentscommitmentis waveringwiththeWhitePapersvisionofhighlycapablenewgenerationsubmarinesnow beingevaluatedagainstlesscapableandfarlessexpensiveexistingofftheshelfdesigns. Thegovernmentthereforeappearstobegettingreadytoclosethegapbetweenmeansand endsbydowngradingplansforthesizeandweightofAustraliasdefenceforce.Indeed,this budgetdemonstratedthatitplacesahigherpriorityonprovidingqualitysocialservicesand maintaininglowertaxesthanonbuyingplanes,shipsandartillery. Ultimately,thegovernmentissimplyreflectingthetimeswefindourselvesin.Muchhas changedoverthepastfouryears.Duringmostofthe2000s,increaseddefencespendingwas obscuredbystrongeconomicgrowth.Wecouldhavebothgunsandbutter.Thatisnotthe situationtodayeverydollarspentondefenceimposesavisibleopportunitycost elsewhere.Publicopinionhasalsoshifted.Thestrategicfearsandmisgivingsofthe post9/11decadehavebeenreplacedwiththeuncertaintyandcautionofthepostGFC decade.Forthemomentatleast,mostpeoplearemoreworriedaboutthenextfinancial crisisthantheyareabouttheseeminglyremoteprospectofastrategiccrisis. Whatistobedone? The2013WhitePaperhastoputsomerigourandrealitybackintotheplanningfor Australiasdefence.Atthemostcoarselevelthereisafundamentaldecisiontomake eitherscalebackordelayplansforthefuturedefenceforce;orprovidemoney,alotmore money,torestartthepathtobuildingalargerandmorepotentdefenceforce. Ataminimumtherearethreethingsthatthe2013DefenceWhitePapermustdo: makeaclearchoiceaboutAustraliasstrategicroleinthefuture designadefenceforceconsistentwiththatrole committhenecessaryresourcestothetask.

Invariousways,the2009DefenceWhitePaperfailedoneachcount.Todobetterinthe limitedtimeavailablewillbeatoughjob,butitsanurgentone.Defenceplanningneedsto beputonarealisticandsustainablecourse.Thereisnopointsayingonethinganddoing another,ashasbeenthecaseforthepastthreeyears. Whateveritdoes,thegovernmentshouldbeginbyputtingthesacredcowsonthetable. Clingingtohighcostbigticketitemssuchastwelvesubmarinesrisksthecreationofa lopsidedforce.Equally,quarantiningpermanentmilitarypersonnelnumbersfromcuts unreasonablytiesthehandsofthosewhohavetodesignanaffordableforce.

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Andthereneedstobeacommitmenttogenuinedefencereform.Theproblemsthat Defencefacestodayhavealottodowiththeirownfailings,quiteapartfromdecisionsmade bythegovernment. AboveandbeyondthemechanicsoftheWhitePaper,theintricaciesofdefenceplanning, andthereformoftheDepartmentofDefence,thereisafundamentalstrategicquestionfor thegovernmenttoanswer:whatsortofstrategicrolewillAustraliaplayinthe21stcentury? ItisopentothegovernmenttoreembracethevisionsetoutinDefence2009,orevento pursueamoreambitiousprogram,assomehaveargued,torespondtotheevolving strategicbalanceintheAsiaPacific.Iftheydo,theywillhavetoselltheideatothe Australianpeoplewhowillhavetofootthebill. Alternatively,andasappearsmorelikely,theycanadoptalessambitiousstrategythat focusesonlessdemandingtasksclosertohome.Thatwouldmeanbuildingadefenceforce thatcantakecareofourlocalstrategicinterestsbutstillmakeresponsiblecontributionsto ouralliesastheneedarises.Forwhatitsworth,thisauthorbelievesthatAustraliacan responsiblyadoptalessambitiousdefencestrategythanthatsetoutin2009.Itslikelythat thedefenceforceweneedisthealsotheonewearewillingtopayfor.
Furtherreading TheauthorsargumentforalessambitiousdefenceforcecanbefoundontheASPIwebsite: MarkThomson,WhatsortofdefenceforcedoesAustralianeed?ProceedingsoftheASPIGlobal Forces2010Conference,1819August2010. SomepossibleforcestructuresandtheirassociatedcostscanbefoundinapreviousASPIpublication: AndrewDaviesandMarkThomson,StrategicChoices:defendingAustraliainthe21stcentury, December2008.

Chapter 1 Background
1.1 Strategic Context
LiketheNorwegianBlueparrotintheclassicMonty Pythonskit,the2009DefenceWhitePaperisdead. Itsnotjusthavingarest,waitingfortheeconomy tobouncebacksothatitcanbeginchirpinganew, itskickedthebucket,shuffledoffitsmortalcoil, rundownthecurtainandjoinedthebleedinchoir invisible.

KeyPoints
The2009DefenceWhitePaperisdead. Chinacontinuestodrivestrategic changeintheregion. TheUnitedStatesisrebalancingits forcesgloballyandaskingalliestodo more. The2013DefenceWhitePaperneeds toreflectharddecisions.

Thefeatheredcorpseofthe2009WhitePaperwas lifelesslongbeforethegovernmentannouncedthe bringingforwardofthenextWhitePaperfrom2014to2013.Detailsoftheaccumulating cutsandmountingdeferralsofcapabilityareanalysedelsewhereinthisBrief.Sufficetosay thattheprospectsofdeliveringForce2030beforetheassigneddeadlinehavebeenremote forsometime. Thereasonsforthissorrystateofaffairsgofarbeyondthegovernmentputtingahigher priorityonachievingasurplusthanonstrongdefencethoughthatsbeenthecaseandits clearlybeenimportant.DefencesattempttodeliverForce2030hasalsobeencritically underminedbyshortcomingsinitsownplanningandexecution.Theresultissobering.Even underoptimisticassumptionsofhowquicklythingscanbedoneifamplefundingsomehow becomesavailableinacoupleofyearshence,wearelookingatalostdecadeofprogress towardsForce2030. A voice from the grave Ironically,the2009DefenceWhitePaperhasproventoberemarkablyprescientinother ways.Consistentwithwhatitwarned,cybersecurityhasgrownasafactoroverthepast threeyears.ItisnowcommonlyacceptedthatChinahassuccessfullypulledoffanumberof majorcyberespionageoperationsoverthattimeintheUnitedStatesandelsewhere.There wasalsoaspectaculardemonstrationofstatebasedcybersabotagewhentheIranian nuclearprogramwassetbackbytheStuxnetcomputervirusthoughwecantakesome solacethatthesophisticationandtargetofthevirusalmostcertainlypointtoithavinga Westernorigin. Similarly,theWhitePaperswarningthatChinasrisemightcausestrategicructionshas beenrealisedintheeventsofthepastthreeyearswellaheadofwhenthe2009WhitePaper thoughtitwould.PerhapsemboldenedbytheseeminglyweakeningoftheUnitedStatesby theGlobalFinancialCrisis,Chinaembarkedonapatternofmoreassertivebehaviourthat sawexpandedclaimsofacoreinterestintheSouthChinaSeabackedupbyaggressive navalbrinkmanship.Thisstandsinstarkcontrasttotheearly2000smorenuancedapproach builtaroundtheconceptofChinaspeacefulrise.Forawhile,especiallyduringtheperiod whentheUnitedStateswasdistractedinIraq,itseemedasthoughChinahadlatchedontoa softpowerstrategywhichheldthepromiseofyieldingthemaleadershiproleinAsia.While Chinasrisingpowercontinuestogiveitgrowinginfluenceintheregion,thenotionof 1

leadershipisadistantprospect.Tothecontrary,ChinasEastAsianneighbourshaveturned totheUnitedStatesinsearchofadiplomaticandstrategiccounterbalancethereseven beenadegreeofrapprochementbetweentheUnitedStatesandBurma.Theonlyexception tothetrendhasbeenthebizarreandrecalcitrantNorthKoreanregime. ItsbeensaidthattheUnitedStateshasrediscoveredAsiaoverthepastfewyears.More likely,theyonlynowhavetheenergytodevotetotheregionafterhavingdisengagedfrom thedrainofIraq.Whateverthereason,theUnitedStateshasbeenactiveinAsiaontwo fronts: First,theObamaadministrationhasbeenengagingitsalliesandfriendsinAsia.Ofparticular noteistheongoingcourtingofIndonesia,VietnamandespeciallyIndia.Inbothlate2010 and2011,ObamaandhisSecretaryofStateHillaryClintontouredAsiatogetthemessage outthattheUnitedStatesisheretostay(ObamahasnotvisitedBeijingsince2009).In 2011theUnitedStatesdeclaredthatitispivotingitseconomic,diplomaticandstrategic focustowardsAsia.ToquoteObamafromhisaddresstotheAustralianparliament,'the UnitedStateswillplayalargerandlongtermroleinshapingthisregionanditsfuture'. Tosomeobservers,includingmanyinAustralia,thisisawelcomedevelopment.Theyjudge thattheUnitedStateshasbeenastabilisingforceintheregionsincetheendoftheWWII, andconcludethereforethatnoharmcancomefromitcontinuingtodoso.Thiswould certainlybetheviewoftheAustraliangovernment.Otherstakeamorecautiousview. FearfulthatdepictingChinaasathreatrisksthecreationofaselffulfillingprophecy,they areworriedthatUSposturinghasmovedbeyondreassuranceintothedangerousterritory ofbuildingatacitcoalitiontoconstrainChinasstrategicoptions.WhatmakesChinasriseso difficultforAsiaisthatbothoftheseperspectivesholdelementsoftruth. Second,theUScontinuestorelocateitsforceswithintheAsiaPacific.Whatsmore,Obama haspromisedthattheregionwillnotjustbesparedtheimpactofloomingcutstoUS defencespendingbutwillinsteadbestrengthened.Giventhescaleofreductionstothe Pentagonsbudget,thisisarguablyasignthatthepivottowardstheAsiaPacificismorethan rhetorical.Recentmovesincludetheannualrotationofaneventual2,500USmarines throughDarwinfortraining,theplannedstationingoffourLittoralCombatShipsin Singapore,theannouncedwithdrawalof9,000marinesfromJapan,anddiscussionswiththe PhilippinesaboutanenhancedUSmilitarypresencethere. Atthesametime,theUSiscontinuingtoconsolidateforcesinGuam,includingthroughthe transferoftroopsfromJapan.ItsnoteworthythattherecentredeploymentsbytheUnited StatesbolsterthesouthernperipheryofEastAsiaratherthanterritoryclosertoChina.This mightjustreflectthattheformerlocationsareopportune;afterall,theUnitedStatesstill planstohavearound27,000troopsinJapanand28,500inSouthKorea.Oritmightbethat theongoingdevelopmentofantiaccesscapabilitiesbyChina(suchasballisticantiship missiles)isencouragingtheUnitedStatestostandfurtherback.Thatpossibilityismadeall themoreplausiblebythefactthattheUnitedStatesannouncedin2010thatitwantsto developanairseabattleconcepttothwartantiaccesstechnologies. SowheredoesthisleaveAustralia?Weveembracedanenhancedmilitaryrelationshipwith theUnitedStatesandwerelikelytocontinuetodoso.SeventyyearsafterWorldWarII 2

PrimeMinisterJohnCurtainannouncedthatAustralialookstoAmerica,ithasbecome ingrainedinourstrategiccharactertodoso.ButnowtheUnitedStatesisaskingmoreofits alliesandpartnersthaninthepast.TheUSpivottoAsiacarriesnotonlythepromiseofa strengthenedAmericanpresenceintheregion,butalsotheexpectationofincreasedeffort byalliesandpartners.ForAustralia,buildingForce2030wouldhavearguablybeen consistentwithsuchaneffort,butthatsnowonhold. Is resurrection possible? Ifallgoeswellpoliticallyandbureaucratically,thenextWhitePaperwillarrivepriortothe nextFederalBudget.Thequestionis:willthegovernmentcommitenoughmoneytorestart oureffortstomoderniseandexpandtheAustralianDefenceForce(ADF),orwillweslipinto aregimeakintothatofthefinaldecadesofthelastcenturywhendefencespendingtooka backseattootherpriorities? GivenAustraliasfiscalsituationandthebipartisanfetishforsurplusesatanycost,weare unlikelytoseesubstantialnewfundingforDefenceintheneartermthoughtoken gesturesarepossible.Whatisatissue,aretheyearsfollowingthemiddleofthisdecadeand beyond.Itisthejobofthe2013DefenceWhitePapertodecidewhatwillhappen. Hereisnottheplacetorehearsetheargumentsforandagainstsustainedgrowthinthe Defencebudget.Sufficetosaythatarespectableargumentcanbemountedoneitherside. Whatmustbestressed,however,isthatacleardecisionisneededonewayoranother. Thereisnopointtalkingbigandthenfailingtoprovidethenecessaryresources.Suchan approachrisksthecreationofaskewedandhollowforcewhen,ashasoccurredinthepast, themoneyrunsoutandthescrambleforsavingsbegins.Bettertosettleonamoremodest forcethatcanbeproperlymaintainedandkeptuptodatewithafundingstreamthat taxpayersarewillingtoprovide. Thegovernmentscommitmenttoretainthecorecapabilitiesofthe2009WhitePaperis notreassuring.Byclingingtoacoupleofbigticketitemswithinareducedfunding commitment,theresultwouldbeaFrankensteinmadeupofkeypartsofForce2030and whatevercanbeaffordedwiththefundsremaining.Itwouldbebestnottoanimatesucha lopsidedmonster. NoprojectbettercapturesthechoicetobemadethanthereplacementoftheCollinsclass fleet.The2009WhitePaperoutlinedarequirementforahighlyadvancedboatlikenothing thathasbeenbuiltbefore.MeetingthisspecificationwillrequireanAustraliauniquedesign withalltheriskandcostthatimplies.Oneofthekeydriversistherequirementfortheboats tobeabletooperateasfarafieldasNorthAsia.Themostobviousalternativewouldbeto acquire(orbuildunderlicense)offtheshelfconventionalsubmarinesfromEurope. Althoughsuchsubmarineswouldhaveashorterrangeandlesserpayloadthanthose outlinedinthe2009WhitePaper,theywouldbeapotentassetclosetohomeandinthe archipelagotoournorth. Overthenexttwelvemonths,thegovernmentwillworkitswaytowardsthenextWhite PapersimultaneouswithinitialstepstowardsreplacingtheCollinsclasssubmarines.Thisis anopportunecoincidence.Thepotentiallyexorbitantpricetagofthenewsubmarineswill forcethemtoconfronttheconcretecostsandbenefitsofAustralia'schosenstrategic postureforthedecadesaheadwhateveritmightbe. 3

1.2 Political Context

Apartfromthesharpdisagreementovertheinvasion ofIraqin2003,theresmostlybeenbipartisan agreementaboutthebasicissuesofdefencepolicyin Australiasinceatleastthe1980s.Withtheexception oftheGreens,Australianpoliticiansagreeontwo things;theUSallianceiscriticaltooursecurity,and Australianeedstobeabletodefenditself.

KeyPoints
Only1%ofAustraliansthinksecurity isthemostimportantproblemfacing Australia. Peoplearemoreconfidentin Australiasdefencesnowthanatany timeinthepast15years. Lessthanhalf(44%)ofAustralians

Theextentanddurabilityofagreementissurprising. supporthigherdefencespending. Overthepast35years,theunderlyingconceptslaid outintheFrasergovernments1976DefenceWhitePaperhavebeenechoedinevery subsequentdocument.Wherechangeshaveoccurred,theyhavebeenevolutionary adaptationstoourchangingcircumstances.Andwhilesomechangeshavegivenriseto politicaldebateatthetimesuchastheprioritytobeaccordedtoexpeditionary operationsbipartisansupporthaseventuallybeenfound.

Beyondthesebasicpolicysettings,however,theresampleroomforthecutandthrustof politicstoplayoutondefencematters.Inmostcases,thequestionishowbesttomanage thediverseandcomplexactivitiesthatmakeupAustraliasdefenceestablishment,and especiallyhowtoaddressproblemswhentheyarise.Onamyriadofissueslargeandsmall, oppositionsstandreadytoholdgovernmentstoaccount.Thisisasitshouldbe.Asinother portfoliosofgovernment,politicalpointscoringoftenuncoversproblemsthatwould otherwiseremainhiddenandhastenstheirsolution. Overthepasttwelvemonths,agreatmanydefenceissueshavesurfacedinthepoliticalfray; fromineffectivenavalmaintenancetoslipshodsecurityvetting,andfromfaltering billiondollarprojectstotheproperequippingoftroopsforoperations.Yetthemost attentiongrabbingwastheMinistersresponsetowhathasbecomeknownastheSkype incidentatADFAlastyear.Theincidentitselfwasserious;butasforwhatfollowedinthe media,getoverit.Meanwhile,thereweresomeimportantissuesaboutwhichpolitical debatewasrestrainedtoanunhealthylevel,suchasthequestionofdefencefunding.

PayingforAustraliasdefence
Tostatetheobvious,thegovernmentscommitmenttodefencefundinghasbeenallbut totallyeclipsedbythepoliticalimperativetodeliverafiscalsurplus.Thatsnottosuggest thatareturntosurplusrepresentsbadpolicy.Onacyclicallyadjustedbasis,Australiasfiscal consolidationupto201011ranked19thamongOECDcountries,behindahostofcountries hitharderbytheGFC,includingtheUnitedKingdom,UnitedStates,France,Germanyand, yes,evenbehindeffectivelybankruptGreece. Moreover,circumstancesareconsistentwithfiscalconsolidationatthistime.Accordingto thelatestfiguresavailableatthestartofMay2012,unemploymentislow(4.9%),the economyisgrowingatareasonablerate(2.3%),theReserveBankhadsomeroomfor monetarystimuluswithofficialinterestratesat3.75%,andalthoughinflationislow(1.6%)it isexpectedtorise.Tostrengthenthecase,thegovernmentarguesplausibly(though perhapsnotrigorously)thattighterfiscalpolicywillopentheopportunityforlowerinterest 4

ratesandputdownwardpressureontheAustraliandollar($1.034tothegreenbackatthe startofMay)eachavaluablesteptowardsharmonisingourtwospeedeconomy. Herestheproblem,ifanything,theconditionsforfiscalconsolidationwereevenmore favourabletwelvemonthsago.AsTable1.2.1shows,ofsevendifferentparameters,five weremoresympathetictoawithdrawaloffiscalstimulusayearagoandonewasthesame asitistoday.Perhapsmoreimportantly,theoutlookfortheglobaleconomywasmore favourabletwelvemonthsagothanitistoday.BackinApril2011,theIMFprojectedgrowth inadvancedeconomiesat2.5%andforemerginganddevelopingeconomiesat6.5%.Today, thosesameprojectionsstandat1.5%and5.75%respectively(buttheseweremadepriorto therisksintroducedbythechaosofthelatestGreekelection).Sowhyarushtoasurplus now?
Table 1.2.1: Latest economic parameters pre-budget 2011 and 2012
2011 2012 Labour Participation 65.6% 65.2% Unemployment Rate 4.9% 4.9% CPI Inflation 3.3% 1.6% GDP growth yony 2.2% 2.3% GDP growth qonq 0.65% 0.43% Consumer Sentiment 105.3 94.5 AUSUS Exchange Rate 1.094 1.034

Source:RBA.ParticipationandunemploymentasatApril,InflationasatMarchquarter,ExchangeRateasat1May,Westpac MelbourneInstituteConsumerSentimentIndexasatApril,GDPgrowth,yearonyearandquarteronquarterasatDecember.

Thedifferenceispolitics.Fiscalconsolidationsarepoliticallydifficult,demandingsome combinationoftaxincreasesandexpenditurecutstoclosethegapleftaftertheautomatic stabilisersretract.But201213isspecialintworespects.First,uponassumingleadership, thePrimeMinisterrecommittedtoherpredecessorspromiseofasurplusinthatyear. Second,201213isthelastopportunitythatthegovernmenthastodemonstrate(notjust promise)asurplusbeforethenextscheduledfederalelectioninlate2013.Andhow importantisthat?AsFigure1.2.1showswithalarmingclarity,itsveryimportant;thelast federalLabortreasurertodeliverasurpluswasPaulKeatingin198990.Unlessthe governmentwantstocontestthenextelectionwiththeroadscloggedbytheCoalitions debttrucksremindingeveryoneofthisfact,theyhavetobalancethebooksthis forthcomingfinancialyear.Politically,itsdoordietime.
Figure 1.2.1: Underlying cash balance 1984 to 2016
3 2 1 percentGDP 0 1 2 3 4 5
Source:TreasuryPapers

HawkeKeating

Howard

RuddGillard

198384 198485 198586 198687 198788 198889 198990 199091 199192 199293 199394 199495 199596 199697 199798 199899 199900 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011 201112 201213 201314 201415 201516 2013election

ThecutstoDefencespendinginthisyearsbudgethavegivenrisetoanavalancheof concernedcommentary.Itsbeenawhilesincedefencefundinghasgeneratedsomuch interestinthemedia.Yetonthepoliticalfront,thedebatehasbeenveryrestrained. Itstruethattheshadowministerhaspromisedtorestoredefencefundingshouldthe oppositionwinoffice.Butthepromisecamewiththegetoutofjailfreecaveatassoonas wecanaffordit.Itsnoteworthy,butnotsurprising,thatnosuchpromiseappearedinthe oppositionleadersofficialbudgetreply.TheshadowTreasurerwasevenmorecautious. Withacommitmenttorollbackboththeminingandcarbontaxesnottomentiona promisetointroduceagenerousnewpaidmaternityleaveschemeitcouldbesometime beforeaCoalitiongovernmentcanscrapetogetherthereadycashtofund3%realgrowthin thedefencebudget. Ifthegovernmentdeliversanaustere2013DefenceWhitePaper,aplanforAustralias defencethatmakessignificantlysmallerdemandsonthepublicpursethanitspredecessor, itslikelythattheoppositionwillgraspitwithbothhandslikemannafromheaven. Nevertheless,onemightexpectthatinthelongerterm,oncetheCommonwealthsfinances areeventuallybackinorder,whoeverisinpowerwillrekindleeffortstoexpandand modernisethedefenceforce.Perhapsthisiswhatwillhappen.Italmostcertainlydepends oneventsintheinterveningtime.Ifwearestartledbyanewthreatorremindedagainofan oldone,thepublicmaybewillingtosacrificegreaterprivateconsumption(payhighertaxes) andforegoalternativepublicservices(acceptlesserstandardsofeducationandhealthcare) inexchangeforstrongerdefence.Atthemoment,thatdoesnotappeartobethecase. Foronething,Australiansnowplacearelativelylowerpriorityonsecuritythantheyhavein therecentpast.Figure1.2.2showsthepercentageofrespondentswhoidentified securityrelatedissuesasthemostimportantproblemfacingeithertheworldorAustralia between2005and2011.
Figure 1.2.2: What do people worry about?
60% 50% 40% 30% 20% 10% 0%
What do you think is the most important problem facing the World/Australia today? Percentage who answered either 'relations with other countries', 'terrorism', 'wars and conflicts', 'security/safety' or 'world peace'. World Australia

Source:RayMorganResearch,FindingNo.4738,January2012.

Anditsnotsimplythatotherproblems(suchasthefragilityoftheeconomy)havetaken greaterprominenceinpeoplesassessment.Australiansactuallyfeelmuchmoreconfident thatourdefencearrangementsareeffective,seeTable1.2.2.Asmightbeexpected,the combinationoffallingfearsandgrowingconfidencetranslatesintoreducedsupportfor increasingtheamountofmoneygoingtodefence,seeFigure1.2.3.

Table 1.2.2: Confidence in Australias defences WouldAustraliawouldbeabletodefenditselfsuccessfullyifitwereeverattacked? 1996 1998 2001 2004 Agreeorstronglyagree 14.8 19.7 15.7 19.2 Neitheragreenordisagree 20.3 20.2 22.2 24.5 Disagreeorstronglydisagree 64.9 60.2 62.1 56.3

2007 22.9 28.9 48.2

2010 30.5 30.1 39.4

Source:McAllisteretal:TrendsinAustralianpoliticalopinion:resultsfromtheAustralianelectionstudy,19872010.

Figure 1.2.3: How much is enough?

70%
Do you think that the government should spend more or spend less on defence?

60%
Spend more

50% 40%
About right

30% 20%
Spend less

10% 0%

Source:McAllisteretal:TrendsinAustralianpoliticalopinion:resultsfromtheAustralianelectionstudy,19872010.

Asshown,theproportionofAustralianswillingtospendmoreondefencehasfallenfroma highof60%in2001downto45%in2010.Moregranularresultsfromthesamesurveycan befoundinTable1.2.3.Notethatwhilethereisverylittlesupport(10%)forreducing defenceexpenditure,only15%ofpeoplesupportspendingmuchmore.Mostpeopleeither believethatthingsarerightastheyare(45%)orthatsomemoreshouldbespent(29%).

Table 1.2.3: How much is enough?
Do you think that the government should spend more or spend less on defence? (%) 1987 Spend much more on defence Spend some more on defence About right at present* Spend less on defence Spend a lot less on defence 48.9 24.5 26.6 1993 14.1 27.5 43.3 11.3 3.8 1996 10.2 28.8 45.7 11.2 4.1 1998 18.5 33.6 38.4 7.5 1.9 2001 20.6 39.7 33.2 4.7 1.7 2004 15.5 36.4 37.7 8 2.4 2007 14.9 31.9 41.2 8.4 3.6 2010 15.1 29.4 45.3 7.7 2.4

*'Doesn'tmatter'1987. Source:McAllisteretal:TrendsinAustralianpoliticalopinion:resultsfromtheAustralianelectionstudy,19872010.

Defencespendingisexperiencingaperfectstorm.Politicalrealitiesareplacingaveryhigh priorityonreturningthebudgettosurplusastheeconomyrecoversfromtheslowdownof recentyears.Atthesametime,publicsupportfordefencespendingisontheslideas memoriesofEastTimorandtheattacksof9/11fadeoutofmemory.Finally,thelooming withdrawalofAustralianforcesfromAfghanistanandEastTimorwillmarkthecloseofa dozenyearsofhighoperationaltempoamilestoneofrealimportance.Therecurrent patternaftereverywarthatAustraliahasfoughtoverthepastcenturyhasbeenthesame; defencespendingdeclinesandthedefenceforceiscut.Intheabsenceofastrategicshock toreversepublicsentiment,itslikelythatweareonthecuspofjustsuchadownturn.

1.3 Economic Context

Fromtheearly1990suntillate2008,Australiaenjoyedrelativelyfavourableeconomic conditions,seeFigure1.3.1.Threethingsstoodout: Inthe1990s,inflationfelltoeffectivelyhalfofwhatitwasinthe1970sand1980s, notwithstandingashortlivedspikein2008. Economicgrowthwashealthy,averaging3.4%duringthe1990sand3.2%from2000to 2007,despiteafallinlabourproductivitygrowth. Unemploymentfellfromapeakof10.8%inlate1992toathirtyfouryearlowof4%in early2008(atthesametimeasworkforceparticipationedgedupfrom62.7%to65.2%).

Figure 1.3.1: Australian economic performance 1980 to 2011

16 1980s: avg3.4%GDPgrowth avelabourproductivity1.2% 1990s: avg3.2%GDPgrowth avelabourproductivity2.1% 2000s: avg3.0%GDPgrowth avelabourproductivity1.2%

14

Recessionwehadtohave 12 percent(annualised)change

Unemployment CPIInflation

10 IntroofGST 8 2008inflation spike GFC

2 RBAinflationtargetrange 0

Source:ReserveBankofAustralia(RBA),AustralianBureauofStatistics(ABS)andTreasurystatistics.

Strongeconomicgrowthallowedthepreviousgovernmenttosimultaneouslyincrease spendingandcuttaxesinitslateryears.Itwasahappytimeallaround.Fewareaswere happierthanDefence,whichsawitsfundinggrowmoreorlessintandemwithGDPfrom 1999onwards.Butfromaround2004,whenunemploymentfellbelow5%,capacity constraintsstartedtobefeltintheeconomyandin2008inflationbegantorisequickly. Then,inlate2008,theGlobalFinancialCrisis(GFC)hitanditlookedlikeasubstantial recessionwasonthecards.ButAustraliaweatheredtheeconomicstormbetterthan expectedandonlyexperiencedalimitedslowdown.Thetimingoftherecenteventsis reflectedinthechangestotheRBAtargetcashratesetoutinFigure1.3.2.Fromlate2009 untillate2010,risinginflationandrestoredgrowthsawtheofficialinterestraterise progressivelyby1.75%.Overthesameperiod,unemploymentfelltoaround5.2%whereit hasremainedsince.Inlate2011,however,theRBAchangedtackandcutratesby1%in threestepsoverasixmonthperiodtoanexpansionary3.75%asinflationmoderated.(The averagecashratesince1990hasbeen5.8%.) 9

Figure 1.3.2: RBA target cash rate 2005 to 2011 8 targetcashrate percent 7 6 5 4 3 2 1 0
RatescutinreponsetoGFC Lowinflationandunevengrowth promptscuts Ratesrisetocombatinflation Ratesrisewithrecovery

Source:RBA.

TheonsetoftheGFCwasaccompaniedbyadeteriorationofthegovernmentsfiscal outlook.Figure1.3.3graphsthedramaticchangestothefiscaloutlookinsuccessiveofficial estimatesinrecentyears.Table1.3.1comparestheoutlookinMay2011withthatofMay 2012.Notethedeteriorationinthegovernmentsfiscalpositionoverthattwelvemonth period.Roughlyspeaking,thedeficitfor201112doubledandthesurplusfor201213 halved.

Figure 1.3.3: The changing outlookfiscal balance per cent GDP
3 2 1 0 1 2 3 4 5 Source:200708to201213BudgetPapers May07 May09 May11 May08 May10 May12 200708 200809 200910 201011 201112 201213 201314 201415 201516

Table 1.3.1: Budget aggregates 2011-12 and 2012-13 Budgets (nominal billion dollars)
Underlyingcashbalance Budget 201112 PercentofGDP Fiscalbalance PercentofGDP Underlyingcashbalance Budget 201213 PercentofGDP Fiscalbalance PercentofGDP 0708 19.7 1.7 21.0 1.9 19.7 1.7 21.0 1.9 0809 27.1 2.2 29.7 2.4 27.1 2.2 29.7 2.4 0910 54.8 4.3 52.9 4.1 54.8 4.3 52.9 4.1 1011 49.4 3.6 45.7 3.3 47.7 3.4 42.0 2.8 1112 22.6 1.5 20.3 1.4 44.4 3.0 42.0 2.8 1213 3.5 0.2 4.0 0.3 1.5 0.1 2.5 0.2 1314 3.7 0.2 3.2 0.2 2.0 0.1 2.6 0.2 1415 5.8 0.3 8.5 0.5 5.3 0.3 7.0 0.4 7.5 0.4 9.5 0.5 1516

Source:BudgetPapersNo.1for201011andbeyond,200708to200910areactualfigures.

10

Defencespendssomethinglike$5billionayearoffshore(noofficialfigureisavailable) mostlyincontractswritteninUSdollars.AndwhileDefenceisinsulatedfromfluctuationson anowin,nolossbasis,sothatthegovernment,andultimatelythetaxpayer,feelsthepain orgain.Inrecentyears,theUSDAUDexchangeratehasfluctuatedsubstantiallyasFigure 1.3.4shows.Atthetimeofwriting,theexchangeratewassteadyataround$1.01having reachedapostfloathighof$1.10againsttheUSdollar.Thebudgetassumesarateof$1.03.

Figure 1.3.4: Foreign exchange
1.2 1.1 1.0 Australian $ / US $ 0.9 0.8 62% appreciation 0.7 0.6 2009 White Paper 0.5 0.4 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 2.5 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 1516 2.5 65% appreciation in value of Australian dollar 2000 White Paper 31% depreciation in value of Australian dollar

Source:RBA

Since200910,theDefencebudgethasreceivedfixed2.5%annualindexation,calculated from200910butonlyappliedfrom201314.(Thisisseparatefromandinadditiontothe adjustmentsmadeforforeignexchange).Therelativepercentagegainorlosscomparedwith CPIandcoreinflationiscalculatedinTable1.3.2,includinghistoricalfiguresfor comparison.

Table 1.3.2: CPI inflation, core inflation and 2.5% indexation
0304 0405 0506 0607 0708 0809 0910 1011 1112 1213 1314 2.5 2.5 1415 2.5 2.5

Fixed2.5% CPI Difference Fixed2.5% coreinflation* Difference

2.5 2.4 0.1 2.5 2.7 0.2

2.5 2.4 0.1 2.5 2.7 0.2

2.5 3.2 0.7 2.5 2.9 0.4

2.5 2.9 0.4 2.5 2.9 0.4

2.5 3.4 0.9 2.5 3.9 1.4

2.5 3.1 0.6 2.5 4.4 1.9

2.5 2.3 0.2 2.5 3.3 0.8

2.5 3.6 1.1 2.5 2.6 0.1

2.5 2.5

2.5 2.5

Source:APHLibrary,RBA,ABSandBudgetPapers.*AverageoftheRBAweightedmedianandtrimmedmeanmeasures.

Havinglostoutin200910and201011relativetoCPI,thebuyingpowerofthedefence dollarisgrowingatthemomentduetolowinflationinthefirsthalfof2012.Theimpactof thenewindexationregimeontheDefencebudgetisexploredfurtherinChapter3.

11

1.4 Defence Organisation and Management

TheOutcomesandProgramFramework
Since200910,theDefencebudgethasbeensetoutaccordingtoaframeworkofoutcomes andprograms.Thisreplacestheoutcomesandoutputsframeworkthatwasestablished in1999. OutcomesaretheresultsorbenefitsthattheCommonwealthaimstodelivertothe communitythroughtheworkofitsagencies.Theyarespecifiedforeachagency,andare meanttoexpressthepurposeorgoalofeachagencysactivities. Programsareactivitiesthatagenciesundertakeinpursuitoftheoutcomestheyare expectedtodeliver. Undertheframework,theperformanceofagenciesismeasured.Thisisdonethrough specifictargets(likeflyinghoursforAirForce)and,ultimately,theextenttowhichtheir programsactuallydelivertheoutcomesintended.Sotheaimistoshownotonlyhowmuch anagencyisdoing,buthowmuchitisactuallyachieving.

TheDefenceOutcomes
Since200910,theDefenceOutcomeshavebeen: Outcome1:TheprotectionandadvancementofAustraliasnationalintereststhroughthe provisionofmilitarycapabilitiesandthepromotionofsecurityandstability. Outcome2:TheadvancementofAustraliasstrategicintereststhroughtheconductof militaryoperationsandothertasksasdirectedbyGovernment. Outcome3:SupportfortheAustraliancommunityandcivilianauthoritiesasrequestedby Government. TheprogramsthatcontributetothesethreeoutcomesaresetoutinFigure1.4.1.Notethat theprogramsarecloselyalignedwiththeactualorganisationalstructureofDefence,ascan beseenbycomparisonwiththeDefencewiringdiagraminFigure1.4.2. Thisframeworkprovidesgreatervisibilityofresourcesconsumptionwithintheorganisation thantheoutputbasedapproachthatwasinplaceupto200708.Butthiscomesattheloss ofknowingwhatitcoststodelivermilitarycapability,whichiswhattheoldframework attemptedtodo.Ultimately,whatreallymattersishowmuchitcoststodeliverships,planes andbattalionsreadyfordeployment,nothowmuchmoneyisspentonhealthservices,legal adviceorpersonnelmanagement.Ofcourse,inaperfectworldwewouldbetoldboth. Curiously,atthesametimeasDefencesformalbudgetframeworkabandonedtheconcept ofoutputsinfavourofanorganisationbasedprogramapproach,the2009WhitePapersaid thatDefencewillmovetoanoutputdriveninternalbudgetingmodel.Thirtysixmonthson, andwestilldonotknowwhatthiswillentailortheextentifanytowhichitwillbevisible tothepublic.ItwouldbeironicifDefencefinallymovedtoaninternaloutputbasedbudget afterabandoningoutputbasedexternalbudgetingandreporting.Itmaybethatthewhole ideahasbeenabandoned.

12

Figure 1.4.1: The new Defence Outcome-Output framework

Defence Portfolio Defence DMO

Outcome 2
Support for the Australian community and civilian authorities as requested by Government.

Outcome 3

Outcome 1

Outcome 1 The protection and advancement of Australias national interests through the provision of military capabilities and the promotion of security and stability.
Program 2.2 Operations in support of wider interests. Program 3.1 Defence contributions to national support tasks in Australia.

The advancement of Australias strategic interests through the conduct of military operations and other tasks as directed by Government.

Program 2.1 Operations contributing to security in the immediate neighbourhood.

Contributing to the preparedness of the Australian Defence organisation through acquisition and through-life support of military equipment and supplies.

Program 1.1 Office of CDF and Secretary

Program 1.2 Navy Capabilities

Program 1.3 Army Capabilities

Program 1.4 Air Force Capabilities

Program 1.5 Intelligence Capabilities

Program 1.6 Defence Support

Program 1.1 Management of Capability Acquisition Program 1.2 Capability Sustainment Program 1.11 Capability Development

Program 1.7 Defence Science and Technology

Program 1.8 Chief Information Officer

Program 1.9 Vice Chief of the Defence Force

Program 1.10 Joint Operations Command

Program 1.12 Chief Financial Officer

Program 1.13 People Strategies and Policy

Program 1.14-17 Administered Programs

Program 1.3 Policy Advice and Management Services

Figure 1.4.2: Defence organisational structure (as May 2012) Minister

Minister for Defence Materiel Parliamentary Secretary Parliamentary Secretary Minister for Veterans Affairs, Defence Science and Personnel

Office of Secretary and CDF

Judge Advocate General **

Chief Judge Adv. **

Director Prosecutions Chief of the Defence Force **** Secretary ****

Inspector Gen. ADF **

Inspector General **

Defence Materiel Organisation ***

Chief Audit Exec ** Chief of Army *** Chief Operating Officer *** Chief of Air Force *** Vice Chief of Defence Force *** Chief of Joint Operations *** Chief of Capability Development ***

Deputy Secretary Strategy ***

Chief of Navy ***

DSTO *** Defence Support Group ***

Special Advisor Strategic Reform and Governance *** People Strategies and Policy ***

Chief Information Officer ***

Intelligence and Security ***

Chief Finance Officer ***

ADFcommandstructure
ItisimportantnottoconfusethedaytodaymanagementoftheDepartmentofDefence withthecommandofmilitaryoperations.TheformeroccursthroughthediarchyoftheCDF andSecretaryandgroup/programarrangementsoutlinedabove.Thelatterisexercised throughaformalcommandchainanddedicatedheadquartersstructure. Onadaytodaybasis,thethreeServices(Navy,Army,andAirForce)areresponsiblefor raising,trainingandsustainingtheirforces.Whenforcesaredeployedonoperationsor majorexercises,thedesignatedforceelementsareassignedtoHeadquartersJoint OperationsCommand(HQJOC)forthatpurpose.Sincelate2008,HQJOChasbeenhousedat apurposebuiltfacilitynearBungendoreinruralNSWandisstaffedbyaround750 personnel. AmoredetailedoutlineofADFcommandandHQJOCappearsinChapter2.6ofthisbrief underProgram1.10.
Figure 1.4.3: ADF command structure

National Security Committee Minister for Defence

Chief of the Defence Force

Vice Chief of the Defence Force Head Strategic Military Commitments

Chief of Joint Operations Joint Operations Command

Chief of Navy

Chief of Army Raise, Train, Sustain

Chief of Air Force

Navy Assigned Deployed Forces

Army

Air Force

Solomon Islands

Timor-Leste

Afghanistan

Middle East

15

1.5 National Security Spending

Theeventsof9/11promptedtherecognitionthatnosingleagencyhasthecapacity,or rangeofcapabilities,necessarytoensureoursecurity.Thethreatofterrorismwithin Australia,andtoAustraliansabroad,hasforcedawholeofgovernmentapproachto nationalsecurityatthefederallevel.Evenbeyondthethreatofterrorism,itisincreasingly recognisedthatournationalsecurityinterestsarebestservedbyacoordinatedapproach thatusesalloftheleversavailabletogovernment. ItsbeyondthescopeofthisDefenceBudgetBrieftoanalyseandexplainthebudgetsofall theagenciesthatcontributetonationalsecurity.Instead,wellcontentourselveswitha broadbrushdescriptionofhowmuchisspentinkeyagencies.Ifnothingelse,itprovidesa usefulyardstickagainstwhichwecanmeasurewhatsspentondefence.Unfortunately, becauseofthedifficultyinfindingdata,ourdiscussionexcludesspendingatthestateand locallevels. Inlate2008thegovernmentforeshadowedtheintroductionofanationalsecuritybudget. Nothingappearedinthe2009Budgetandtheclosestthatlastyearsbudgetcametoitwas agraphintheBudgetOverviewofDefence,nonDefenceandDefenceOperationalspending. Thisreflectsthehighleveloutcomeofthegovernmentscoordinatednationalsecurity budgetprocess.Asimilargraphappearedin2011butwasomittedthisyear.Giventhe absenceofanyfurtherdetail,wehaveupdatedourusualassessmentofnationalsecurity spending. Anumberoffederalagenciescanmakeacredibleclaimtodeliveringsomepartofour nationalsecurity.Inselectingagencies,wehavetakenaliberalviewofwhatconstitutes nationalsecurity,althoughwehaveexcludedfundingforoutcomeswithinagenciesthatare clearlyunrelated.Heresourlist,whichcannotclaimtobeexhaustive,inalphabeticalorder: AustralianAgencyforInternationalDevelopment(AusAID) AustralianFederalPolice(AFP) AustralianSecurityIntelligenceOrganisation(ASIO) AustralianSecretIntelligenceService(ASIS) DepartmentofDefence(DOD) DepartmentofForeignAffairsandTrade(Outcome1:Australiasnationalinterests protectedandadvancedthroughcontributionstointernationalsecurity,national economicandtradeperformanceandglobalcooperation.)(DFAT1) OfficeofNationalAssessments(ONA).

Clearly,someoftheactivitiesofthelistedagencies(evenwiththerestrictiontospecific outcomes)gobeyondnationalsecurity.Conversely,otheragenciesthathavebeenleftout, liketheAustralianCustomsandBorderProtectionService,makeasignificantcontributionto nationalsecuritywithintheirbroaderrangeofresponsibilities.Suchisthechallengeof dealingwiththeaggregateddataavailableinthebudgetpapers.Figure1.5.1comparesthe appropriationsallocatedtoeachoftheaforementionedagenciesin201213. 16

Figure 1.5.1: Federal national security spending

ForeignAffairs 1 3% FederalPolice 4% ASIO ASIS 1% 1% ONA 0%

ForeignAid 16%

Defence 75%

Source:201213BudgetPaperNo.4andASPIcalculationofNetDefenceFunding

Figure1.5.2showstherealgrowthinspendingbyvariousnationalsecurityagenciessince 200001.Becausechangesinoutputsandthepresentationofbudgetfiguresmakeitdifficult toextractpreciselycomparablefiguresfromyeartoyear,thenumbersshouldbeusedwith cautionthoughthebroadtrendsareclear.

Figure 1.5.2: Federal national security appropriations 2001-02 to 2012-13
40 35 30 billion201213dollars 25 20 15 10 5 0 ONA(11.4%p.a.growth) ASIS(11.8%p.a.growth) ASIO(14.4%p.a.growth) ForeignAffairs1(1.3%p.a.growth) FederalPolice(5.9%p.a.growth) ForeignAid(7.1%p.a.growth) Defence(2.8%p.agrowth)

Source:200203to201213BudgetPaperNo.4andASPIcalculationofNetDefenceFunding.[Allgrowthratescompounding.]

17

1.6 Measuring Defence Spending

Theamountacountryspendsondefenceisadirectmeasureofitscommitmenttoprotect itself.Accordingly,alotofattentionisplacedoncomparinglevelsofdefencespending betweencountriesandontrackingtheratesatwhichthoselevelsareincreasingor decreasing.Forexample,hereinAustraliaalotofattentionhasbeenplacedonthe promised3%realgrowthintheDefencebudgetinrecentyears.Itisimportant,therefore, thatreportingofdefencespendingcaptureswhatsactuallygoingon. Table1.6.1setsoutthepresentationinthe201213PBS[Table7,p.23]excludingthe administeredappropriations.(Weignoretheadministeredappropriationsfor superannuationandhousingbecausetheyarenotcontrolledbyDefenceandare appropriatedthroughtheorganisationforconvenience.)ThebottomlineisTotalDefence Fundingwhich,inthepast,hasbeenpresentedinthePBSasthemostcommonwayof presentingtheDefencebudget[200809PBS,p.119].
Table 1.6.1 Total Defence funding FY 2012-13
2012-13 $000 Departmental 1. Output Appropriation 2. Equity Injection 3. Prior Year Appropriation 4. Current years appropriation (1+2+3) 5. Drawdown of appropriations carried forward 6 Other appropriation receivable movements 7. Returns to Official Public Account (OPA) 8 Funding to/from OPA (5+6+7) 9. Funding from Government (4+8) 9. Capital Receipts 10. Own-source Revenue 11. Funding from other sources (9+10) 12. Total Defence Funding (9+11)
Source:201213PBS

23,269,856

23,269,856

-90,304 -90,304 23,179,552 126,683 911,206 1,037,889 24,217,441

Theeasiestwaytoexplorewhatabetterapproachmightbeistoexamineeachofthe elementsappearinginTable1.6.1. Currentyearsappropriations:Thisistheleastambiguouspartoftheproblem.Eachyear thegovernmentformallyappropriatesmoneytoDefence.Thebreakdownofthe appropriationintermsofoutputsandequityisanartefactofaccrualaccountingthatneed notconcernus.Whatmattersisthatthisisthequantumofcoldhardcashthatthe governmentplanstomakeavailabletoDefenceforthefinancialyear.Assuch,anycredible measureofDefencefundingmustincludethismoney. 18

Drawdownofappropriationscarriedforward:Becausefundingmayeitherbespentor receivedinayearotherthantheappropriationyear,anAppropriationReceivableaccountis utilised.ThisrecognisesthatdepartmentalAppropriationsdonotlapseunlessspecifically extinguishedbytheMinisterforFinanceandshiftstothisaccountrepresenteitherthe expenditureofadditionalpublicfundsbyDefenceorthereturnofunspentfunds.To properlytrackthefundingemployedbyDefence,itmakesgoodsensetotakeaccountof increasesanddecreasestotheAppropriationReceivableaccount.However,ifthisis accepted,itfollowsthatchangestoDefencescashholdingsmustalsobeaccountedfor (sincethatswherethemoneyintheappropriationreceivablecamefromoriginally). CapitalReceipts:Ascustodianofmorethan$50billionofpublicassetsincludingland, buildingsandmilitaryequipment,Defenceinevitablyreceivescashfromthedisposalof itemsthatarenolongerneeded.SomeofthismoneyisreturnedtogovernmentviaaReturn totheOPA.TheremainderisretainedbyDefenceandiscalledNetCapitalReceipts.Given thatNetCapitalReceiptsaregeneratedfromthesalesofpublicassets,itiscorrecttocount thisincomeaspartofDefencefunding. OwnsourceRevenues:Defencereceivesrevenuefromanumberofsources.Theseinclude thesupplyofgoodsandservicestothirdpartiessuchasDefencepersonnel,whopayashare ofthecostoftheirfoodandlodgingprovidedbyDefence,andforeigngovernmentsthat purchaseitemslikefuel.ItmakeslittlesensetoincludethisaspartofDefencefunding. Whileitisperhapsreasonabletoincluderevenueraisedbyusingpublicassets(likeDefence accommodation),thevastbulkofOwnsourceRevenuereflectsDefenceactingasan intermediarythattransfersgoodsbetween3rdpartyprovidersand3rdpartycustomers. Forexample,thesaleoffueltoaforeigngovernmentorrationstopersonneldeliversno revenuetoDefencethatisnotatleastequaltothecostofdoingso.Ortoputitanother way,noonecouldseriouslycontendthatDefencefundinghasrisenby$50millionsimply because,forexample,anextra$50millionoffuelwaspurchasedandsoldontotheUnited States. OwnsourceRevenuesalsoincludestransfersfromtheDefenceMaterielOrganisation (DMO)toDefence.Forexample,DMOwillpayDefence$440millionin201213[PBSpage 142]forthecostofthemilitarypersonnelprovidedbyDefencetoDMO.TheDMOis appropriatedforcivilianandmilitarypersonnelasitrequirestheexpertiseofmilitary personnelwithinitsprojectdeliveryandequipmentsustainmentfunctions.TheDMOthen paysDefencetooffsetDefencescostprovidingthemilitaryexpertise.Thisworksinasimilar fashiontofuelsaleswhereDefencesellsgoodsandservicestoDMOtooffsetthecostof providingthosegoodsandservices.ThisisnotdoublecountedinTable7(page23)ofthe PBSasthesefiguresareonlythoseofDefence. ThereareanumberoftableswhichconsolidatetheDefenceandDMOpicturebutanother wayofdoingthisistocombineTable7withDMOsdirectappropriationsandanyrevenue receivedbyDMOfromsourcesotherthanDefence.Figure1.6.1isourbestattemptto depictthesituationgraphically,thoughsomesimplificationhasbeennecessary. 19

TheestimatedactualfigureforthecurrentfinancialyearinTable7includespaymentsto DMOthatmayeventuallyremainunspent(notingthatsomeunderspendshavebeendealt withbyextinguishingappropriations).Indeed,overafouryearperiodlastdecade,more than$927millionaccumulatedintheDMOSpecialAccount,including$414millionfrom 200708.Insomeyears,theSpecialAccountisdrawndownwhileinothersitgrows.

Figure 1.6.1: Defence Cash and Resource Flows
Output Appropriation Equity Injection Specific Purpose Previous Year Outputs Receivable & Bank Shift Special Appropriation Capital Withdrawal Public Assets Net Capital Receipts Public Funds (via appropriations and shifts in retained funds)

Payments to DMO DMO Payments to Defence

Public Funds

Department of Defence

Goods and Service rd to 3 Parties Payments from rd 3 Parties Own-source Revenues

3 Parties

rd

Supplantation of superannuation for retired military personnel

Fromastrictaccountingperspective,noruleshavebeenbroken.Defencereportsitsfunding accurately,andDMOreportsitscashflowproperly.Yetthereissomethingsurrealabout failingtoreconcilethenetimpactofthetwothingstoshowwhatsactuallygoingon, especiallygiventhehighprominenceofDefencefundinginrecentyears. SowhatistheDefencebudget? WhilethereisanaccountingdistinctionbetweenDefenceandDMO,anysensiblecalculation oftheDefencebudgetmustreflectthetotalimpostonthetaxpayerindeliveringdefence capability.ThisiseasilyachievedbyaddingDMOfundingtothecalculationandignoringthe transferbackandforthofmoneyinbetween.Onceagain,thePBScontainsaconsolidation oftheDefenceandDMObudgetsbutitisnotespeciallyilluminating. Inlightoftheforegoingdiscussion,itseemssensibletoincludeFundingfromGovernment, NetCapitalReceipts(=CapitalReceiptsReturntoOPA),NetBankBalanceShifts, AppropriationReceivableandSpecialAccountShifts,buttoexcludeOwnsourceRevenue. AndthentodothesameforDMOandthenaddtheresultstogether,safeintheknowledge thattheaccountingtransfersbetweenthetwoentitieshavebeenexcluded,Table1.6.2.The 20

additionofDMOappropriationsisespeciallyimportantbecauseundernewarrangements, DMOdirectlyreceivesaround$928millionthatusedtobeprovidedbyDefence.
Table 1.6.2: Total Defence resourcing FY 2012-13
Total Defence Funding Departmental 1. Output Appropriation 2. Equity Injection 3. Prior Year Appropriation 4. Current years appropriation 5. Drawdown of appropriations carried forward 6 Other appropriation receivable movements 7. Returns to OPA 8. Funding from Government 7. Capital Receipts 8. Own-source Revenue 9. Funding from other sources 10. DMO Appropriation 11. DMO drawdown of Special Account 12. Total Defence Funding 13. ASPI Net Defence Funding 24,217,441 24,224,366 -90,304 23,179,552 126,683 911,206 1,037,889 928,466 126,683 928,466 -10,335 -90,304 23,179,552 126,683 23,269,856 23,269,856 23,269,856 23,269,856 ASPI Net Defence Spending

Thedifferenceisnotlarge.OurcalculationofNetDefenceFundingyieldsafigureonly0.03% belowthatofTotalDefenceFunding.Thedifferencewouldbelargerifnotforthealmost complete(butentirelycoincidental)cancellationofOwnsourceRevenuesanddirect appropriationtoDMO.Nonetheless,webelievethatASPINetDefenceFundingisabetter measureoftheDefencebudgetthanTotalDefenceFunding.

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22

Chapter 2 Defence Budget 2012-13 PBS Explained

The230pagesofthe201213DefencePortfolioBudgetStatements(PBS)setoutthe governmentsplanfortheexpenditureofaround$24.2billionbyDefenceinthecoming financialyear. ThisguideexplainsandwherepossibleanalysestheinformationinthePBS.Indoingso,we skimoverthosepartsofthePBSthatarerelativelyclear,andfocusonthoseareaswhere explanationmightbeuseful. Someofthematerialthatfollowsisunavoidablytechnicalduetothedisciplinesand complexitiesofaccounting.However,itisnotnecessarytoreadthischapterasawhole,or insequence,togaininsight.Everyattempthasbeenmadetoenablethereadertojumpin andlookatthoseitemsofmostinterest. ThisBriefdoesnotcoverinanydetailthefundsadministeredbyDefenceonbehalfofthe governmentforsuperannuationandhousingsupportservicesforcurrentandretired Defencepersonnel. MostpartsoftheguidearebestreadwiththePBSathand.Copiescanbedownloadedfrom thewebat<http://www.defence.gov.au/budget/>. ThePBSbeginswithsomethingakintoanexecutivesummary[PBSp.411]thatprovidesa usefulsnapshotofgovernancearrangements,resources,portfoliostructure,andworkforce statisticsforDefenceplusDMO.Ratherthanrecountthismateriel,weturnnowtoexamine themainbodyofthedocument.

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 2.1: Strategic direction [PBS Section 1.1]

TheoverviewchapterofthePBSbeginswithadiscussionofDefencesrole;toprotectand advanceAustralia'sstrategicinterestsbyprovidingmilitaryforcesandsupportingthose forcesinthedefenceofAustraliaanditsstrategicinterests.Itgoesontodiscussthe recentlyannounced2013DefenceWhitePaperanddetailsDefencescontributiontothe governmentsfiscalstrategy.Itstressesthatthecutswillnotadverselyimpactdeployed troopsorreducethenumberofpersonnelintheAustralianDefenceForce(ADF).

2.2: Resourcing [PBS Section 1.2 & 1.3]

TherubberhitstheroadinSections1.2and1.3ofthePBS,intermsofallocatingmoneyto getthingsdone.Itcontainstheresourcestatements,newbudgetmeasuresandthefunding bottomline.

HowmuchmoneywillDefenceget?
Onpage23ofthePBS,wegettotheheartoftheissue.Table7givesthreekeyfiguresfor theDefencebudget: FundingfromGovernment,beingthosefundsformallyappropriatedtoDefencebythe governmentfordepartmentalpurposesalongwithshiftsinappropriationsreceivable (unspentmoneyfrompreviousyears).In201213thiswillamountto$23,179,552,000. TotalDefenceFunding,beingthosefundsactuallyavailabletoDefenceincluding appropriationsandrevenuefromothersources.In201213thiswillamountto $24,217,441,000. TotalDefenceResourcing,beingTotalDefenceFundingplusthosefundsappropriated administrativelythroughDefenceforsuperannuationanddefencehousingsubsidies.In 201213thiswillamountto$28,639,256,000.

Ofthesethreefigures,TotalDefenceFundingistheonemostusuallyquotedastheDefence budget.ItrepresentsthefundsexpendedbyDefencetodeliverthedepartmentaloutcomes andmaintaintheongoingprogramofinvestmentinnewequipmentandfacilities.Note, TotalDefenceFundingdoesnotincludeadministeredfundsforsuperannuationanddefence housingsubsidies. However,asexplainedinthelastchapter,TotalDefenceFundingisinflatedbyachurningof money(includinginpastyearsbetweenDMOandDefence)thatdeliversnomilitary capabilityoroutcome.Whatsmore,TotalDepartmentalFundingignoresthemoney appropriateddirectlytotheDMOandthemoneythatinrecentyearshasbeenaccumulating unspentintheDMOSpecialAccount.WebelievethattheASPINetDefenceSpendingfigure accountsfortheseissuesproperlyandthereforegivesamoreaccuratepictureofhowmuch isbeingspentondeliveringdefencecapabilityandoutcomes.Henceforth,wewillonly presenttheASPINetDefenceFundingfigure.

HowmuchmoneywillDefencereceive?
Table2.2.1displaysDefencefundingforthepastnine,andnextfour,financialyears.Also shownareboththenominalandrealyeartoyearpercentagegrowthrates.

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Table 2.2.1: ASPI Net Defence Funding real (2012-13$) and nominal (nom)
Funds (nominal) 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 13,191 14,216 15,439 16,224 17,547 19,140 20,038 22,933 25,104 24,503 26,396 24,224 24,426 26,188 28,866 Growth (nominal) 7.08% 7.78% 8.60% 5.09% 8.15% 9.08% 4.69% 14.45% 9.46% -2.39% 7.73% -8.23% 0.83% 7.21% 10.23% Funds (real) 19,566 20,501 21,342 21,611 22,300 23,311 23,371 25,314 27,034 25,743 27,056 24,224 23,830 24,926 26,805 Growth (real) 4.67% 4.78% 4.10% 1.26% 3.19% 4.53% 0.26% 8.32% 6.79% -4.77% 5.10% -10.47% -1.63% 4.60% 7.54%

Source:201213PBS,201112PAESandearlierDefenceAnnualReports(DAR).

Whencalculatingtherealgrowthrate,thenominaldollarvaluesoftheindividualyearshave beenconvertedtoasinglebaseyearusingthedeflatorusedtomaintainDefencebuying powerinrealterms.From200102until200910thiswastheimplicitNonFarmGDP Deflator(NFGDPD)andfrom200910onwardsitisfixedat2.5%inaccordwiththefunding modelforthe2009DefenceWhitePaper. Itisinterestingtonotethattheyearonyearreductionindefencespendingin201213isthe largestsincethedrawdownfollowingtheKoreaconflictin1953.(Thereductionindefence spendingfollowingtheVietnamconflictwasmoregradualreachingapeakofonly8.4%in 1969becauseoftheprogressivereductioninthenumberofbattalionsdeployed.) Theaveragearithmeticannualrateofrealgrowthinthebudgetsince200001(thelastyear priortothe2000WhitePaper)to201213is2.3%.Overthesameperiod,theeffective compoundingannualrateofrealgrowthis2.0%.Thus,byeithermeasure,the3%real growthfundingtrajectorysetbackin2000hasnotbeenachieved. FortheperiodcoveredbythenewWhitePapercommencingin200910,thesevenyear arithmeticannualrateofrealgrowthinthebudgetwillbe1.0%andtheeffective compoundingannualrateofrealgrowthwillbeslightlylessat0.8%.Figure2.2.1showsreal defencefundingoverthepastdecadeandasnowplanned.Afullerdiscussionofdefence fundingappearsinChapter3ofthisBrief.

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Figure 2.2.1: Real Net Defence Funding 2000 to 2015
30 25 20 15 10 5 0 Operationalsupplemenation Baselinecosts

Source:201213PBS,201112PAESandearlierDAR.

WhatistheDefenceshareofGDP?
Table2.2.2givesNetDefenceFundingasapercentageofGDPforrecentandfutureyears.In 201213,theshareofGDPwillfallfrom1.78%in201112to1.56%in201213,thelowest shareofGDPsincepriortotheWWIIin193839.Overthefollowingthreeyears,sluggish realspendingandarisingeconomywillcontinuetoholddowntheGDPshare.Notethat, currentandrecentspendingisboostedbyhighlevelsofoperationalsupplementationthat arenotreflectedinthelatteryearsoftheforwardestimates.Notealsothat,newestimates ofhistoricalGDPmarginallyalterhistoricalGDPpercentagescomparedwiththatreportedin previousBudgetBriefs.
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
1.74% 1.75% 1.77% 1.79% 1.76% 1.76% 1.77% 1.70% 1.83% 1.94% 1.75% 1.78% 1.56% 1.49% 1.52% 1.59%

Source:201213BudgetOverview,201213PBSandearlierDAR

WhatistheDefenceshareofCommonwealthpayments?
DefencespendingasapercentageoftotalCommonwealthpaymentsisshowninTable2.2.3. Oncurrentplans,Defencesshareofpaymentswillriseslightlybeforefallingbackoverthe forwardestimatesperiod.Figure2.2.2graphsthepercentageGDPandshareof Commonwealthpaymentsfrom1997to2014.
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
6.96% 6.99% 7.21% 7.36% 7.29% 7.31% 7.56% 7.37% 7.26% 7.45% 7.08% 7.11% 6.65% 6.31% 6.45% 6.76%

Source:201213BudgetOverview,201213PBSandearlierDAR

billion201213$

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Figure 2.2.2: Net Defence Funding as a Percentage of payments and GDP
9% 8% 7% 6% 5% 4% 3% 2% 1% 0% %CommonwealthOutlays %GDP

BudgetOverview,201213PBSandearlierDAR

Changessincethelastbudget
Sincethelastbudget,measureandadjustmentshavebeenundertakenthatprovidecontext forthisyearsbudget.Table2.2.4showsthekeyitemsfromthe201112PortfolioAdditional EstimatesStatement(PAES)[Table12,p.21].
Table 2.2.4: Key measures and adjustments from the 2011-12 PAES (million $)
11-12 Single LEAP One-off Efficiency Dividend DMO appropriation adjustment Foreign exchange movements Housing and Property Disposals DMO Prior Year Service Fee Return TOTAL Source:201213PAES. 2.6 -157.1 -21.1 -83.5 -259.1 -585.4 -621.7 -158.5 12-13 -402.9 -60.4 35.5 -133.8 -23.8 13-14 -461.2 -64.0 44.8 -145.3 4.0 14-15 10.1 -66.0 45.5 -157.9 9.8 4 year total -854.0 -190.5 128.4 -594.1 -31.2 -83.5 -1,624.9 10 year total -777.7 -670.3 447.3 -1,664.8 24.3 -83.5 -2,724.7

Single Living Environment and Accommodation Precinct (LEAP) TheLEAPprojectisprovidingaccommodationforsinglemembersoftheADFthroughapublicprivate partnership.Thisadjustmentreprogramstheprincipalpaymentsoverthelifeofthefinancelease.The resultisahandbacktothegovernmentof$854millionacrosstheforwardestimateswithazero impactacrossthelifeofthelease(becauseDefencewillpaybacktheprincipalovertime). One-off Efficiency Dividend

Fundinghasbeencutduetoaoneoffincreaseintheefficiencydividendof2.5%in201213. Asusual,onlynonoperationalareasofDefencearesubjecttothedividend.Theresultwill stillbethelossof$190.5millionoverfouryearsand$670.3millionoverthedecade.

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DMO Direct Appropriation Adjustment

DuethestafftransfersbetweenDMOandDefence,DMOwillreturn$2.6millioninthe budgetyear,and$128.4millionoverfouryears,toDefence.
Foreign Exchange Movements

Defenceisfundedonanowin/nolossbasisforforeignexchangemovements.Dependingon howtheAustraliandollarmovesrelativetocurrenciesthatDefenceplanstomakepurchases in,adjustmentsaremadetomaintainthebuyingpoweroftheDefencebudget.Asaresultof anappreciationinthevalueoftheAustraliandollarin201112,Defencehandedback $157.9millionin201112,$594.1millionoverthebudgetandforwardestimates,and $1,664.8millionoverthedecade.

Housing and Property Disposals Theseadjustmentsrelatetotheretentionandpaymenttogovernmentofrevenuesfrom propertydisposals. DMO Prior Year Service Fee Return

DMOhasreturnedunusedprioryearappropriationswhichwillbedepositedintoDefences AppropriationReceivableaccount.

2.3: Funding from Government [PBS Section 1.3]

The201213BudgetMeasuresandAdjustments[PBSp.2831]
Changesmadeinthe201213DefencebudgetaresetoutinthePBS.Thechangesfallinto threecategories:budgetmeasures,savingsmeasuresandbudgetadjustments.The distinctionbetweenthethreeisvariable,withidenticalitemsclassifieddifferentlyfromone yeartothenext.Therearealsosocalledabsorbedmeasures,theseareunfunded initiativesthatmustbefundedfromwithinexistingDefenceresources.Inevitably,this meansthateitherotheractivitieshavetobeforegoneorefficiencysavingscreated.Forease ofreference,theindividualmeasuresandadjustmentshavebeendetailedinTable2.3.1. Therearefourfundedbudgetmeasures,twosavingsmeasures,fiveadjustmentsandthree absorbedmeasuresinthisyearsPBS.Afurtherfourabsorbedmeasuresarelistedashaving beenagreedsincethePAES.

Thebudgetinitiativesindetail
Inthepast,thePBScontaineddetailedexplanationsofthevariousmeasures.However, apartfromdetailingthecutsgivingrisetothe$5.5billionhandbacktogovernment,thePBS issilentaboutmostofthemeasuresthisyear. Fortunately,furtherinformationisavailableinTreasurysBudgetPaperNumber2regarding theDefencemeasures.Thisinformationisreproducedbelowoftenverbatimalongwith supportingdatawhereavailable.SeeChapter6ofthisBriefformoreonthecostand compositionofADFdeployments.Thedetailsofthesavingsmeasuresappearlast,along withananalysisoftheredistributionof$2.9billionwithintheDefencebudgettomeet emergingbudgetpressures.

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Table 2.3.1: 2012-13 Budget Measures and Adjustments (million $)
2011-12 Funded Measures Middle East Area of Operations cont. East Timor continuation Solomon Islands continuation Review of Military Compensation subtotal Savings Measures Efficiencies and reprogramming AIC Reprogramming subtotal Adjustments DMO Direct Appropriation Reduction DMO Direct Appropriation Adjust DHA Travel Arrangements Foreign exchange Property disposal adjustment subtotal Variation to Defence funding Absorbed measures Coastal Surveillance Op Resolute Intermodal terminal at Moorebank in Western Sydney - Defence relocation Bushmaster vehicles - acquisition of long-lead supplies Absorbed measures post PAES CH-47D Chinook Fleet - acquisition of two additional helicopters Electronic Warfare System - long-lead item equipment purchase C-17A Globemaster aircraft - acquisition of a sixth C-17A Offshore Support Vessel acquisition Total absorbed measures Source:201213PBSandBudgetPaper#2.Numbersmaynotaddupduetorounding. 39.8 19.9 ? 123.0 ? ? ? ? 39.8 19.9 280.4 123.0 820.2 39.8 19.9 280.4 123.0 820.2 9.5 65.0 15.6 105.0 133.0 30.0 9.5 332.0 15.6 9.5 332.0 15.6 -0.1 -42.7 36.9 -5.8 -5.8 17.5 3.1 -0.1 -84.2 46.5 -17.2 20.1 -0.1 -130.5 -50 -152.8 -1,569.6 -107.9 -138.0 -0.1 -136.6 -0.1 -168.0 27.7 28.8 30.0 104.1 3.1 -0.3 -519.3 -3.5 -415.9 -4,461.9 313.0 3.1 -0.7 -1,927.4 -3.5 -1,615.5 -5,653.9 -965.7 -5.6 -971.3 -1,625.9 -5.6 -1,631.5 -1,137,5 -1,703.5 -5.6 -5.6 -5,432.5 -22.4 -5,454.9 -5,432.5 -22.4 -5,454.9 1,008.60 890.2 76.9 41.5 212.3 -0.1 1.4 1.2 214.7 131.5 0.6 1.1 1.2 134.4 1.2 50.0 1,284.0 77.3 44 3.6 1,284.0 77.3 44 11.2 2012-13 2013-14 2014-15 2015-16 4 year total 10 year total

51.2 1,408.90 1,416.50

-1,143.1 -1,709.1

-1,116.5 -1,795.9

Funded Measures:
Middle East Area of Operations continuation

$1,284millionprovidedovertheforwardestimatesforthenetadditionalcostofextending theADF'scontributiontotheinternationalcoalitionagainstterrorismoperationinthe MiddleEast(principallyAfghanistan)to30June2013.

East Timor continuation

$77.3millionprovidedoverthreeyearsforthenetadditionalcostofextendingAustralia's militarycontributiontomaintainingstabilityinEastTimoruntilDecember2012.

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Solomon Islands continuation $44millionprovidedoverthreeyearsforthenetadditionalcostofextendingAustralia's militarycontributiontotheRegionalAssistanceMissiontoSolomonIslands(RAMSI)until June2013. Review of Military Compensation Thegovernmenthasprovided$3.6millionoverthreeyears(aspartofabroader$19million governmentprogram)toimplementitsresponsetotheReviewofMilitaryCompensation Arrangements.

Absorbed Measures:
Coastal Surveillance

Defencewillabsorbthenetadditionalcostof$9.5millionofextendingcoastalsurveillance operationsuntil30June2013.
Relocation of ADF units from Moorebank to Holsworthy

ADFunitspresentlyatMoorebankwillmovetoHolsworthytoallowtheGovernment's MoorebankIntermodalFreightTerminal(MIMT)tobedevelopedonDefenceoccupiedland atMoorebank,NSW.ThelandcurrentlyhousesthirteenDefenceunitsandfourassociated Defencefacilities,thelargestofwhichistheArmy'sSchoolofMilitaryEngineering. TheGovernmentwillprovide$559.4millionoverfouryearstotheDepartmentofFinance andDeregulationfortherelocationofDepartmentofDefence(Defence)facilitiesatthe Moorebanksitetoamodernandpurposebuiltfacilitythroughtheredevelopmentofthe HolsworthyBarracks.Inaddition,Defencewillcontribute$332.0milliontowardsthe redevelopmentofHolsworthyBarracksfromwithinexistingresources.

Bushmaster vehicles acquisition of long-lead supplies

TheGovernmentwillprovide$15.6millionin201213forthepurchaseoflongleadsupplies fortheacquisitionoffurtherBushmastervehicles.Thispurchase,togetherwithfurther considerationbytheGovernmentofthepurchaseofadditionalBushmastervehicles,will ensurecriticalskillsareretainedatThalesAustralia'sBendigofactory. TheseskillswillberequiredshouldtheGovernmentproceedwiththeacquisitionofThales Australia'sHawkeivehicle.InDecember2011theGovernmentannouncedthattheHawkei hadbeenselectedasthepreferredvehiclefordevelopmentandtestingunderStage2ofthe ManufacturedandSupportedinAustraliaoptionundertheProjectLAND121Phase4.This project,atacostof$1.5billion,willprovideupto1300lightvehiclesfortheAustralian DefenceForce.AfinaldecisionontheHawkeiisexpectedin2015.
CH-47D Chinook Fleet acquisition of two additional helicopters

TheGovernmentprovided$39.8millionin201112fortheacquisitionoftwoCH47D ChinookaircraftandassociatedequipmentandtheirmodificationtomeetAustralian operationalrequirements.TheaircraftswerepurchasedfromtheUnitedStatesGovernment in2011andbothaircraftsareexpectedtobeoperationalin2012andreadytodeploy overseasin2013.

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TheaircraftwillreplacetheCH47DdestroyedinAfghanistaninMay2011andincreasethe AustralianDefenceForceChinookcapabilityfromsixtosevenuntil2016whentheentire fleetwillbereplacedbysevennewCH47FChinookhelicopters.
Electronic Warfare System long-lead item equipment purchase

TheGovernmentwillprovide$19.9millionin201112forthepurchaseoflongleaditem equipmentforthepotentialconversionoftwelveofAustralia'sF18SuperHornetstothe EA18GGrowlerelectronicwarfaresystem. AdecisiononwhetherAustraliaproceedswiththeconversionofsomeofitsSuperHornets toGrowlerconfigurationwillbemadelaterthiscalendaryear.Thepurchaseoflonglead ensurescontinuedaccesstotheGrowlertechnologyneededforthispotentialupgrade.

C-17A Globemaster aircraft acquisition

TheGovernmentwillprovide$280.4millionoverfouryearsfrom201112fortheacquisition ofasixthC17AGlobemasteraircraftandassociatedequipment.Theaircraftisexpectedto bereceivedandtobeoperationalin2013.

Maritime Humanitarian Assistance and Disaster Relief Capability acquisition of an Offshore Support Vessel

TheGovernmentwillprovide$123millionin201112fortheacquisitionofanamphibious ship,theSkandiBergen.TheSkandiBergenisexpectedtobereceivedandoperationalin 2012.TheSkandiBergenwillprovidetheRoyalAustralianNavywithaninterimincreased heavyamphibiousliftcapabilityforhumanitarianassistanceanddisasterreliefinourregion, pendingthearrivaloftwonewLandingHelicopterDock(LHD)shipsinthemiddleofthe decade. TheSkandiBergenwillalsoprovidetheAustralianCustomsandBorderProtectionService (Customs)withalongtermSouthernOceansurveillanceandlawenforcementcapability. TheSkandiBergenwillbeutilisedbyCustomsfrommid2014whentheleaseonthecurrent vesselACVOceanProtectorexpires.UseoftheSkandiBergenwillbesharedwithDefencein 2014and2015.ThevesselwillbetransferredtoCustomsfollowingthearrivalofthesecond LHDship,currentlyscheduledfor2016. Funding adjustments:
DMO Direct Appropriation Reduction & Appropriation Adjust

TheshiftingofcostsbetweenDefenceandDMOleadstorisesandcompensatingfallsin theirrespectiveappropriationsfromtimetotime.
DHA Travel ArrangementsUnknown. Foreign exchange

Inlightofforeignexchangemovements,Defencewillhandback$519millionoverfouryears and$1,927millionovertenyears.Theseadjustmentsaredesignedtomaintainthebuying poweroftheDefencebudget. Property disposal adjustment ThisadjustmentaccountsforalteredrevenuesfromthesaleofpropertieswhichDefence retains.

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Savings measures:
Australian Intelligence Community reprioritisation

Defencewillcontribute $22.4millionoverfouryearsaspartofthegovernmentsredirection of$81.6millionoverfouryearsfromacrosstheAustralianIntelligenceCommunity(AIC), includingthedeferralofplannedgrowthinstaffingfortheAustralianSecretIntelligence Organisation.Thefundingfromthismeasurewillberedirectedtosupportothernational intelligenceprioritieswithintheAIC(butbeyondDefence).

Efficiencies and reprogramming

TherewasaninternalreviewoftheDefencebudgettoassessthecontributionsthatcould bemadetosupporttheGovernment'sbroaderfiscalstrategy,i.e.thereturntosurplus. Opportunitiestoreduceactivityanddeferprojectsandprogramswerealsoconsideredas partoftheannualprocessofdeterminingdepartmentalpriorities.Theresultingcuts, amountingto$5.5billionoverfouryearsaredetailedinTable2.3.2. ThePBSsaysthat:therewillbenoadverseimpactonoperationsinAfghanistan,EastTimor andSolomonIslands;theprovisionofequipmenttoDefencepersonneldeployedor deployingoverseaswillnotbeadverselyaffected,and;therewillbenoadverseimpacton thenumberofmilitarypersonnelintheAustralianDefenceForce.

Table 2.3.2: 2012-13 Expenditure reduction measures (million $)
2012-13 Defence Capability Plan Approved Major Capital Investment Program Major Capital Facilities Program Reduction in Administrative Costs (Travel, Consultants, Consumables) 1000 APS Workforce Reduction (66% in 2012-13) Early Retirement of C-130H aircraft Navy and Army Gap Year (ceased) One year delay to rollout of ADF Family Health Program Workforce Policy Changes Minor Capital Projects Total
Source:201213PBS

2015-16 663 194 550 109 104 53 26 11 1,709 Total 1,658 1,305 1,210 438 360 251 91 50 46 45 5,454

2013-14 656 274 391 109 96 71 25 11 1,631

2014-15 304 402 124 109 99 68 25 11 1,143

35 435 145 111 61 59 15 50 14 45 971

Thebulkofthecuts($4.2billion)havebeentakenfromthecapitalinvestmentprogram, including$3billioninmilitaryequipmentpurchasesand$1.2millioninfacilities construction.Afurther$689millioncomesfromreducedoperatingexpenses,including 32


$251millionfromtheearlyretirementoftheC130aircraft.Finally,$547millionhasbeen cutfrompersonnelandpersonnelrelatedspending. Reprioritisation of expenditure within Defence: Lastfinancialyear,Defencehandedbackaround$1.6billioninunspentmoney.Asaresult furtherefficiencieswereimposedonthedepartment,resultingina$3.3billioncutin fundingacrossthedecade.Perhapsunsurprisingly,costpressureshaveemergedacrossthe portfoliooverthepasttwelvemonthscostpressuresthatwillonlybeexacerbatedbythe furthercutsthisyear.Toaddressthesepressures,afurther$2.9billionhasbeentaken predominatelyfromthemajorcapitalinvestmentprogram(i.e.militaryequipment)and reallocatedtopriorityareasacrossthedepartment,seeTable2.3.2.
Table 2.3.2: 2012-13 Expenditure reduction measures (million $)
2012-13 Collins Class Submarine Sustainment Information Technology Remediation ADF Housing Moorebank to Holsworthy relocation Navy Fleet Sustainment Estate Investment FBT Budget Garrison Support Service Increase Defence Cooperation Program Growler NPOC Total
Source:201213PBS

2013-14 210 124 82 105 77 50 29 33 17 1

2014-15 218 198 144 133 67 75 59 42 17 2 955

2015-16 181 139 117 30 37 71 61 51 38 4 729

Total 709 550 404 332 270 224 163 150 72 7 2,881

100 89 61 65 89 28 14 24

469

728

Therearefewsurprisesintheareaswherefundshavebeendirected.Itwasknownthat NavysustainmentingeneralandtheCollinsclasssubmarinesinparticularwereunder pressure.Equally,the$332millionimpostofrelocatingunitsfromMoorebankto Holsworthyhadtobefundedsomehow,dittoforNetPersonnelandOperatingCosts(NPOC) fortheGrowlerEWupgradefortheSuperHornetfighters.Whatslesseasytounderstandis whyareassuchasinformationtechnologyandgarrisonsupportrequiremoremoneyuntil thisbudget,wewereledtobelievethatsubstantialsavingswerebeingdeliveredinthese areas(ofcourse,wewerealsotoldthesameaboutsustainment).Finally,itiscuriousthat estateinvestmenthasbeencuttodeliversavingstothegovernmentbuttoppedupinthe reallocationoffundswithinDefence.

Sowhathappened?
Ifnothingelse,thisyearsDefencebudgetiseasytounderstand.Atotalof$5.5billionhas beentakenfromDefencetohelpthegovernmentachieveasurplus.Afurther$2.9billionof spendinghasbeenreallocatedwithintheDefencebudgettoaddressfundingpressures.The bulkofthemoneyineachinstancehasbeentakenawayfromthecapitalinvestment program.Asbestwecantell,about$5.8billioncamefrominvestmentinnewequipment 33


and$1.2billionfromnewfacilities.Becausemoneyisfungible,thereslittlesolaceinthefact thatthegovernmentcoveredtheadditionalcostofmajorADFdeployments.Thestepstaken inthisbudgethaveimportantconsequencesforboththedeliveryofForce2030andthe StrategicReformProgram.TheseissuesareexploredinChapters3and4ofthisbrief.In Chapter3,wealsoexaminetheimpactofthecutsandreallocationsonthestructureof defenceexpenditure. TheremainderofSection1ofthePBScontainsarangeofinformationincluding:Defence ResourceStatement[PBSp.24]whichliststheformalappropriationoffundstoDefence. ApprovedandUnapprovedCapitalInvestmentProgram[PBSp.2728]whichincludesthe itemisedpaymentstoDMOforgoodsandservicesrendered.OperationsSummary [PBSp.31]whichgivesthefundingforADFdeployments.CapitalInvestmentProgramand RetainedCapitalReceipts[PBSp.3233]whichweexploreinChapter2.4ofthisBrief. People[PBSp.3438]whichweexploreinChapter2.5ofthisbrief.

2.4: Capital Investment Program [PBS Section 1.4]

InformationontheCapitalBudgetisspreadacrossseveralareasofthePBS.TheCapital BudgetrepresentsDefencesplansforcapitalinvestmentinnewequipment,upgrades, facilitiesandothernonmilitarycapitalitems.Itsformallydescribedinaccountingtermsin theCapitalBudgetStatementinTable62onpage101ofthePBS,althoughthatisnotvery revealing.

CapitalInvestmentProgram[PBSp.32]
TheCapitalInvestmentProgramisdetailedinTable18page32ofthePBS,whichwehave reproducedinpartinTable2.4.1.Unfortunately,theprojectedresultfor201112hasnot beenincludedinthisyearsPBSsowehavebeenforcedtousetherevisedestimatefromthe 201011PAES(whichweknowhasbeenovertakenbyevents).
Table 2.4.1: The Capital Investment Program (million $)
06-07 actual 07-08 actual 08-09 actual 09-10 actual 10-11 actual 11-12 est. 12-13 budget 13-14 est. 14-15 est. 15-16 est.

Unapproved Major Capital Investment (DCP) Approved Major Capital Investment Subtotal Capital Facilities Approved & Unapproved Other Capital Total Capital Investment Program

276

918

1,939

3,577

4,019 4,019

4,030 4,030

3,943 3,943

5,150 5,150

4,838 4,838

5,138 5,138

3,138 3,414

2,477 3,395

2,401 4,340

2,516 6,093

653

570

963

1,504

1,211

1,002

1,019

742

787

580

925

829

742

626

883

720

172

254

263

258

5,598

5,429

5,648

7,109

6,860

6,860

4,605

4,391

5,390

6,931

Source:201213PBSandvariousDAR.Notethat101112figureshavebeenestimatedbyASPIfromavarietyofsources.Weve adjustedtheAMCIPfigurefor201112totakeaccountofanadditional$825millionbookedin201011byDMOandpaidforby Defencein201112(seeChapter3foranexplanation).

34


TherearefourcomponentstotheCapitalInvestmentProgram: UnapprovedMajorCapitalInvestmentProgramorDefenceCapabilityPlan(DCP):This representsMajorCapitalInvestmentprojectsthathavenotyetreceivedsecondpass approvalfromgovernment.MajorCapitalInvestmentprojectsaregenerallyofmorethan $20millionvalueandpredominantlyinvolvethepurchaseofmilitaryequipment,(previously calledPinkBookprojects).Thepreparationoftheseprojectsforapprovalisthe responsibilityoftheChiefoftheCapabilityDevelopmentGroup.Onceapproved,projects generallypasstotheDMOfordelivery. ApprovedMajorCapitalInvestmentProgram:Projectsalreadyapprovedbygovernment andunderway,previouslycalledtheWhiteBook.Onceapproved,projectsgenerallypass totheDMOfordelivery. CapitalFacilities:ApprovedandUnapprovedCapitalFacilitiesProjects,includingeverything fromnewbarrackstoupgradesofexistingfacilities.Theseprojectsaretheresponsibilityof theInfrastructureDivisionintheDefenceSupportGroup. OtherCapital:includingMinorCapitalInvestment(projectscostinglessthan$20million), repairableitems,noncapitalfacilities,plantandequipment,andsoftwareandintangibles.

WhatarethetrendsintheCapitalInvestmentProgram?
RecentactualandprojectedrealspendingintheCapitalInvestmentProgramisshownin Figure2.4.1intermsof201213dollars.Notethatthefiguresfor201112areuncertain becausenoofficialfigureshavebeenreleasedfortheanticipatedoutcomeforthatyear.The trendspeaksforitself.Notethedrasticreductioninothercapital.
Figure 2.4.1: Recent and planned trends in the Capital Investment Program
9 OtherCapital 8 7 billionreal201213$ 6 5 4 3 2 1 0 CapitalFacilities MajorCapitalInvestment

Source:201213PBSandvariousDAR.Notethat101112figureshavebeenestimatedbyASPIfromavarietyofsources.Weve adjustedtheAMCIPfigurefor201112totakeaccountofanadditional$825millionbookedin201011byDMOandpaidfor byDefencein201112(seeChapter3foranexplanation).

35


UnapprovedMajorCapitalInvestmentProgram[PBSpage133]
Afteranabsenceofseveralyears,thePBSagaincontainsalistofDCPprojectsplannedfor firstandsecondpassapprovalintheforthcomingyear[Tables84and85,p.133].Thisisa welcomedevelopment.

ApprovedMajorCapitalInvestmentProgram[PBSpage151]
TheapprovedCapitalInvestmentProgramismainly,butnotexclusively,theresponsibilityof DMO.Asaresult,mostoftheinformationonapprovedprojectscanbefoundintheDMO sectionofthePBS,includingdetailsofthetop30projects.WeexaminetheCapital InvestmentProgrammorecloselyinChapter2.7ofthisBrief.

MajorCapitalFacilitiesProgram[PBSpp.118132]
ThePBSlists63approvedCapitalFacilitiesprojectsatvariouslocations.Thisincludes43 majorprojects(worth$15millioneachormore)withatotalvalue$6.1billion,and16 mediumprojectsofbetween$25,000and$15millionwithatotalvalue$46.5million.Inthe 201213Budgetthegovernmenthasforeshadowed12newmajorcapitalworksprojectsfor parliamentaryconsiderationand7mediumcapitalworksprojects.ThesearelistedinTable 80andTable83ofthePBSrespectively.Expenditureonfacilitiesprojectsin201213is plannedtobe$1.0billion. Table79ofthePBSliststheapprovedmajorfacilitiesprojects.Thelargestsuchprojectsare theEnhancedLandForcefacilitiesatvariouslocations($2,251million),Hardenedand NetworkedArmyFacilitiesatvariouslocations($597million),RAAFAmberley Redevelopment($442million),thedevelopmentofHeavyAirliftCapabilityfacilities ($151million),andtheredevelopmentofRAAFPearce($142million). Table81onpage129ofthePBSlists12futurepossibleprivatefinancingprojectsthatare underdevelopmentaspartoftheSingleLEAPinitiative.

OtherCapitalPurchases
OthercapitalpurchasesincludeMinorCapitalInvestment,RepairableItemsandOtherPlant andEquipment.Defenceplanstospend$172milliononothercapitalpurchasesin201213.

RetainedCapitalReceipts[PBSpage33]
TheCapitalBudgetisfundedinpartthroughtheproceedsfromsalesofproperty,plantand equipmentandothercapitalreceipts(seeTable19onpage33ofthePBS).Onayearbyyear basissomeorallofthismoneyisreturnedtothegovernmentthroughacapitalwithdrawal. ThisistakenintoaccountindeterminingtheappropriationstoDefence.Table2.4.2shows recentlyplannedandachievedassetssales(includingbothpropertyandotherassets)within theDefenceCapitalBudget.

36


Table 2.4.2: Proceeds from the sale of assets ($ million)
DRP to June 2000 200001 200102 200203 200304 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Source:DAR,201213PBSand201011PAES

Budgeted 820 1023 700 306 231 95 38 99 285 287 156 118 127 123 116 138

Achieved 77 87 199 632 184 143 108 134 65 5 61 138 134

Shortfall 733 824 68 122 88 -13 -96 -34 280 226 18 -16

37

 2.5: People
Overview
Since2000therehavebeenarangeofinitiativestoimprovethemanagementofpersonnel fromabusinessandplanningperspective,andtoenhancethedevelopment,care, recruitmentandretentionofpersonnel.Manyoftheseinitiativesbeganin200102,when $500millionwasallocatedoverfiveyearstodealwithhighprioritypersonnelissues.Then, in200607,$182millionwasprovidedoverfouryearsforenhancedReserveremuneration and$194millionwasallocatedtoimproverecruitmentandretention. Subsequently,inlate2006,thethengovernmentallocatedanother$1billionfor recruitmentandretentionovertenyears,andinthe2007budgetafurther$2.1billionwas madeavailable.The2009budgetcontainedthreepersonnelrelatedmeasures:retentionof accommodationformembersondeployment($30.9millionoverfouryears);anextensionof theADFfamilyhealthcaretrial($44.5millionoverfouryears)andtheboosttoNavys personnelnumbersof700($405millionoverfouryears). In200910,thesituationchangeddramatically.Militaryrecruitmentandretentionexceed expectationsandproduceddramaticgrowthinfulltimeADFnumbersoveratwoyear period.During201112,actionwastakentogetmilitarynumbersbacktoplannedlevelsand theworkforceisnowclosetobudget.Nomilitarypositionshavebeenlostasaresultofthe latestroundofsavingsmeasures. Thestorywithciviliannumbersissomewhatdifferent,in200910and201011civilian numbersfailedtogrowtoplannedlevels,presumablybecausethepersonnelwerenot needed.Accordingly,budgetedcivilianworkforcenumberswascutby1,000inthe201112 budget.Then,inthisyearsbudget,civiliannumberswerecutbyanother1,000(phasedover twoyears)toassistwiththegovernmentsfiscalstrategy.Asaresult,thecivilianworkforce willactuallygetsmaller.

Howbigistheworkforce?
AccordingtothePBS,in201213Defencewillbefundedtomaintainanaverageof: 58,636fulltimemilitarypersonnel 21,195APScivilians(including5,544inDMO) 21,650Reservists

Inaddition,therewillbe536ProfessionalServiceProvidersorcontractors,including48in DMO. Overthenextfouryears,militarynumbersareplannedtoriseto59,000beforemoderating downto58,627in201819(thelatterfigurecomesfromthe201011DAR).Reserve numbersareplannedtorisetoaround23,000overfouryears.Civilianpersonnelnumbers willfallbyaround1,000overtwoyearscomparedwith201112levels.Pendingcloser consideration,allgroupswithinDefencehavehadtheircivilianpersonnelbudgetcutby5%. HistoricalandplannedworkforcenumbersaredetailinTable2.5.1

38

Table 2.5.1: Workforce summary for Defence plus DMO (average funded strength)
2011-12 proj. 14,111 14,260 30,270 14,106 58,636 20,500 1,150 21,650 14,164 58,589 20,800 1,795 22,595 30,111 14,314 29,608 14,163 57,882 20,190 1,060 21,250 14,338 30,408 14,126 58,872 21,000 1,795 22,795 2012-13 bud. 2013-14 est. 2014-15 est. 2015-16 est. 14,359 30,543 14,116 59,018 21,200 1,795 22,995

2001-02 actual 13,089 25,356 13,368 51,813 19,275 19,275 19,464 19,562 20,340 20,277 21,248 21,339 19,464 19,562 20,340 20,277 21,248 21,339 51,151 51,504 53,167 55,081 57,697 59,084 13,143 13,289 13,621 14,066 14,530 14,624 25,241 25,525 26,611 27,833 29,339 30,253 12,767 12,690 12,935 13,182 13,828 14,207

200203 200304 200405 200506 200607 200708 200809 200910 201011 actual actual actual actual actual actual actual actual actual

Navy

12,598

12,847

13,133

Army

25,012

25,587

25,446

Air Force

13,322

13,646

13,455

TOTAL

50,932

52,080

52,034

Active Reserve -

18,868

19,620

20,488

High Readiness

Total Reserve

18,868

19,620

20,488

Civilians 13,390 4,363 17,753 18,079 19,467 20,391 20,041 4,502 4,951 5,304 5,552 5,526 20,058 13,577 14,516 15,087 14,489 14,532 15,115 5,533 20,648 15,848 5,993 21,841 15,651 5,544 21,195 15,241 5,608 20,849 14,880 5,830 20,710 14,698 5,849 20,547

Defence -

16,819

18,385

18,303

DMO

Total Civilian

16,819

18,385

18,303

PSP 1,913 1,913 19,666 19,730 20,575 1,651 1,099 374 298 181 801 21,192 1,277 810 620 1,008 176 1,184 21,225 700 120 820 20,878 581 24 605 21,253 483 31 514 22,355 488 48 536 21,731 450 48 498 21,347 447 48 495 21,205 449 46 495 21,042

Defence -

2,311

1,880

DMO

Total PSP

2,311

1,880

PSP & Civilian

20,696

20,183

S OURCE : DAR, 201213 PBS.


Howdidwegettothispoint?
Duringthe1990sADFnumbersdroppedfromaround70,000to50,000permanent personnel,asshowninFigure2.5.1.
Figure 2.5.1 Historical and Planned Defence Workforce
80
Commercial Support

PermanentADF Civilian
Post-2000 Growth & Expansion of Army Targets

70 60 Personnel(thousands) 50 40 30 20 10 0
Defence Reform

Source:VariousDAR,200102DefenceBudgetBriefand201213PBS

ThebulkofthesereductionswereduetooutsourcingundertheCommercialSupportand DefenceReformprograms(althougharound5,600permanentADFpositionshadalready beentransferredtotheReservesbythe1991ForceStructureReview).Infact,theinitialgoal oftheDefenceReformProgram(DRP)wastoreducethestrengthoftheADFto43,500but thiswassoonrevisedupto50,000,therebyarrestingthedecline.Thiswasdoneby redirectingDRPsavingstobuybacktheADFpositions,thegoalbeingtoredirectpersonnel fromsupportareastothecombatforcethoughthereislittleevidenceofthisoccurring. The2000WhitePaperthensetpermanentADFnumbersonagrowthpath.Until2003,the targetwastobuildaforceofaround54,000permanentADFpersonnelby2010.However, thegovernmentacceptedtherecommendationsofthe2003DefenceCapabilityReview, whichsawsomecapabilitieswithdrawnfromserviceinthenextdecade.Asaresult,the 200405PBS[p.5]referredtocontinuedgrowthoftheADFtowards53,000.However, subsequentbudgetsaddedadditionalpersonnelforarangeofinitiativesincluding,most especially,theexpansionoftheArmy. Priortothe2009WhitePaper,thetargetstrengthsforthepermanentADFwere57,500by 201112andtomorethan57,000overthedecade.The2009DefenceWhitePaperrevised thefulltimeADFtargetuptoapproximately57,800andthecivilianworkforceupto21,900 overthedecade.SubsequentreductionsinplannedsavingsundertheStrategicReform Programsawthetargetsgrowtoaround59,000and23,000forthemilitaryandcivilian 40


workforcesrespectively.Whilethemilitaryfigureremainsvalid,overthelasttwoyears,the longtermtargetforcivilianpersonnelnumbershasfallenby2,000toaround20,400in 201819.

Whataretherecenttrends?
Permanent ADF Numbers

ThechangingsizeofthepermanentADFiscapturedinFigure2.5.2.Intheinitialyears followingthe2000WhitePaper,permanentADFnumbersgrewsteadilyuntil200304when poorrecruitingoutcomessawnumbersfallforthreeyearsinarownotwithstanding budgetingforgrowthineachinstance.Then,in200607,numbersbegantorisetothe extentthatbudgetestimateswereexceededthreeyearsinarow.Allsignsbeingthatthe revampofrecruitingandretentionpolicy(andalotofextramoney)slowlybutsteadily turnedaroundthepersonnelsituation. Then,fortwoyearscommencingin200910militarynumbersgrewmuchmorequicklythan plannedasaresultofbetterthanexpectedrecruitmentandretention.In200910military personnelexceededplannedlevelsby1,372.Toredressthisunplannedgrowth,the permanentADFwassupposedtodecreasebyaround400peoplein201011.Instead,the ADFgrewbyafurther1,387positions,exceedingplannedlevelsby1,808.Overthepast twelvemonthsactiontoreducenumbershasbeeneffectiveandmilitarynumbersarenow (asof201112)closetooriginallyplannedlevels.Havingreducedthesizeoftheforcethis year,itisnowplannedtogrowitby754positionsin201213.
Figure 2.5.2 Permanent ADF personnel: 1996-97 to 2015-16 (average funded strength)

59,000
Defence Reform Program Reductions

Unplanned growth

57,000

55,000
2000 White Paper Unplanned Growth reduction

53,000

Budget Actual

51,000

49,000

Source:DAR,200102DefenceBudgetBrief,201213PBS

Recruitment and retention TheannualchangeinADFstrengthisthedifferencebetweenthenumbersofpeople recruitedintoandseparatedfromtheforce(historicallyaround5,000ineachcase).Since 41


theplannedchangeinstrengthisusuallynomorethan1,000,theoutcomeisfinely balanced.Withthisinmind,weturnnowtoexamineADFrecruitmentandseparations. Recruitment Table2.5.2showsthepercentagesofrecruitmenttargetsthathavebeenmetoverthelast fifteenyears.Followingsolidimprovementsearlierthisdecade,whichsawtherategrow from76%to93%in200102,performancedroppedbacktothemid80%in200203and 200304beforedeterioratingto80%in200405andthenrecoveringto84%forthenexttwo years.In200708and200809theresultfelltoarounda15yearlowbeforerecovering stronglyin200910and201011.
Table 2.5.2: Percentage of recruitment targets met (per cent)
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Navy Army Air Force ADF

98 99 86 96

92 98 93 94

98 94 101 97

76 78.5 90.5 80

57 83 83 76

74 79 88 80

85 100 87 93

84 79 94 84

86 84 90 86

73 81 91 80

72 98 88 84

78 86 86 84

73 76 85 77

72 76 86 76

91 90 92 91

90 90 93 91

Source:VariousDARandDefencesubmissiontotheFAD&TCommitteeinquiryintoADFrecruitmentandretention,May2001

ItisimportanttonotethatrecruitmentresultsvaryfromServicetoService,andthatwithin eachServiceskilledpersonnel(liketechniciansandtradespeople)areparticularlyhardto recruit.Inrecenttimes,thishasnodoubtreflectedtheverybuoyantlabourmarketandthe nationalskilledlabourshortagethatAustraliahasexperienced.Asthedatashows,Navyhas untilrecentlytendedtohavethemosttrouble. Retention Table2.5.3showsthepercentagesofADFpersonnelwhoseparatedfromfulltimemilitary serviceoverthelastfourteenyears.Somecaremustbetakenwiththisdatabecausefigures forearlieryearswereimpactedbythedeliberatereductioninthesizeoftheADFbetween 1997and2001undertheDefenceReformProgram.Still,separationratesfrom200102to 200405werebetterthanin199596beforethecutstopersonnelcommenced.Notethat theseparationratesfor200910and201011arethelowestofalltheyearsexaminedbya fairmargin. ToputrecentADFseparationratesincontext,Figure2.5.3plotstheseparationrateoverthe pastthirtyyears.Thekeypointtonoticeisthatrecentseparationratesarecommensurate withorbetterthanratesachievedoverthepastthreedecades.Giventhatanumberof factorshaveariseninthattimetomakelongtermADFservicemoredifficultgrowing numbersofemployedspouses,greatergeographicaldispersaloftheADFandthetrendin societytoshortertermemploymentthefactthattheADFiskeepingpeopleonaveragefor longerthaninthe1970sisarealachievement.

42


Table 2.5.3: ADF separation rates %
1995-96 Navy Army Air Force ADF 9.0 1996-97 9.0 1997-98 11.1 10.9 10.0 10.7 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

13.0 11.5 12.5 10.4

12.6 13.3 12.9 13.0 11.9 11.6 12.6 12.

13.2 13.2 15.6 13.8

11.5 11.5 10.4 11.2

11.6 9.8 8.1 9.8

10.1 11.0 7.4 9.9

12.2 12.7 8.4 11.5

11.3 12.4 8.5 10.7

12.2 11.6 9.0 11.1

10.9 10.3 7.2 9.7

10.5 9.9 6.3 9.2

8.1 7.2 5.2 6.9

7.5 8.6 6.2 7.7

11.6 10.3

Source:DARandDefencesubmissiontotheFAD&TCommitteeinquiryintoADFrecruitmentandretention,May2001

Figure 2.5.3: Permanent ADF separation rate: 1974-75 to 2010-11

18% 16% 14% 12% separationrate 10% 8% 6% 4% 2% 0% Navy Army AirForce

Source:DAR197475to201011
Figure 2.5.4: Employment and ADF separation rates: 1974-75 to 2009-10
98% 96% 94%

EmploymentLevel ADFSeparationRate

16% 14% 12%

employmentlevel

92% 8% 90% 6% 88% 86% 84% 4% 2% 0%

Source:DAR197475to200910

43

separationrate

10%


WhileitshighlylikelythattheGlobalFinancialCrisiscontributedtolowseparationratesin recentyears,theimpactofrecentretentioninitiativeshasundoubtedlyalsobeenan importantfactor.Indeed,notonlydidtheADFseparationratefallstronglyin200708(prior toanyincreaseinunemployment)butthecorrelationbetweenunemploymentand separationshasbeenlessthanclearinrecentyearsasshowninFigure2.5.4. CivilianNumbers ThesituationwithciviliannumbersiscapturedinFigure2.5.5whichplotsbudgetedand actualciviliannumbersfrom199607onwards.Althoughciviliannumbersfellquicklyunder theDefenceReformProgram,theygrewbackveryrapidlyinthefirsttwoyearsofthe2000 WhitePaperimplementationthreetimesmorequicklythanmilitarynumbersgrew.What ismore,thegrowthwaslargelyunplanned,withthesizeofthecivilianworkforcein200102 exceedingbudgetestimatesby5.8%andsimilarlyin200203(6.1%inexcess).However,in January2003acivilianhiringfreezewasimposedwithinDefenceafteritbecameclearthat theprojectednumberofcivilianpersonnelwouldexceedtherevisedestimategivenless thantwomonthsearlier.InApril2003,thefreezewasliftedbutdirectionwasgivento maintainciviliannumbersatcurrentlevels.Inthe200304Budget,aprogrammedreduction planwassetinplacetoreduceciviliannumbersby1,008,from18,385to17,377.
Figure 2.5.5: Civilian personnel: 1996-97 to 2015-16
23,000 22,000 21,000 20,000
Unplanned growth DRP reductions Hiring freeze 2009 White Paper growth Planned and unplanned growth 2012 cuts

19,000 18,000 17,000 16,000 15,000

Budget Actual

Source:DefenceAnnualReports,200102DefenceBudgetBriefand201213PBS

However,theactualresultfor200304(18,303)wasonly82positionsbelowtheprevious yearsfiguredue,mainly,toaseriesofgovernmentinitiativesbutalsobecauseofanextra unplanned349newcivilianpositions. Forawhile,in200405and200506,personnelnumberswerelargelyundercontrolresulting inaclosealignmentofbudgetedandactualfigures.In200607,civilianpersonnelnumbers weresettoriseby950.Most,butnotall,ofthesepositionswererelateddirectlytoeither newgovernmentinitiativesorthecreationofamoreefficientworkforce.However,the actualresultfor200607wasanincreaseof1,388personnel,morethan450abovethe estimate.Then,in200708,civiliannumbersgrewbyanother1,468,fully155abovethe

44


initialbudgetestimate.Clearly,whateverconstraintswereimposedin200405and200506 werenolongereffective. Theplanfor200809wasforciviliannumberstofalltoaround20,000andthenremain largelystaticacrosstheforwardestimates.However,followingthe2009WhitePapercivilian personnelnumbersweresetatargetofaround21,900whichwassubsequentlyrevised upwardstoaround23,000afterDefenceabandonedmanyoftheefficiencysavingsoriginally plannedfromthecivilianworkforce. However,in200910thenumberofciviliansgrewbyonly17,fully645belowtheupdated budgetestimate.Attemptstoregainlostprogressin201011largelyfailedwithcivilian numbersfalling1,213belowtarget(thoughstill590abovethelevelforthepreviousyear). Then,inthecontextofthe201112budget,thegovernmentannouncedthatcivilian numberswouldbe1,000lessthaninitiallyplannedacrossfouryearsaspartoffurther efficiencies.Mostrecently,afurther1,000positionswerecut(phasedinovertwoyears)in thisyearsbudget.SeeChapter4ofthisBriefforafullerdiscussion. Reserve numbers Consistentwiththeunplannedgrowthinpermanentmilitarynumbers,Reserveforce strengthjumpedaboveestimatesin200910acceleratinglongtermplannedgrowth. However,Reservenumbersfellwellbelowtargetin201011and201112.
Figure 2.5.6 Active Reserve personnel: 2000-01 to 2015-16
24,000 23,000 22,000 21,000 20,000 19,000 18,000 Budget Actual
Target Growth

Source:DefenceAnnualReportsand201112PBS

WhatarethelongtermtargetsfortheDefenceworkforce?
Inpastyears,wehaveincludedadetailedanalysisofhowpersonneltargetshaveevolved sincethe2000DefenceWhitePaper.Becausethe2009DefenceWhitePapereffectively resettheclock,wewillinsteadfocusontheevolutionofplannedpersonnelnumbersfrom 2009onwardsandonlyprovideatruncatedpictureofearlierchanges.Table2.5.4shows whatweknowaboutthelongtermtargetstrengthfortheADF. ThestoryfornumbersisshowninTable2.5.5whereitisassumedthattherecentcutsto civiliannumbersin201112(1000,positions)and201212(1,000positions)willflowforward intoareductioninthelongtermtargetstrengthforthecivilian(APSpluscontractor) workforce.

45


Table 2.5.4: Long-term target (circa 2018) for the permanent ADF
Navy Post-Defence Reform Program Baseline East Timor Boost 1999 2000 White Paper Target Changes made 2000 to 2009 Estimated pre-2009 White Paper Target Baseline (May 2009) Extra White Paper Positions SRP impact 2018-19 target strength (May 2009) Baseline (April 2010) Extra White Paper Positions SRP impact 2018-19 target strength (April 2010) Baseline (July 2011) Extra White Paper Positions SRP impact 2018-19 target strength (July 2011)
Source:201011DAR,BudgetPapersandtheMay2009andApril2010SRPBooklets

Army 23,000 +3,000

Air Force 13,000 +555 13,555 +500 14,055

Total 50,000 +3,555 53,555 +4,721 58,282 58,648 1,979 -2,813 57,812 58,276 1,979 -1,376 58,879 58,277 1,979 -1,629 58,627

13,800

13,800 -311 13,689

26,000 +4,538 30,538

Table 2.5.5: Long-term target (circa 2018) for the Defence civilians & contractors
Civilian Estimated pre-2009 White Paper Target Baseline (May 2009) Extra White Paper Positions SRP impact 2018-19 target strength (May 2009) Baseline (April 2010) Extra White Paper Positions SRP impact 2018-19 target strength (April 2010) Baseline (April 2011)* Reduction of 1,000 positions 2018-19 target strength (May 2011) Baseline (July 2011) Reduction of 1,000 positions 2018-19 target strength (May 2012)
Source:BudgetPapersandtheMay2009andApril2010SRPBooklets.*AdvicefromDefenceMay2011.

Contractors -

Total 21,672 2,290 -2,015 21,937 21,620 2,290 -1,191 22,719 22,397 -1,000 21,397 21,397 -1,000 20,397

20,000

46


Howmuchdopersonnelcost?
PersonnelexpensesforDefenceincludingDMOin201213willbearound$10.4billionrising to$11.9billionin201516.Therecentandprospectivepercapitacostofcivilianandmilitary personnelappearsinTables2.5.6to2.5.8.
Table 2.5.6: Per-capita permanent ADF personnel expenses
Military Numbers 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 50,355 50,932 52,080 52,034 51,813 51,151 51,504 53,109 54,748 57,697 59,084 57,882 58,636 58,589 58,872 59,018 Expense $ 000s 4,047,121 4,273,863 4,458,208 4,890,100 4,757,900 5,093,100 5,515,651 6,062,882 6,764,100 7,456,595 7,834,679 7,894,123 8,014,481 8,122,913 8,485,002 9,161,825 Per Capita $80,372 $83,913 $85,603 $93,979 $91,828 $99,570 $107,092 $114,159 $123,550 $129,237 $132,602 $136,383 $136,682 $138,642 $144,126 $155,238 Average 4.4% 2.0% 9.8% -2.3% 8.4% 7.6% 6.6% 8.2% 4.6% 2.6% 2.9% 5.0% 5.0% 5.3% 4.9% 5.0% Nominal Growth

Source:DefenceAnnualReports,201112PAESand201213PBS,expensesadjustedtotakeaccountofReservecomponent.

Table 2.5.7: Per-capita DMO civilian personnel expenses

DMO Civilians 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 4502 4951 5304 5552 5526 5533 5993 5544 5608 5830 5849 DMO Expenses 000s $353,892 $409,262 $458,992 $493,611 $507,900 $531,619 $588,610 $554,657 $581,248 $632,920 $661,695 DMO Per Capita $78,608 $82,662 $86,537 $88,908 $91,914 $98,216 $100,206 $100,046 $103,646 $108,563 $113,130 Average Source:DefenceAnnualReports,201112PAESand201213PBS. 5.2% 4.7% 2.7% 3.4% 4.5% 2.2% 1.9% 3.6% 4.7% 4.2% 3.7% Nominal Growth

47


Table 2.5.8: Per-capita Defence civilian personnel expenses
Civilian Numbers
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 16,292 16,819 18,385 18,303 17,753 13,577 14,516 15,087 14,815 14,532 15,115 15,848 15,651 15,241 14,880 14,698

Expense $ 000s
$956,661 $1,086,116 $1,235,752 $1,363,205 $1,293,100 $1,084,382 $1,212,393 $1,271,223 $1,308,445 $1,373,377 $1,457,279 $1,592,190 $1,592,643 $1,629,052 $1,689,580 $1,799,105

Per Capita
$58,720 $64,577 $67,215 $74,480 $72,838 $79,869 $83,521 $84,259 $88,319 $94,507 $96,413 $100,464 $101,760 $106,886 $113,547 $122,405 Average

Nominal Growth

10.0% 4.1% 10.8% -2.2% 9.7% 4.6% 0.9% 4.8% 7.0% 2.0% 4.2% 5.1% 4.6% 4.1% 4.1% 5.0%

Source:DefenceAnnualReports,201112PAESand201213PBS.Note:excludesDMOpast200506.

Thepercapitaexpensesincludesalaries,allowances,superannuation,health,redundancies, housingandfringebenefitstax.Wevedoneourbest(onthebasisofincomplete information)toaccountforthecostofReservepersonnelintheestimateforthepermanent ADF.Inaddition,thetransferofmilitarycompensationtoVeteransAffairsin200405has beenadjustedfor. TheaverageratesofgrowthforpercapitaemployeeexpensesinTable2.5.6to2.5.8donot accountforinflation.Onceinflationistakenintoaccount,thecalculatedaverageannual (compounding)ratesofgrowthforthethreegroupsareasfollows:permanentmilitary personnel1.7%,Defencecivilians2.3%andDMOcivilians1%.Pastandfuturetrendsinper capitaexpensesareshowninTable2.5.9.
Table 2.5.9: Past and projected average annual real growth in per-capita costs
Military
2000-01 to 2012-13 2012-13 to 2015-16 1.8% 1.5%

Defence APS
1.9% 3.5%

DMO APS
1.4%

Finally,acautionisinorderwhenlookingatthedatainthelastthreetables;theongoing impactofaccrual(noncash)shiftscanmakeverysignificantdifferences.Thishasprobably contributedtosomeofthebigyearonyearvariationsingrowthinbothcivilianandmilitary percapitaexpenses.

48


Figure 2.5.7: Past and projected per-capita personnel costs
$150 $140 Real(201213'000$)percapitaexpenses $130 $120 $110 $100 $90 $80 $70 $60 Military Civilian(Defence) Civilian(DMO)

Past

Future

Source:DefenceAnnualReports,201112PAES,201213PBS.

Personnelstructures
TofacilitateunderstandingofthestructureoftheDefenceworkforce,itisusefulto understandthenominalequivalencebetweendifferentlevelsintheAPSandADFand betweenthethreeServices.Foracomparisonofrelativeranks/levels,seeTable2.5.10.
Table 2.5.10: Rank/level comparison:
Civilian APS-4 APS-5 APS-6 EL-1 EL-2 SES-1 SES-2 SES-3 Navy Sub-Lieutenant Lieutenant Lt-Commander Commander Captain Commodore Rear Admiral Vice Admiral Army Lieutenant Captain Major Lt-Colonel Colonel Brigadier Major General Lt General Air Force Flying Officer Flight Lieutenant Squadron Leader Wing Commander Senior Officers Group Captain Air Commodore Air Vice-Marshal Air Marshal Star-ranked and Senior Executive Service Officers

ThebreakdownofADFpersonnelbyrank,andciviliansbylevel,appearsinTable21onpage 37ofthePBS.AstheADFcontractedduringthe1990s,thenumberofofficersremained moreorlessconstant.Then,asthesizeastheADFgrewoverthepastfewyears,the numberofofficersgrewmorequickly(seeFigure2.5.8).Asaresult,thepercentageof officersintheADFhasgrownfrom17.2%in1989to23.9%in2010.Thismeansthatthere 49


arenowaroundthreeenlistedmenforeveryofficer.Toalargeextent,therisingproportion ofofficersprobablyreflectstheoutsourcingofactivitiesduringthe1990swhichsawmore enlistedpersonnelthanofficersdischarged.However,therecentexpansionofthearmyhas marginallyreversedthetrend.
Figure 2.5.8: Permanent ADF Numbers 1989 2011 as at 30 June
80 70 60

Otherranks Officers

Personnel1000's

50 40 30 20 10 0

Source:DefenceAnnualReports198990to201011

Generals and Mandarins Thetrendsinstarrank,seniorexecutive,andseniorofficernumbersareshowninTable 2.5.11;themostrecentdataistakenfromthe201213PBS.Changesinreportingaccount forthegapsandlackofearlierdata. Ascanbeseen,overthepastfifteenyearsthenumberofcivilianseniorexecutiveshas increasedby69%andmilitarystarrankofficersby70%.Atthesametime,thecivilian workforcegrewbyonly27%andthemilitaryworkforcebyonly11%.Overasimilartime frame,thenumbersofcivilianandmilitaryseniorofficershavegrownby94%and42% respectively.Althoughthebudgetpapersshowareductioninthenumberofciviliansenior officersinDefenceandDMOin201213,suchpredictionshavebeenmadeinthepastand notoccurred. Ateveryseniorlevelinthecivilianandmilitaryworkforcethenumberofmanagersand executiveshasincreasedataratewellinexcessofthegrowthinthesizeoftheoverall workforce.However,asmightbeexpected,thefastestrateofincreasehasoccurredatthe levelofDeputySecretaryand3starmilitaryofficer(Table2.5.12)wheremuchofthegrowth isveryrecent,includingasaresultofthe2007DefenceManagementReview.

50


Table 2.5.11: Numbers of Senior Ranks and Executive Levels; average funded strength
Civilian Defence Executives 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Growth 100 106 103 117 130 123 96 102 108 121 126 128
undisclosed

Military Defence Senior Officers 0 0 3317 3844 3824 3889 3081 3385 3656 3911 3970 4192
undisclosed

DMO Executives

Total Executives 100 106 103 117 130 123

DMO Senior Officers 0 0 0 0 0 0 995 1064 1225 1388 1502 1579

undisclosed

Total Senior Officers 0 0 3,317 3,844 3,824 3,889 4,076 4,449 4,881 5,299 5,472 5,771 6,270 6,729 6,431 94%

Star Rank Officers 110 0 120 119 120 119 125 135 149 176 169 173 181 184 187 70%

Senior Military Officers 1,360 0 1,415 1,467 1,507 1,528 1,551 1,594 1,684 1,768 1,852 1,937 1,941 1,921 1,926 42%

30 29 29 32 35 36
undisclosed

126 131 137 153 161 164 172 169 169 69%

134 134 -

35 35 17%

4,810 4,669 -

1,919 1,762 77%

Source:DefenceAnnualReportsand201213PBS

Table 2.5.12: Band 3 and 3-Star officers (equiv. Chief of Service - Deputy Secretary)
Per cent n/a 166% 400% 50% 183% 50% 130% 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 1 3 1 2 6 4 10 4 1 3 8 4 12 7 1 2 10 4 14 5 1 3 9 4 13 5 1 3 9 4 13 5 1 3 9 5 14 5 1 3 9 5 14 5 1 3 9 5 14 5 1 3 9 5 14 7 4 3 14 6 20 8 4 3 15 6 21 8 5 3 16 6 22 8 5 3 16 6 22 8 5 3 17 6 23 2012-13 1 8 5 3 17 6 23

Associate Sec Band-3 (Defence) Band 3 (DMO) Band-3 (DSTO) subtotal 3-Star Officers Total

Source:DARand201213PBS.IncludesChiefofDivisionGrade3inDSTO.CEOofDMOcountedasaDeputySecretary.

ProfessionalServiceProviders
TheDefenceworkforceincludesalimitednumberofProfessionalServiceProviders(PSP), sometimescalledsimplycontractorsinlinepositionswithintheorganisation.Formostof thepastdecade,therewasaconcertedeffortunderwaytoreducethenumberofPSP employedbyDefenceandDMO.Infact,Defencehasclaimedsuccessivereductionsinthe numberofPSPasaninternalefficiencyandaredoingsoagainwithintheSRP.Notethe temporaryincreasein200809againstwhichsavingswerecalculatedin2009. 51


Figure 2.5.9: Professional Service Providers
2,500 Budgeted 2,000 Actual

Numberofcontractors

1,500

1,000

500

Source:DefenceAnnualReportsand201213PBS.

Thenumberofcontractorshasfallenthreeyearsinarowanddonesomorequicklythan budgetedfor.However,thesereductionneedtobeviewedwithsomecaution.Overthe pastcoupleofyearsDefencehasbeguncapabilitypartnerstoprovideskillsandexpertise notavailablewithintheirownworkforce.Becauseofthecontractualarrangementsunder whichcapabilitypartnershipsaremanaged,thepersonneltheysupplyarenottechnically countedasPSPorcontractorsunderDefencedefinition.Nonetheless,peopleemployedby theprivatesectorareprovidingskillsandcapacitywithinDefenceverymuchakintothat previouslydonebyPSP/contractors.TheChiefFinancialOfficer,CapabilityDevelopmentand ChiefInformationOfficerGroupsarebelievedtomakeextensiveuseofcapabilitypartners andotherexternalcontractorstoperformcoreroles. Clearly,greatertransparencyoftheeffectiveworkforcecapacitydeliveredbycapability partnersshouldbedisclosed.Otherwise,wecannottakeseriouslyeitherthereportedsizeof theDefenceworkforceorclaimsofsavingsduetothereductioninthesizeoftheworkforce.

DefenceRemuneration
ThePBSdoesnotdealwithDefenceremuneration.Butbecausethelargestsinglesliceofthe Defencebudgetgoestowardscivilianandmilitarysalarieswehaveincludedashort summaryofthekeydata.Figure2.5.10showsDefencemilitaryandciviliansalariescircalate 2010benchmarkedagainstthelatestavailableAverageWeeklyOrdinaryTimeEarningsfor FullTimeEarningAdults(AWOFTEA)fromDecember2010.(SEScivilianandmilitary two/threestardataareformid2010.) NotethatthemilitaryfiguresinFigure2.5.10includebothsalaryandtheserviceallowance of$12,121perannumreceivedbyallservicepersonnelbelowtherankofColonel.No accounthasbeentakenoftheancillarybenefitsreceivedbymilitarypersonnellikehousing, medical,rationsandspecificallowancesforskill,hardshipsanddeployments.Notethatthe threegraphsdonotusethesamescale.

52

Figure 2.5.10 Defence salaries, most recent data 600 500 400 300 200 100 0 2LT 600 500 400 300 200 100 0 PTE 600 500 400 300 200 100 0 APS1 APS2 APS3 APS4 APS5 APS6 EL1 EL2 SES1 SES2 SES3
Source:ABS;MilitarypayratesasatNovember2011,SESLtGenandGenasatJuly2011,otherAPSasatApril2012

Low High AverageAustralianEarnings(Dec12)

Military officers (includes Service Allowance)

car also provided

LT

CAPT

MAJ

LTCOL

COL

BRIG MAJGEN LTGEN

GEN

Low High AverageAustralianEarnings(Dec12)

Military other ranks (includes Service Allowance)

PTE(P)

LCPL

CPL

SGT

SSGT

WO2

WO1

Low High AverageAustralianEarnings(Dec12)

Defence civilians

car also provided

ThecomparisonofdefencesalarieswithAWOFTEinFigure2.5.10representsonlya snapshotintime.Therelativedynamicsofaverageearnings,defencesalariesandthecostof livingisquiteanotherissue.Indeed,asFigure2.5.11shows,overthepastdecadeandahalf, defencesalarieshaveconsistentlygrownmoreslowlythanaverageearningsbutmore quicklythantheConsumerPriceIndex(CPI). Fourpointscanbemadeabouttherelativegrowthinaverageearnings,defencesalariesand consumerprices.First,becausethesalaryincreasesforthe(largelydistinct)ADFandAPS

53


workforcesareexplicitlylinked,anysuggestionthattheyaredrivenbyproductivityis tenuoustosaytheleast. Second,thefactthataverageearningshaveoutpaceddefencesalariesdoesnotnecessarily meanthatdefenceremunerationhasfailedtokeeppacewithcommunitystandards.Its likelythatthestrongergrowthinaverageearningsactuallyreflectsstructuralchangesinthe Australianworkforceratherthanadisparityinlikeforlikeremuneration.
Figure 2.5.11: Defence civilian and military salaries rate of increase
CumulativesalaryincreasesforADF,APSDefenceCivilians, AverageWeeklyOrdinarytimeFullTimeEarningsAdultsandCPI 140% 120% AWOFTEA 100% 80% 60% 40% 20% 0% ADF APS CPI

Source:ABSweeklyearningsdataandDefencepayrates. Third,theactualremunerationofcivilianpersonnelhasincreasedmuchmorequicklythan forthemilitaryworkforce,inpart,throughthelevelenrichmentshowninTable2.5.13. (Civilianseniorofficersmakeup28%ofthecivilianworkforcewhilemilitaryseniorofficers onlyaccountforlessthan3%,sothattheformerismuchmoresensitivetogrowththanthe latter.)Theeffectissignificant.Comparingpercapitawages,salariesandleaveexpenses overthedecade199899to200809revealsthataveragepercapitaADFcostsgrewby43% whileciviliancostsgrewby61%.Overthesameperiod,averageweeklyearningsinthe broadereconomygrewby57%. Finally,itisimportanttonotethatDefenceexecutiveremunerationisnotlimitedbythe salaryincreasesgrantedtotherankandfile.Overthepastsixyears,theDefenceannual reportdisclosedsalaryrangesforvariouslevelsofemployee.AsTable2.5.13shows,ithas beenaparticularlygoodtimeforseniorexecutivesandstarrankedofficers(withthe exceptionof3starmilitaryofficerswhoonlyreceivedalmostthesameasthatgrantedto thelowerechelons).Therangeofincreasescorrespondstochangestotheupperandlower levelsofthesalaryrangeineachcase.

54


Table 2.5.13: Senior executive salary increases 2005-06 to 2010-11
Increase in minimum salary Civilian level Secretary Deputy Secretary (SES-3) First Assistant Secretary (SES-2) Assistant Secretary (SES-1) Non-executive APS salary increase Military level General (CDF) Lieutenant General (3-star) Major General (2-star) Brigadier (1-star) Non star rank military salary increase 33.4% 21.7% 45.5% 45.0% 20.3% 82.7% 67.8% 52.9% 45.8% undisclosed 23.9% 24.8% 25.7% 20.3% undisclosed 57.0% 31.7% 23.0% Increase in maximum salary

Source:200506and201011DAR.NonexecutivefiguresareADFpayratesandcivilianDECAfromJune2006toJune2011.

DemographicsoftheADF
ThedefenceforceisdisproportionatelydrawnfromtheAngloCelticpartoftheAustralian population.Theextentofoverrepresentationisdifficulttofullyassessbecausetheonly availabledataconcernscountryofbirthandnotfamilybackground.Evenso,asTable2.5.14 shows,therearesignificantdifferencesbetweenthedefenceforceandthecommunity (similarresultswerefoundinthe1999ADFCensus).Theessentialresultsarereproduced graphicallyinFigure2.5.12.ThefiguresaresimilarfortheparttimeReserveforce.Notethat theoverrepresentationofAngloCelticbornindividualsextendstothecivilianworkforceof theDepartmentofDefence.
Table 2.5.14: Ethnic composition of the Australian Defence Force
Defence Force 2007 87% 5% 2% 1% 1% 4% Australian Population 2006 71% 5% 2% 3% 6% 12% Australian Workforce 2006 73% 6% 3% 3% 7% 8% Defence Civilians 2007 79% 8% 1% 3% 4% 5%

Place of Birth Australia UK and Ireland New Zealand Europe Asia Other

Sources:Defencemilitaryandcivilianfiguresfromthe2007DefenceCensus;allotherfigures fromCensus2006conductedbytheAustralianBureauofStatistics.

Itisdisappointingthatourdefenceforceisunabletoattractrecruitsequallyfromacrossthe Australiancommunity.Defenceadvisesthatprogramsareunderwaytoredresstheissue includingtheMulticulturalRecruitmentandRetentionStrategy.[Wehadhopedtopresent morerecentfiguresbuttheresultsofthe2011ADFCensus(heldMay2011)havenotbeen released.AndtherehasnotbeenaDefenceAttitudeSurveysince2008.]

55


Figure 2.5.12: Ethnic composition of the ADF by birth
Defence Force 2007

Defence Civilians 2006

Australian Population 2006

Australian Workforce 2006

Anglo Celtic:

Other backgrounds:

Sources:Defencemilitaryandcivilianfiguresfromthe2007DefenceCensus;allotherfigures fromCensus2006conductedbytheAustralianBureauofStatistics.

AnotherareawherethedemographicsoftheAustraliandefenceforceandthesocietydiffer isgender.Table2.5.15showstheproportionofwomenandtheshareofjobsopento womenin201011acrossthepermanentuniformedandcivilianworkforces.Similarresults holdfortheparttimeReserveforce.Inearly2011,thegovernmentannouncedthatall positionswilleventuallybemadeopentowomen.

Table 2.5.15: Women in Defence (full time) circa 2010-11
Navy % of positions open to women % of women in uniform Army Air Force Total military 93% 18.5% 9.9% 17.1% 13.8% Defence civilians 100% 40.0%

Source:200910DARandadvicefromDefenceonpositionsopen

Itisnotthatthedefenceforcehasignoredtheissueinthepast.Overatleastthepast fifteenyearsaseriousefforthasbeenmountedtorecruitandretainwomenintheforce.A zerotolerancepolicytowardssexualharassmentisnowinplaceacrosstheentireforce. Recruitingadvertisementsdepictwomenasintegralmembersofthedefenceforceand highlighttheopportunitiesavailabletothem(andthesamehasmorerecentlybecometrue forpersonsfromdiverseethnicbackgrounds).Thenumberofpositionsopentowomenhas 56


beenexpandedinallthreeServicesandanincreasingnumberofwomenarereachingthe higherranks.Moreflexiblearrangementsarenowinplacetohelpfemalemembersmanage thedualdemandsofcareerandfamily,andchildcarefacilitieshavebeenestablishedinand aroundmostmilitarybases. Yet,theproportionofwomenintheforcehasgrownfromonly12.8%to13.8%overthe decade,seeFigure2.5.13.TheproportionofwomeninalliedforcesissimilarlylowNew Zealand17%,UnitedKingdom8.5%andUnitedStates17%.Thatdoesnotmeanthatthe defenceforceshouldrelaxitsefforttoattractwomentoserve.Thedefenceforceneedsthe bestpeopleitcanfindandwomenrepresentthelargestunderutilisedpoolofpotential recruitsinthecommunity.
Figure 2.5.13: Women in the defence force
20% 18% percentagewomeninpermentforce 16% 14% 12% 10% 8% 6% 4% 2% 0% Navy
Source:198282to201011DAR

1983 2003

1988 2008

1993 2009

1998 2011

Army

AirForce

57

 2.6 Outcomes and planned performance

TheCostofOutcomesandPrograms
UndertheframeworkexplainedinChapter1.3ofthisBrief,thegovernmentfundsDefence toachievedesignatedoutcomesviaaseriesofprograms.ThecoreoftheDefenceBudgetis astatementofthecostsandplannedperformanceofoutcomesandprogramsonp.3989of thePBS.Unfortunatelythe200910transitionfromoutputgroupstoprogramswas accompaniedbytheabandonmentofoutputsthatcontainedamoregranularexplanation ofcapabilitiesheldbythethreeServices.Specifically,twentytwocapabilityrelatedoutputs werecoalescedintoamerethreeprogramsresultinginasevenfolddecreasein information.Thenetcost(revenuesminusexpenses)ofoutcomesandprogramsappearin Table2.6.1.
Table 2.6.1: Net outcome and program costs ($m)
Outcome 1: The protection and advancement of Australias national interests through the provision of military capabilities and the promotion of security and stability Program 1.1: Office of the Secretary and CDF Program 1.2: Program 1.3: Program 1.4: Program 1.5: Program 1.6: Program 1.7: Program 1.8: Program 1.9: Navy Capabilities Army Capabilities Air Force Capabilities Intelligence Capabilities Defence Support Defence Science and Technology Chief Information Officer Vice Chief of the Defence Forces Net Cost 2008-09 (actual) 207 3,979 5,015 3,906 501 3,169 375 697 1,318 95 130 819 257 20,468 Net Cost 2009-10 (actual) 196 3,745 5,093 3,699 562 3,319 403 806 1,012 103 365 317 286 19,906 Net Cost 2010-11 (actual) 146 4,045 5,306 3,908 572 3,429 418 842 1,103 37 482 402 269 20,959 Net Cost 2011-12 (expect) 175 4,091 5,237 4,353 523 3,967 462 964 1,089 49 331 295 307 21,843 Net Cost 2012-13 (budget) 168 4,270 5,026 4,218 474 3,688 440 833 1,013 43 988 458 324 21,943

Program 1.10: Joint Operations Command Program 1.11: Capability Development Program 1.12: Chief Finance Officer Program 1.13: People Strategies and Policy

Departmental outputs contributing to Outcome 1 Outcome 2: The advancement of Australias strategic interests through the conduct of military operations and other tasks as directed Program 2.1: Operations contributing to the security of the immediate neighbourhood Program 2.2: Operations supporting wider interests Outcome 3: Support for the Australian community and civilian authorities as requested by Government Program 3.1: Defence Contribution to National Support Tasks in Australia Total net cost (non-administered) Source:201213PBSandvariousDAR

173 557

161 892

182 889

204 1,248

131 1,211

15 21,211

11 20,970

11 22,041

10 23,305

10 23,295

58


Notethat,inordertocapturetheoverallcostofdeliveringprograms,noncashexpenses duetothedepreciationofequipmentareincludedinthenetcostinTable2.6.1.Alsofunds appropriatedforadministeredprograms(whicharenotcontrolledbyDefence)for homeloanassistanceandmilitarysuperannuationandretirementbenefitshavebeen omitted. WhileonemightexpectthatOutcome2wouldincludethenetadditionalcostofoperations undertakenbytheADF,thetotalfigureismorethan$300millionbelowthatgiveninTable 17,page31ofthePBS.ThedifferencerelatestoEnhancedForceProtectioninitiatives deliveredthroughtheDCPandMinorProgramsalignedtoOutcome1. TheoutcomeandprogramsfortheDMOarelistedinthesecondpartofthePBS[p.151,178 &190],forconveniencethesearelistedinTable2.6.2.
Table 2.6.2: Total outcome and program expenses ($m)
Outcome 1: Contributing to the preparedness of the Australian Defence Organisation through acquisition and through-life support of military equipment and supplies Program 1.1 Management of Capability Acquisition Program 1.2 Capability Sustainment Program 1.3 Policy Advice and Management Services Total DMO Outcome 1 Source:variousDAR,201213PBS Expense 2008-09 (actual) Expense 2009-10 (actual) Expense 2010-11 (actual) Expense 2011-12 (revised) Expense 2012-13 (budget)

4,842

5,963

5,794

4,550

3,676

4,772

4,624

4,754

5,301

5,295

75 9,690

92 10,679

86 10,634

125 9,976

129 9,100

ThereisconsiderableoverlapbetweenthefundslistedundertheDefenceoutcomes/ outputsandthoseforDMO.Around$5.3billionworthofDefencesprogramcostsrepresent thepurchaseofsustainmentservicesfromDMO(Output1.2).Putsimply,aroundhalfof DMOsprogramsareinputstoDefencesprograms.ThisisconsistentwithDMObeinga separatefinancialentity.DMOsother$3.7billionprogram(Program1.1)doesnot contributetoDefencesoutputs.Instead,itrepresentsthepurchaseofnewcapital equipmentthatwillbeusedtodeliverDefencesprogramsinthefuture. AsmentionedinChapter1,thenewoutcomesandprogramsaremuchmorecloselyaligned withtheactualorganisationofDefencethanwerethoseemployedfrom199900to 200708.Nonetheless,therearesignificantlinkagesbetweencertainelements.Wehave triedtocapturethesituationinFigure2.6.1.Theessentialpointsareasfollows.The programsunderOutcome2and3donotalignwithanysingleorganisationalentity.Instead theycapturethenetadditionalcostofoperationsthatisapportionedtothosegroupsthat actuallysupportanddelivertheoperationsincludingDMO.Atthesametime,theDMO sustainmentbudgetisreflectedinthecostsattributedtothevariousoutputgroups, principallyNavy,ArmyandAirForce.

59

Administration

Program 1.1

Office of CDF and Secretary

Defence Materiel Organisation

Program 3.1 Defence Contribution to National Support Tasks in Australia

Figure 2.6.1: Defence Outputs and Groups principal budget linkages

DMO Program 1.1 Management of Acquisition

Program 1.11

Capability Development

Defence Capital Budget

DMO Program 1.2 Capability Sustainment

Program 2.2 Operations Supporting Wider interests

Program 1.12

Chief Financial Officer

DMO Program 1.3 Policy Advice and Management

Program 1.13

People Strategies and Policy

Program 2.1 Operations Contributing to the Security of the Immediate Neighbourhood

Program 1.14 1.17

Program 1.6 Defence Support

Navy Capabilities

Program 1.7 Defence Science and Technology

Program 1.8 Chief Information Officer

Program 1.9 VCDF

Program 1.2

Program 1.3
Army Capabilities

Program 1.4
Air Force Capabilities

Program 1.5
Intelligence Capabilities

Program 1.10
Joint Operations Command

Superannuation and Housing Support

Defence Support Group CIO VCDF Group

Defence Science and Technology

Navy Group

Army Group

Air Force Group

Intel and Security Group

Joint Operations Command


ProgramStatements
Foreachoftheprograms,thePBScontainsanentrydetailingthekeyperformance indicatorsandacostsummary.Inmanycases,thekeyperformanceindicatorsreadlikethe entriesinacorporateplan.Forexample,theOfficeoftheSecretaryandCDFhasseventeen deliverablesincluding; enhanceDefence'sgovernanceframework,throughclearerauthorityandaccountability andmorerigorousperformancemanagement,riskmanagement,assuranceandaudit processes. andfourperformanceindicators,including; theMinistersaresatisfiedwiththetimelinessandqualityofadvice,includingCabinet documentation,providedbytheDepartment. Littlewouldbegainedbyrepeatingtheverylargenumberofequallysensible(andlargely anodyne)keyperformanceindicatorsthatappearinthePBS.Theinterestedreadercan pursuethematleisure.Ofmoreinterestaretheconcreteperformancemeasuressetoutfor themilitarycapabilityoutputs.

CapabilityPerformance
Therearethreekeyperformancemeasuresforthecapabilityrelatedprograms; preparedness,coreskillsandquantity.Thesesameperformancemeasureshavebeen employedinDefenceAnnualReportsandPBSinonewayoranothersince1999.Weexplore thesethreemeasuresbelow.Indoingso,itsimportanttorememberthatmanycapability programshaveadditionalspecificperformancemeasures. PreparednessreferstothereadinessandsustainabilityoftheADFtoundertakeoperations, beitnationalsupporttasks,peacekeepingorwar.Theprocessbywhichpreparedness targetsaresetisworthrecounting. Tobeginwith,thegovernmentsWhitePapersetsoutthebroadstrategictasksthattheADF needstobepreparedtoundertakeforexamplecontributingtothesecurityofour immediateneighbourhood.Usingthisasabasis,DefencedevelopswhatiscalledAustralias MilitaryStrategywhichincludesforeachstrategictaskaseriesofMilitaryResponseOptions whichdefinethebroadoperationalobjectiveswithoutspecifyinghowtheyaretobe accomplishedforexamplemaintainsealinesofcommunicationtothenorthofAustralia. TheseMilitaryResponseOptionsthenformthebasisoftheannualChiefoftheDefence ForcesPreparednessDirective. Thefinalresultisaseriesofspecifictargetsforeachoutput.Theyareclassified.But,for example,thelightinfantryoutputmightberequiredtobepreparedtodeployabattalionat 90daysnoticetoassistinaregionalpeacekeepingoperationandtomaintainthe deploymentfor12months(thisexampleispurelyillustrative). CoreSkills:PreparednesstargetsaredrivenbyMilitaryResponseOptionswithan anticipatedwarningtimeoflessthan12months.Totakeaccountofpossiblelongerterm tasksandtherequirementtoretainbroadexpertiseinthethreeServices,anenduring performancetargetforthecapabilityprogramsistoachievealeveloftrainingthat 61


maintainscoreskillsandprofessionalstandardsacrossallwarfareareas.Theassessmentof whatistobeachieved,andwhetherithasbeenachieved,isultimatelybasedonthe professionalmilitaryjudgementoftheServiceChiefs. Quantity:Allofthecapabilityprogramsincludeoneormorequantitymeasuresthattryto capturesomeaspectofhowmuchcapabilitywillbedelivered.EachofthethreeServices usesadifferenttypeofmeasure. Army:WiththeexceptionofArmyAviation,thequantitymeasureusedbyArmyisthe presenceofadequatequantitiesoftrainedpersonnelandequipmentwithinanOutput.No quantifiedtargetsarereleasedpublicly. Navy:ThebasicmeasureofquantityusedbyNavyrelatesinsomesensetotheavailabilityof shipsandtheircrewtoundertakeamission.Since200506,themeasureusedhasbeenthe plannednumberofUnitReadyDays(URD),definedasfollows:UnitReadyDaysarethe numberofdaysthataforceelementisavailablefortasking,bytheMaritimeCommander, withinplannedreadinessrequirements.Unfortunately,overthepastthreeyears,Navyhas aggregateditsURDtargetsacrossfleetstherebyobscuringtheperformanceoftroubled assetssuchasthesubmarinesandamphibiousvessels. AirForce:ThequantitymeasureusedbyAirForceandNavalandArmyAviationisthe numberofflyinghoursundertakenbytheProgram.Thesemeasureshavebeenapplied consistentlyforoveradecadeandconstituteausefuldiagnostictoolgiventheestablished baseline.(ItwouldbeusefulifNavyssteamingdaysandArmystrackmilesweredisclosed astheywereinthepast).ShortandlongtermtrendsinADFflyinghourscanbefoundin Table2.6.3andFigure2.6.2.
Table 2.6.3: Planned ADF flying hours 2011-12 and 2012-13
Platform F/A-18 fighter F/A-18 Super Hornet C-130 transport AP-3C Orion C-17 transport Hawk Lead-in fighter AEW&C Chinook helicopter Black Hawk helicopter Kiowa helicopter Armed recon helicopter MRH-90 helicopter Seahawk helicopter Sea King helicopter Source:201112and201213PBS 2011-12 13,000 4,800 10,550 7,900 4,500 7,500 2,600 1,570 8,600 9,360 6,635 3,000 4,200 400 2012-13 13,000 4,800 7,350 7,900 4,800 7,500 2,800 2,000 7,500 6,000 7,147 3,020 4,200 Change 0 0 -30% 0 7% 0 8% 27% -13% -36% 8% 1% 0 n/a Left service Aircraft ungraded in 2010-11 Entering service Entering service Entering service Entering service Entering service Remarks

62


Figure2.6.2:LongtermtrendsinADFflyinghours
NavyFlyingHours
7,000 Seasprites 6,000 5,000 4,000 3,000 2,000 Seahawks 1,000 0

Sea Kings

ArmyFlyingHours
30,000 MH-90 25,000 Tiger ARH 20,000 15,000 10,000 5,000 Blackhawk 0 Chinook Iroquois

Kiowa

AirForceFlyingHours
70,000 60,000 50,000 40,000 30,000 Lead-in Fighters 20,000 10,000 AP-3C Maritime Patrol Aircraft 0 F-111 Bomber F-18 Hornet Fighters C-130 Transport Aircraft Caribou Light Transport Aircraft C-17 Strategic Airlifters Super Hornets AEW&C

63


RecentPerformance
Table 2.6.4 summarises the non-quantity key performance indicators from the 2010-11 Annual Report. Defence uses a four-point performance scale of zero, one, two or three ticks (). This replaces the earlier system of not achieved, partially achieved, substantially achieved and fully achieved. The overall assessment in Table 2.6.4 is the percentage of ticks received out of those possible for all performance indicators and deliverables. The arrows indicate movement relative to previous year result.
Table 2.6.4: Output Performance/Deliverables from the 2010-11 Defence Annual Report
Output 1.1 CDF Secretary 1.2 Navy 1.3 Army 1.4 Air Force 1.5 Intelligence 1.6 Defence Support 1.7 Science & Technology 1.8 Chief Information Officer 1.9 VCDF 1.10 Joint Operations Command 1.11 Capability Development 1.12 CFO 1.13 People Strategies & Policy 2.1 Operations neighbourhood 2.2 Operations - wider interests 3.0 National Tasks
Source:200910DAR

Advice

Preparedness

Core Skills

Overall 87%

74% 73% 81% 94% 88% 88% 83%

92% 100%

52% 78% 72% 100% 100% 100%

Table2.6.5showstheplannedandactualkeyperformanceindicatorsforquantity(URDand flyinghours)forthemajorplatformsoperatedbythethreeservices.Theresultshavebeen ratedonthefourlevelschemeasfollows;above95%=,95%to75%=,below75% =.NotethatNavydrasticallyreducedtheinformationitdisclosesin200910.

64


Table 2.6.5: Capability quantity planned (PBS) and delivered (Annual Report) 2010-11
Output Navy fleets Frigates (FFG) Frigates (FFH) Submarines Oil Tanker Replenishment Ship Amphibious Ships Heavy Landing Ship Landing Craft Heavy Coastal Mine Hunters Auxiliary Mine Sweepers Patrol Boats Clearance Diver Teams Mobile Met Team Geospatial Team Hydrographic Ships Survey Motor Launches Met Centre/Support Seahawks Sea Kings Army fleets Black Hawk Chinook Kiowa Armed Recon MH-90 Air Force fleets F/A-18 Hornets F/A-18 Super Hornet Lead-in fighter KC-30A (refuelling) C-130 transports AEW&C C-17 Transports AP-3C Maritime Patrol B737 BJ VIP Transport
Source:201011PBSandAnnualReport

Planned

Reported

Percentage

Assessment

4,171 days

3,453 days

83%

3,682 days

2,857 days

76%

5,573 days

5,379 days

97%

1,820 days

1,820 days

100%

2,923 days

2,876 days

98%

3,600 hours 1,100 hours

3,965 hours 965 hours

110% 88%

7,500 hours 1,570 hours 9,360 hours 6,000 hours 3,420 hours

8,933 hours 1,516 hours 5,922 hours 2,413 hours 943 hours

119% 97% 63% 40% 28%

13,000 hours 2,100 hours 8,000 hours 1,350 hours 10,550 hours 2,000 hours 4,000 hours 7,900 hours 1,600 hours

11,567 hours 2,320 hours 6,617 hours 0 hours 9,615 hours 1,220 hours 3,659 hours 8,047 hours 1,600 hours

89% 110% 83% 0% 91% 61% 91% 102% 100%

65


Figures2.6.3plotsthedeliveryofDefencecapabilityprograms(previouslyoutputs)as reportedintheDefenceannualreportsbetween200001and201011.Somecareneedsto beexercisedincomparingtheresultsfrom200809onwardswiththatfromearlieryears duetothesubstantialreductionindetailthataroseinthatyear.Themovefromtwentytwo capabilitysubprogramstoamerethree(oneforeachService)inevitablyresultsina reportingregimeconstrainedtoasmallernumberofpossibleoutcomesforpreparedness andcoreskills.Nonetheless,notetherecenterosioninthemaintenanceofcoreskills.
Figure 2.6.3: Output performance OutputPerformance Preparedness
100% 80% 60% 40% 20% 0%
200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011

Achieved

SubstantiallyAchieved

PartiallyAchieved

OutputPerformance CoreSkills
100% 80% 60% 40% 20% 0%
200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011

Achieved

SubstantiallyAchieved

PartiallyAchieved

OutputPerformance Quantity
100% 80% 60% 40% 20% 0%
200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011

Achieved Source:200001to201011DAR

SubstantiallyAchieved

PartiallyAchieved

66


ProgramSummaries
ToaugmenttheinformationprovidedinthePBS,wehavepreparedshortprogram summariescontainingbackgroundandhistoricalperformanceinformation.Indoingso,we havenotsoughttoreproducethematerialinthePBSbuttocomplementit.Giventheacute paucityofinformationprovidedinthePBSonwhatistobedeliveredatthesubprogram level,onlyalimitedpictureispossible.Informationhasbeendrawnfromavarietyof sources,includingtheDefencewebsite. Becausetherecentlyadoptedprogramstructurealignscloselywiththeactualorganisational structureofDefence,wehavetakentheopportunitytosketchoutthekeyelementsineach oftheprograms.Forthosereadersnotfamiliarwiththeseniormilitaryandcivilianlevels, Table2.6.6detailsthecorrespondenceofexecutivelevelsacrossthethreeservicesand civilianSeniorExecutiveService(SES).
Table 2.6.6: Executive comparison:
Civilian Assistant Secretary (SES-1) First Assistant Secretary (SES-2) Deputy Secretary (SES-3) Secretary Navy Commodore Rear Admiral Vice Admiral Admiral Army Brigadier Major General Lt General General Air Force Air Commodore Air Vice-Marshal Air Marshall Chief Air Marshal Star Rank * ** *** ****

67

 Program 1.1 Office of the Secretary and CDF

Department outputs 2012-13: $168 million

TheOfficeoftheSecretaryandCDFwascreatedasaresultofthe2007Defence ManagementReview.ItcombinestheDeputySecretaryStrategyGroupandthepersonal officesoftheSecretaryandCDF,theAuditandFraudControlDivisionandanumberof MilitaryJusticeagencies. WithintheDefenceportfoliothereareanumberofindependentmilitaryjusticestatutory offices.TheofficestheJudgeAdvocateGeneral,theChiefJudgeAdvocate,theDirectorof MilitaryProsecutionsandtheRegistrarofMilitaryJusticearecreatedbytheDefenceForce DisciplineAct1982.EachofthesestatutoryappointmentsreportsdirectlytotheMinister forDefence.TheInspectorGeneraloftheADFisastatutoryappointmentcreatedbythe DefenceAct1903whichreportsdirectlytotheCDFoutsideofthemilitarychainof command.
Minister for Defence
Minister for Defence Materiel Minister for Defence Science and Personnel Parliamentary Secretary Parliamentary Secretary

Secretary

Chief of the Defence Force

****
Office of the CDF and Secretary Deputy Secretary Strategy *** Director Military Prosecutions * * Inspector General Defence * Judge Advocate General ** Chief Audit Executive ** Inspector General ADF ** Chief Judge Advocate *

****

Defence Materiel Organisation

Other Defence Programs

Special Advisor Strategic Reform and Governance ***

68


DeputySecretaryStrategymanagestwodivisions.InternationalPolicyDivisionmanages Defencesdaytodayinternationalrelationshipsandprovidespolicyadviceinthatarea (includingwithregardtocurrentoperations).Responsibilitiesincludetheoversightof Defencesoverseasrepresentativesin31countriesaroundtheworld(mostlywithin Australiandiplomaticmissions).StrategicPolicyDivisionprovidesadviceonstrategicplans andmilitarystrategy,whilealsomanagingAustraliasarmsandexportcontrols.TheOSCDF GroupCorporateManagementBranchdeliversadviceandservicestothewholeofOSCDF GrouptosupportDeputySecretaryStrategysroleastheAdministrativeHeadofOSCDF Group.
Deputy Secretary Strategy

***

International Policy Division

**
Middle East Afghanistan and Pakistan Branch

Pacific, and East Timor Branch

Strategic Policy Division

**
Defence Export Control Office Strategic Policy Branch

*
South East Asia Branch

*
Strategic Reform and Governance Branch

*
Military Strategy Branch

*
Major Powers & Global Interests Branch

*
Overseas Representation (31 countries)

*
Arms Control Branch

*
United States **

NATO and EU **

United Kingdom *

Indonesia * Sea * Air * Land *

69

 Program 1.2 Navy Capabilities

Department outputs 2012-13: $4,270 million

TheNavysorganisationalstructurecomprisesNavyStrategicCommandandthesubordinate FleetCommand.Toagoodapproximation,StrategicCommandisresponsibleforcapability plans,personnel,administrationandtechnicalregulation,whileFleetCommandis responsibleforthedaytodayoperationofthefleetandcradletogravetrainingforallRAN personnel. Structureandperformance ThestructureandperformanceoftheNavyissetoutbelowandoverleaf.Becauseofthe reductionindisclosure,ithasnotbeenpossibletoprovideasdetailedinformationasinthe past.

NavyStrategicCommand CN

DirectorGeneralMaritime Operations *

***

DeputyChiefofNavy/HeadNavy PeopleandReputation

HeadNavyCapability

HeadNavyEngineering

**

**

**
DirectorGeneralNavy Businessand Governance DirectorGeneralLogistics Navy DirectorNavy Certificationand Safety

CommanderAustralianFleet **

*
DirectorGeneralNavy People

*
DirectorGeneralCapability PlansandEngagement

CommodoreSupport andChiefofStaffFeet HQ *

*
DirectorGeneralNavy HealthServices

*
DirectorGeneralNavy CapabilityTransitionand Sustainment

DirectorNavy WeaponSystems

CommodoreTraining * CommanderSurface Force * CommanderFleetAir Arm * CommodoreWarfare *

*
DirectorGeneralNavy HealthReserves

DirectorNavy PlatformSystems

* *
DirectorGeneralNavy Reserves DirectorGeneralNavy SubmarineCapability DirectorNavy EngineeringPolicy

*
DirectorGeneralNavy HydrographyandMetoc DirectorTechnical RegulationNavy

*
DirectorGeneral ChaplaincyNavy *

*
DirectorGeneralNavy Communicationsand InformationWarfare DirectorNavy Communications Intelligenceand Engineering

Commander SubmarineFleet

DirectorGeneralNavy Cadets

*
DirectorNavy Communicationsand Coordination

NavyScientificAdviser

CommanderMine WarfareHydrographic andPatrolForce

70


Major combatants
Surface combatants Four1980sAdelaideclass(USOliverHazardPerryclass)Guidedmissilefrigates(FFG)plus eightnewerGermandesignedandAustralianbuiltAnzacclassfrigates(FFH).Bothvessels carryHarpoonantishippingmissiles,antisubmarinetorpedoesandEvolvedSeaSparrow surfacetoairmissiles.OnlytheFFGareequippedwiththemorecapableStandardSM2 surfacetoairmissile.In201011,crewshortagesreducedtheavailabilityoftwoAnzacships. TheAnzacclasshavea5gunusefulforshorebombardment(asseenintheGulfin2003) whiletheFFGhasalesscapable3gun.BothclassesofvesselcanembarkaSeahawk antisubmarinehelicopter,althoughtherecentavailabilityandcurrentcapabilityofthese aircraftislessthandesired. Upgradesareunderwayonbothfleets.TheFFGisnearingcompletionofthelongdelayed $1.4billionFFGupgradeprojectandtheFFHareprogressivelybeingfittedwitharangeof newsystemsincludinganantishipmissiledefence(ASMD)suite.Inaddition,threenewAir WarfareDestroyersarepresentlyunderconstruction. Submarines TheRANhassixCollinsClasssubmarines.Theirprimaryrolesaretoattackenemyshipping andtocounterthethreatofadversarysubmarines.Inaddition,theycancollectintelligence andinsertandextractSpecialForces.TheCollinsClassisequippedwithHarpoonantiship missilesandtheUSMk48heavyweighttorpedo. ThedelayintheintroductionoftheCollinsClassintoserviceastheOberonClassleftservice disruptedbothsubmarinertrainingandtheretentionofskilledpersonnel.Thisisnowbeing correctedthrougharemediationprogram. Ashortageofsubmarinershasreducedthedeliveryofcapability.Personnelshortageswere soacutethatsubmarinesweretieduporputintomaintenanceearly.Longerthanexpected maintenanceperiodscoupledwithmechanicalproblemsfurthercompromisedthe availabilityofboats.However,Navyhasbeensuccessfulingrowingthenumbersoftrained submariners,andsubmarineplatformavailabilityisalsoimproving. UnitReadyDays:MajorCombatants
Decliningatarateof 167daysperyear.

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 200405

Target Actual Linear(Actual)

200506

200607

200708

200809

200910

201011

71


Minor combatants
Patrol boats AllofNavysfleetoffifteen1980svintageAustralianbuilt,UKdesigned,FremantleClass PatrolBoats(FCPB)havenowbeenreplacedbyfourteenArmidaleClassPatrolBoat(ACPB). ThesevesselsaremainlytaskedinsupportofthecivilsurveillanceprogramthroughBorder ProtectionCommand.Theycanalsobeusedfortheinsertionandextractionofarmypatrols onthecoast,includingSpecialForces. Throughaninnovativeprogram,theNavymulticrewstheArmidaleClassvessels,thereby reducingtheburdenonsailorsandtheirfamilieswhilemaintainingahighutilisationofthe assets.Atpresentthereare21crewsspreadacross14vessels.However,mediareportsin early2012saidthatfleetavailabilityisexpectedtofallfortheremainderoftheyearasa resultofheavymaintenanceandcrewshortages. Mine warfare vessels 6HuonClassCoastalMineHunters(MHC)720tonnesdisplacement,glassreinforced plastichulled,ItaliandesignedandbuiltinAustraliainthelate1990s.Theshipsemploy sonartosearchformines,whichcanthenbedestroyedusingaremotecontrolledmine disposalvehicleorotherwise.Therearealsotwoauxiliaryminesweepers,butaccordingto the201011DAR,theywereplacedonshorttermreactivenoticeforseafromOctober2010 untilprocurementofareplacementcapabilityisundertaken.TherearealsotwoClearance DivingTeams,oneoneachcoastatSydneyandPerth,capableofclearingminesandother ordinance,clandestinesurveyandobstacleclearance,andbattledamagerepairs. ThehealthoftheRANminesweepingcapabilityisunderquestion.Traininghasbeen interruptedbytheuseoftwooftheHuonclassvesselsforborderpatrolduties,andin October2011twooftheHuonclasswereplacedintoReserve.Itsbeenestimatedthatitwill takefiveyearstogetthefullfleetoperationalagain. UnitReadyDays:MinorCombatants
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 200304 200405 200506 200607 200708 200809 200910 201011 Target Actual Linear(Actual) Decliningatarateof 179days peryear.

72


Amphibious and afloat support
Amphibious lift Untilrecently,thefleetincludedtwoKanimblaClassLandingPlatformsAmphibious(LPA), HMASManooraandHMASKanimbla,refurbishedinthemidtolate1990sfromtwo secondhand1970sUSNewportClassLandingShipTankvessels,andoneHeavyLanding Ship(HLS),HMASTobruk,a1980sUKdesignedandAustralianbuiltvessel.Tobrukdisplaces 5,800tonnesandcanoperateanyADFhelicopterfromherdeckandiscapableofcarrying 315soldiers,18tanksand40armouredpersonnelcarriers.InFebruary2011theamphibious fleetsufferedacriticalandunexpectedfailureofavailabilityandHMASManooraandHMAS Kanimblaweresubsequentlydecommissioned.Amphibiousheavyliftcapabilitywillbe maintainedthroughtherecentlyacquiredsecondhandvesselfromtheUnitedKingdom, HMASChoules. Twonewlargeamphibious(LandingHelicopterDock)vesselsareunderconstructionandare duetoenterserviceinthefirsthalfofthedecade.Thesevesselswilleachdisplacearound 26,000tonnesandcarry1,000troopsplushelicoptersandvehicles.NavyalsohassixLanding CraftHeavy(LCH). Afloat support TheafloatsupportforcerefuelsandresuppliesNavyvesselsandembarkedhelicoptersat seaandprovideslogisticssupporttolandoperations.Thefleetcomprisestwovessels: HMASSirius:aSouthKoreanbuilt46,017tonnefulldisplacementcommercialvesselwhich wasrefittedtoNavyspecificationsasanAuxiliaryTanker(AO)andHMASSuccess:a1980s Frenchdesigned,Australianbuilt17,900tonnesfulldisplacementAuxiliaryReplenishment Tanker(AOR). AlthoughHMASSiriushasbeentoutedasanexampleofhowcommercialofftheshelf equipmentcanmeetADFrequirementsquicklyandatreducedcost,theshipdoesnothave thefullrangeofcapabilitiesandoperationalflexibilityofapurposebuildshipsuchas Success. UnitReadyDays:Amphibiousandafloatsupport
4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
200405 200506 200607 200708 200809 200910 201011

Target Actual Linear(Actual)

Decliningatrateof 20daysperyear.

73


Naval aviation
TheRANhassixteen1980sUSdesignedSeahawkhelicoptersthatcanbeembarkedonthe FFHandFFGclassfrigates.Theyareconfiguredforantisubmarineandsurface search/targeting.AprojecttodeliverelevenSuperSeaspritehelicoptersfortheAnzac frigateswascancelledinearly2008.TheFutureNavalAviationSystemwillreplaceboththe SeahawkandthecapabilitysoughtbetheSuperSeaspritefrom2014. Therearealsosix1970sUKbuiltSeaKinghelicoptersusedfortroopliftandlogisticstasks thatwillbereplacedbysixMRH90aircraftfromlate2011.ThirteenSquirrellight helicoptersareusedfortrainingandshorttermoperationsatsea.NavyleasesthreeAgusta WestlandA109Eaircraftfortrainingandgeneralduties.SeaKinghelicoptershavepaidoff andthesquadrondecommissioned.NavynolongerleasestheA109Es.Theleaseisnowfor threeBell429sandtheyarespecificallyusedaspartoftheRetentionMotivationInitiative forpilots.Theyarenotusedfortraining. Inrecentyears,theperformanceofboththeSeaKingandSeahawkfleetshasbeen compromisedbypersonnelshortages,maintenanceissuesandongoingaircraftupgrades andmodifications.SeahawkismeetingitsPBStargets.SeaKingsarenolongerinservice. SeahawkFlyingHours TargetversusActual
5,000 Target 4,000 3,000 2,000 1,000 0 Actual

Hydrographic, meteorological & oceanographic fleet

TheNavyproducesmaritimemilitarygeospatialinformationfortheADFandundertakes hydrographicsurveyingandchartingforciviluse.Thehydrographiccomponentissupported bytheAustralianHydrographicOfficeinWollongong,NSW,andalsocomprisesthe HydrographicOfficedeployablesurveyunit.Thefleetincludes; 2LeeuwinClassHydrographicShips(AGHS):2,250tonneAustralianbuilthydrographicships. 4PalumaClassSurveyMotorLaunches(SML):320tonneAustralianbuiltsurveylaunches. 1LaserAirborneDepthSounder(LADS)aircraft:anairbornedepthsoundercapabilityused inshallowwater.

74

 Program 1.3 Army Capabilities

Department outputs 2012-13:$5,026 million

In2009,theAustralianArmywasrestructuredtoensureitismoreeffectiveandefficientin itsconductofforcegenerationandforcepreparationforcurrentoperationsandpotential operationsofthefuture.TheArmywasstructuredaroundthreefunctionalcommands.The threefunctionalcommandsandtheirrolesareasfollows: SpecialOperationsCommandcommandingArmysSpecialForcesunits. ForcesCommandisresponsiblefortheforcegenerationofArmyindividualandcollective conventionalcapabilitiesbasedonFoundationWarfightingskills. 1stDivisionfocusesontheforcepreparationofconventionalArmyforceelementsfor specifiedoperationsandcontingencies.ItalsoformsthebasisoftheDeployableJointForce Headquarters,capableofprovidingCommandandControltoAustralianandcoalitionforces atshortnotice.
Army

Deputy Chief of Army ** DGCMA *

Army Headquarters

***
COFS *

Modernisation and Strategic Planning ** DG Development and Plans * DG Reserves *

Director-General AO * LWDC * Director-General Personnel * Director-General RM * Headquarters 1 Division

st

**
Land Combat Readiness Centre

Special Operations Command

**

*
Forces Command

Force Elements Force Elements Assigned Assigned Force Elements Assigned

**
Chief of Staff * 1 Brigade Armour * 3 Brigade Infantry * 7 Brigade Motorised *
th rd st

16 Brigade Aviation * 17 Brigade Logistics * 6 Brigade *

th th

th

Land Training Group * All Corps Training Group * 2 Division **

nd

Royal Military College *

75


Headquarters 1st Division Headquarters1stDivisionisbasedinBrisbane,andpreparesandcertifiesArmyconventional forceelements,asassignedbyChiefofArmy,inordertomeetthespecificoperationaland contingencyrequirementsdirectedbyChiefJointOperations. Special Operations Ccommand TheSpecialAirServicesRegiment(SASR)inWesternAustraliaprovidesspecialrecovery (includingdomesticandoverseascounterterrorismbythewestcoastTacticalAssaultGroup (TAG)),longrangereconnaissanceandoffensiveoperations.The2ndCommandoRegiment (2CdoRegt)inSydney(includingeastcoastTAG)andthe1stCommandoRegiment(a reserveunitsplitbetweenSydneyandMelbourne)aretheArmystwocommando regiments.Commandorolesincludespecialrecoveryandland,seaandairborneoffensive raids.The126SignalsSquadroninSydneyprovidesaSpecialForcessignalscapabilityto 2CdoRegtand152SignalsSquadroninPerthprovidesasignalscapabilitytotheSASR.There isalsoanIncidentResponseRegimentbasedinSydneythatiscapableofdealingwith nuclear,chemicalandbiologicalincidents.Inaddition,thereisaSpecialForcesLogistics SquadroninSydneyandaSpecialForcesTrainingCentreinSingleton. Forces Command 1st Brigade The1stBrigadeisheadquarteredinDarwinandhasunitslocatedinbothDarwinand Adelaide.The1stArmouredRegimentisequippedwithreconditionedUSmadeM1A1 Abramstanks.The2ndCavalryRegimentisequippedwith1990sNorthAmericandesigned butAustralianmodifiedASLAVlightarmouredvehicles.The5thand7thBattalionsRoyal AustralianRegimentsaremechanisedinfantrybattalionsequippedwithM113AS4armoured personnelcarriersandAustralianmadeBushmasterinfantrymobilityvehicles.The7th BattalionrelocatedtoAdelaidein2010.The8th/12thRegiment(artillery)isequippedwith USmade155mmM198MediumHowitzers.Additionally,the1stBrigadeincludesextensive combatsupportandcombatservicesupportelementsincluding1stCombatEngineer Regiment,1stCombatServiceSupportBattalionandthe1stCommunicationsSupport Regiment. 3rd Brigade The3rdBrigadeheadquarteredinTownsvilleisbasedonthreelightinfantrybattalions:the 1stBattalionRoyalAustralianRegiment,the2ndBattalionRoyalAustralianRegimentandthe 3rdBattalionRoyalAustralianRegiment.The3rdBattalionisaparachutebattalionandis locatedinSydneyandplanstomovetoTownsvilleinlate2011.The4thRegiment(artillery) isequippedwiththe105mmL119Hamellightgun.BSquadron3rd/4thCavalryRegimentis equippedwithBushmasterinfantrymobilityvehicles.TheBrigadescombatsupportand combatservicesupportelementsincludethe3rdCombatEngineerRegiment,3rdCombat ServiceSupportBattalionand3rdCommunicationsSupportRegiment. 7th Brigade Motorisedoperationsarebasedaroundthe7thBrigadeheadquarteredinBrisbane.The brigadeisanintegratedregularformationbasedinBrisbane.Thebrigadecomprisesoftwo motorisedinfantrybattalions;6thBattalionRoyalAustralianRegimentand8/9thBattalion RoyalAustralianRegimentandbothareequippedwithBushmasterinfantrymobility 76


vehicles.The2nd/14thLightHorseRegiment(QueenslandMountedInfantry)isaCavalry unitandisequippedwith1990sNorthAmericandesignedbutAustralianmodifiedASLAV lightarmouredvehicles.The1stRegiment(artillery)isequippedwiththe155mmM777 howitzer.TheBrigadescombatsupportandcombatservicesupportelementsincludethe 7thCombatEngineerRegiment,7thCombatServiceSupportBattalionand7th CommunicationsSupportRegiment. 6th Brigade HeadquarteredatVictoriaBarracksinSydney,the6thBrigadecommandsadiverse collectionofunitsincluding: 1stGroundLiaisonGroup(Australiawide) 1stIntelligenceBattalion(Sydney) 16thAirDefenceRegiment(WoodsideSA)equippedwiththeSwedishRBS70 shoulderlaunched,opticallyguided,surfacetoairmissiles 19thChiefEngineerWorks(Sydney) 20thSurveillanceandTargetAcquisitionRegiment(Brisbane) 7thSignalsRegimentElectronicWarfare(Carbalah,Queensland) 6thEngineerSupportRegiment(Brisbane)comprising: o o o 17thConstructionSquadron(Sydney) 21stConstructionSquadron(Brisbane) 1stTopographicalSurveySquadron(Enoggera,Queensland).

2/30thTrainingGroup(Butterworth,Malaysia).

TheBrigadealsoincludesthreeregionalsurveillanceunitspredominatelymannedbyreserve personnel.Theseare: 51stBattalionFarNorthQueenslandRegimentresponsibleforconducting reconnaissanceandsurveillanceover640,000squarekminFarNorthQueensland andtheGulfcountry. PilbaraRegiment(Karratha,WA)with1.3millionsquarekmtocoverfromthe Kimberleyboundaryinthenorth,toSharkBayinthesouth,theneasttothe NT/SA/WAborder. NorthWestMobileForce(NORFORCE)whichcoverstheNorthernTerritoryandthe KimberlyregionofnorthernWesternAustralia,anareaofoperationscovering nearlyonequarterofAustraliaslandmass1.8millionsquarekilometres.

17th Brigade The17thBrigade,headquarteredatRandwickBarracksinSydney,isabrigadesized groupingofreserve,integratedandpermanentArmyunitswhichcansustainabrigadeon operationsforextendedperiodswhileconcurrentlymaintainingabattaliongroup elsewhere.TheBrigadeprovidessupply,fuel,communications,transport(surfacevehicle

77


andsmallwatercraft),repair,andhealthandpsychologycapabilities.TheBrigadeis headquarteredinSydneyandcomprisesofthefollowingunits: 2ndForceSupportBattalion(Glenorchy,Tasmania) 9thForceSupportBattalion(Amberley,Queensland) 10thForceSupportBattalion(Townsville) 1stHealthSupportBattalion(Sydney) 2ndHealthSupportBattalion(Brisbane) 3rdHealthSupportBattalion(Adelaide) 17thSignalsRegiment(Sydney) 1stMilitaryPoliceBattalion(Sydney) 1stPsychologyUnit(Sydney).

2nd Division The2ndDivisioncommandsallthoseReserveunitsnotintegratedintootherformations.It isstructuredaroundsixinfantrybrigades,eachofwhichhasaHQ,two/threeinfantry battalions,alightcavalryunitinsomecases,andcombatandcombatservicesupportunits. Thesebrigadesare: 4thBrigade(Melbourne) 5thBrigades(Sydney) 8thBrigade(Sydney) 9thBrigade(AdelaideandHobart) 11thBrigade(Townsville) 13thBrigade(Perth).

16th Brigade Armyaviationisbasedaround16thAviationBrigadethatisheadquarteredinBrisbane.The Brigadecommandsthe1st,5thand6thAviationRegiments,whichhavecomponentsin OakeyandTownsvilleinQueensland;DarwinintheNorthernTerritory;andSydneyinNew SouthWales.Theforcestructureincludes: thirtyfour1970sdesignedBlackHawktrooplifthelicopters fortyone1970sdesignedKiowalightobservation&traininghelicopters six1960sdesignedChinookmediumlifthelicopters.AllthesehelicoptersareofUS design twentytwoofaneventualfleetoftwentyfourEuropeandesignedTigerArmed ReconnaissanceHelicopters(ARH)arenowflying fifteenofaneventualfortyMRH90trooplifthelicopters.

ThenowretiredIroquoisfleetandtheBlackHawkaircraftarebeingreplacedbyfortyMRH 90trooplifthelicopters(from2011). 78

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Target Actual

BlackHawkFlyingHours

ChinookFlyingHours
1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Target Actual

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Target Actual

KiowaFlyingHours

79

MRH90HelicopterFlyingHours
3,000 2,500 2,000 1,500 1,000 500 0 200708 200809 200910 201011 Target Actual

MRH90HelicopterFlyingHours
3,000 2,500 2,000 1,500 1,000 500 0 200708 200809 200910 201011 Target Actual

Defence Command Support Training Centre (DCSTC) TheDefenceCommandSupportTrainingCentreisheadquarteredatSimpsonBarracksin MelbourneanditisatrainingformationwithinArmyresponsiblefortheconductof Intelligence,Signals,Language,PoliceandMusictraining,trainingdesignandtrade managementformembersoftheAustralianDefenceForce.Thetrainingcentrealsoprovides trainingforselectedmembersoftheAustralianPublicServiceandnominatedstudentsfrom Defenceforcesofothernations.DCSTCcomprisesthefollowingUnits: DefenceSchoolofLanguages(Laverton) DefenceIntelligenceTrainingCentre(Canungra) DefenceForceSchoolofMusic(Melbourne) DefenceForceSchoolofSignals(Melbourne) DefencePoliceTrainingCentre(Sydney). 80


Royal Military College of Australia (RMC-A) TheRoyalMilitaryCollegeofAustraliaisheadquarteredinCanberraandisresponsiblefor thedeliveryofindividualfoundationtrainingforOfficersandSoldiers,includingthefirst AppointmentCourse,RecruitTrainingandPromotioncourses.RMCAconsistsofthe followingunits: RoyalMilitaryCollegeDuntroon(Canberra) ArmyRecruitTrainingCentre(WaggaWagga) LandWarfareCentre(ACT,NthQLD,NT,NSW,SA,SthQLD).

Army Logistic Training Centre (ALTC) TheArmyLogisticTrainingCentre(ALTC)isprincipallycentredinAlburyWodonga,however conductstraininginDarwin,Townsville,Brisbane,SydneyandPuckapunyalthroughtwo trainingwingsandfourOntheJobTrainingcells.ALTCdeliverstraininginlogistics, ordnance,roadandmaritimetransport,medical,healthandelectricalandmechanical engineering.ALTCconsistsofthefollowingschools: ArmySchoolofLogisticsOperations(AlburyWodonga) ArmySchoolofOrdnance(AlburyWodonga) ArmySchoolofTransport(AlburyWodonga,TownsvilleandPuckapunyal) ArmySchoolofHealth(AlburyWodonga) ArmySchoolofElectricalandMechanicalEngineers(AlburyWodonga).

Combined Arms Training Centre (CATC) TheCombinedArmsTrainingCentreisheadquarteredatPuckapunyalandistheAustralian Army'scentreofexcellenceforindividualcombinedarmstraining.Theforcestructure includes: SchoolofArmour(Puckapunyal) SchoolofArtillery(Puckapunyal) SchoolofInfantry(Singleton) SchoolofMilitaryEngineering(Sydney).

Army Aviation Training Centre (AAVNTC) TheArmyAviationTrainingCentreisheadquarteredinOakeyandisresponsibleforthe effectiveinstructionofPilot,LoadmasterandGroundcrewmencoursesaswellasthe trainingofAircraftTechniciansforemploymentwithinArmyAviation.AAVNTCalso contributestothedevelopmentofdoctrineandmaterielplansforArmyAviation.The trainingcentreincludes: ArmyHelicopterSchool(Oakey) RAEMEAircraftMaintenanceSchool(Oakey) SchoolofArmyAviation(Oakey).

81

 Program 1.4 Air Force Capabilities

Department outputs 2012-13: $4,218 million

Ofthethreemilitaryservices,theAirForcehastheleanestandmoststreamlined organisationalstructure.Theorganisationissplitintotwoparts.Corporateplanningand administrationoccursunderthedirectionoftheDeputyChiefofAirForcewhileAir CommanderAustraliatakescareofsixtraining,supportandflyinggroups. Atthepresentmoment,AirForceisintroducingorpreparingtointroduceseveralnewfleets ofaircraftintoservice.TheseincludethesixnewWedgetailAirborneEarlyWarningand ControlAircraft(AEW&C),fivereplacementAirtoAirRefuelling(AAR)aircraftandtwenty fourF/A18FSuperHornet.Bytheendofthedecade,theAirForcehopestobeoperating newF35LightningIIJointStrikeFighteraircraftfromtheUnitedStates. ThecurrentAirForceinventoryisdetailedoverleaf,includingperformanceinformation whereavailable.
Royal Australian Air Force

Air Force Headquarters

***
Deputy Chief of Air force ** Director-General Strategy and Policy * Director-General Capability Management * Director-General Personnel * Director-General Reserves * Assistant Secretary Financial Planning * Director-General Technical Airworthiness * Air Power Development Centre Air Commander Australia

**
Air Combat Group

*
Air Lift Group

*
Combat Support Group

*
Surveillance and Response Group

*
Air Force Training Group

*
Aerospace Operational Support Group

82

Air Combat Group AirCombatGroupcomprisesseventyoneF/A18A/BHornetfighteraircraftandfifteenF/A 18FSuperHornetswiththeremainingnineSuperHornetsexpectedtobedeliveredby October2011.Inaddition,thirtythreeHawkLeadinFighters(LIF)provideatraining capabilitywhilefourPC9(F)forwardaircontrolaircraftareusedtodesignategroundtargets andtrainJointTerminalAttackControllers.AirCombatGroupalsosupportsandoperates theleasedHeronRemotelyPilotedAircraftwhichisdeployedtoAfghanistan.

15,000 12,500 10,000 7,500 Target 5,000 2,500 0 Actual

F/A18FighterAnnualFlyingHours TargetandActual

10,000 8,000 6,000 4,000 Target 2,000 0 Actual

LeadinFighterAnnualFlyingHours TargetandActual

SuperHornetAnnualFlyingHours TargetandActual
2,500 2,000 1,500 1,000 500 0
200910 201011

Target Actual

83


Airlift Group TheAirForcehastwelveC130JHerculesandtwelve(fourinpreservation)C130HHercules transportaircraftwhicharecapableofawiderangeofstrategicandtacticalairborneroles. The recent acquisition of four Boeing C17 Globemaster IIIs (with a fifth to be delivered in Aug 11) provides the capability to transport large and heavy loads over long ranges whilst retaining tactical capabilities. Two Boeing 737 BBJ and three CL604 Challenger aircraft provide VIP transport for the government. Eight B300 King Air aircraft, replacing the venerableDHC4Caribou,providealightairtransportroleasaninterimcapabilitypriorto theintroductionoftheBattlefieldAirlift(BFA)aircraft.Additionally,thependingintroduction oftheKC30Awillbeaforcemultiplierinitsdueltankerandtransportrole. C130FlyingHours TargetandActual
20,000 Target 15,000 Actual

10,000

5,000

C17FlyingHours TargetandActual
6,000 5,000 4,000 3,000 2,000 1,000 0
200607 200708 200809 200910 201011

Target Actual

84


Surveillance and Response Group TheSurveillanceandResponseGroupcomprisesadiverserangeofcapabilitiesincluding: Nineteen1970svintageAP3COrionmaritimepatrolaircraftwhichundertakemaritime patrol,maritimesurveillance,reconnaissance,offensiveairsupport,surface&subsurface strike,andsearchandsurvivorsupply.AllnineteenaircrafthavebeenupgradedtoAP3C standardthroughanAustralianuniqueupgradeprogram. TenAirTrafficRadars,includingninefixedradarandonemobileforthecontrolofADFair traffic.FourTacticalAirDefenceRadars:groundbasedradartodetecthostileandown aircraft.TheJORNOvertheHorizonRadarnetwork,includingradarsitesinLavertonWA andLongreachQld,andseventeencoastalbeaconsinthenorthofAustraliaandChristmas Island.ThenetworkisrunfromtheJindaleeOperationalRadarNetworkCorrelationCentre inEdinburgh,SA,andcandetectbothseaandairbornemovingobjects.TheJindaleefacility AliceSpringsservesaresearchanddevelopmentfunction.JORNisoperatedbyNo.1Radar SurveillanceUnit. SixWedgetailAEW&CaircraftbasedonBoeing737700platformwhoseentryintoservice hasbeendelayedbymorethanfouryearsduetotechnicalproblems.

12,000 10,000 8,000 6,000 4,000 2,000 0

MaritimePatrolAircraftFlyingHours TargetandActual
Target Actual

2,500 Target 2,000 1,500 1,000 500 0

200607

AEW&CFlyingHours TargetandActual

Actual

200809

200910

201011

85


Aerospace Operational Support Group TheAerospaceOperationalSupportGroupprovidesabroadrangeofoperationaland technicalsupportservicestoDefenceingeneralandAirForceinparticular.Keycomponents oftheGroupinclude: InformationWarfareWingwhichprovideselectronicwarfare,aeronauticalinformation, intelligenceandinformationoperationproductsandservicesforAirForceairoperationsand theotherServices.. DevelopmentandTestWingwhichprovidesflighttest,systemengineeringandaviation medicineproductsandservicesforextantandemergingADFaviationcapability. WoomeraTestRangewhichprovidesaninstrumentedweaponstestandevaluationrange forDefence. Combat Support Group TheCombatSupportGroupisthelargestoftheAirForcesforceelementgroups.Theroleof CombatSupportGroup(CSG)istoprovidecombatsupportservicestoallAirForce operationalformationsandwhenapplicableADFandCoalitionAviationformations.CSG mustbeabletodeployaMainOperatingBaseandtwoForwardOperatingBases. Thecapabilityforcombatsupportofairoperationsprovidesfordeployabletacticalairbase support.ItencompassesBareBaseactivationincludingtheprovisionofengineering infrastructure(facilities,water,powerandseweragesystems),aircraftarrestorbarriersand airfieldservices,navigationaidandtacticalcommunications,airmovement,airfielddefence, healthsupportincludingAME,combatlogisticsandpersonnelsupportcapabilities. CSGprovidesdeployedcombatsupport,excludingaircrafttechnicalmaintenance,toADF contingencyairoperationsatmainoperatingbases,forwardoperatingbasesandpointof entryairfieldsinAreasofOperations(AO)eitherinAustraliaoroverseas.Italsoprovides commandandcadrestaffforRAAFfixedbasesinnorthernAustraliaandmanagementofthe preparedBareBasesatRAAFLearmonth(LMO),Curtin(CIN),andScherger(SGR).The provisionofsecureairfieldsandcombatsupportarrangementsforthedeploymentofair assetswillcontinuetobecriticaltothesupportofADFoperations. CSGcomprisesofaHQ,aCombatSupportCoordinationCentre,395and396Expeditionary CombatSupportWingsandaHealthServicesWing.

Air Force Training Group TheAirForceTrainingGroupismadeupofaheadquartersandAirTrainingWing,Ground TrainingWing,RAAFCollegeandReserveTrainingWing.TheheadquartersoftheAir TrainingGroupislocatedatRAAFBaseWilliamsLaverton,Victoria. AirTrainingWingconductsbasicandinstructorairtrainingforADFpersonnelincluding pilots,aircombatofficersandairtrafficcontrollers.BasicpilottrainingemploysPC9/A aircraftwhileaircraftandnavigatortrainingoccursonB350aircraft.AirTrainingWingalso

86


includestheRAAFRoulettes,whoprovideflypastsanddisplays,theRAAFMuseumandthe RAAFBalloon.TheAirTrainingWingisalsoresponsibleforaircrewcombatsurvivaltraining. TheRAAFCollegeprovidesinductionandprofessionalmilitarytrainingfortheAirForce.The RAAFCollegealsomaintainstheRAAFBand. GroundTrainingWingprovidesinitialandongoingtrainingfornonaircrewpersonnel, includingsecurity,fireandgrounddefence,administrationandlogistics,technicaltrades, andexplosiveordnance. ReserveTrainingWingprovidesgroundtrainingtoAirForceReservemembersatanumber oflocationsaroundAustralia.

Program 1.5 Intelligence Capabilities

Department outputs 2012-13: $474 million Overview

TheIntelligenceandSecurity(I&S)GroupiscomprisedoftheDefenceIntelligence Organisation,DefenceImageryandGeospatialOrganisation,DefenceSignalsDirectorateand theDefenceSecurityAuthority.TheI&SGroupisresponsibleforthemanagementand oversightofthecollectionandassessmentofintelligenceinsupportofAustraliasstrategic andnationalinterests,includingsupporttoADFoperations.TheI&SGroupalsoprovides protectivepolicyandsecurityadvicetoGovernment,includingsecurityvettingfunctionsfor thewholeofgovernment.

Deputy Secretary Intelligence and Security

***

Defence Intelligence Organisation

Defence Imagery and Geospatial Organisation

Defence Signals Directorate

**

**

**
Cyber Security Operations Centre

Defence Security Authority

**

DefenceSignalsDirectorate(DSD)collectsandanalysesforeignsignalsintelligenceforthe AustralianGovernmentandtheADFinsupportofmilitaryandstrategicdecisionmaking. DSDalsoprovidesinformationsecurityadviceandservices,predominantlyto Commonwealthandstategovernmentagencies,aswellasworkingcloselywithindustryto developanddeploysecurecryptographicproducts.TheCyberSecurityOperationsCentreis alsolocatedwithinDSDheadquartersinCanberra. DefenceImageryandGeospatialOrganisation(DIGO)includesanHQatRussellOfficesin CanberraandtheGeospatialAnalysisCentreinBendigo.DIGOobtainsandproduces geospatialandimageryintelligenceaboutthecapabilities,intentionsoractivitiesofpeople 87


ororganisationsoutsideAustralia.ItsupportsADFoperations,targetingandtraining,aswell asCommonwealthandStateauthoritiesincarryingoutnationalsecurityfunctions.DIGO alsosetstechnicalstandardsforimageryandgeospatialproducts,andprovides CommonwealthandStateauthorities,andotherbodiesapprovedbytheMinister,withnon intelligenceproducts,technicalassistanceandsupporttocarryouttheiremergency responsefunctions. DefenceIntelligenceOrganisation(DIO)atRussellOfficesinCanberraprovidesallsource intelligenceassessmentsfocusingonglobalsecuritytrends,foreignmilitarycapabilities, transnationalterrorism,defenceeconomics,andscienceandtechnologieswithmilitary applications.DIOproducestimelyassessmentsandadviceoncurrentandemergingthreats toAustraliassecurityandstrategicenvironmentinsupportofDefenceandwholeof governmentdecisionmakingincludingtheplanningandconductofADFoperations. TheDefenceSecurityAuthority(DSA)isresponsibleforthedevelopingandpromulgating securitypolicy,providingsecuritythreatadvice,conductingcomplexsecurityinvestigations, monitoringDefencessecurityperformanceandassistingtheSecretary,ChiefofDefence Force,GroupHeadsandServiceChiefstomanagesecurityrisks.Therecentlyestablished AustralianGovernmentSecurityVettingAgency(AGSVA)isalsolocatedwithinDSAandis responsibleforsecurityvettingofpersonnelacrossgovernment,exceptforasmallnumber ofexemptagencies,foraccesstoclassifiedinformation.DSAalsomanagestheDefence IndustrySecurityProgram.

Chief Operating Officer Overview

TheChiefOperatingOfficer(COO)organisationwascreatedasaresultoftheBlackReview oftheDefenceAccountabilityFramework.Theorganisationcameintoeffecton17February 2012andcomprisesPrograms1.6DefenceSupport,1.8ChiefInformationOfficer(CIO)and 1.13PeopleStrategiesandPolicy(PSP).TheStrategicReformManagementOffice(SRMO) andtheMinisterialandExecutiveCoordinationandCommunication(MECC)Divisionhave alsotransferredintoCOOfromProgram1.1OfficeoftheSecretaryandCDF,althoughthey arestillcapturedunderProgram1.1inthePBS.DefenceLegalnowreportsdirectlytothe COOratherthanthroughProgram1.6DefenceSupport. TheSRMOisresponsibleforoversightingstrategicreforminDefence. MECCisresponsibleforprovidingsupporttoMinistersandseniorDefenceleadersinthe areasofcommunicationandmedia,strategicissuesmanagement,freedomofInformation relatedmattersandthefullrangeofMinisterialsupportservices. DefenceLegalprovideslegalservicesandadvicetoDefenceandMinistersintheDefence portfolio. TheresponsibilitiesforDefenceSupport,ChiefInformationOfficerandPeopleStrategiesand Policyareoutlinedbelow. BetterintegrationoftheseGroupoutputswillensurethatthedevelopmentanddeliveryof corporateservicesbestsupportDefencesabilitytoeffectthenecessaryreformsunderthe StrategicReformProgram.TheCOOwillalsoberesponsibleforimplementingkeypartsof 88


theSharedServicesReviewandachievingcostefficienciesandculturalchangethatthe Governmentisseeking. WithinthenewCOOstructure,theDefenceSupportGroupwillcontinuetooperateand performitsroleasakeyenablerofDefencesmissionandvision.Thelinkageswithinthe COOorganisationwilldeveloptheDefenceSupportGroupaspartofasingleintegrated supportorganisation,providingthebackboneofDefencescapability.Thiswillemphasise accountabilityandresponsibilitywhileensuringservicesaredeliveredtoclientsefficiently andcosteffectively. WorktointegratetheprogramsofthenewCOOorganisationiscontinuing.

Program 1.6 Defence Support

Department outputs 2012-13: $3,688 million

TheDefenceSupportGroupprovidesarangeofadministrative,garrison,personneland estateservicestoDefence.TheGroupisdividedintothreedivisions.InfrastructureDivision plans,buildsandupgradestheDefenceestate.DefenceSupportOperationsDivision providesonthegroundservicesandsupporttoDefencepersonnelthroughoutAustralia includingfacilitiesmaintenanceandgarrisonsupport,includinggroundsmaintenance, hospitality,trainingareamanagement,basesecurity,transport,airsupportandfirefighting andrescueservices.TheReformandCorporateServicesDivisionisresponsibleformanaging arangeofwholeofDefencesharedservicesincludingpayroll,simpleprocurement, accountsprocessinganddebtmanagementalongwithbusinessmanagement,strategic planningandpolicysupportservicestotheGroup.
Defence Support Group

***
Defence Legal Division Chief Operating Officer Division Defence Support Operations Infrastructure Division

**
ADF Legal Service

**
Non-Equipment Procurement and Contracting

**
Base and Customer Support Services

**
Major Infrastructure Partnerships

*
Defence General Counsel

*
Strategic Planning & Performance Management

*
Garrison, Estate and Business Support

*
Infrastructure Asset Development

*
Legal Services

*
Financial Management

*
Defence Community Organisation

*
Estate Policy and Environment

*
People Services

*
Regional Support Offices

*
Property Services

*
Estate Planning

89

 Program 1.7 Defence Science & Technology

Department outputs 2012-13: $440 million

TheDefenceScienceandTechnologyOrganisation(DSTO)providesscientificandtechnical adviceandsupporttoDefenceandNationalSecurityincludingsupporttooperations,the forceinbeing,theDefenceCapabilityPlanandfutureproofingcapabilities.FromFebruary 2012,DSTOassumedawholeofGovernmentresponsibilityforcoordinatingS&Tsupportto nationalsecurity.TheorganisationisledbytheChiefDefenceScientist,whoanswerstothe Secretary.TheheadquartersandoneresearchdivisionarelocatedinCanberra.Thebulkof thescienceandtechnologyactivityiscarriedoutinPlatformandHumanSystemsin MelbourneandInformationandWeaponsSystemsinAdelaide,eachundertheleadershipof aDeputyChiefDefenceScientist(DCDS).UndereachoftheDCDSsareanumberofdivisions eachledbyaChiefofDivision.BelowthelevelofChiefofDivision,branchlevelentitiesin DSTOareledbyResearchLeaders. ScientificAdvisersareoutpostedfromDSTOtotheNavy,Army,AirForce,Capability DevelopmentGroup,DefenceMaterielOrganisation,ViceChiefoftheDefenceForce,Joint OperationsCommand,IntelligenceandSecurityGroupandChiefInformationOfficerGroup.
Chief Defence Scientist

***

Deputy CDS Platform and Human Systems COD-3 Air operations COD-2 Air Vehicles COD-2 Human Protection and Performance COD-2 Maritime Operations COD-2 Maritime Platforms COD-2

Deputy CDS Information & Weapons Systems COD-3 C3I COD-2 EW and Radar COD-2 ISR COD-2 Land Operations COD-2

Chief Operating Officer Division COD-2 Projects and Requirements Division COD-2 Group Finance Officer

Chair in Defence Systems Uni SA COD-3

*
Industry and External Relations Branch

*
Science Strategy and Policy Branch

*
Joint Operations COD-2 Weapons Systems COD-2 Materiel Science Support Capability Science

90

 Program 1.8 Chief Information Officer

Department outputs 2012-13: $833 million

TheChiefInformationOfficerGroupisresponsibleforprovidingInformationand CommunicationsTechnology(ICT)toDefence.ThebulkoftheGroupresidesinfour divisions. ChiefTechnologyOfficerDivisiondevelopsanddocumentsDefencesICTarchitecture, identifiesrelevantsystemsanddefinesICTstandardsforDefence. InformationandCommunicationsTechnologyDevelopmentDivisiondesignsanddevelops SoftwareSystemsfortheDefenceinformationenvironment. InformationandCommunicationsTechnologyOperationsDivisiondeliversandsupportsthe DefenceInformationandCommunicationinfrastructure. InformationandCommunicationsTechnologyReformDivisiondeliversICTreformand associatedsavingsacrosstheDefencePortfolio.

Chief Information Officer

***

Government and Security Applications Branch *

Chief Technology Officer Division

**

Information and Communications Technology Development Division

Information and Communications Technology Operations Division

ICT Reform Division

**

Scientific Advisor Intelligence and Information

**
Intelligence Stakeholder Engagement Team

**
ICY Policy and Plans

*
ICT Reform * Sourcing Reform

Enterprise Architecture * Infrastructure Architecture

*
Defence Capability and Military Project Delivery

*
Software Contracts Compliance

*
JP 2080 *

Defence Strategic Communications

*
Defence Information Services

Corporate Stakeholder Engagement team

*
Operational Infrastructure

*
Information Assurance

*
Communications Systems

*
Logistics Management

*
Defence Computing Bureau

*
Applications Sustainment Branch

Operations Reform

91

 Program 1.9 Vice Chief of the Defence Force

Department outputs 2012-13: $1,013 million

TheViceChiefoftheDefenceForce(VCDF)isthemilitarydeputytotheCDF.Inaddition,the VCDFistheJointCapabilityAuthorityaswellasbeingresponsibleforthefollowing: MilitaryStrategicCommitmentsDivisionprovidesthestrategicleveladviceandsupportin theplanningandexecutionofADFscurrentoperationsandfuturecommitmentsthat enablestheGovernmenttocontinuouslyreviewitsnationalstrategicinterests.These responsibilitiesencompass;thestrategiccoordinationofcurrentandfutureADF commitments,developmentandsynchronizationofstrategiccommunication,the developmentandreviewofthenatureofserviceforADFcommitments,andtheprovisionof aninvestigativeservicetosupporttheCDFandServiceChiefs. JointLogisticsCommandprovideslogisticssupporttoraise,trainandsustaintheAustralian DefenceForceincluding,managementofwarehouses,maintenance,anddistribution facilities.Thisdoesnotincludetheextensiverangeofmaterielmaintenanceprovidedbythe DMO. JointHealthCommandisresponsibleforthedeliveryofallgarrisonhealthcaretotheADF andexercisestechnicalcontrolthroughtheSurgeonGeneralAustralianDefenceForce. AustralianDefenceCollegewasestablishedtodeveloptheskillsandknowledgeof Defencesfutureleaderswithanemphasisonjointprofessionalmilitaryeducationandthe deliveryofjointtrainingprograms.Learningifofferedthroughseverallearningcentres providinganeducationcontinuumfromtheAustralianDefenceForceAcademy,tothe AustralianCommandandStaffCollegeandtheCentreforDefenceandStrategicStudies. ThroughtheDefenceLearningBranch,theAustralianDefenceCollegealsoprovidesstrategic directionandcoordinationforDefencesjoint,commonandAPStrainingandeducation. JointCapabilityCoordinationDivisionmanagesADFpreparednessandjointcapability coordination.JCCwasestablishedtoimproveDefence'scapacitytodeliverjointforce capability. Cadet,ReserveandEmployerSupportDivisionworkstoenhancethecapacityofReserves tosupportADFcapabilityandprovidesagovernanceandaccountabilityframeworkforthe ADFCadetScheme. AustralianCivilMilitaryCentreisawholeofgovernmentinitiativetoimproveAustralias effectivenessincivilmilitarycollaborationforconflictanddisastermanagementoverseas.

92

Vice Chief of the Defence Force

***
Australian Defence College Joint Logistics Command Military Strategic Commitments Division Joint Health Command Cadet, Reserve & Employer Support Division

**
Commandant ADFA

**
Supply Chain Branch

**
Military Commitments

**

**
Corporate Health Support

*
Commandant ACSC

*
Joint Logistics Units

*
Nature of Service Review

*
Garrison Health Support

*
Principal CDSS

*
ADF Investigative Service

*
Health Policy

*
Centre for Defence Leadership

Explosive Ordnance Branch

*
Strategic Logistics Branch

*
Australian CivilMilitary Centre Logistics Assurance Branch

*
Joint Capability Coordination

**

Counter IED Task Force

Defence Preparedness Branch

Joint Capability Coordination

Defence Simulation Office

Intelligence Surveillance Reconnaissance

93

 Program 1.10 Joint Operations Command

Department outputs 2012-13: $43 million

JointOperationsCommand(JOC)isresponsibleforthecommandofallADFoperationsand jointexercisesonbehalfoftheChiefoftheDefenceForce.Locatedinapurposebuilt commandfacilityinBungendoreNSW,JOCisassignedforcesforoperationsfromthethree Services.ThetotalADFcommandarrangementisoutlinedbelow.Atpresent,thereare approximately3,300ADFpersonneldeployedonoperationsandsomewherearound750 personnelinvolvedinplanning,advisingandcommandingoperations,ofwhicharound750 (includingcontractors)resideinJOCandSOCOMD.

Minister for Defence

Chief Defence Force

***
Vice Chief Defence Force

***

Military Strategic Commitments Division

**
Military Strategic Commitments Branch

*
Chief Joint Operations

***
Maritime/Submarine Operations

Headquarters Joint Operations Command

*
HQ Special Operations

**
Air & Space Operations *

Deputy Chief of Operations

**

Public Affairs, Coordination, Legal, Business and Information Management

Support

Intelligence

Plans

Operations

Communication

Training

HQ Northern Command

*
Assigned Forces

Border Protection Command

**
Commander Middle East Task Force HQ ** Iraq Afghanistan Deputy Commander *

East Timor

Solomon Islands

94

 Program 1.11 Capability Development

Department outputs 2012-13: $988 million

TheCapabilityDevelopmentGroupdevelopsandmanagestheDefenceCapabilityPlan(DCP) andpreparesDefencecapabilityinvestmentapprovalproposalsforGovernment consideration.Twodivisions,CapabilitySystemsandCapabilityInvestmentandResources, constitutethecoreoftheGroup CapabilitySystemsDivisionislargelystaffedbymilitarypersonnelandmanagesthe developmentoffuturecapabilityoptionsforGovernmentconsideration.Itisdividedinto fourbranches;threeenvironmentallybased(land,seaandair),andonedealingwith integratedcapabilitiesthatcrossenvironmentallines.AnotherelementistheRapid PrototypingandDevelopmentOrganisation,whichworkswithindustryandacademeto developcapabilitysolutionsfortheADF. CapabilityInvestmentandResourcesDivisionislargelystaffedbycivilianpersonneland providesindependentlyanalysesandreviewscapabilityissues,includingtheoverallbalance ofinvestmentincurrentandfuturecapability,majorinvestmentproposalsandpriorities.It isdividedintotwocorebranches;InvestmentAnalysisandCostAnalysis. ThreeotherelementswithintheGroupare;theCapabilityandPlansBranchwhichensures thatDefencecapabilitiesmatchtheGovernmentsstrategicobjective,theAustralianTest andEvaluationOfficethatprovidesT&Eadviceandguidancethroughoutthecapabilitylife cycle,andtheembeddedDSTOsupportcell.In2010,theHeadFutureSubmarineProgram wasalsoestablishedasaseparateentityintheGroup.
Chief of Capability Development

***

Capability, Investment and Resources Division

Capability Systems Division

Capability and Plans Branch

**
Investment Analysis

**

Defence Test and Evaluation Office

Rapid Prototyping and Development

DSTO Support

*
Cost Analysis * Aerospace Development

*
Land Development

* *
Maritime Development Integrated Capability Development Head Future Submarine Project

*
Land 400

**

95

 Program 1.12 Chief Finance Officer

Department outputs 2012-13: $458 million

TheChiefFinanceOfficerGroupisresponsibleforDefencesfinancialplanning,budgeting andreporting.
Chief Finance Officer

***
Resource & Assurance Division Financial Services Division

**
Resource Assurance and Analysis Branch

**
Financial Professionalization, Controls and Skilling Branch

*
Financial Coordination Branch

*
Financial Business Information Branch

*
Budget Management, Financial Reporting and Accounting Policy Branch

*
Financial Services Branch

Program 1.13 People Strategies and Policy

Department outputs 2012-13: $324 million

AnewDefencePeopleGroupwillbeinoperationin201213withintheChiefOperating OfficerGroupstructuretoensuretheeffectiveintegrationofPeoplefunctionsacrossthe Defenceorganisation.ThenewstructureisdesignedtobetterrespondtokeyPeople prioritiesandservicetheneedsofkeystakeholdersmoreeffectively.ThenewDefence PeopleGroupwillbringtogethertheformerPeopleStrategies&PolicyGroupandelements oftheDefenceSupportGroup,includingtheDefenceCommunityOrganisation,People ServicesDivision,DefencePeopleSolutionsandtheDirectorateofHonours&Awards. TheDefencePeopleGroup'skeyroleistheformulationofpersonnelpolicyforDefence's workforce.KeyprioritiesfortheGroupwillincludetheprovisionofacompelling employmentoffertoassistinattractionandretention,theimplementationofPathwayto ChangeDefence'sresponsetotheculturereviewsconductedduring201112throughthe establishmentofanOrganisationalDevelopmentUnit,continuationofthehumanresources reformsidentifiedaspartofDefence'sstrategicreformandthedevelopmentoftoolsto enablebetterdecisionmakingthroughabetterunderstandingoftheDefenceworkforce andtheimplicationsofchangestokeydriversofworkforcecost.

96


Deputy Secretary People Strategies and Policy

***
Head People Capability ** Defence Force Recruiting Head People Policy ** Fairness & Resolutions Head Workforce and Shared Services Reform ** Workforce and Shared Services Reform * Strategic Integration and Coordination *

*
OH&S Branch

*
Education & Training

*
Workforce Planning

*
Personnel Policy & Employment Conditions

NotethisstructurerepresentsPeopleStrategiesandPolicyGrouppriortoanyrestructure toformtheDefencePeopleGroup.

Program 2.1 Ops in the immediate neighbourhood

Department outputs 2012-13: $131 million

OpGateway:IndianOceanandSouthChinaSeamaritimepatrols(since1981) OpAnode:SupportcoalitionpoliceforcesinSolomonIslands(since2003) OpAstute:SecuritysupportfortheGovernmentofEastTimorandUNmission(since 2006) OpTower:ContributetoUNIntegratedMissioninEastTimor(since2006)

Program 2.2 Ops supporting wider interests

Department outputs 2012-13: $1,211 million

OpPaladin:ContributetotheUNTruceSupervisoryMissionintheMiddleEast (since1956) OpMazurka:ContributetoMultinationalForceandObserversintheSinai(since 1982) OpSlipper:ContributetoISAFinAfghanistan(since2001) OpAzure:ContributetoUNMissioninSudan(since2005) OpPalateII:LiaisonOfficertoUNMissioninAfghanistan(since2005) OpHedgerow:ContributetoUNAUMissioninDarfur(since2008) OpRiverbank:ContributetoUNMissioninIraq(since2008) OpKruger:SecuritysupporttoASdiplomaticmissioninIraq(since2009)

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 Program 3.1 National support tasks

Department outputs 2012-13: $10 million

OpSolania:ConductSouthWestPacificmaritimepatrols(since1988) OpResolute:Contributetowholeofgovernmentmaritimeenforcementeffort (since2006)

Defencescontributiontonationalsupporttasksrangesfromtheongoingroutineallocation ofPatrolBoatandAP3CMaritimePatrolAircrafttime,totheallocationofspecific capabilitiesatshortnoticeinanationalsupportemergency.Nationalsupporttasksinclude security,ceremonial,civilmaritimesurveillance,searchandrescue,bushfireresponseand supporttotheArmy/ATSICcommunityassistanceprogram.

2.7: Budgeted Financial Statements [PBS Section 3: pp. 94 112]

ThebudgetedfinancialstatementsforDefenceappearinSection3ofthePBS.Onceagain consolidatedfinancialstatementsforDefenceandDMOhavebeenincluded.

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2.8:DefenceMaterielOrganisationPBS [DefenceMaterielOrganisationPBS:pp.137206]
On1July2005DMObecameaprescribedagencyundertheFinancialManagementand AccountabilityAct1997.SincethenithashaditsownindependentpartintheDefence portfolioPBS.

Overview
DMOacquiresandsupportsequipmentforDefenceonaquasicommercialbasis.Itisan independententityfromafinancialperspective,butadministrativelyissomethingofan agencywithinanagency(hencethePBSwithinaPBS). Organisational structure DMOcontainsseventeendivisions(orsimilar),eachheadedbyaband2SEScivilianor2star militaryofficer,asshowninFigure2.8.1.Overthepastfouryears,fivedeputysecretarylevel GeneralManagerpositionshavebeencreatedtooverseeclustersofdivisions. Thedivisionsfallintothreecategories: Systemsdivisionsaresetuponthetraditionalenvironmentaldomainsofland,sea,andair, plusdivisionsdealingwithelectronics/weaponsandexplosives.Theymanageanddeliverthe vastbulkofthe188majorequipmentacquisitionprojects(andmorethan80minor acquisitionprojects)thatDMOisresponsiblefor,andtakecareofthematerielsupportof existingcapabilitiessome110majorfleetgroupingsacrossalldomains. Programsdivisionsacquirehighprofilecapabilitiesofstrategicsignificance.Thatis,ifa projectisbig,important(andpoliticallysensitive)enoughitgetsitowndedicateddivision. Atthemomenttherearethreesuchprograms:AirWarfareDestroyer,AEW&C/Collins,New AirCombatCapability(JointStrikeFighter)andNewSubmarineproject. ThreeCommercialdivisionsprovideenablingservicesandtakecareofspecificareas.These are;EnablingServices,SpecialCounsel(legal)andCommercialandIndustryPrograms.There isalsoanAcquisitionandSustainmentReformdivisionundertheGeneralManagerReform andSpecialProjects. TwofinaldivisionsreportdirectlytotheCEO;ChiefFinanceOfficerDMOandHeadHuman ResourcesandCorporateServices.

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Figure 2.8.1 DMO organisational structure

DeputyCEO& GeneralManager Commercial *** CEO **** General Manager Systems ***

GeneralManager Submarines ***

NewAir Combat(JSF) **

DeputyCEO& GeneralManager Commercial ***

AerospaceSystems ** * * * *

NewGeneration Submarines ** CollinsProgramManager ** * CommercialandIndustryDivision **

*
AEW&C **

ElectronicSystems ** * * * *

*
AirWarfare Destroyer **

MaritimeSystems **

* * SpecialCounsel ** * *

LandSystems ** * * * * *

ChiefFinanceOfficer **

CommercialEnablingServices ** * * * *

HelicopterSystems ** * *

Businessoperations ** AcquisitionandSustainment Reform **

ExplosiveOrdnance ** * * *

Source:201213PBSandonlinegovernmentdirectory

Aprescribedagency TheSeptember2003reportfromtheDefenceProcurementReview(knownusuallyasthe KinnairdReview)recommendedanumberofchangestoDefenceandDMO.Keyamong themwastoestablishDMOasaseparateexecutiveagency.Afterconsideration,the governmentdecidedtotakethelesserstepofmakingDMOaprescribedagency,which deliversahighdegreeoffinancialautonomybutdoesnotprovidethelevelofaccountability ortransparencyintendedbytheKinnairdorsubsequentMortimerreviews. Asaprescribedagency,theCEOofDMOisaccountabledirectlytotheMinisterforDefence forfinancialmatters,hencetheneedforseparatefinancialstatementsandbudgets.On othermatters,DMOstillremainsclosetoDefencefromanadministrativeperspective;the 100


CEObeingaccountabletotheChiefoftheDefenceForcethroughtheDefenceAct1903and totheSecretarythroughthePublicServiceAct1999.

Resourcesfor201213
DMOwillincurexpensesof$9.1billionin201213.Sourcesoffundingtocoverthese expensesinclude: DepartmentalAppropriationfromgovernmenttopayforpolicyadviceandmanagement services.In201213,thiswillbe$928million. RevenuesfromDefenceinpaymentforacquisitionandsustainmentservicesfromDefence. In201213thistotals$8,133million. Drawdownofspecialaccount:$10.4millionofunspentfundsfromprioryearswillbespent in201213byrunningdowntheresidualintheDMOspecialaccount. Nonappropriationreceiptsincludingthingslikethedisposalofcommercialvehiclesand paymentsfromforeignforcesformaterielservicesprovided.In201213thiswillamountto $58million,andthiswouldbecalledownsourcerevenuesinDefence. BecauseDMOpresentsitsresourcingdifferentlytoDefence,wehavereconstructedhowthe expensesareresourcedasbestaswecaninTable2.8.1,theresidualdifferenceislikelyan accrualfactorwehavebeenunabletotrackdown.
Table 2.8.1: DMO funding 2012-13
Funding from government ($ 000s) Sustainment Acquisition subtotal Departmental Appropriation Drawdown of special account in 2011-12 Non-appropriation receipts Total Cost of DMO Outcome Difference Expenses not requiring funding Funding surplus Source:201213PBS 4,725,000 3,407,900 8,132,900 928,466 -10,353 57,688 9,108,701 9,100,656 8,045 38,220 46,265 Table 88, p. 142 Table 88, p. 142 Table 88, p. 142 Figure 5, p. 145 Table 101, p. 193 Table 80, p. 151 Table 91, p. 150 Table 91, p. 150

DMOSpecialAccount
Unspentfundshavebothaccumulatedandhavebeenpaidoutinsubsequentyearsinthe DMOSpecialAccount.Table2.8.2calculatesthenetmoneydepositedandwithdrawnfrom theaccountsince200506.
Table 2.8.2: DMO Special Account movements ($ 000s)
2005-06 Opening balance Closing Balance Represented by: Cash in OPA Cash held by DMO Total Closing Balance Movement Source:DMO
167,205 23,580 190,785 190,785 542,852 21,967 564,819 374,034 955,743 32,119 987,862 423,043 223,484 45,812 269,296 -718,566 409,120 92,439 501,559 181,424 507,424 43,027 550,451 48,892 372,459 43,027 415,486 -134,965 382,812 43,027 425,839 10,353 0 190,785

2006-07
190,785 564,819

2007-08
564,819 987,862

2008-09
987,862 269,296

2009-10
320,135 501,559

2010-11
501,559 550,451

2011-12
550,451 415,486

2012-13
415,486 425,839

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Withtotalcashflowanywhereintheorderof$10billionfromyeartoyear,anelementof workingcapitalwouldbeexpectedtobeseeninclosingbalances.Indeedaquickestimate ofruleofthumbworkingcapitalintheorderof30dayscashflowcouldpotentiallysee balancesintheorderof$830million.Ofcoursethislevelofworkingcapitalisnotrequired asDefenceprepayDMOupfrontatthestartofeachfinancialyearforworktobedelivered inthatfinancialyear. AnyunderspendsinDMOactivityforDefencemayresultinaccumulatedfundingwithinthe SpecialAccount,alongwiththeaccumulationofprioryearsurplusesforworkforceor Industryinitiatives.AnelementoftheSpecialAccountbalancewillalsorepresentcash requiredtomeetinvoicesreceivedby30Junebutnotyetpaiduntilthefollowingfinancial year.GiventhattheDMOspends,onaveragearound$40milliononanygivenworkingday, thescaleofSpecialAccountisunsurprising. ThebalanceoftheDMOSpecialAccountremainswiththeoverallCommonwealthOfficial PublicAccount.

Purchaserproviderarrangements
CentraltotheresourcingframeworkforDMOarepurchaserproviderarrangementswith Defenceforacquisitionandsustainmentservices.In201213,DMOwillreceive $4,725millionthroughMaterielAcquisitionAgreementswithDefence,andanother$3,408 millionthroughMaterielSustainmentAgreements.Inaddition,thereareseveralShared ServicesAgreements(forwhichnopaymentismade)thatcoversuchservicesaspayroll, accommodation,andbankingservicesprovidedbyDefence,andcontractingpolicyand adviceprovidedbytheDMO.AusefulbreakdownofthepaymentstoDMOappearsonpage 142ofthePBS.Itincludestheamountofmoneytobespentonvariouscategoriesof acquisitionsandsustainmentsupport. In201213,DMOwillmakeuseof1,793permanentandanunknownnumberofReserve militarypersonnelwhosesalariesandotherpersonnelexpensesarecountedinDefences financialstatements.DMOpaysDefencefortheservicesprovidedbythesepersonnel,asa suppliersexpense(ratherlikepaymentsmadetocompaniesforcontractorstaff).In201213 DMOwillpay$382milliontoDefenceformilitarypersonnelandothercostscoveredbythe DefenceDMOServiceLevelAgreement. Outcomes and programs AsaprescribedagencyDMOhasitsownoutcome/programstructureasdetailedin Figure2.8.2. ThefirsttwoprogramsarepredominantlyfundedthroughtheMaterielAcquisitionand SustainmentAgreementswithDefence,whilethethirdismainlyfundedthroughthe DepartmentalAppropriation.NotethatDMOreferstothepriceofoutputsratherthannet costasinDefence.

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Figure 2.8.2 DMO Output prices 2012-13

Outcome 1: Contributing to the preparedness of the Australian Defence Organisation through acquisition and through-life support of military equipment and supplies. Appropriation: $928m Total Price: $9,101m

Program 1.1: Management of Capability Acquisition Appropriation: Price: $259m $3,676 m

Program 1.3: Policy Advice and Management Service

Program 1.2: Capability Sustainment Appropriation: Price: $550m $5,295m

Appropriation: Price:

$119m $129m

Source: 2012-13 PBS

Outcomeandplannedperformance
ThePBSsetsperformancetargetsforthethreeDMOoutputsandoutlineshowtheywillbe evaluated,[p.146].WehavereproducedtheessentialfeaturesinTable2.8.3.
Table 2.8.3: DMO program objectives performance indicators
Program Program 1.1 Management of Capability Acquisition Objective Acquisition projects will be delivered in a transparent and accountable manner, on time, within budget and to the required standard as approved by Government. The ADF and its capabilities will be sustained to meet operational requirements as identified in the specific Materiel Sustainment Agreements. The DMO will meet Government, Ministerial and departmental expectations and timeframes for the provision of policy, advice and support and delivery of industry programs. Performance Indicators The indicators vary with each project and are specified in the Materiel Acquisition Agreements.

Program 1.2 Capability Sustainment

Indicators are included in individual Materiel Sustainment Agreements. The DMO reports to its customers against these.

Program 1.3 Policy Advice and Management Services

The DMO meets Ministerial, government, Defence and DMO expectations and timeframes for provision of policy, advice and support.

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Management of Capability Acquisition Program 1.1 EachofthemajoracquisitionprojectsundertakenbyDMOhasaMaterielAcquisition AgreementwithDefencethatspecifiesscope,scheduleandbudget.ThePBSsummarisesthe top30acquisitionprojectsbyexpenditurein201213(seetop30projectsbelow). AgreementsalsoexisttocovertheminoracquisitionprojectsDMOmanages. Capability Sustainment Program 1.2 ThePBSdetailsthegoalsandchallengesfor201213intheareaofcapabilitysustainment. Suchdetail,whichwasfirstprovidedinthe200506PBS,givesausefulinsightintotherange ofactivitiesundertaken.Ingeneral,capabilitysustainmentincludesrepairandmaintenance, engineering,supply,configurationmanagementanddisposal,aswellastheprovisionof spares,technicaldata,supportandtestequipment,trainingequipmentandexplosive ordnance.Forthefifthyearinarow,thetop20sustainmentproductsbyweaponssystem hasbeengiven[PBSTable99p.180],seebelow. Policy Advice and Management Service Program 1.3 ThisincludescontractingandprocurementpolicyadviceforDefenceandtheDMO,industry policyandadvicetoDefenceandthegovernment,andcorporatereportingrequirements. Keyperformancetargetsforthisoutputaregivenonpage190to192ofthePBSandrelate primarilytoadvicetogovernmentandeffectivecorporategovernanceandreporting.

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The Top Twenty sustainment products Thetop20sustainmentactivitiesforDMObyforecastexpenditurefromTable99inthePBS arelistedinTable2.8.4,2.8.5,2.8.6and2.8.7alongwithderivedfiguresbasedonplanned ratesofeffort.Theseincludeperplatformandperflyinghourcosts.Wherepossible, comparisonswithpreviousyearscostshavebeenincluded.
Table 2.8.4: Top 20 sustainment products aerospace and helicopters
Number Cost ($m) 111 105 153 73 81 96 62 86 96 161 Hours flown 4,800 7,900 13,000 7,500 7,350 3,020 4,200 7,500 7,147 2,800 Annual cost per platform ($ million) 4.63 5.53 2.15 2.21 6.75 2.09 3.88 2.53 4.36 26.83 Cost per flying hour ($ 000) 23.13 13.29 11.77 9.73 11.02 31.79 14.76 11.47 13.43 57.50

Super Hornet AP-3C Orion F/A-18 Hornet Hawk LIF 127 C-130J MRH-90 Seahawk Black Hawk ARH Tiger AEW&C Source201213PBS

24 19 71 33 12 46 16 34 22 6

Table 2.8.5: Recent budgeted sustainment costs per unit aerospace and helicopters
Cost per aircraft ($ million)
07-08 08-09 09-10 0.67 6.37 1.68 2.88 5.42 6.90 1.61 2.70 9.42 6.25 13.75 9.75 47.50 4.94 1.97 2.15 6.16 1.70 2.64 9.25 0.00 10.75 4.27 4.94 3.03 3.77 5.20 4.56 2.91 3.91 23.5 10-11 2.58 6.32 1.75 2.70 6.17 4.50 11-12 4.58 5.84 2.63 2.70 6.50 4.75 14.25 6.93 3.94 2.82 4.36 28.5 2.09 3.88 2.53 4.36 26.83 31.1 10.6 10.2 26.2 12-13 4.63 5.53 2.15 2.21 6.75 16.1 10.5 15.2 14.1 16.4 10.2 13.6 15.7 22.2 11.6 780.1 12.7 146.8 23.2 12.7 46.2 52.0 20.3 11.5 20.7 70.5 07-08

Cost per flying hour ($ 000)

08-09 09-10 39.3 15.2 10.1 13.5 16.2 10-11 29.5 15.2 9.5 11.1 10.1 16.9 11-12 22.9 14.1 14.4 11.9 10.6 17.8 12.7 34.7 15.0 11.9 14.5 65.8 31.79 14.76 11.47 13.43 57.50 12-13 23.13 13.29 11.77 9.73 11.02

Super Hornet AP-3C Orion F/A-18 Hornet Hawk LIF 127 C-130J C-130 H C-17 MRH-90 Seahawk Black Hawk ARM Tiger AEW&C

Source:DAR,201112PAES,201213PBS

Theabovefiguresneedtobetreatedwithcaution.Variousfleetsenjoydifferentamountsof contractedsupport(thecostofwhichisincluded)andmanpowersupportfromDefences ownworkforce(whichisnotincluded).Moregenerally,thereareusuallyothercosts(like fuel)thatarenotincludedseparatelyforeachplatform.Also,oneoffcostscanheavily influencetheresults,includingwhenplatformsarefirstbeingbroughtintoservice.Itwillbe someyearsbeforeusefultrendsemerge.

Table 2.8.6: Top 20 sustainment products maritime
Number 2007-08 ($m) 322 219 103 61 2008-09 ($m) 324 301 115 61 2009-10 ($m) 325 206 113 2010-11 ($m) 416 151 111 2011-12 ($m) 479 189 127 2012-13 ($m) 516 206 139 61

Collins- subs Anzac frigate FFG Frigate Mine Hunter Coastal

6 8 4 6

Source:DAR,201112PAES,201213PBS

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Table 2.8.7: Top 20 sustainment products miscellaneous
2007-08 ($m) ADF Clothing and Equipment ADO Commercial Fleet B Vehicles Explosive ordnance Wide Area Surveillance Battlespace Communications Fuels and Lubricants Protected Mobility Fleet Source:DAR,201112PAES,201213PBS 117 73 117 357 77 32 422 2008-09 ($m) 89 75 127 360 79 51 419 318 378 22 419 412 2009-10 ($m) 84 59 115 324 76 83 251 88 2010-11 ($m) 70 54 84 291 87 66 323 83 2011-12 ($m) 2012-13 ($m) 56

Itisinterestingtonotethedownwardtrendinsomecategoriesofsustainmentexpenditure, includingBvehiclesand,encouragingly,manyoftheRAAFaircraftfleets.

People
TheDMOworkforceisamixtureofmilitarypersonnel,civiliansandcontractors. Unfortunately,militarynumberswerenotdisclosedinthisyearsPBS.Theavailable informationiscollectedinTable2.8.8. ThecivilianandmilitarypersonnelinDMOareheldunderslightlydifferentarrangements. CiviliansinDMOareDefenceemployeesandtheCEOofDMOhasdelegationsfromthe SecretaryoftheDepartmentthatheexercisesinthisregard.Theexpensesassociatedwith DMOscivilianworkforceappearintheirfinancialstatementsasemployeeexpenses. Incontrast,themilitarypersonnelinDMOareprovidedthroughapurchaserprovider arrangementwithDefence.Thisdoesnotcoverthefullpercapitacostofthemilitary personnel,butratherrepresentsapaymentfortheirservicesroughlycorrespondingtotheir costsexclusiveofallowancesandoverheadsspecifictotheirmilitaryrole(andthisisbroadly commensuratewithwhatwouldbeneededtosecuresimilarskillsinthelabourmarket). Thus,ifthemilitaryfailtodeliversufficientpersonnel(due,forexample,tooperational demandsorshortages)DMOhasthemoneytohirepeoplefromoutside.Notethatthe budgetedandestimatedpersonnelfiguresforDMOrepresentamaximumceilingandthat DMOwillonlyengagethestaffnecessarytoperformacquisitionandsustainmenttasksthat ariseinfutureyears.
Table 2.8.8: Workforce summary for DMO (average funded strength)
0405 actual 0506 actual 0607 actual 0708 actual 0809 actual 0910 actual 10-11 actual 11-12 est. 12-13 13-14 14-15 15-16

RAN Army RAAF subtotal Civilian Reserve PSP Total*

306 461 770 1,537 4,363 125 388 6,288

277 411 762 1,450 4,502 191 393 6,345

281 389 763 1,433 4,951 249 298 6,682

277 386 794 1,457 5,304 311 181 6,942

296 404 808 1,508 5,552 ? 176 7,236

303 412 802 1,794 5,526 ? 120 7,735

303 418 803 1,525 5,510 82 24 7,141

303 389 718 1,410 5,993

368 485 940 1,793 5,544

373 497 958 1,828 5,608

377 507 971 1,855 5,830

381 512 984 1,877 5,849

31 7,434

48 7,385

48 7,484

48 7,733

46 7,772

Source:DAand201213PBS.*Totalexcludesreservist.

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TheTopThirtyprojects
ThePBSliststhetop30majorcapitalinvestmentprojectsby201213expenditure[PBS Table93page154]andprovidesadescriptionofeach.Wereproducethetop30projectsin Table2.8.9below.SeeChapter8ofthisBriefforfurtherinformationontwentyofthemore interestingprojects.ThePBSalsoincludesalistingofpreviouslyapprovedtop30projects thatisuseful[Table87,p.175].Theestimatedslippageinthegrossprogramis17%alittle higherthanlastyear.Notethattherelianceonarelativelysmallnumberoflargeprojects makestheoutcomesensitivetohoweachoftheselargeprojectsperforms.
Table 2.8.9: Top 30 Defence Major Capital Investment Projects (million $)
Project Number Approved Project Expenditure Spend to 30 June 2010 2011-12 Budget Estimate

Project General Manager Systems Aerospace Systems Division Air-to-Air Refuelling Capability Additional C-17 Globemaster III Bridging Air Combat Capability C-17 Globemaster III Maritime Patrol and Response Aircraft System Airborne Surveillance for Land Operations Electronic Systems Division Battlespace Communications Systems (LAND) Next Generation Satellite Program Joint Command Support Environment Ultra High Frequency Satellite Communications Battle Management System Explosive Ordnance Division Bridging Air Combat Capability Lightweight Torpedo Replacement Mulwala Redevelopment Project Helicopter Systems Division Multi Role Helicopter Naval Aviation Combat Helicopter Armed Reconnaissance Helicopter

AIR 5402 AIR 8000 Phase 4 AIR 5349 Phase 1 AIR 8000 Phase 3 AIR 7000 Phase 2 JP 129 Phase 2

1,801 554 3,275 1,846 172 93

1,477 395 2,699 1,334 72 31

174 51 49 40 31 27

JP 2072 Phase 1 JP 2008 Phase 4 JP 2030 Phase 8 JP 2008 Phase 5A LAND 75 Phase 3.4

437 865 256 433 307

53 485 138 282 144

156 116 47 43 33

AIR 5349 Phase 2 JP 2070 Phase 2 JP 2086 Phase 1

274 337 369

124 249 322

54 33 28

AIR 9000 Phase 2 AIR 9000 Phase 8 AIR 87

3,656 2,943 2,031

2,098 216 1,818

260 145 72

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Phase 2 Land Systems Division Overlander Field Vehicles and Trailers Bushmaster Infantry Mobility Vehicle Counter Rocket, Artillery and Mortar (C-RAM) Digital Terminal Control System Artillery Replacement 155mm Howitzer Protected Route Clearance Capability Upgrade of M-113 Armoured Vehicles Maritime Systems Division Anzac Anti-Ship Missile Defence Deputy CEO Air Warfare Destroyer Program Air Warfare Destroyer Build Airborne Early Warning and Control System Airborne Early Warning and Control Aircraft Amphibious Deployment and Sustainment Amphibious Deployment and Sustainment Amphibious Watercraft Replacement New Air Combat Capability Detailed Analysis and Acquisition Planning TOTAL TOP 30 APPROVED PROJECTS Other Approved Project Estimate Total Program Management Margin (14% slippage) Net from existing projects Projects Planned for Government Approval Total Funds Available Source:201213PBS AIR 6000 Phase 2A/2B 2,362 43,561 130 23,724 103 3,007 683 3,690 -616 3,074 248 3,322 JP 2048 Ph4A/4B JP 2048 Phase 3 3,066 230 2,192 23 158 59 AIR 5077 Phase 3 3,837 3,286 289 SEA 4000 Ph3 7,870 3,733 622 SEA 1448 Phase 2B 676 351 26 LAND 121 Phase 3 LAND 116 Phase 3 LAND 19 Phase 7A LAND 17 Phase 1B LAND 106 Phase 1A JP 154 Phase 3A LAND 106 3,191 1,032 253 115 322 74 885 216 771 147 38 122 15 710 132 58 55 35 29 29 100

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Chapter 3 White Papers and Money

Thischapterdealswithdefencefundingandthedeliveryofthe2009DefenceWhitePaper. Itisdividedintofourparts:(1)abriefsurveyofAustraliandefencefundingfromthemid 1980sthroughto2009;(2)ananalysisofdefencefundingsincethe2009DefenceWhite Paper;(3)anassessmentofprogressmadetowardsdeliveringtheWhitePapersgoals;and (4)asurveyofthechallengesfacingthe2013WhitePaper. Foreaseofreference,weshallrefertothe2000,2009and2013DefenceWhitePapersas Defence2000,Defence2009andDefence2013respectively.Readersinterestedinamore detailedhistoricalsurveyshouldconsulttheobituaryforDefence2000inChapter3ofthe 200910ASPIBudgetBrief.

Defencefundingfromthe1980sto2009
Thelate1980sand1990swereleanyearsforDefence.Apartfromfluctuationsdueto foreignexchangemovementsandoperationalsupplementation,defencespendingwaskept moreorlessconstantinrealtermsacrosstheperiod.Infact,theDefencebudgetwashigher in198586($14.5billion)thanitwaselevenyearslaterin199697($13.7billion)as measuredinreal200809dollars. Becausethecostofmaintainingmilitarycapabilityexceedsinflationby23%,theDefence budgetcameundergrowingpressureastheyearswentby.Totrytoclosethegapbetween meansandends,successivegovernmentspursuedefficiencyprogramsofonesortor anotherthroughthe1990s(seeChapter4ofthe200910ASPIBudgetBriefforfurther details). Nonetheless,bytheendofthedecadeDefencewasinasadstate:thepermanentforcehad shrunkbymorethan20,000positionscomparedwiththemid1980s;atrainwreckofblock obsolescencewasloomingwithnomoneyinsightformodernisation;thepreparednessof theforcewaspoorwithmanyfittedforbutnotwithplatformsandothersbadlyinneedof upgrade;andlogisticswashollowandunderfunded.Itwasagainstthisbackgroundthatthe thengovernmentdecidedtodevelopaWhitePaperin1999withtheaimofputtingDefence planningandfundingonasustainablefooting. ThetumultuouseventsinEastTimorin1999delayedtheWhitePaperuntiltheendof2000. Butitwasperhapsadelayworthhaving.EastTimorwasthelargestAustralianoperation sinceVietnamanditstretchedpartsofthedefenceforceseverely.Intheprocess,serious shortcomingswereexposedinequipment,logisticsandpreparedness.Itisunlikelythatthe governmentwouldhavebeenasgenerousin2000withouttheexperienceoftheEastTimor operation. The 2000 White Paper TheonlyDefenceWhitePaperproducedbytheHowardgovernment,Defence2000,sought toachieveacoherentpackageofstrategy,capabilityandfundingforAustraliasdefencefor thedecade200102to201011.Onthecapabilityside,aDefenceCapabilityPlan(DCP)was publishedthatdetailed165separatephasesofeightyeightcapabilityproposals,valuedat around$50billion,plannedfortheforthcomingdecade.

109

 Theentirepackage,includingnewandpreexistingcapability,wasfundedthrougha decadelongfundingenvelopethatroughlyequatedto3%averageannualrealgrowth. AlthoughearlierWhitePapershadsuggestedneartermfundinglevels,neverbeforehada decadelongfundingcommitmentbeenmadeletaloneonewithatalismanlikegoalof3% realgrowth. Defence2000providedmorethan$30billionspreadacrossfourcategories,including: $21billionforthepurchaseofmajorcapitalequipment;$3.2billiontocoverthethroughlife supportcostsofnewcapabilitiesplannedtoenterserviceasaresultoftheDCP;$5billionto coveranexpectedannual2%growth(aboveinflation)inpersonnelcostsand$1billionto augmenttheoperatingcostbaselineintheDefencebudget.Inaddition,Defencewas allowedtoretainwithinitsannualfundingbasearound$450millionofunspentoperational supplementationfromEastTimor. The3%fundingcommitmentwasextendedoutto201718inthe2006and2008budgets. Beforeturningtolookattheseandotherfundingmeasuresfromthelastdecade,itsworth pausingtolookbackatDefence2000andaskhowfarDefencehasgotindeliveringthegoals setforit. Attheriskofoversimplification,Defence2000soughttoachievefourthings:(1)modernise theADFbyreplacingorupgradingageingassetsandintroducingnewcapabilitiesinselect areas;(2)improvethepreparednessoftheADFsothatitwasmadeupoffullydeveloped capabilityratherthanhollowunitsandfittedforbutnotwithplatforms;(3)boostthe capabilityoftheADFtoundertakeexpeditionaryoperationsintheimmediateregion;and(4) sustainablyalignDefenceplansandfunding. Ofthefourgoals,themodernisationoftheADFwastheleastsuccessful.Persistentand widespreaddelaysintheapprovalandexecutionofdefenceacquisitionsdelayedthe deliveryofmanycapabilities,withdelaysof45yearsnotuncommon.Inpart,thisreflected asystematicunderestimationofcostswhichensuredthattherewasnevergoingtobe enoughmoneytodeliverallthatwasplanned.Furtherdelaysaroseduetoinsufficient industrycapacity,tardyapprovalofnewacquisitionsandalltoofrequenttechnicalproblems withequipmentunderdevelopment.Infact,thecombinationofdelayedapprovalsand delayedprojectssawDefenceunabletospendallthemoneyithadbeengiventobuynew equipment.OvertheperiodcoveredbyDefence2000,weestimatethatatleast$4.4billion ofplannedinvestmentwasdeferred.Theactualfiguresareprobablyhigherbutwecannot besurebecausethefullextentofthedeferralswasnotdisclosedinthe200910Budget. OneareawhereDefencecanclaimsuccessisinimprovingthepreparednessofthedefence force.Whileproblemsremaininsomeareassuchasthesubmarineandamphibiousforces, thetrendoverthepastdecadehasbeenfavourable.NotonlyistheADFnowmoreready andabletomountandsustaindeploymentsasevidencedbyitscurrenthighoperational tempobutwithinDefence,themanagementandinternalreportingofpreparednessis muchbetterthanitwasadecadeago.Similarly,thecapacityoftheADFtoconduct expeditionaryoperationsinourimmediateregionisbetternowthanatanytimesincethe Vietnamconflict.Ofcourse,wedontknowwhatwedontknow,theremaybeproblems lurkinginareasthathavenotbeentestedoflateaswasdiscoveredlastyearinthe amphibiousforce. 110

 AsforputtingDefencefinancesonasustainablefooting,itwasnotlongbeforeDefencewas strugglingtodelivertheoutcomessoughtbyDefence2000withinthefundingprovided.In 2003aninternalDefenceCapabilityReviewrecommendedcutstotheforcestructureto containcosts,includingthedecommissioningoftwoFFGfrigates,theearlyretirementofthe F111fleetandthelayingupoftwominehuntingvessels.Butthesecutsfailedtobringthe booksintobalanceandfrom2005onwardsadditionalfunds(amountingultimatelyto arounda$1billionayear)weremadeavailabletoDefencetomanagethebaselinecostof personnel,estateandlogistics.Atthesametime,savingsmeasuresof$200millionayear wereimposedonDefencetoredirectmoneytowardscombatcapability. Boom times: 2002-2008 BridgingthegapbetweenthemeansandendsofDefence2000wasonlythestartofthe governmentsgenerositytoDefence.Fromaround2006,thepreviousgovernmentprovided additionalmoneyforarangeofnewcapabilityinitiatives,includingfourC17transport aircraft($3.2billion),twentyfourF/A18FSuperHornetstrikefighters($6billion),andthe EnhancedLandForceinitiativethatwilladdtwoinfantrybattalionstotheArmyatacostof $10billionoveradecade.Thisadditionalfundingcameontopofthatprovidedfornewand expandedcapabilitiesintheaftermathof9/11andthedeploymentsthatfollowed. Becauseofficialbudgetfiguresareinvariablygiveninoutturnformatthatanticipates futureinflationandforeignexchangerates,itisdifficulttogiveadefinitivefigureforthe valueofadditionalfundsprovidedpost2000.Thebestwecandoistocapturethescaleof fundingusingthehistoricalvaluesthatappearedinthebudgetpapersatthetime, convertedto201011dollars.TheresultappearsinFigure3.1.
Figure 3.1: Additional funding 2000 to 2008
16 3% growth (2008) 14 Extra capability: C-17 transport aircraft F-18 Super hornets Ehanaced Land Force

Billionapproximate201011$

12

10 Operational supplementation 8

3% growth (2006)

6 Post-9/11 initiatives 4 2000 White Paper funding (including reprogramming)

2 Additional baseline funding 0

Source:ASPIanalysisofbudgetpapersandDAR,CPIinflationused

111

 DespiteallthemoneyflowingintoDefence,itremainedunclearwhetheradequatefunds wereavailablepreDefence2009todeliverthecapabilitiessoughtatthattime.Onone hand,itlookedlikenotenoughmoneyhadbeensetasidetocrewandoperatetheraftof newcapabilitiesunderdevelopmenthencethe$10billionsavingsprogramannouncedin early2008.Ontheotherhand,Defencewasunabletospendthemoneyithadforboth investmentandrecurrentspending.Somuchso,thattheyweredirectedtoabsorb $1.1billionofmeasuresin200809followinganabnormallylargewindfallfromprice supplementation(andtheembarrassinghandbackof$830millionofunspentfundsfrom 200708).ThiswastheconfusingstateofDefencefundingpriortothereleaseofDefence 2009.

The 2009 Defence White Paper and beyond

On3May2009,thePrimeMinisterreleasedthelongawaited2009DefenceWhitePaper. EntitledDefendingAustraliaintheAsiaPacificCentury:Force2030the138pagedocument includedoneandhalfpages585wordstobepreciseonhowthegovernmentplannedto fundDefenceoverthenext21years.Theplanhadtwoparts. First,afundingmodelwiththefollowingelements: 3percentrealgrowthintheDefencebudgetto201718 2.2percentrealgrowthintheDefencebudgetfrom201819to2030 2.5percentfixedindexationtotheDefencebudgetfrom200910to2030 thatDefencewillreinvestsavingsfromits[$20billiondecadelong]StrategicReform ProgrambackintopriorityDefencecapabilitiesasagreedbytheGovernment shortfallsagainsttheWhitePaperfundingplanwillbeoffsetbyDefence.

Second,Defence[will]undertakeasubstantialprogramofreform,efficienciesandsavings tounderpintheachievementofWhitePaperobjectives...[and]correctlongterm hollownessandremediatetheenablingfunctionsoftheAustralianDefenceForce.Thisis,of course,theaforementioned$20billionStrategicReformProgram. Furtherdetailwasprovidedeightdayslaterinthe200910Budget.And,whilethewording ofthefundingcommitmentinDefence2009wasretained,thegovernmentstoppedshortof handingoverthemoney.Instead,asubstantialwedgeofpromisedfundingwasdeferred intothefuture.Asbestwecanworkout(the200910budgetwaslessclearthanitcould havebeen)thenetresultwas: thenewfundingmodeladdedinexcessof$10.5billionoverthedecade,including $5.3billioninthefirstfouryears $8.8billionwasdeferredwithinthedecade,including$6.8billioninindexationfrom thefirstsixyearsalongwithanother$2billionfromthefirstfouryears theeighth,ninthandtenthyearsofthedecadereceivedsomedeferredfunds,with theremainderpushedintothenextdecade.

Theshiftinfundingfromindexationoccurredbythe2.5percentbeingcalculatedfrom 200910butonlyappliedfrom201314. 112

 Figure3.2depictsthedeferraloffundingthatoccurredinthe200910Budget.Inadditionto thisdeferralandtheimpositionofthedecadelong$20billionsavingsprogram,Defencewas alsodirectedtoabsorbadditionalnewbudgetmeasuresamountingto$585millionover fouryearsand$1.7billionoverthedecadeinthe200910Budget.

Figure 3.2: Defence funding as inferred from the 2009-10 PBS
pre-deferrals post-deferrals To next decade?

39 Billion dollars 2009-10 outturned prices

37

$8.8 billion dollars deferred

35

? ?
$950m $1,300m $1,650m $3,400m $1,000m $500m

33

31

?
Undisclosed Funding

29

27

25 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Source:ASPIanalysisofbudgetpapers Theinitialdeferraloffundsin2009wasonlythestartofthesteadyerosionofthemoney availabletoDefencetodeliverForce2030.Table3.1collectstogetherthekeymeasures. Eachofthecategorieshasadifferentimpactontheavailabilityoffunds. The$10.6billionofdeferralsdonotrepresentlostmoney,butrathermoneythatwas shifted(reprogrammed)tomostlyunknownpointsintimeinthesecondhalfofthisdecade orbeyond.NowthatanewWhitePaperhasbeenpromisedfor2013,allbetsareoffasto whetherthismoneywilleverbeavailable.Inalllikelihood,wellneverknow.Thatsoneof thebenefitstothegovernmentofnotdisclosingplannedfundingbeyondtheforward estimatestheoverallimpactcannotbeassessed. The$10billiondollarsofsavingsrepresentcutstodefencefundingforwhichthereisno suggestionofthemoneyeverybeingreturnedatsomepointinthefuture.Around $4.5billionofthesavingsaresupposedlytheresultofefficiencies,theremainderare outrightcuts.Defencehasnoonetoblamebutitselfformostoftheformerhavinghanded backmoneyin201011andadvisedthegovernmentofadditionalsavingsavailablefrom sharedservicesreform(anareawhichmorerecentlyhadtobesupplementedwith additionalfundsinthisyearsbudget). AbsorbedcostsareanadditionalimpostputonDefencetodeliversomethingextrawithout additionalfunding.Thefigureweveusedisactuallyonlyasubsetofthemeasureswhich havetechnicallybeenabsorbed.Specifically,weveexcludedtheacquisitionoftwoC17 aircraft($531million),twoChinookhelicopters($40million),theOffshoreSupportVessel 113

 ($123million),acquisitionoftheLargsBayfromtheUnitedKingdom($277million)and longleaditemsfortheGrowlermodificationofpartoftheSuperHornetfighterfleet ($20million).Theseitemsrepresentthenormalevolutionofthegovernmentscapability prioritiesfortheADFforwhichoffsetswilleventuallyarise.Thethreeitemsthathavebeen includedareratherdifferent;theyrepresentadditionaltasksthatsomehowhavetobe deliveredwithoutanyobviousoffset(e.g.700extraNavypersonneladdedin2009).Assuch, theyrepresenttheimpositionofanunfundedbudgetpressure.Notethatonlyaroundhalfof theabsorbedcostofforceprotectionmeasuresinAfghanistan(whichunderlongstanding conventionwouldhavebeenfundedthroughsupplementation)hasbeenincludedbecause itremovedtheneedforsomeprojectspreviouslyplannedforlaterinthedecade.Finally,the handbacksofunspentfundsrepresentlostopportunities.
Table 3.1: Key budget actions impacting the Defence budget 2009-2012
Year Deferrals 2009 Budget 2010 Budget 2011 Budget Deferral of funding to beyond 2015-16 Deferral of investment funding to beyond 2015-16 Deferral of investment funding to beyond 2014-15 Total Savings 2011 Budget 2011 mid-year 2012 Budget Increased efficiencies and savings (over 10 years) Efficiency dividend (over 10 years) Expenditure reduction measures (over 10 years) Total Absorbed costs 2009 Budget 2010 Budget 2012 Budget Costs absorbed 2009-10 to 2018-19 Cost of force protection ($912 m) Cost of existing projects ($402 m)* Cost of Moorebank-Holsworthy relocation Total Hand backs 2009-10** 2010-11 2010-11 $131 million unspecified $1.1 billion in capital investment $400 million in recurrent expenses Total Source:DARandPBS.*Senatequestiononnotice#140,September2010.**SLCHansard30May2011. $131 million $1,100 million $400 million $1,631 million $1,680 million $510 million $332 million $2,522 million $3,837 million $666 million $5,455 million $9,995 million $8,810 million $521 million $1,281 million $10,612 million Initiative Cost

Atthispointanasideisnecessaryregardingthehandbackof$1.5billionin201011.Asit turnedout,DMOmanagedtoprogressanadditional$845millionworthofinvestmentin MayandJuneof2011beyondwhatitthoughtitcould,whichatthetimewasexpectedtobe a$1.1billionhandback.Conversely,theyunderspentonsustainmentby$125millionin additiontothehandbackbyDefenceof$400million.Thenetresultwasthatinaccrual terms,thecapitalunderspendfor201011wasonly$255millionwhiletherecurrent underspendwas$525million.Incashterms,thisledtoa$699millionpayment(takingother factorsintoaccount)toDMOfromDefencesinvestmentfundsin201112,therebyreducing theamountofmoneyavailableforinvestmentthatyear.Twoquestionsarise:Whydidsuch largechangesoccurattheendof201011?Hownecessarywerethecapitaldeferralsmade inMay2011? 114

 Thesummarythen,Defencehashandedback$1.6billion,ofwhich$780millionitwas unabletospend.$10.6billionofplannedinvestmenthasbeendeferredand$10billionof fundinghasbeenreturnedtoTreasury,includingfromareasthatweresupposedtobe deliveringefficienciesbutwhichhavesinceencounteredcostpressures.Costpressuresthat areexacerbatedbytheneedtoabsorb$2.5billionworthofunfundedmeasures. Settingasidethehandbacks,Defencesbudgetbottomlinehasbeenimpactedbytwo categoriesofgovernmentdecision;deferralsandsavingscuts.Theaggregateeffectofthese measuresisplottedinFigure3.3atoptheunderlyingcashbalancefortheCommonwealthas giveninthisyearsbudget.Notethatmostofthedeferredfundinghasbeenpromisedback inthesecondhalfofthedecade,butwhatyearsthisisplannedforwedontknow. OnthebasisofthefiguresinthisyearsBudget,ifDefencespendinghadbeenheldatthe levelspromisedinthe2009DefenceWhitePaper,theCommonwealthwouldhaveremained indeficitfortwoadditionalyearsuntil201415.
Figure 3.3: Reduced Defence funding and the underlying cash balance
5

ReductionsinDefenceSpending sincethe2009DefenceWhitePaper
4

Billiondollars

Deferrals Savingscuts

0
200910 201011 201112 201213 201314 201415 201516 201617 201718 201819 201920 202021

?????
200910 201011 201112 201213 201314 201415 201516 201617 201718 201819 201920 202021

1 percentGDP

Underlyingcashbalance as budgeted May2012

3

5
Source:DAR,PBSandthe201213BudgetOverview.

115

 Theclearcorrelationbetweenreduceddefenceexpenditureandthereturntosurplusisnot asurprise.Backin200708,theASPIBudgetBrief(Section7p.135)includedaprecautionary riskanalysisoffactorsthatcouldimpedetheprogressofthe2000WhitePaper,including theriskposedbyarecession.Theconclusionatthattime,basedupontheexperienceofthe recessionsintheearly1980sand1990s,wasthatthethreattodefencefundingoccurrednot attheoutsetofaneconomicdownturn,butatthepointwhenthegovernmentwasstriving toreturntosurplus.Eventsofthepastthreeyearshaveconfirmedthatanalysis. Wemaynotbeoutofthewoodsyet.Thegovernmentsprojectedsurplusesoverthenext twoyearsareheroicallythin.Asashareofprojectedgovernmentrevenues,theyrepresenta mere0.4%.Pastexperienceshowsthattheoutcomesforrevenuesandexpenditureoften varysubstantiallyfromestimatedvalues.Onaverage(excludingthedramaticGFCyears)the observedvolatilityisaround2.5%ofrevenues,oraround$9billioninabsoluteterms.Thus, allotherthingsbeingequalthere,isroughlya50%chancethatthebudgetwillslipinto deficitduringtheyear.Ifthishappens,thegovernmentwillneedtoeithermakefurther savingsorgenerateadditionalrevenuesifitwantstoretainitssurplus. Becausesavingsarepoliticallyandadministrativelyeasiertoenactmidyearthanrevenues, itmeansthatanyshortfallwillprobablybemadeupofsavingsfollowingthemidyear budgetupdate.Withonlysixmonthstobalancethebooks,thecutswherevertheymight fallwillhavetobetwiceasdeepastheywouldhavebeeniftheydcommencedatthe beginningofthefinancialyear.Asoneofthefewareaswithalargediscretionaryspending component,Defencemightbetappedontheshoulderonceagain.

Immediateimpact
Withayearonyearrealreductionindefencespendingofmorethan10%,thequestionis; howwillthecutsbemanaged?Tostartwith,thegovernmenthasdirectedthatoverseas deploymentbequarantinedfromthecutsalongwithmilitarypersonnelnumbers.The formermakesunambiguoussense,thelatterpoliticalsense. The$5.5billionofexpenditurereductionsand$2.9billionofredirectedfundingboth removeandrebalancedefencespending.ThenewimpactofthetwoiscapturedinTable3.2 intermofcapital,personnelandoperating(i.e.everythingelse)costs.Intheabsenceof precisefigures,weveassumedthatthe$2.9billionhasbeentakenentirelyfromcapital investment(thePBSsaysthattheoperatingbudgetalsomakesacontributionin201213).
Table 3.2: The net impact of cuts and readjustments in the budget
Operatingcosts Capitalcosts Personnelcosts Total
Source:ASPIanalysisof201213PBSTables5and6.

201213 43 948 65 970

201314 158 1,770 21 1,633

201415 169 1,379 68 1,142

201516 149 1,896 37 1,710

Total 519 5,993 20 5,454

Giventhatmoneyisfungible,itsfairtosaythatCapitalinvestmenthasbeencutby $6billion,operatingcostshavebeenincreasedbyaround$500million,notmuchhas happenedtopersonnel,andalotofmoneyhasbeenshiftedaroundwithinthethree 116

 categories.Consistentwiththis,theunderlyingtrendsinbaselineaggregateoperatingand personnelcostshavenotchangedmuch. Figure3.4isourbestattempttoisolatetheunderlyingrealtrendsinthethreecategoriesof spendingbysubtractingsupplementationforoperationaldeployments.Todoso,wehave assumedthat(1)allofthesupplementationforforceprotectioninAfghanistaniscapital investment,(2)deployedpersonneleachaddanextra$45,000ayeartopersonnelcosts, and(3)15%oftheremainingsupplementationrepresentscapitalinvestment.These assumptionsarethebestwecandoabsentdisclosureofwhatmakesuptheoperational supplementationreceivedbyDefence. Thefactthatunderlyingtrendsinpersonnelandoperatingcostsarelargelyunchanged, accordswiththerelativelybenignimpactonongoingactivities(apartfrominvestment) reflectedinthemessagessentoutbythethreeServicechiefstomembersfollowingthe 2012budget.Militarynumberswillberetained;cutstociviliannumbersaresmallandwill bemanagedthroughattrition;travelwillbecutby20%.
Figure 3.4: Underlying trends in defence costs
12 Personnelcosts 10 billion201213dollars Operatingcosts

Capitalcosts

Source:ASPIanalysisof201213PBS.

Longtermimpact Sowheredothecutsanddeferralsleaveusinthelongterm?NeitherDefence2009norany ofthesubsequentBudgetsdisclosedtheactuallevelofplanneddefencefundingbeyondthe forwardestimatesperiod.Fortunately,inFebruary2010thegovernmentsIntergenerational ReportprovidedagraphoflongtermdefencefundingasashareofGDPfromwhichitis possibletocalculatedefencespending.Takingintoaccountdecisionsfromthelastthree budgets,theupdatedresultappearsinFigure3.5.Giventhedifficultiesinmappingonedata sourcetoanother,theresultisindicativeratherthanprecise. Clearly,theimpactofrecentcutsandaccumulateddeferralsoffundingwillcreatea challengepost201213,thatisifexistingplansareretained.Iftheyare,overtheperiod 201213to201718,underlyingdefencefundingwillhavetogrowby33%inaperiodofonly 117

 fouryearscorrespondingtoanaverageofalmost8%perannum.Aswellsee,becausea largeshareofthisadditionalmoneyisdesignatedforcapitalinvestment,itishighlydoubtful thateitherDefenceorindustryhasthecapacitytoachievesuchrapidgrowth.

Figure 3.5: Indicative Defence funding 2000 to 2029
35
2009 White Paper 2000 White Paper

30

33% real growth over 4 years

25

billion201213$

20

15 Absorbedcostofoperations Operationalsupplementation 5 Underlyingdefencefunding

10

Source:2010IntergenerationalReport,201112BudgetPapersandDefencePBS(2012=201213etc.)

DeliveringForce2030(orsonofForce2030)
EvenifthegovernmentanditssuccessorsmaintainthefundingpromisedinDefence2009 thoughthatnowseemsdoubtfulthefeasibilityoftheresultingplanswillbefarfrom assured.Theunambiguouslessonofthepastdecadewasthatwhileplanningfornew capabilityiseasy,deliveringitcanbeverydifficult.Infact,itisalreadyclearthatthenew capabilitiesenvisagedintheWhitePaperwillnotenterserviceasplanned.Onlythreeyears afterthe2009WhitePaperandmajorequipmentacquisitionprojectsareneitherbeing approvednordeliveredonscheduleevenafterthemostrecentreschedulingin2011. ItsrecognisedthatcurrentplansareuntenableandanewDefenceCapabilityPlan(DCP)has beenpreparedwithinDefenceandapprovedbygovernment.Itisexpectedthatthenew DCPwillbereleasedthisyear,priortothereleaseofthe2013DefenceWhitePaper. PendingthereleaseofthenewDCP,wecannotcommentonextantplans.Instead,we reportonprogressagainstthelastpubliclyreleasedDCPfrom2011andexplorethereasons whyitissodifficulttoinitiateanddelivermajordefenceacquisitionprojects.

Approvalandcommencementofprojects
Beforeanitemofmajorcapitalequipmentcanbepurchased,theacquisitionhastobe approvedbytheNationalSecurityCommitteeofCabinetor,forprojectsvaluedlessthan $100million,bytheMinistersforDefenceandFinance.Underthearrangementsintroduced followingthe2003KinnairdDefenceProcurementReview,eachmajorprojectisconsidered 118

 twice.Initialapproval(knownasfirstpass)allowsaprojecttobeginplanninginearnest, includingcollectinginformationonpotentialoptions.Sometimelater,finalapproval(second pass)issoughttoallowaprojecttoproceedtocontractwithasupplier. Trackingtheachievementoffirstandsecondpassapprovalofmajorcapitalinvestment projectsisnotastraightforwardtask.UntilthisyearsPBS,theactualprojectsplannedfor approvaloverthenexttwelvemonthswerenotlisted.Atfirstglance,thepublicDCPis equallyunhelpful.Whilespecificyearsusedtobeprovidedfortheplannedapprovalof projects,therearenowonlymultiyearbracketswhichobscurewhatsgoingonwith individualprojects.However,withabitofwork,itspossibletogenerateaclearerpictureof plansfortheoverallprogram.Thiscanbedonebytabulatingallthemultiyearwindowsfor theindividualprojects,andintheabsenceofmoreprecisedata,assigninganequal probabilityofanapprovalineachyearofthewindow. Forexample,ifaprojecthasawindowof201112to201213,itisassigneda50%chance thatitwillbeapprovedineachoftheyears.Weightingtheprobabilitiesforthe135projects availableinthe2011revisionoftheDCPinthiswayyieldstheprojectapprovalpatternsin Figure3.6and3.7.Forcomparison,previouslyplannedandachievedapprovalsforthe period200405to200910havebeenincluded.BecausetheyarenotlistedintheDCP, weveexcludedtheapprovalofclassifiedprojects. Severalpointsstandoutfromfigures3.6and3.7: Thepaceofsecondpassapprovalshasimprovedsubstantiallyin201112,although someoftheapprovalswereoneoffnonDCPprojectssuchaslongleaditemsfor theGrowlerupgradeandanotherC17purchasedasthefinancialyearcametoa close. Firstpassapprovalstheleadindicatoroffutureworkarestillbadlybehind schedule. Thefailuretoapproveprojectshascreatedabowwaveofapprovalsoverthenext 35years. Asexpected,becausesecondpassiscontingentonfirstpass,thepeakofplanned secondpassapprovalsoccurstwoyearsafterthatforfirstpass. Fromthemiddleofthedecadeonwards,thereisadroughtofprojects. Onthebasisofrecentexperience,theplannedapprovalofprojectsismanifestly unachievable.

TheproblemsofrecentyearsareunderstoodbyDefence,notonlyhastheDCPbeen reviewed,butreformshavebeenunderwayinCapabilityDevelopmentGroupthisyearto improvethethroughputofprojects. Notalloftheproblemswiththe2011versionoftheDCPreflecttheaccumulatedimpactof slowapprovals.Asweshowedindetaillastyear,theoriginal2009DCPcontaineda manifestlyunrealisticpatternofplannedapprovals.TheinitialdecadeoftheForce2030 venturewasdoomedfromthestart. 119

 Onpage133,thePBSlists6projectsintendedforfirstpass,and19forsecondpass,in 201213.Thisseemsveryoptimistic.Thisfinancialyear,16projectsreceivedsecondpass approvalfromaprovisionintheDCPof$719million.Inthisyearsbudget,only$109million hasbeensetasideforapprovalsin201213.

Figure 3.6: Projects planned for second-pass approval 30
2011DCP 2ndpassapprovalsplanned 2ndpassapprovalsachieved

25

numberofprojects

20
'Bowwave'ofprojects

15
Thelongdrought?

10

Source:PastandcurrentDCP,PBSandAnnualReports.

Figure 3.7: Projects planned for first-pass approval 45

2011 DCP

40 35 numberofprojects 30

1stpassapprovalsplanned 1stpassapprovalsachieved

'Bowwave'ofprojects

25 20 15 10 5 0
Thelongdrought?

Source:PastandcurrentDCP,PBSandAnnualReports.

DespitethereformstotheCapabilityDevelopmentGroupandthepromiseofanewDCP,an examinationofhistoricalpatternsofprojectapprovalimpliescautionabouthowmuchcan 120

 beachievedoverthenextfewyears.AsFigure3.8shows,highapprovalrates commensuratetothoseplannedrecentlyhavebeenachievedinthepast,butnotsincethe introductionofthemoredemandingtwopassprocessin2004. Itisworrying,thattheusualsurgeinapprovalsfollowingaWhitePapersimplydidnotoccur in2009.Moreover,theelectionin2013(whichhistoricallyreducesthenumberofapprovals) andaWhitePaperinthesameyear(whichonpastexperiencewillbeprecededbya substantialhiatusinapprovals),willprobablyseeareducedthroughputofapprovalsover thenexteighteenmonths. Figure 3.8: Planned approvals (second-pass); 1984 to 2022
50 2ndpassapprovalsactual 45 2ndpassapprovalsplanned 40 1994WhitePaper 35 two-pass process 2013WhitePaper 2000WhitePaper FederalElection

projectapprovals

30 25 1987WhitePaper 20 15 10 5 0 198485 198687 198889 199091 199293 199495 199697 199899 200001 200203 200405 200607 200809 201011 201213

2013FederalElection (mostlikely) 2009White Paper

201415

201617

201819

202021

Source:DARand2009DCP(2011revision),excludesclassifiedprojects.

Performanceindeliveringcapitalequipment ThecriticalpathtoexpandingandmodernisingtheADFgoesthroughtheacquisitionof majorcapitalequipment.Inthissectionweexaminerecentandhistoricaltrendsinthe MajorCapitalInvestmentProgram. Formorethanadecade,DefencehasstruggledtodeliveritsplansforreequippingtheADF. PriortoDefence2009,around$4.4billionofinvestmentwasdeferredintothefuture,andin thelatestbudgetsomethinginthevicinityof$5.9billionwascutoverfouryears(madeup ofthe$3.0billionexplicitlyremovedaspartoftheexpenditurereductionmeasuresand anotherroughly$2.9billionsacrificedtoaddresscostpressureswithinDefence).What changedwiththisyearsbudgetisthatitwascompetingdemandsforfinancialresources, ratherthanDefencesinabilitytospendmoney,thatcausedthereduction.Successiveplans andactualresultsarepottedinFigure3.9.

121

202223


Figure3.9:MajorCapitalInvestmentplansandactualresults
10 9 8 billion dollars (nominal) 7 6 5 4 3 2 1 0 Actual Current Plan Progressive Annual Plans

Source:PBS,DARandspeechesbyDefenceofficials.

Evenwhenprojectareapprovedandfundingisavailable,defenceprojectstendtoprogress moreslowlythananticipated.Usuallythisismanagedthroughthemechanismof overprogrammingwherebymorespendingisplannedthanavailablemoney.The systematicslippageinprojectsthen,moreorless,bringsthingsintobalanceattheendof theyear(withalittlemanagementinterventionasnecessary).Sometimesthingsdontgoto planandmoneyhastobehandedback.Mostrecently,in201011,$1.1billionofinvestment fundingwasreturnedtothegovernment. Totracktheevolvingperformanceofdeliveringprojectonschedule,wevecollecteddataon theplannedandactualexpenditureonthetop20or30projectsreportedeachyear.Within theseprojects,figuresarenotoverprogrammedandthereforereflectaprojectsanticipated andactualinyearperformance.Thesimplesttestistolookattheaggregateplannedand actualexpenditurefortheavailableprojects,seeFigure3.4.Becauseforeignexchangerates sometimeschangemidyear,theseneedtobetakenintoaccount.Unfortunately,theimpact ishardtoassessbecausetheprojectsforwhichinformationisavailableonlyrepresenta subsetofthetotalprogram,andtheimpactofforeignexchangeisonlyavailableoverthe entireprogram.Butbecauseforeignexchangehasbeenrelativelysmall(apartfromin 200910),areasonablecomparisonispossible.TheresultsaregraphedinFigure3.10.Note thattheresultsfrom199394to199596onlytakeintoaccountsignificantchanges.Asa result,thefiguresfortheseyearsprobablyslightlyunderestimatetheextentof underperformance. Acoupleofpointsareworthmaking.First,giventheconsistenttendencyofprojectsto underperform,thecurrentandlongstandingapplicationofoverprogrammingisentirely appropriate.Second,ifprojectsreallyarebeingmorecarefullydevelopedpriortoapproval asisclaimed,animprovementshouldbeexpectedasnewerprojectsreplacetheold. Similarly,thedevelopmentofamorecommerciallyadeptandprofessionalacquisition

122

 workforceshouldbereflectedinimprovedinyearperformanceofprojectsoldandnew.No suchimprovementisapparentinthedatapost2004.
Figure 3.10: Per cent under- and over-spent on top 20/30 capital equipment projects
15%

Overperformance
10% 5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

average=12.9%

Underperformance

Source:DefenceBudgetPapersandAnnualReports.Onlytherevisedfigureisavailablefor201112

Responsibilityfortheperformanceoftheapprovedmajorcapitalinvestmentprogramis sharedbetweenDMOandIndustry.Eachsideisnaturallyeagertoseetheothertake responsibilityforproblems.Lastyear,welookedcarefullyatthecausesofslippageinthetop 30projectsasgiveninthe201011PAES.Thestoryissomewhatmorecomplexthanthem orus.Ofthe$1.1billionworthofdelaysreportedatthattime,fully$200millionwere goodnews;includingcostreductionsandearlypaymentsinthepreviousreportingperiod. Oftheroughly$900millioninbadnews,ourassessmentwasthattherewasaroughly 8020splitofresponsibilitybetweenindustryandtheCommonwealth.Ourbestestimateof thesituationappearsinTable3.3.(Wewouldrepeatedtheexercisethisyearbutforthe confusingspilloverofinvestmentfrom201011to201112.)
Table 3.3: ASPI assessment of responsibility for slippage
Commonwealth Positive Negative $64 million $160 million Suppliers $136 million $746 million Unallocated $23 million

Source:ASPIassessmentofinformationinthe201011PAES

TheFeasibilityofPlansforForce2030
Therecentdeferralsofprojectshaveexacerbatedtheproblemcreatedbackin2009when thefirsttrancheofdeferredinvestmentcreatedaveritablemountainofinvestmentpost 201213.AlthoughDefencenolongerdisclosesitslongterminvestmentplans,anofficial providedasnapshotofplannedDMOspendingasatFebruary2011.Wevedoneourbestto updatethatinformationtotakeaccountofthelatestroundofdelays;theresultis 123

 Figure3.11whichshouldbetakenasindicativefortheyearsafter201516.Giventhe limitationsofindustryalreadyapparent,itgoeswithoutsayingthatifpreviouslyplanned growthininvestmentweretobeattempted,itwouldsorelytestthecapacityofthedefence industrytorespondespeciallygiventhecompetitionforskilledlabourinwhatsshapingup tobethelargestresourcesboominAustraliashistory.Onthebasisofexperienceduringthe 2000swheninvestmenthadtobedeferredonanumberofoccasions,wecanonlybe confidentoframpingupinvestmentbyanaverageofaround5%ayearinrealterms.Of course,itsprobablydoubtfulthattheearlierplansforrapidlyincreasedspendingwill survivethe2013WhitePaper.

Figure 3.11: Past and planned Major Capital Investment
9 Indicativeestimateonly 8 7 6 billion201213$ 5 4 3 2 1 0 UnapprovedMajorCapitalProgram ApprovedMajorcapitalProgram
Youarehere 133% increase

Source:DAR,201213PBSand2011presentationbyDefenceofficial

Settingasidethepracticalitiesofrecoveringdeferredinvestmentinthesecondhalfofthe decade.Evenifthisweretobesomehowdone,thelongertermaffordabilityofthe governments2009planswasalwaysunclear.Thenotionthat2.2%realgrowthwillbe adequatepast201718seemsveryoptimistic.PreviousASPIanalysisoftheunderlyingcost ofmaintainingdefence(seeThomsonandDavies,StrategicChoices:DefendingAustraliain the21stCentury,2008)estimatedthattotreadwaterintermsofsizeandscopeof capabilitywhilemaintaininganinventoryofmodernequipmentrequiresaverageannual growthaboveinflationofaround2.6%.ThisalsoaccordswiththelongtermpostWWII trendinAustraliandefencefunding(seeChapter5ofthisBrief). FurthercorroborationcanbefoundinthelongtermtrendsinUSdefencespendingand output(seeThomson,TrendsinUSdefencespending:implicationsforAustralia,2010).Using historicaldatagoingbacktothe1950s,itspossibletomeasuretherealannualincreasein thecostperunitofUSmilitarycapability.Calculatedkeyresultsincludeanincreaseinthe costofaircraftof3.5%peryear,personnel2.6%andnavalvessels3.5%.Combiningthese resultsandaccountingforcentraldefencewidecostsgivesanestimateof3.1%asthe 124

 minimumrealannualgrowthrequiredtomaintainanadvancedmilitaryforce.Thus,itseems doubtfulthatthe2.2%fundingpromisedpost201718willbeenoughtomaintaintheADF, letaloneexpanditsmaritimeforcesasplanned. Furtherpressureonthelongtermplanwillcomefromthemovetonominal(i.e.fixed2.5% indexation)ratherthanrealdefencefundingincreasesthattakeaccountofactualchangesin thebuyingpowerofthedollar,seeTable3.4.Everyyearthatinflationrisesabove2.5% shavesasliceofbuyingpowerfromeachandeverysubsequentyearofthe20yearWhite Paperprogram.

Table 3.4: The impact of fixed indexation on the buying power
CPI 2008-09 2009-10 2010-11 2011-12 2012-13 Total 3.10% 2.30% 3.10% 1.25% 3.25% CPI 2.5% - 0.6% + 0.2% - 0.60% + 1.25% - 0.75% Impact on funding to 2030 (2011-12 $) - $3.9 billion + $1.2 billion - $3.6 billion + $6.4 billion - $4.2 billion - $4.1 billion

Inthelongrunitprobablydoesntmatter.TherewillbeWhitePapersandbudgetreviews aplentyintheyearsaheadincludingonenextyear.Butitdoesmakethepointthatfixed indexationisaspoorapolicyasitislazy.

White Paper past and present

Whathappenedtothe2009DefenceWhitePaper?
Justpriortothebudget,thegovernmentgavefivereasonsforbringingforwardthenext WhitePaperto2013.Thesereasonsareexaminedlaterinthissectionforhintsofwhat Defence2013mightcontain.Itturnsouttobeausefullineofenquiry. Butirrespectiveofthereasonsgiven,theWhitePaperhadtobebroughtforwardforone simplereason:existingplanshavebecomeuntenable.Notonlyhasagapemergedbetween meansandends,butthedepartmentsinternalbudgethasbecomedistortedand unsustainable.Althoughonlythreeyearsold,theplansforAustraliasdefencesetoutin Defence2009areinurgentneedofremedialaction. Thisishardlyanewrevelation.Lastyear,inthisverychapter,weconcludedthat:
Thetimeforpretendingisover.Theplansetoutinthe2009WhitePaperisinneed ofurgentrevision.Ratherthanwasteresourcestryingtoinitiateanunachievable volumeofprojectsoverthenextseveralyears,amoremodestandrealisticplan shouldbeadoptedsothateffortcanbefocusedonthoseareasofmostimmediate prioritytotheADFandAustraliassecurity.Toachievethis,thegovernmentshould initiateacapabilityauditwiththegoalofputtingthedevelopmentofthedefence forceonarealisticandsustainablebasis.

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 Althoughittooktwelvemonths,thegovernmenthasfinallymadesuchamove.Infact,it wentonestepfurtherandcommissionedanewWhitePaper. Whilethecurrentdisarrayindefenceplanningisdisappointing,itisfarfromunprecedented. TheHowardgovernments2000WhitePaperhadtobesetbackoncoursethroughthe2003 DefenceCapabilityReviewwhichredressedafundingshortfallthroughtheearlyretirement oftwofrigates,themothballingoftwominehuntersandtheacceleratedretirementofthe F111bomberfleet.Howisitthatwefindourselvesadecadelaterwithasimilarproblem? Threefactorshavebroughtaboutthecurrentpredicament: Thegovernmenthasmanifestlyplacedahigherpriorityonachievingasurplusthanon adheringtoitsplansforthedevelopmentofthedefenceforce. Defencehasbeenunabletoinitiateanddelivernewequipmentprojectsatanythinglike thepaceenvisagedinthe2009DefenceWhitePaper.Fortwoyearsinarowweveseen lastminuteopportunitypurchasesusedtosoakupunspentmoneyincludingnoless thantwoC17aircraft.Nonetheless,hundredsofmillionsofdollarsofunspent investmentfundshavebeenhandedback. Thedecadelongfinancialplanattheheartofthe2009DefenceWhitePaperwas flawed,havingbeenbuiltonanincompleteunderstandingofthetruecostofdeveloping anddeliveringcapability.AddtothisfailedreformundertheSRPandasuccessionof furthersavingsandefficiencydividends,andtheunthinkablehasoccurred;theMagic Puddinghasbeenbroken.

Nosinglefactor(oractor)istoblameforthecurrentsituation.Ifthegovernmenthadgiven Defenceallthemoneytheyhadpromisedin2009,Defencewouldnothavebeenableto spenditall.Conversely,hadDefencebeenabletospendallthemoneythathadbeen promisedbackin2009,thegovernmentwouldstillhaverenegedinfavourofanearlyreturn tosurplus.Defence2009wasneitherdeliverableinpracticaltermsnoraffordableinpolitical terms.

Whatdoweknowaboutthe2013DefenceWhitePaper?
On3May2012,thegovernmentannouncedthebringingforwardofthenextDefenceWhite Paperto2013,becauseofsignificantdevelopmentsinternationallyanddomesticallysince the2009WhitePaper.Thesixfactorslistedare: Strategicchangeinourregion TheAustralianDefenceForcePostureReview Defencereform Australiandefenceindustryskills TheongoingeffectsoftheGlobalFinancialCrisis(GFC) TheAustralianDefenceForcesoperationaldrawdown

Ofthese,thelasttwoareofparticularinterestbecausetheyencapsulatethesourcesof downsiderisktodefencespendinginthemediumtolongerterm. Almostbydefinition,anymentionoftheGFCpresagesadiscussionoftightfiscalconditions andtheneedforausterity.Asthegovernmentsmediareleasesaid:Financialcircumstances 126

 clearlypresentarealchallengetothe2013WhitePaper.Infact,theeconomyandthe governmentsfiscalpositionhavefaredfarbetterthanexpectedbackwhentheWhitePaper wasfinalisedattheheightoftheGFC.Manypeoplehaveforgottenthatbackin2009a returntosurpluswasnotexpecteduntil201516.Clearly,itsthegovernmentspriorityfor defencethatsfallenratherthanitsabsoluteabilitytopay. AtleastasworryingisthementionofthedefenceforcedrawdownfromAfghanistanand EastTimor.TherealityisthatAustraliahascutdefencespendingandscaledbackitsdefence forceaftereverysignificantconflictofthepastcentury.Settingasidetheyearsofconflictin Korea,Vietnam,EastTimor,AfghanistanandIraq,defencespendingasashareofGDPin Australiafellin30outofthe41peacetimeyearssinceWWII.Thekeyexceptionwasthe buildupbetween1979and1985coincidentwiththeUSdefencebuildupunderPresident RonaldRegan.Ofcourse,USdefencespendingisnowfallingfasterthancostsarebeing recoveredfromtheUSmilitaryoperationaldrawdown.Ifthelongtermcorrelationinthe growthandcontractionofUSandAustraliandefencespendingpersists(seeFigure312),we willseeasimilar,butonpastexperiencelessdramatic,moderationofourexpenditure.
Figure 3.12: Real US and Australian defence spending 1946 to 2010
800 USdefencespending2010US$ 700 600 500
Korea ReaganantiSoviet buildup Vietnam Iraq&Afghanistan

Australiandefencespending2012AS$(x20)

billiondollars

400 300 200 100 0

Itsnoteworthythatthegovernmenthasnotcommittedtoafuturefundingtrajectoryfor defence.Meanwhile,theoppositionsresistancetothelatestroundofcutstodefence spendinghasbeenbothmutedandlacedwithcaveats.Nosurprise,withacommitmentto rollbackrecenttaxesandintroduceanewpaidmaternityleaveschemetheyarearguablyin moredirefiscalcircumstancesthanthegovernment.Thelongstandingbipartisanapproach todefencepolicyhasbeentrumpedbybipartisanfixationonfiscalrectitude. ThegovernmenthassaidthatitremainscommittedtothecorecapabilitiesoftheWhite Paperandlistedtencapabilities.Ofthese,sixareunderwayand,twoaremoderatelypriced upgradesofexistingplatforms,andoneisonlyacommitmenttoconsideranupgradetopart oftheF18SuperHornetfleet.Theonesubstantialrealcommitmentisthereaffirmationof thepoliticallypotentpromisetobuildtwelvesubmarines.Butevenhere,thegovernments 127

 commitmentiswaveringwiththeWhitePapersvisionofhighlycapablenewgeneration submarinesnowcompetingagainstlesscapableandfarlessexpensiveexistingofftheshelf designs.[Asanaside,itmakesnosensewhatsoevertofixthenumberofplatformsbutvary theirintrinsiccapability;itmightwellbebettertohave8largesubmarinesthan12small ones.] Itappears,therefore,thatthegovernmentisopentothepossibilityofclosingthegap betweenmeansandendsbydowngradingitsvisionforthesizeandweightofAustralias defenceforce.Indeed,thedecisionsmadeinthisbudgetshowthatitisalsomoreinterested inprovidingbettersocialserviceslikehealthandeducation)orallowinghigherprivate consumption(throughlowertaxes)thaninbuyingplanes,andshipsandartillery. Itsworthrememberinghowmuchthingshavechangedoverthepastfouryears.During mostofthe2000sdecade,theimpactofincreaseddefencespendingwasobscuredby strongeconomicgrowth.Thatisnotthesituationthegovernmentfacestodayeverydollar spentondefenceimposesavisibleopportunitycostsomewhere. Publicopinionhasalsoshifted(seeChapter1).Thestrategicfearsandmisgivingsofthe9/11 decadehavebeenreplacedwiththeuncertaintyandcautionofthepostfinancialcrisis decade.Ofcourse,perceptionscanchangeveryquickly.But,forthemomentatleast,most peoplearemoreworriedaboutthenextfinancialcrisisthantheyareaabouttheseemingly remoteprospectofastrategiccrisis.

Whathastobedone?
The2013WhitePaperhastoputsomerigourandrealitybackintotheplanningfor Australiasdefence.Atthemostcoarselevelthereisafundamentaldecisiontomake eitherscalebackordelayplansforthefuturedefenceforce;orprovidemoney,alotmore money,torestartthepathtobuildingalargerandmorepotentdefenceforce. ItisopentothegovernmenttoreembracethevisionsetoutinDefence2009,orevento pursueamoreambitiousprogram,assomehaveargued,torespondtotheevolvinggreat powerbalanceintheAsiaPacific.Iftheydo,theywillhavetoselltheideatotheAustralian peoplewhowillhavetofootthebill.Alternatively,andasappearsmorelikely,theycan adoptalessambitiousstrategythatfocusesonlessdemandingtasksclosertohome. Inthemonthsahead,thegovernmentwillgetamountainofunsolicitedadviceaboutwhat todointhe2013DefenceWhitePaper.Soletsgettheballrolling;ataminimumthereare threethingsthattheymustdo: makeaclearchoiceaboutAustraliasstrategicroleinthefuture designadefenceforceconsistentwiththatrole committhenecessaryresourcestothetask.

Invariousways,the2009DefenceWhitePaperfailedoneachcount.Todobetterinthe limitedtimeavailablewillbeatoughjob,butitsanurgentone.Defenceplanningneedsto beputonarealisticandsustainablecourse.Thereisnopointpretendingonethingand doinganotherashasbeenthecaseforthepastthreeyears.Asafirststep,thegovernment needstoputthesacredcowsonthetable.Clingingtohighcostbigticketitemssuchas twelvesubmarinesrisksthecreationalopsidedforce.Equally,quarantiningpermanent 128

 militarypersonnelnumbersfromcutsunreasonablytiesthehandsofthosewhohaveto designanaffordableforce. Finally,thegovernmentneedstoensurethatdefencereformnotonlycontinuesbut deepens.TheproblemsthatDefencefacestodayhavealottodowiththeirownfailings, quiteapartfromdecisionsmadebythegovernment.

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Chapter 4 Strategic Reform Program
Givenwhathappenedinthisyearsbudget,itmightseemcruel topickthroughthewreckageofDefencesfinancestoseewhat, ifanything,isleftofthemuchvauntedmultibilliondollar StrategicReformProgram(SRP).ButasrecentlyasFebruarythis year,thingsappearedtobeprogressingaccordingtoplan.As theSecretaryputit;weareontracktomeetthe$1.284billion targetfor201112.Defencehaveconfirmedthatthisremains thecase. KeyPoints
ThescaleofSRPsavingshas beenexaggeratedbyusingan implausiblyhighbudget baseline. Despiteclaimstothe contrary,Defencedidnot achieveitssavingstargetfor 201011.

Lookingtothefuture,itappearsthattheboldplantosavemore Asfarasfuturesavingsare than$20billiondollarsacrossthedecadehasbeenquietly concerned,theoriginalSRP shelvedandtheresnomentionoffuturesavingsinthePBS. targetshavebeen Instead,wearetoldthatin201213Defencewillcontinuewith abandoned. theStrategicReformProgramactivitiesalreadyunderwaybut thatwhilereformmust,andwillproceed,allactivitieswillbesubjecttoreview.Finally,the PBSsaysthatfurtherdetailsoffuturestrategicreforminDefencewillbeadvisedinthe 2013WhitePaper. Wenowturnattentiontotheachievements,orotherwise,oftheSRPsofar.Asbefitsa BudgetBrief,thefocuswillunashamedlybeonsavings.Aswasthecaselastyear,claimed savingsarecomparedwithinformationavailablefromothersources.Thediscussionisshort becauseonlylimitedinformationhasbeenreleasedabouttheSRPoverthepasttwoyears. ReaderswantingfurtherdetailsabouttheunderlyingSRPshouldconsultthe200910Budget Brief.WeconcludewithashortcommentaboutreformofDefencesbusinessprocesses. Background Towardstheendofthelastdecade,thereemergedtwo(almostcontradictory)propositions aboutDefencefunding.First,thattherewasnotenoughmoneyinprojectedDefence fundingtoaffordallthatwasplannedintermsofnewequipmentandattendantpersonnel andoperatingcosts.Second,thatDefencewasnotasefficientasitcouldbe,havinggrown fatandcomplacentafterclosetoadecadeofescalatingfunding.Facedwiththissituation,in early2008thegovernmentdirectedDefencetofind$10billionofsavingsoverthenext decade. TheninMay2008,thegovernmentappointedGeorgePappastoaudittheDefencebudget. HisreportwasdeliveredtotheMinisterinApril2009.Recommendationsextendedovera rangeofinitiatives,includingimprovementstoDefencemanagementandefficiency. TheBudgetAuditidentifiedprospectivesavingsof$1.3billionto$1.8billionayearbasedon 200708spending,plusoneoffsavingsofbetween$218millionand$398million.Onan outturnedbasis(takinganticipatedinflationintoaccount),theprospectiverecurrent savingsoverthedecadecommencing200910werebetween$15billionand$20.7billion. TotheworkoftheBudgetAuditwereadded(1)theinitialworkdonebyDefencetosave $10billion,(2)theresultsofthe2008DefenceProcurementandSustainmentReviewand (3)theresultsofaseriesofinternalcompanionreviewsconductedinparalleltothe developmentofthe2009DefenceWhitePaper.TheresultwastheSRP;apackageof 131


reformsandefficiencyinitiativestoimproveDefencesperformanceanddeliver$20.6billion ofsavingsoverthefollowingdecade. TherearethreekeyelementstotheSRP:improvedaccountability,improvedplanningand enhancedproductivity.Weexaminedplannedreformstoaccountabilityandplanningin detailin200910andthereisnopointinrecountingthemagain.

Where do the savings come from?

Table4.1summarisestheresultsofouranalysisofSRPsavingsfrom200910.Then,asnow, aroundaquarteroftheSRPsavingswereyettobepubliclyexplained.Weveonlycounteda savingasexplainedifamoderatelycompleteexplanationhadbeenpublished.Notethatin someareaswheresavingshavebeenexplained(suchasReservesandworkforce)itis difficulttocredittheamountsclaimedonthebasisoftheactionstobetaken.
Table 4.1: What we know and what we dont know about SRP savings (as at April 2011)
Planned Savings SRP savings streams ICT Inventory Smart Maintenance Logistics Non-Equipment Procurement Reserves Shared Services Workforce Reforms (civilianisation of ADF & PSP) subtotal Other savings Zero-Based Budget Cuts to Minor Capital Program Cuts to Facilities Program Administrative Savings Productivity Savings Reduced NPOC Cuts to Personnel Initiatives subtotal TOTAL Source:ASPIBudgetBrief200910. -3,922 -238 -510 -70 -357 -586 -238 -5,920 -20,640 -3,922 -238 -510 -70 -357 -586 -238 -5,920 -16,725 -3,917 -3,917 Not a saving or efficiency Not a saving or efficiency Not a saving or efficiency Savings without personnel cuts? Probably understates savings Will mainly result in additional savings from sustainment -1,948 -700 -4,827 -350 -3,767 -359 -1,864 -925 -14,740 -650 -700 -4,286 -331 -3,172 -179 -706 -781 -10,805 -1,298 0 -541 -19 -595 -162 -1,158 -144 -3,917 Impossible to verify from publicly available information Reduced inventory purchases are apparent in budget papers Trends in sustainment budget indicative of onset of savings Impossible to verify from publicly available information Impossible to verify from publicly available information It is difficult to see how these measures will deliver the savings Impossible to verify from publicly available information The level of savings claimed appears high Explained Savings Unexplained Savings Comment

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Overthepasttwoyears,furthersavingsefficiencieshavebeenannouncedinadditiontothe originalSRPprogram.However,unliketheirpredecessors,thenewefficienciesrepresent cutstodefencefundingratherthanthefreeingupoffundsforredirectionwithinDefence. Assuch,thereisnoquestionofwhetherthesavingsaredeliveredornot;themoneyhas beenremovedfromtheDefencebudgetandreturnedtotheTreasury.Table4.2liststhe cutsmadein2011and2012.Thefinaltrancheofsavingsmadeinthe2012Budgetis distinguishedfromitspredecessorsbytheabsenceofanypretenceofbeingachieved throughefficienciesorproductivitygains.ItisanoutrightcuttotheDefencebudget.
Table 4.2: Further efficiencies and cuts announced in 2011 and 2012
Initiative Savings (over 10 years) Comment Additional efficiencies in Defences corporate and support functions, including constraining forecast APS workforce growth by 1000 positions (i.e. not employing extra people). A further $400 million was handed back by Defence in FY 2010-11. increased efficiency dividend (announced May 2011) $406 million No details have been provided on how this efficiency dividend will be delivered. Rather than purchase two C-130 aircraft, a single (much larger) C-17 aircraft has been purchased. Inexplicably, Defence has lost the funding for the C-130 option but is fully funding the C-17 option. This represents a cut to the funding available to Defence. No details have been provided on how this efficiency dividend will be delivered. These are cuts pure and simple, with no suggestion of efficiency gains or dividends.

second phase of SRP-related savings (announced May 2011)

$2,948 million

buy C-17 instead of two C-130 aircraft (announced May 2011)

$520 million

one-off 2.5% efficiency dividend (announced February 2012) expenditure reduction measures (announced May 2012) Total

$670 million $5,454 million $9,998 million

Source:DefenceAnnualReportsandBudgetPapers.

ThekeysavingsundertheSRPandsubsequentinitiativesarecapturedschematicallyin Figure4.1.WithinthefirstphaseoftheSRP,thetotalof$3.1billionlabelledasworkforce reformincludesreformtotheReservesplussavingsinsharedserviceswhichhavenotbeen disclosedindetail.Assuch,itrepresentsanupperlimitonsavingsfromthattrancheof workforcereform. Settingasidetheaccountingtransfersandcutstopersonnelinitiatives,itsnoteworthythat personnelreductionsonlymadeupatmost20%ofthe$15.7billionofactualefficiency savingsinthefirstphaseoftheSRP.Thismeansthatfully80%ofthosesavingshavetocome fromcutstothepriceandquantityofgoodsandservicesthatDefencepurchasesexternally. AsadefenceindustryCEOobservedatanindustryconferenceinearly2010,personnel savingstypicallymakeupamuchlargershareofcommercialefficiencyprogramsthanthose plannedundertheSRP.Infact,hiscommentwasmadeinthecontextoftheoriginal(May 2009)SRPplan,whichhadalargerimpactontheDefenceworkforcethantheApril2011 plandoes.ThatsbecausebetweenMay2009andMay2010thescaleofpersonnel reductionswasreducedsubstantially.

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Figure 4.1: Planned SRP and other savings (as at May 2012)

Total savings $30.5 billion

SRP Phase One (2009) Net savings available for redirection within Defence $18.2 billion

Gross savings $20.6 billion

Reform costs $2.4 billion

Accounting transfers $4.6 billion

Cuts to personnel initiatives $238 million

Efficiencies $15.7 billion

Capital Facilities cut $510 million

Zero-based
budget $3.9 billion

Minor Capital cut $239 million

Buy less and pay less $12.6 billion

Workforce reform $3.1 million

SRP Phase Two (2011)

Efficiencies $2.95 billion Buy less and pay less $1.9 billion Workforce reform $1.05 billion

Efficiency dividends (2011 & 2012)

May 2011 $406 million

Feb 2012 $607 million

C-130 cut $520 million (2011) Expenditure reduction $5,454 million (2012)

Total cuts to the Defence budget $10 billion

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Asbestwecantell,outrightefficiencycutsfellfromaround3,800to2,000,contractor conversionsfellfromaround1,000to700,andcivilianisationofmilitarypositionsfellfrom 1,100to700(althoughthislastfiguremightincrease).Yet,somehow,theexactquantaof overallsavingsconvenientlyremainedthesame.Suchacoincidencestretchescredibility.In thesecondphaseoftheSRP,thereductionof1,000previouslyplanned(butneveractually recruited)civilianpositionsaccountsforonly36%oftheoverall$2.95billioninplanned savings. Thecriticalfactortoappreciatewhenlookingattheclaimedworkforcesavingsisthatthe personnelreductionsariseagainstabackdropofrisingnumbers.Relativetothenumberof personnelin200809,thegrossadditionalnumberofpersonnelplannedforDefenceover thenextdecadeattheconclusionofthe2009DefenceWhitePaperwas5,174military personneland2,685civilians. Giventheseveraladditionalcapabilitiesplannedtoenterserviceinthenearfuture, especiallythesubstantialexpansionoftheArmyunderway,itistobeexpectedthatthe numberofmilitarypersonnelwillexpandsignificantlyintheyearsahead.Nosuch explanationcomesreadilytohandfortheverylargenumberofbaselineciviliansthen plannedabovethatrequiredforcivilianisationandcontractorconversion(2,685).Following theadditional1,000civilianpositionremovedinMay2011,thetotalreductionincivilian positionswasroughlyequaltothenumberofextrapositionsaddedbytheWhitePaper,see Figure4.2.Ifthingshadbeenleftatthat,civiliannumberswouldhavestillgrownoverthe decadeduetoincreasesplannedpriortothe2009WhitePaper.Buttheadditional1,000 civilianscutintheMay2012Budgetmeansthatciviliannumbersarenowplannedtofallin absolutetermsacrosstheyearsahead.
Figure 4.2: SRP civilian personnel reductions (as at April 2012)
2500

2000

1500

1000 Extra'1000'efficiencyreduction 500 UnderlyingSRPefficiencyreductions(July2011) AdditionalWhitePaperpositions 0 200809 200910 201011 201112 201213 201314 201415 201516 201617 201718 201819 Sources:201011DARandSRPbookletMakingitHappen.

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Thisbringsustothecriticalnubofhowsavingsarecalculated.Itisperfectlypossiblefor Defencetodeclaresavingsrelativetoprojectionsofitsfutureexpenditurewhilenonetheless spendingmoreeachyear.Indeed,giventheexpansionunderwaytodelivertheWhitePaper, thiswillbethecasesavingsarerelativetoacounterfactualestimateofwhatcostswould havebeenwithoutreform.Thisisexplicitlythecasewithpersonnelnumberssavingsare beingclaimedbutmilitaryandciviliannumbersaregoingtoincreaseanyway.Thecritical questioniswhetherthebusinessasusualbaselineisjustifiedornot.Itisonlyby comparisonwithanestablishedtrend,takingaccountofnewinitiatives(includingthosein the2009WhitePaper),thatthevalidityofsavingscanbeestablished.But,asTable4.1 makesclear,thisisnotpossibletodousingpubliclyavailableinformation.Andwhile Defencehasbeenadamantthattheirbaselineforsavingsisrobust,theyarenotwillingto makethedetailsavailableforpublicscrutiny.Aswellsee,themorewelearntheless plausiblethescaleofclaimedsavingsbecomes. Also,itsimportanttonotethattherhetoricalclaimthatcostreductionswillbemade availableforreinvestmentinForce2030,ismisleading.Alloftheprospectivesavingshave beenexplicitlybuiltintothebudgetforthedecadeahead.Anyshortfallwillresultincost pressuresratherthananabsenceoffundsforreinvestment. ThemostrecentlydisclosedtargetsfortheSRPsavingsstreamsfortheperiod200910to 201415appearinTable4.3.DefencehasceasedlistingSRPinvestmentfundsforeach streamandinsteadnowgivesapooledfigurefortheentireprogram,itsaysthatdeveloping anetviewbyreducingtheSRPcostreductiontargetbythetotalSRPinvestmentis misleadingduetothedifferentnatureoftheprogramsandtheirmanagementasitisnota onetoonerelationship.Accordingly,wehenceforthfocusongrosssavings.
Table 4.3: The most recently disclosed SRP savings targets
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 220.0 601.0 374.6 409.2 48.2 53.3 723.0 2,429 306 2,123

Reform stream

Information and Communications Technology Smart Sustainment Non-equipment Procurement Workforce and Shared Services Reserves Logistics Other Savings Gross savings SRP reinvestment

49 263 172 58

128.1 288.0 177.0 171.4 4.5 5.8

147.5 370.2 206.6 237.6 28.1 8.3 285.5 1,284 439 845

182.9 515.0 260.1 292.5 31.2 18.6 621.3 1,922 247 1,675

206.8 596.0 338.1 363.2 34.9 17.2 615.0 2,171 448 1,723

255 797

241.5 1,016

Net savings Source:SLCQuestion6,February2012andrecentDefenceAnnualReports.

InOctober2012,DefenceadvisedaSenatecommitteethatitintendstoreleaseanewSRP bookletearlyin2012withupdatedinformationoncostreductiontargetsperreformstream andtheSRPreinvestmentfundsprofile.Thishasnotoccurred.Instead,thedetailed factsheetsabouttheSRPhavebeenremovedfromtheDefencewebsite,resultinginless ratherthanmoreinformationbeingavailabletothepublic. 136


Results so far WhentheSRPwasannounced,weconcludedthatgivenrecentexperience,weareunlikely tobegivenanythingmorethanunverifiableaggregateheadlinefigures.The200910and 201011Defenceannualreportsconfirmedourlowexpectation.HereinfullisthelistofSRP savingsfromtheannualreportsforthepasttwoyears.Thetargetsavingsfor201011are takenfromananswertoaSenateLegislationCommitteequestioninFebruary2012.
Table 4.3: Reported gross SRP savings for 2009-10 and 2010-11
2009-10 Cost reduction target ($m) 49 263 172 58 Cost reduction achieved ($m) 94 461 343 -131 2010-11 Cost reduction target ($m) 128 288 177 171 5 6 255 797 255 1,022 242 1,016 Cost reduction achieved ($m) 27 326 318 103 -4 53 242 1,064

Reform stream

Information and Communications Technology Smart Sustainment1 Non-equipment Procurement Workforce and Shared Services Reserves Logistics Other Savings Total
1

SmartSustainmentsavingsfor200910includes$197mofoneoffsavingsincludingalargefluctuationinfuelprice. Source:SLCQuestion6,February2012andrecentDefenceAnnualReports.

Thereportedperformancefor200910and201011isexaminedbelowinlightofadditional information. Information and Communications Technology (ICT) ($1.9 billion savings over decade) AccordingtoDefenceannualreports,ICTgrosssavingsof$94millionand$27millionwere deliveredin200910and201011respectively.Incomparison,ICTgrosssavingsof $49millionand$128millionwereanticipatedinthosetwoyears.Thus,overthepasttwo years,grosssavingsof$121millionweredeliveredagainstatargetof$179million, representingashortfallof$58million. Incontrast,arecentANAOreport(AuditReportNo.19201112)onICTmanagementin DefencereportedthattheSRPICTstreamexceededitssavingstargetin200910andmet itssavingstargetfor201011.Moreover,wealsoknowfromthesameANAOreportthat fortheperiodJanuarytoJune2011,only29%ofICTbudgetholderswerelivingwithintheir meansandDefenceasawholewasnotlivingwithinthetotalICTbudget.Itisunclearhow ICTsavingscanbedeliveredinfullsimultaneouswithbudgetsbeingexceeded.Clarification isrequired. Toconfusemattersfurther,the201011annualreportsaysthatthedeliverablecontribute toGroupspecificSRPreformandsavingswasSubstantiallyAchievedbytheChief InformationOfficerGroup,meaningthattargetsweremostlymetandanyissuesarebeing managed.Asreassuringasthismightsound,itisnotconsistentwithsubstantialshortfallin savingsdisclosedelsewhere. Moregenerally,theANAOreportiscautiousaboutthelikelysavingsavailablefromICT reforminDefence:

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WhiletheworkundertakenbyDefenceoverthefirsttwoyearsoftheSRPhasgivenCIOGa muchbetterunderstandingofDefencewideICTcosts,itdoesnotconstituteabasisfor validatingtheSRPICTsavingstargetsandinvestmentschedule,orassessingthelikelihoodof thesavingsbeingrealised. and Defencethereforehasalessthancompleteviewoftheinformationneededtoeffectively manageitsICT,planfuturesystems,andfullydeliverthesavingsnecessarytosupportthe WhitePapertargets.

Theseassessmentsarecongruentwiththesomewhatconfused(oratleastconfusing) reportingofSRPsavingsbytheICTstream [LastyearwecomparedthereportedsavingsagainstchangesinlineitemspendingonICTin theDefenceannualreport.However,itssincebecomeclearthatthosefiguresrepresent lessthanhalfoftheoverallICTspendofaround$1.2billionperannuminDefence. Accordingly,thatcomparisonhasbeenomittedthisyear.] Smart Sustainment ($5.5 billion gross savings over the decade) In200910,smartsustainmentplannedtodeliver$263milliongrosssavings.Butaccording totheannualreport,$461millionofsavingswereachieved,ofwhich$197million representsaoneoffsavingwhichincludesthatfromareductioninworldfuelprices.Whya savingsshouldbeclaimedfromafluctuationinfuelpricesisunclear.Willfuturerisesinfuel pricesbesubtractedfromsavings? In201011,smartsustainmentdelivered$326millioninsavingsagainstatargetof $288milliongrosssavings,anoverachievementof$38million.Reportedcostreductionsfor 200910and201011arecomparedwiththeactualreductioninDMOsustainmentexpenses inTable4.4,alongwithprojectedfiguresforthenexttwoyears.
Table 4.4: Reported Smart Sustainment savings and comparators ($m)
2009-10 SRP gross savings Actual shift in real DMO sustainment expenses since 2008-09 Gap -461 -272 189 2010-11 -326 -257 69 2011-12 -370 +278 648 2012-13 -515 +254 769

Source:SLCQuestion6,February2012andrecentBudgetPapersandDefenceAnnualReports.

Itappearsasthoughthesavingsarerelativetoahighcounterfactualbaselinethough, giventheintroductionofnewcapability,atleastthefirsttwoyearsareentirelyplausible. ThisisconsistentwithanumberofknowninstancesofDMO,industryandthemilitary workingtogethertofindmorecosteffectivewaystomaintaincapability.Twoexamplesare therenegotiatedLeadinfightersupportcontractandJORNRadarsupportcontract. FurtherinsightcanbegainedfromthechartofpastandplannedDMOsustainment spendingdisclosedinapublicpresentationbyaDefenceofficialinearly2011.Thedata, whichisreproducedinFigure4.3,hasthemeritofbeinginconstant201011dollarsand exchangerate(US0.92).Toshowthecounterfactualbaselineagainstwhichsavingsare

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claimed,plannedcostreductionshavebeenaddedforeachyear.Oneoffsavingsin200910 havebeenignored.
Figure 4.3: DMO sustainment and planned SRP savings
constant 2010-11 dollars and exchange rate (billions) 7 6 5 pre-SRP trendline 4 3 2 1 0
-0 4 -1 0 -1 2 -1 4 -0 7 -0 8 -0 5 -0 6 -1 1 -1 3 -1 5 -0 9 -1 7 13 10 12 14 03 09 11 08 04 15 16 05 06 07 -1 8 17 20 20 18 -1 9 -1 6 20

2008 Budget Audit Identified ~ $535 million in savings

Smart sustainment savings Net costs for new capabilities Sustainment

20

20

20

20

20

20

20

20

20

20

20

20

20

ASPIanalysisofDefencedatadisclosedinaDefencepresentation,February201011.

The2008DefenceBudgetAuditestimatedthatsavingsofbetween$354millionand $615millionwereachievablefromthe200708equipmentsupportbudget.Toshowhow highthecounterfactualbaselineisforsustainment,theaverageofthesetwofigures(in 201011dollars)hasbeenoverlaidonthesustainmentbudgetforthatyear.Atleastsome ofthedifferenceislikelytobeduetotheextracostofsustainingcapabilitiesacquiredinthe period200809to201011butwelackthedatatosayhowmuch. Non-equipment procurement ($3.8 billion gross savings over the decade) Atpresent,Defencespendsaround$2.9billionayearon20categoriesofsupportservices, includingtraining,travel,cateringandbusiness.Fromthis,totalsavingsof$3.8billionare plannedoverthedecade.Asofmid2010,plannedsavingsoverthedecadeincluded: hospitalityandcatering($241million),officefurnitureandsupplies($68million),procured training($607million),commonsupportservices($418million),facilitiesmaintenance ($505million),professionalservices($709million),travel($624million)andutilities ($64million).Afurther$595millioninsavingswillcomefromadvertising,healthservices, removalsandresearchanddevelopment. In200910grosssavingsof$172millionwereplanned.However,accordingtothe200910 annualreport,$343millionofgrosssavingswereachieved.Then,in201011,grosssavings of$318millionwereclaimedagainstatargetof$177million.Fortunately,theannualreport givesactualfiguresformostoftheareasofnonequipmentprocurement.Thisallows changestobetrackedfromyeartoyear.Table4.5comparesthereportedsavingswith

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relevantcomparatorsusingthepreSRPyearof200809asabaseline.Historicalcostshave beeninflatedby2.5%perannumconsistentwiththeindexationofthedefencebudget. Onceagain,giventhattheoverallactualcostsintherelevantcategoriesincreased,thescale ofsavingreportedimpliesanunrealisticallyhighcounterfactualbaseline.Forexample,on thebasisoftheitemslisted,forthereportedsavingstohaveactuallyoccurredin200910, thebusinessasusualcostsintheyearwouldneedtohavebeengrowingatthe extraordinaryrateof15%perannum.
Table 4.5: Reported net non-equipment procurement savings and comparators
2009-10 ($m) SRP gross savings Comparators: Real change to Estate upkeep (629 - 581) for 2009-10, (608-595) for 2010-11 Real change to Professional and technical advice (460 - 495) for 2009-10, (530-507) for 2010-11 Real change to Research and development (157 - 157) for 2009-10, (147-161) for 2010-11 Real change to Utilities (156 - 143) for 2009-10, (163-146) for 2010-11 Real change to Training (293 - 296) for 2009-10, (290-303) for 2010-11 Real change to Travel (199 - 212) for 2009-10, (211-217) for 2010-11 Real change to garrison support (629 - 581) for 2009-10, (607-595) for 2010-11 Real change to freight, storage & removal (391 - 409) for 2009-10, (501-419) for 2010-11 Real change to identified items (2,827 - 2,761) for 2009-10, (2,948-2,828) for 2010-11 Gap Source:200910DARp.218,201011DARp.391,updatedfiguresusedwhereavailable. 48 -35 0 13 4 -12 48 - 18 +66 409 13 23 -14 17 -13 -6 13 82 +119 437 -343 2010-11 ($m) -318

Workforce and shared services ($2.8 billion savings over 10 years) Asexplainedinthe200910BudgetBrief,costreductionsintheworkforceandshared servicescategoryarecomplicatedandonlypartiallydisclosed.Asbestwecantell, $58millionofgrosssavingswereplannedin200910.The200910annualreportsaysthat ratherthansavings,additionalcostsof$131millionwereincurredduetooverachievement inADFretentionandsuperannuationcostsbeyondDefencescontrol. For201011,grosssavingsof$103millionwerereportedduetoworkforceandshared servicesreform.Thisfigureiseasytocheckbecausetheannualreportalsodetailstheactual changestoworkforcenumbersarisingfromefficiencymeasures(DARTable2.14p.47).As Table4.6shows,thereportedsavingsareveryclosetowhattheshiftsintheworkforce imply.

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Notethatherearethreechangestoworkforcenumbersthatgiverisetosavings;reductions inthenumberofmilitarypersonnel(389),reductionsinthenumberofcivilianpersonnel offsetbycivilianisationofmilitarypositions(558+164=394),andtheconversionof558 contractorpositionstocivilianpositions(558558=0).Inthecalculation,weveassumed that,onaverage,contractorscost25%morethanAPSmembers.Surprisingly,werecover thereportedDefencefigureprecisely.
Table 4.6: Workforce savings 2010-11
201011Annual Report 389 394 558 Percapita Cost

Militarypersonnel APSpersonnel Contractorconversions

Source:201011DefenceAnnualReport.

$133k $96k 25%of$96k

$51.6m $38.0m $13.5m $103m

Butwaitaminute,howdidDefencemanagea$233millionturnaround(fromminus $131milliontoplus$103million)initspersonnelsavinginasingleyear?Closeexamination ofTable2.14intheannualreportrevealsthatitdiffersinoneimportant,andverycurious, respectfromprevioustablesofSRPworkforcesavingsreleasedin2009and2010;its missingthebaselineuponwhichthenumbersarebuilt.WhywouldDefenceomitthe preWhitePaper,preSRPbaselineuponwhichthesavingsarebased?Aconsistent explanationsisthattheychangedthebaselinetoconcealablowoutinpersonnelexpenses thatrenderstheirsavingsnonexistent. In201011,militarypersonnelnumbersexceededplannedlevelsandcivilianpersonnel numbersfellbelowplannedlevels.Comparedwiththebaselineforpersonnelnumbersin 201011(asatDecember2009)givenbyDefenceinthebookletMakingitHappenwiththat impliedinTable2.14ofthe201011annualreport,thereare1,804additionalmilitary positions(costing$239million)and1,547fewercivilianpositions(saving$149million) resultinginanetadditionalcostof$90million.Therebasingofpersonnelnumbers concealsthisfigure.For201112thenetadditionalcostofanextra774militarypersonnel (comparedwiththeDecember2009baseline)is$104millionbecausetheoffsettingsavings fromreducedcivilianpersonnelnumberswerereturnedtotheTreasuryaspartofthe phasetwosavingsannouncedinMay2011. Sowhatdoesthismean?Tostartwith,itmeansthatindirectcontradictiontoclaimsinthe annualreport,DefencedidnotachieveitsoverallSRPsavingstargetin201011.Specifically, thereportedoverachievementof$48millionacrosstheentireSRPprogramhastobe reducedby$90million,leadingtoashortfallof$42million.Thisisnotfinancialpedantry.If itwasgoodenoughtotakeintoaccounttheblowoutinpersonnelexpensesin200910,the samemustbedonein201011.Indeed,savingsinpersonnelnumbersaremeaninglessifthe baselineismoved.Moreover,giventhatDefencehassaidthatitisontracktodeliverits

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targetedSRPsavingsfor201112,itwillhavetofindanextra$104milliontotakeaccountof theremainingsurplusinmilitarypersonnelnumbers. ThefactthatDefencemanagedtocontinuetodelivertheiroutcomesfortwoyearswith substantiallyfewernonuniformedpersonnelthanfirstestimated,showsthatatleastsome oftheextrapositionsgrantedaspartoftheWhitePaperwereunnecessary.Inmakingthis assessment,itisrelevantthatthebulkoftheadditionalpersonnelaroundin200910and 201011wereenlistedmembersofthearmyandairforcewithlimitedscopetoundertake thejobsenvisagedforcivilians. Othersavingsandlogistics($6.3billiongrosssavingsoverthedecade) MostoftheothersavingsintheSRPareremnantsofthe$10billiondecadelongsavings programannouncedbackin2008;specificmeasuresarelistedinTable4.7alongwith logistics.Thefinaltwoitemsreductionstonetpersonnelandoperatingcosts(NPOC)and personnelinitiativesonlyappearedinApril2010.Notmuchnewinformationisavailableto furtherilluminatewhatshappeningintheseareas.Butacoupleofpointsareworthmaking aboutthezerobasedbudgetandthecutstotheminorcapitalandcapitalfacilities programs.
Table 4.7: Other savings and logistics
Initiative Logistics Zero-Based Budget Cuts to Minor Capital Program Cuts to Capital Facilities Program Administrative Savings Productivity Savings Reduced Net Personnel and Operating Costs Cuts to Personnel Initiatives Total Gross saving -350 -3,921 -238 -510 -70 -357 -586 -238 -6,270

Zero-based budget Thesocalledzerobasedbudgetrepresentsnothingmorethanthereallocationoffunds heldcentrallythatwereprogrammedinearlieryearsforpriceindexationand3%realbudget growth.Usingfundsthatwereappropriatedtomeetrisingcostsforthepurposeofmeeting risingcostsisneitherasavingnoranefficiencyimprovement. Cuts to Capital Facilities and Minor Capital Furthersavingscomefromcutstotheminorcapitalandcapitalfacilitiesprograms.Thefirst pointtostressinboththesecasesisthatscalingbackonplannedinvestmentdoesnot generateefficiency.Rather,itcausesasimultaneousreductioninbothinputsandoutputs. Atbest,itrepresentsareprioritisationthatallowsmoneytobeshiftedfromoneuseto another.Suchadjustmentsarecommonfromyeartoyearwithinthebudgetandnoone pretendsthattheyconstituteasavingsofanysort.Inthecaseofminorcapitalequipment, thesavingsaredifficulttodiscernonthebasisofhistoricalandprojectedspending,see 142


Figure4.4.Asshown,thesavingsarerelativetoasubstantiallyelevatedprofilewhichis70% abovethatrecordedintheprevioustwoyears.Evenmoresurreal,actualexpenditurehas comenowhereneartheelevatedlevelsenvisaged. Inthecaseofthefacilitiesprogramthesituationisparticularlyegregious.Overthefirstfour yearsoftheSRP,$150millioninpreviouslyplannedcapitalfacilitiesinvestmenthasbeen cancelledanddesignatedasasavings.Yet,atthesametime,theSRPtoutsa$190million capitalfacilitiesreinvestmentprogramtohelpaddressthedeteriorationinDefence facilitiesoverthesameperiod.Whatsmore,capitalfacilitiesinvestmenthasnotbeen reducedrelativetoanexistingtrend. AsFigure4.5shows,thereductionstofacilitiesinvestmentareonceagainrelativetoa substantiallyelevatedbaselineofspending.Andtomakethingsevensillier,actualspending in200910exceedtheplannedlevel,therebyerasinganysavings,whilein201011the revisedestimateisfora$70millionunderspend.The201112Budgetdeferredaround$586 millionofcapitalfacilitiesexpendituretobeyondtheforwardestimates.Fortunately,this wasnotclaimedasasaving.
Figure 4.4: Minor Capital Equipment Program: SRP savings
200 180 160 140 120 100 80 60 40 20 0
200506 200607 200708 200809 200910 201011 201112 201213 Source:DAR,200910PBSandSPRBooklets ClaimedSRPsavings PlannedexpenditureMay2009 Actual(ormostrecentlybudgeted)expenditure

Figure 4.5: The Capital Facilities Program: SRP savings ($ million)

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0
200506 200607 200708 200809 200910 201011 201112 201213 Source:DAR,200910PBSandSPRBooklets ClaimedSRPsavings PlannedexpenditureMay2009 Actual(ormostrecentlybudgeted)expenditure

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The 2012-13 Budget and the SRP HereshowtheSRPwassupposedtowork.Onthebasisofestimatedsavingsandestimated futurecosts,thebudgetallocationswithinDefencewereadjusted.Areaswheresavings weretooccurhadtheirbudgetsreduced,andthosetowhichthesavingsweretobe redirected(suchascapitalinvestment)wereincreased.However,overthepastthreeyears, ithasbecomeincreasinglyclearthattheestimatedbaselinecostsareunrealisticallyhighin someareasatleastfortheinitialyearsoftheprogram.Asdemonstratedelsewhereinthis chapter,theadoptionofahighbusinessasusualbaselineyieldsexaggeratedsavings.This comesontopofentirelyimplausibleclaimsofmorethan$4billionofsavingsfromtheso calledzerobasedbudgetandothersavingsmeasures. Tocapthingsoff,Defencefounditselfwithanembarrassmentofricheslastyearwhenthey hadtohandback$400millionthattheycouldnotspend(exclusiveofcapitalinvestment); hardlyasignofanorganisationstrugglingunderanonerousburdenofdifficultsavings.As theSecretaryofthedepartmentputitearlierthisyear;thelowhangingsavingshavebeen taken,theyvebeenharvestedandnowthegoinggetstough. Andtoughitgot,withanadditional$4.5billioninsavingsandefficienciesheapedonto Defenceacrossthedecadepriortothisyears$5.5billionhit.Butthegigisup.Inthisyears budget,thenotionthatfutureefficiencysavingswerepossiblewaseffectivelysettorest. Instead,thecapitalinvestmentprogram(supposedlythekeyrecipientofSRPsavings)was raidedtomakeendsmeetelsewhere.Recipientsofnewfundingincludedseveralprevious keysourcesofSRPsavings,includingsustainment,whichreceivesanextra$979million, garrisonsupport,whichreceivesanextra$150million,andinformationtechnology,which receivesanextra$550million. Beyond savings reforming Defences business processes Inanygivenyear,fewgovernmentdepartmentsareasintenselyreviewedasthe DepartmentofDefence.But201112wasaveritablebonanzafortheclipboardcarriers.As detailedinChapter8,therewerenolessthan15majorexternalreviewsunderwayduring theyear.Ofthese,anumberwerefocusedonDefenceculture.Whileattemptsat behaviouralengineeringwithintheDefenceorganisationareinteresting,theyarehardly relevanttothebudgetandwillnotbeconsideredfurther. OfmuchmorerelevancearethereviewsintoSupportShipRepairandManagement(Rizzo Review)andtheDefenceAccountabilityFramework(BlackReview).Therecommendations madebythesetworeportswill,ifimplemented,changethewayDefencemanagesfinancial andhumanresources(andmaterielassets)inimportantways. AmongthemanyreportsdeliveredinrecentyearsaboutthemanagementofDefence,the RizzoReviewstandsoutasafivestarproduct.Itprovidesanindepthinsightintothe fracturedbusinessprocessesandconfusedaccountabilitieswithinDefence.Moreover,it offersrecommendationsthatarebothpracticalandsensiblealbeitinthecontextof Defencesexistingmatrixmanagementbusinessmodel(whichwasnotwithintheReviews termsofreference).Butthecontextisallimportant;thedisjuncturebetweenthecontrolof resourcesandaccountabilityforoutcomeshasarguablycompromisedDefenceefficiency andeffectivenesssinceitsintroductionin1997.

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ItwasuptotheBlackReviewtoaddressthisunderlyingdysfunction.Unfortunately,it stoppedfarshortofeffectiveaction.Instead,wegotaraftoflargelysensiblebutultimately modestrecommendationstoimprovedecisionmaking,personalaccountability,risk managementandaccountabilityforthedeliveryofcapability.Whilethesearelargely worthwhile,theyaremanifestlyinadequatetofixtheunderlyingproblemsinDefence. OftherecommendationsintheBlackReview,theonewiththemostpotentialtoimprove outcomeswastheproposedreinstatementofindependentciviliancontestabilityof capabilityplanning.Althoughthegovernmentinitiallyannouncedthatitwouldpursuethis ideathroughtheappointmentofanAssociateSecretaryforCapabilityinDefence,it reverseditsdecisioncitingtheappointmentofanewGeneralManagerofSubmarinesin DMO.Thismakesnosense;theplumberhasarrivedsowecancanceltheelectrician? Nonetheless,wenowhaveanAssociateSecretaryappointedasChiefOperatingOfficer.This isdoublyperplexing.Tostartwith,thepositionhasabsolutelynothingincommonwiththe roleplayedbyChiefOperatingOfficersintheprivatesector.Moreimportantly,thespanof responsibilityextendsoverthreedisparategroupsChiefInformationOfficer,Defence Support,PeopleStrategiesandPolicywhichhavelimitedoverlapandlittleneedfor coordination. IfthegovernmentisseriousaboutsortingoutaccountabilitywithinDefenceandcreating thepreconditionsforefficientdeliveryofcapability,itneedstoputcontrolofresourcesfor deliveringmilitarycapabilityintothehandsofthemilitarychiefsthatarenominally accountableforit.Ifthereisonereformtobeappendedtothe2013DefenceWhitePaper, thatshouldbeit. Furtherdetailsofwhatmeaningfulreformwouldentailcanbefoundin: HenryErgasandMarkThomson;Moregunswithoutlessbutter;improving AustraliandefenceefficiencyAgenda,Volume18,Number3,2011. MarkThomson;ServingAustralia:controlandadministrationoftheDepartmentof Defence,ASPISpecialReport21,June2011. MarkThomson;ImprovingDefenceManagement,ASPISpecialReport1,January 2007.

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Chapter 5 International Defence Economics

Thischapterisdividedintothreeparts.Thefirstexamineskeyinternationaldefence spendingtrends.ThesecondexploresAustraliandefencespendinginaninternationaland historicalcontext,andthethirdexploresthecontinuingimpactoftheGlobalFinancialCrisis (GFC)oncountiesabilitiestospendondefence. Throughoutthischapter,defencespendingstatisticsfromavarietyofsourceareused.Given theunresolvablequestionsofdefinitionandreliability,onesourceisusuallyasgoodas another.Withthisinmind,themostconvenientsourceofdatahasbeenchosentoallowfor aconsistentcomparisonineachcase.

International defence spending

AccordingtotheStockholmInternationalPeaceResearchInstitute(SIPRI),theworld expendedatotalofUS$1,738billionondefencein2011,equivalenttoaround2.5%ofglobal GDP.WiththeexceptionofChina,thebulkofthespendingoccurredinthedeveloped economiesofNorthAmericaandWesternEurope,seeFigure5.1.
Figure 5.1: Geographic distribution of defence expenditure 2011
900 800 700 billion2011US$ 600 500 400 300 200 100 0

Source:StockholmInternationalPeaceResearchInstitute(SIPRI)MilitaryExpenditureDatabase2012edition,www.sipri.org.

Globaldefencespendingfrom1988to2011isgraphedinFigure5.2,whereBRICrefersto the(re)emergingpowersofBrazil,Russia,IndiaandChina,andtheUSalliesoutsideof EuropeareAustralia,Canada,Japan,Korea,NewZealandandTaiwan.Ascanbeseen,the peacedividendfollowingtheendoftheColdWarresultedinacontractioninglobaldefence expenditureofaround30%overadecade.From2001onwards,thetrendreversedasthe UnitedStatesmobilisedfollowingtheattacks9/11. 147

Figure 5.2: Global defence spending 1988 to 2011

1,800 1,600 1,400 constantbillion2010US$ 1,200 1,000 800 600 400 200 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

UnitedStates

WesternEurope

USAlliesoutsideEurope

'BRIC'

RestofWorld

Source:StockholmInternationalPeaceResearchInstitute(SIPRI)MilitaryExpenditureDatabase2012edition,www.sipri.org. Russianspendinginterpolatedfor1991.Chinesespendingextrapolatedfor1988.

TheUnitedStatesdominatesglobaldefencespending,andtherecentUSledinvasionsof AfghanistanandIraqgaverisetoadecadelongincreaseintheglobalfigure.In2011the UnitedStatesaccountedfor42%ofglobaldefencespending,andonceitsfriendsandallies aretakenintoaccounttheWestasawholeaccountsforjuston68%.However,overthe pastcoupleofyears,globaldefencespendinghasplateauedatthesametimeas expenditureintheUnitedStatesandotherdevelopednationshasbeguntofall. Itlooksasthoughtheworldisabouttoexperienceanotherdownwardswinginglobal defencespending.TheUnitedStatesandmostofthecountriesofWesternEuropeare projectingeitherinsipidgrowthorfallingdefenceexpendituresouttothemiddleofthis decade.Inpart,thisreflectsaminipeacedividendfromthedrawdownofWesternforcesin IraqandAfghanistan.Atleastasimportant,however,arethemountingfiscalpressures acrossdevelopedeconomies. Acombinationofrisingsocialspendingandthelegacyofcripplingdebtsduetothe2008 GFCareforcingmanycountriestoreconsiderthepriorityfordefencespending.Western Europeinparticularisfacingalongtermfiscalcrunchdueitsageingpopulation;withtax revenuesfallingandpensioncostsrising,somethinghastogive.Intheabsenceofaserious deteriorationinthestrategicsituationinEurope,itslikelythatcutstodefencespendingwill bethemostpoliticallyexpedientcourseofactionformanyEuropeancountriesintheyears ahead.

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The United States Afteradecadeofstronggrowth,theUSdefencebudgethasmoderatedoverthepastfour yearsandbeguntofall.Andthesituationisunlikelytoimprove;from2013to2021US defencespendingiscappedundertheBudgetControlAct(BCA)enactedin2011inresponse tomountingfiscalpressuresandapoliticaldeadlock. Forthemoment,thecutsarebeingaccommodatedthroughreducedpersonnelnumbers (andremuneration),baseclosures,deferredF35andnavalconstruction,andtheearly retirementofrelativelynewC27JtransportaircraftandlongrangeGlobalHawkUAV. Furthersacrificesmaybenecessary.UndertheBCA,USdefencespendingwillbecutfurther unlessthebipartisansupercommitteeidentifiesanadditional$1.2trillioninUSFederal budgetreductionsovertheforthcomingdecade.TheresultingcutstothePentagon(under whatscalledsequestrationinUSparlance)wouldbesevere.AccordingtotheUSCenter forStrategicandBudgetaryAssessments,sequestrationwouldreturnthedefensebudgetto roughlythelevelitwasin2007,adeclineofabout14%from2010,adjustingforinflation. Absentanewwarorseriouspeercompetitor,itlooksasthoughtheUSwillcontinueits postWWIIcyclicpatternofdefencespending. EvenifUSbaselinedefencespendingreturnstoitslongtermhistoricaltrendof1.35% annualrealgrowth,thesizeofUSarmedforceswillcontinuetodecline.Overthepastsix decades,theannualcostofmaintainingaUSnavyvesselinservicehasrisenbyanaverage of3.5%aboveinflation.Overthesameperiod,thecostsofaircraftandsoldiershaverisenin realtermsby3.5%and3.1%perannumrespectively.Asaresult,thestrengthofthearmy hasmorethanhalvedandthenumbersofaircraftandshipshavebeenreducedfourfold sincethe1950s(seeASPIPolicyAnalysis#56,2010).Consequently,althoughtheUnited Statesremainsthemostpowerfulmilitaryforceonearth,itsabilitytomountlargescale operationsisslowlyeroding,alongwithitscapacityforconcurrentoperations.
Figure 5.3: US defence spending 1950 to 2013
800 Cost of major wars 700 600 billion FY2012 US dollars 500 400 300 200 100 0 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Baseline national defense funding End of Cold War Invasion of Iraq

Reagan defense build up Underlying 1.35% pa real growth Korean war Vietnam war Gulf War 9/11

Source:CSBAAnalysisoftheFY2012DefenseBudgetandofficialFY2012andFY2013USbudgetpapers.

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The Peoples Republic of China Chinahasenjoyedrapideconomicgrowthsincethemid1990s.Overthesameperiod, defencespendinghasgrownapaceoverthesameperiod.Controversysurroundsthescale ofChinesedefencespending.USestimatesofChinesespendingaresubstantiallyhigherthan theofficialfigure.Independentestimatesfallsomewhereinbetween,seeFigure5.3. Byanyestimate,Chinesedefencespendingisrisingrapidly;between9%and13%eachyear aboveinflationoverthepastdecadeandahalf.Butbecausethishasbeenmatchedby stronggrowthintheChineseeconomy,thedefenceshareofGDPhasremainedaround2%. Moreover,accordingtoofficialfiguresatleast,theshareofChinesegovernmentspending devotedtodefencehasfallenfrom8.7%to6.5%overthepastdecadearguablyreflecting thehigherpriorityaccordedtosocialoutcomes. AlthoughChinaisoftencriticised(includingbyAustralia)fornotbeingtransparentenough aboutitsmilitarybuildup,itsbiannualdefencewhitepapersarereasonablyclearand largelyconsistentwithwhatcanbeobserved;Chinaisdevelopingthemilitarycapabilityto excludetheUnitedStatesanditsalliesfromitsmaritimeapproacheswithaparticularfocus onoperationsagainstTaiwan.Thisisreflectedinafocusondevelopingandmodernising whattheUStermantiaccess/areadenialcapabilities. Toalesserextent,Chinaisinvestinginpowerprojectionassetsincludinganaircraft carriertoprotectitssealinesofcommunicationandassertitsinterestsfurtherafield.By theendofthedecade,Chinawillhavetheabilitytodeployandsustainamodestjointforce includingaroundseveralbattalionsonlowintensityoperationsfarfromChina.
Figure 5.4: Chinese defence spending 1990 to 2010 180 160 140 billion2010US$ 120 100 80 60 40 20 0
AnnualGrowthRates19962010 Official:13.6% SIPRI:12.5% Pentagon:9.3% OfficialPRC'Budget' SIPRIestimate Pentagonestimate

Sources:AnalysisofdatafromSIPRIMilitaryExpenditureDatabase2011,www.sipri.org;PentagonReporttoCongressonthe MilitaryPowerofthePeoplesRepublicofChina,FY2004,FY2010andFY2011.

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Comparing the United States and China Muchhasbeensaidlatelyaboutthechanging economicandstrategicbalancebetweenthe UnitedStatesandChina.Heressomenumbersto putthingsinperspective. AccordingtotheWorldBank,theUnitedStates economy(US14.6trillion)was2.5timeslarger thanChinas(US$5.9trillion)atmarketexchange ratesin2010.IfChinaseconomygrowsat7.5% perannumandtheUSat2.5%perannum,itwill onlytake20yearsforeconomicparitytobe reachedin2030.

ComparisonofUSandPRC defencespending2010
USestimateofPRCdefence spending

22%

78%

Therawstatisticsforrecentmilitaryexpenditure Wartime supplementationexcludedfromUSfigure bytheUnitedStatesandthePeoplesRepublicof ChinaareshowninTable5.1.NotethatChinassmallerGDPsharegivesitarelatively greatercapacitytoincreasedefencespending.

Table 5.1: United States and Chinese defence spending circa 2010
UnitedStates China(officialfigures) China(Pentagonestimates) Baselinedefence expenditure2010US$ 571billion 92billion 160billion Defenceexpenditure percentageofGDP 4% 1.6% 2.7% Rateofgrowth 1.35%or0% 13.6% 9.3%

PlausibledefencespendingtrajectoriesfortheUnitedStatesandChinaareplottedin Figure5.4basedonthelatestPentagonestimateofChinesespending,andusinggrowth ratescommensuratewithhistoricaltrends.ItshowsthatitisfullypossibleforChinese defencespendingtoexceedthatoftheUnitedStateswithinthenexttwodecades.

Figure 5.4: Plausible US and Chinese defence spending trajectories
1200 UnitedStates+2.5% (GDPneutral)

1000

billion2010US$

800

UnitedStates+ 1.35%(historical trend) China+10%

600

400

200

China+7.5%

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

151

United Kingdom LiketheUnitedStates,theUnitedKingdomhasrampedupdefencespendingoverthepast decade(thoughnowhereneartothesameextent).Thistrendisnowbeingreversedaspart oftherapidfiscalconsolidationbeingundertakenbythenewcoalitiongovernment.The 2011UKdefencebudgetsetsoutrealreductionsinunderlyingdefencespending(exclusive ofthecostofdeployments)reportedas8%overfouryearsfrom201011to201415. Thecutstothedefencebudgetweredeterminedaspartofthe2010DefenceandSecurity Review.Asaresult,theUnitedKingdomwillbeamuchdiminishedmilitarypower.Key decisionsincluded: Militarypersonnelreductionsof25,000(fromabaseof158,500)andcivilianpersonnel cutsof29,000by2015,plusthewithdrawaloflandforcesfromGermanyby2020. Reductionintankandheavyartillerynumbersby40%and35%respectively. ImmediatedecommissioningofanexistingAircraftCarrier,oneLandingPlatform HelicopterandoneLandShipDock.Continuingwithplanstobuildtwonewaircraft carriersbutkeepingoneatextendedreadiness(mothballing).Puttingoneexisting LandingPlatformDockshipatextendedreadiness. ScrappingoftheNimrodmaritimepatrolaircraftandHarrierjumpjetfleetsanda reductioninthenumberofChinookhelicopterstobepurchasedfrom22to12. Fiveyeardelayinthereplacementofballisticmissilesubmarinefleetandreductionin thenumberofwarheadsfrom160to120.

Figure 5.6: United Kingdom defence spending 1980 to 2010

45 Falklandswar 40 35 Afghanistan billion201011pounds 30 25 20 15 10 1% 5 0 0% Defencespendingasa shareofGDP 4% percentofGDP 1stIraq war Costofdeploymentsto AfghanistanandIraq Iraq 5% 6%

3%

2%

Source:UKHouseofCommonsLibraryReportSN/SG/113,2009,UKMoD,UKDefenceStatistics2011.

152

North Atlantic Treaty Organisation (NATO) Untilrecently,NATOdefencespending(exclusiveoftheUnitedStates)hadbeenremarkably staticinrealtermssincetheendoftheColdWar,withthesubsequentexpansionofNATO doinglittletochangethesituation.However,inrecentyearsspendinghasfallen. Figure 5.7: NATO defence spending 1988 to 2010
1,200 UnitedStates EndofColdWar 1,000 NonUSNewNATO NonUSOldNATO 9/11attacks 800 billion2010US$

600

400

200

0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Netherlands 1.44% 11.2

Source:AnalysisofdatafromSIPRIMilitaryExpenditureDatabase2012,www.sipri.org ThelargermembersofNATOandthescaleoftheirpresentdefencespendingaregivenin Table5.2.InadditiontotheUnitedStatesandUnitedKingdom,manyotherNATOmembers areunderpressuretoreducedefencespendingduetofiscalpressures.In2010Italyreduced itsdefencebudgetby10%followingearliercutsin2009.Alsoin2010,Spainreducedtheir defencebudgetby3.5%.Franceplanstoreducespendingbyaround4%between2011and 2013andGermanyendedconscriptionasofJuly2011.Becausethesecountriesaresubject tothesamecostpressuresastheUnitedStates,thescaleofNATOforceswillcontinueto declineintheyearsaheadmakingitevenmoredifficulttoundertakeoperationssuchasthat inAfghanistantoday. Table 5.2: Key NATO members defence spending 2010
Germany United Kingdom Canada France United States

Defence spending as a share of GDP Defence spending in 2009 US$ billions

4.77% 694

2.57% 57.7

2.03% 52.0

1.34% 44.1

1.07% 21.9

1.28% 20.2

1.05% 14.7

Source:IISS,TheMilitaryBalance2012.

153

Spain

Italy

Regional trends
DefencespendingtrendsinMaritimeSoutheastAsiaandGreaterAsiaaresummarisedon thefollowingtwopagesandexaminedindepthoverleaf. Maritime Southeast Asia Defencespendingfor2011inthesevenlargestSoutheastAsianstatesplusAustraliais plottedinFigure5.8andfurtherdetailedinTable5.3.Severalpointsareworthmaking.(1) Australiaoutspendsanyofitsneighboursbyacomfortablemargin.(2)OnlySingaporeshows anyrealsignofstrategicangst,withaGDPshareof4.3%.(3)OnlyAustralia,NewZealand andThailandareincreasingtheirdefencespendingataratesufficienttoexpandtheirarmed forces(andthenonlymodestly). Figure 5.8: Defence spending 2011 in Maritime Southeast Asia
30 25 billion2011US$ 20 15 10 5 0 New Philippines Vietnam Malaysia Indonesia Thailand Singapore Australia Zealand
Source:IISS,TheMilitaryBalance2012.

Table 5.2: Defence spending 1990 to 2010; Maritime Southeast Asia

Philippines Singapore Indonesia Malaysia Australia 1.92% 4.9% 1.6% Thailand 1.52% 4.4% -1.5% Vietnam 2.51% New Zealand 2010 defence spending as a share of GDP Average annual defence spending growth 2000-2010 Average annual defence spending growth 1990-2000 1.15%

1.02%

1.54%

1.02%

3.64%

4.6%

-3.7%

2.9%

2.0%

2.8%

2.8%

-3.3%

-1.4%

3.0%

2.8%

5.9%

Sources:GDPsharetakenfromIISS,TheMilitaryBalance2012,defencespendinggrowthismeasuredinowncurrency.

154

Greater Asia Defencespendingfor2010inthesixlargestGreaterAsianstatesplusAustraliaisplottedin Figure5.9andfurtherdetailedinTable5.4(Note:USfigureshavebeenscaledtofit).Several pointsareworthmaking.(1)AustraliaisaminnowinthetankofNorthAsiansecurity.(2) OnlyIndiaandSouthKoreashowsanyrealsignofstrategicconcernwithGDPsharesof1.9% and2.5%respectively.(3)TaiwanandJapanareallowingtheirdefencecapabilitiesto atrophy.(4)AlthoughChinadevoteslessthan1.5%ofGDPtoDefence,ithasbeen increasingitsdefencespendingatanimpressiverateoverthepasttwodecades. Onthebasisofdefencespending,itisclearthatthebalanceofmilitarypowerintheregion isslowlyshiftingfromtheUnitedStatesanditsalliestoChina. Figure 5.9: Defence spending 2010 in Greater Asia
160 140 120 billion2011US$ 100 80 60 40 20 0 Taiwan Australia SouthKorea India Japan China UnitedStates x1/5

Source:IISSTheMilitaryBalance2012

Table 5.3: Defence spending 1910to 2010; Greater Asia

South Korea Australia Taiwan United States 4.77% 6.5% -2.7%

Japan

2010 defence spending as a share of GDP Average annual defence spending growth 2000-2010 Average annual defence spending growth 1990-2000

2.08% -1.7%

1.92% 4.9%

2.48% 4.1%

1.89% 4.9%

1.00% -0.2%

1.30% 13.3%

1.4%

1.6%

2.6%

4.6%

0.9%

7.6%

Sources:GDPsharetakenfromIISS,TheMilitaryBalance2012,defencespendinggrowthismeasuredinowncurrency.

155

China

India

Regional economic and defence spending trends the details Theleastambiguouswaytotrackrelativechangesinthesizeofacountryseconomyisto adjustitsGDPinlocalcurrencytoasinglebaseyearusingitsGDPdeflator.Similarly,the leastambiguouswaytotrackrelativechangesindefencespendingistoadjustspendingin localcurrencytoasinglebaseyearusingitsCPIindex. WithrealGDPanddefencespendingsocalculated,therelativegrowthbetweencountries canbecomparedbynormalisingtheinitialvaluesinthebaseyear.Thishasbeendonefora selectionofcountriesinMaritimeSoutheastAsiaandGreaterAsiainFigures5.10and5.11. Datasourcesfortheseandsubsequentgraphsarelistedattheendofthissection.
Figure 5.10:Relative economic and defence spending growth, Maritime Southeast Asia
900 Australia RelativeincreaseinrealGDP localcurrency 800 700 600 500 400 300 200 100 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 600
Relativeincreaseinrealdefencespending localcurrency

Indonesia Malaysia NewZealand Philippines Singapore Thailand Vietnam 1997Asian FinancialCrisis

2008Global FinancialCrisis

Australia 500 Malaysia Philippines 400 Thailand

Indonesia NewZealand Singapore Vietnam

300

200

100

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

156

Itisclearthatdevelopingcountrieshaveachievedfastereconomicgrowththantheirmore developedcounterparts.Chinainparticularhasachievedspectaculareconomicgrowthsince theearly1990sthoughitsmilitaryspendingdidnottakeoffuntilaroundadecadelater. AmongthecountriesofMaritimeSoutheastAsia,Singaporehasmanagedsteadyeconomic growthwhichhasbeenreflectedinasimilartrendintheirdefencespending.Incomparison, ourclosestneighbour,Indonesia,hasachievedhealthyeconomicgrowthbuthasnotseen theneedtoincreaseitsdefencespending. Theimpactofthe1997AsianFinancialCrisisisapparentinFigure5.10andtoalesserextent inFigure5.11.

Figure 5.11: Relative economic and defence spending growth in Greater Asia
2,000 RelativeincreaseinrealGDP localcurrency 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 600
Relativeincreaseinrealdefencespending localcurrency

Australia China India Japan SouthKorea Taiwan UnitedStates 1997Asian FinancialCrisis

2008Global FinancialCrisis

Australia 500 China India 400 Japan SouthKorea 300 Taiwan UnitedStates

200

100

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

157

Comparative economic performance Comparingtherelativesizeofeconomies(asopposedtotherelativerateofgrowthinsize) requiresconvertingthedomesticcurrenciesinvolvedtoacommoncurrency.Inpractice,this isperformedinoneoftwoways;eitherbyconvertingtoUSdollarsatprevailingmarket exchangerates,orbyusingtheWorldBanksPurchasingPowerParity(PPP)exchangerates whichattempttocapturethebuyingpowerofthecurrencywithinthecountryitisused. Typically,PPPexchangeratesyieldasignificantlylargerfigurefordevelopingcountriesthan marketexchangerates.Byconstruction,PPPexchangeratesarenormalisedrelativetothe USdollar.Figure5.12and5.13plotnationalGDPatmarketexchangeratesandPPPfor MaritimeSoutheastAsiaandGreaterAsiarespectively.
Figure 5.12: Comparative economic performance, Maritime Southeast Asia
900 Australia 800 Malaysia 700 RealGDP(billion2000PPP$) 600 500 400 300 200 100 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1,200 Australia 1,000 RealGDP(billion2000US$) Malaysia Philippines 800 Thailand Indonesia NewZealand Singapore Vietnam 1997Asian FinancialCrisis 2008Global FinancialCrisis 600 400 200 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Philippines Thailand NewZealand Singapore Vietnam 1997Asian FinancialCrisis Indonesia 2008Global FinancialCrisis

158

WhethermarketexchangeratesorPPPexchangeratespresentamoreaccuratepictureof comparativeeconomicperformanceisdebatable.Insomesense,theyprovide complementaryviewsofwhatisoccurring.Thatsaid;thesubstantialvolatilityof internationalexchangerates(whicharedrivenmorebyneartermfinancialfactorsthan longtermeconomicfundamentals)introduceslargetransientvagariesintotimeseries.For example,therapidriseofAustralianGDPintermsofUS$inFigure5.11andtheoscillationof JapaneseGDPintermsofUS$inFigure5.13arebothartefactsofexchangeratefluctuations ratherthananyreflectionofactualchangesineconomicperformance.NotethatinFigure 5.13thesizeoftheUnitedStateseconomyhasbeenscaledbyafactoroftento accommodateitonthechartwithoutcompressingthedataforothercountries.
Figure 5.13: Comparative economic performance in Greater Asia
7,000 6,000 5,000 Real(GDP2000US$) 4,000 3,000 2,000 1,000 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9,000 Australia 8,000 7,000 RealGDP(billion2000PPP$) 6,000 5,000 4,000 3,000 2,000 1,000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 China India Japan SouthKorea Taiwan UnitedStatesx10% 1997Asian FinancialCrisis Australia China India Japan SouthKorea Taiwan UnitedStatesx10%

2008Global FinancialCrisis

159

Comparative defence spendingMaritime Southeast Asia JustaswasthecasewithGDP,comparingthelevelofdefencespendingbetweencountries requiresconversiontoacommonbasis,usuallyeitherUS$orPPP$.Intermsofmaintaining modernhightechmilitarycapabilities,spendingexpressedinUS$isprobablyabetter comparativemeasure.Conversely,thecostofmaintainingalargelowtechdefenceforceis probablybettercomparedusingPPPexchangerates.Figures5.14and5.15plotdefence spendinginMaritimeSoutheastAsiafrom1980tothepresentintermsofUS$andPPP$ respectively. Theonlycountriestoconsistentlyandsignificantlyincreasetheirdefencespendingpost ColdWarareAustralia,SingaporeandVietnam.Alltheothershaveeitherdecreasedtheir spendingorarestillworkingtorecovergroundlostinthe1997AsianFinancialCrisis.An equallysanguinepictureemergesfromthetrendsintheshareofGDPdevotedtodefence. ThelongtermtrendforallthecountriesofMaritimeSoutheastAsiaisoneofdeclining defenceburden,seeFigure5.14.Evenforthosecountrieswiththefastestgrowth SingaporeandAustraliaGDPsharehasnotbeengrowingbyanappreciableamountin recentyears. Incontradictingthosewhodiscernaregionalarmsrace,thereislittleinthedefence spendingpatternsofMaritimeSoutheastAsiatosupportsuchaconclusion.Giventhatthe costofhightechmilitaryequipmentisincreasingbyaround4%aboveinflationeveryyear,it ishardtoseehowanyoneotherthanAustraliaandSingaporecanaffordtomoderniseor significantlyexpandtheirairandnavalassetsonpresentspendingtrends. Figure 5.14: Defence burden, Maritime Southeast Asia
9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Australia Malaysia Philippines Thailand Indonesia NewZealand Singapore Vietnam

160

Figure 5.15: Real defence spending (2000 US$), Maritime Southeast Asia
25 Australia Malaysia 20 Philippines Realdefencespending(2000US$) Thailand 15 Singapore Vietnam Indonesia NewZealand

1997Asian FinancialCrisis 10

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Figure 5.16: Real defence spending (2000 PPP$), Maritime Southeast Asia
16 Australia 14 Malaysia Philippines Thailand 10 Indonesia NewZealand Singapore Vietnam

Realdefencespending(2000PPP$)

12

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

161

Comparative defence spendingGreater Asia AsomewhatmoreinterestingpictureemergesofdefencespendinginGreaterAsiaandthe UnitedStates.Thestrongestandclearesttrendhasbeenthesteadyandsubstantialdecline inthedefenceburdencarriedbycountriessince1980,seeFigure5.17.Theonlycountriesto exhibitasignificantriseindefenceburdeninthenearerterm(albeitlimitedcomparedwith historicallevels)areChinafromthelate1990sandtheUnitedStatesfrom2001onwards. Intermsofabsolutespendinglevels(seeFigures5.18and5.19)severalpointsareworth making.Chinasdefencespendinghasgrownappreciablybyanymeasure.TheUnitedStates remainsfaraheadofanyothercountrybutspendingissettoslow.Indiasdefencespending continuestoriseasdoesSouthKoreas.Taiwanhasgivenup. UnlikeMaritimeSoutheastAsia,itisclearthatthemilitarybalanceofpowerisslowlybut surelyshiftingamongGreaterAsiaandtheUnitedStatesatleasttotheextentthat defencespendingtranslatesintomilitarycapability.Chinahascomfortablyovertaken Taiwan,SouthKoreaandIndia,andrecentlyJapan.Critically,theChinesespendingfigures presentedherearetakenfromofficialsourcesandaredeemedbymanyobserversto understatethetruepicture.TheUSPentagonreporttoCongressonChinesemilitarypower hasarguedthatdefencespendingbythePeoplesRepublicisappreciablylargerthan disclosed.
Figure 5.17: Defence burden, Greater Asia
10% Australia 9% 8% 7% 6% Taiwan 5% 4% 3% 2% 1% 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 UnitedStates China India Japan SouthKorea

162

Figure 5.18: Real defence spending (2000 US$), Greater Asia

Figure 5.19: Real defence spending (2000 PPP$), Greater Asia

Realdefencespending(2000US$) 10 20 30 40 50 60 70 0 100 120 60 80 India China Japan Taiwan Australia SouthKorea

Realdefencespending(2000PPP$)

20

40

India

China

Japan

UnitedStatesx10%

Taiwan

Australia

SouthKorea

UnitedStatesx10%

163

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Historical Defence Spending

Historical Australian defence spending
RealandnominalAustraliandefencespendingfrom1870tothepresentappearsinFigure 5.20.Althoughinflationdominatesthenominaldataandobscuresmuchofthehistorical detail,theimpactofthewarsofthetwentiethcenturyisclearlyvisibleintherealdata correctedforinflation.
Figure 5.20: Australian defence spending, 18702010.
35 Nominal dollars 30 25 $ (billion) 20 15 10 World War I 5 0
18 70 18 77 18 84 18 91 18 98 19 05 19 12 19 19 19 26 19 33 19 40 19 47 19 54 19 61 19 68 19 75 19 82 19 89 19 96 20 03 20 10

Real 2010-11 dollars World War II

Vietnam Korea

Source:ASPIcollationofdatafromvarioussources,realdollarscalculatedusingretail/consumerpriceindex.

AnevenmoreusefulgraphofhistoricalspendingappearsinFigure5.21whererealspending hasbeenplottedonalogarithmicscale,onwhichexponentialgrowth(whichiscloseto compoundinggrowthforsmallratesofincrease)appearsasastraightline.Asshownin Figure5.21,therehavebeentwoepochsofunderlyingsteadygrowthindefencespending; from1870to1929spendinggrewbyaround7%perannum,andfrom1945tothepresent underlyingspendinggrewbyaround2.7%perannum. Noneofthisshouldbetakentoimplythatthedefenceforcehasexpandedsignificantly duringthepostwarperiodithasnot.Rather,theobservedgrowthindefencespending largelyreflectstherisingintrinsiccostofdeliveringmodernmilitarycapability.The2003 ASPIpublication,ATrillionDollarsandCounting,estimatedthatrealgrowthofaround2.65% perannumwasnecessaryjusttomaintainthepresentscaleandrangeofcapabilitiesinthe ADF.ComparableanalysisofUSdefencespendingandforcestructuretrendsleadstoa similarconclusion.Thus,therecentandongoingriseof3%perannumismoreabout maintainingthansignificantlyexpandingthedefenceforce.

164

Figure 5.21: Australian defence spending, 18702010.

100000 World War II 10000
Real 2009-10 dollars (millions)

Korea

Vietnam

World War I 1000 Great Depression 100

10 7% real growth 1
18 70 18 77 18 84 18 91 18 98 19 05 19 12 19 19 19 26 19 33 19 40 19 47 19 54 19 61 19 68 19 75 19 82 19 89 19 96 20 03 20 10

2.7% real growth

Source:ASPIcollationofdatafromvarioussources,realdollarscalculatedusingretail/consumerpriceindex.

ThesteadyincreaseinrealdefencespendingsincetheendoftheWorldWarIIhasbeen possiblebecauseofongoinggrowthintheAustralianeconomyoverthesameperiod.Infact, asashareofGrossDomesticProduct(GDP)thelongertermtrendhasbeenfordefence spendingtoaccountforaprogressivelysmallershareofdomesticoutput.Figure5.22plots defencespendingasbothashareofGDPandasaproportionoftotalCommonwealth outlays.

Figure 5.22: Australian defence spending as a share of GDP and Outlays.
80%

% Commonwealth Outlays
70% 60% 50% World War I 40% Korea 30% 20% 10% 0%
1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

% Gross Domestic Product

World War II

Vietnam

Source:ASPIcollationofdatafromvarioussources. 165

GiventheimportanceofdefencespendingasashareofGDP,amagnificationofthepost warperiodhasbeenpreparedinFigure5.23. Figure 5.23: Defence burden (per cent of Gross Domestic Product) 19462010
8% 7% Korea 6% 5% 4% 3% 2% 1% 0%
19 46 19 49 19 52 19 55 19 58 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03 20 06 20 09

Vietnam

Source:ASPIcollationofdatafromvarioussources. GDPshareisnotameasureoftheadequacyorotherwiseofdefencespendingthats somethingthatdependsonthetaskathand.Rather,itmeasurestheproportionofnational wealththatanationdevotestodefence.

TheplannedgrowthinAustraliandefencespending(fromthe2009WhitePaper)willseethe shareofGDPdevotedtonationaldefenceataround1.75%by2030(seethe2010 IntergenerationalReport),whichisnothighbyrecentstandards.Moreover,theUnited Statesishasrecentlybeenexpendingmorethan4.7%ofGDPandtheUnitedKingdom2.5%. EventakingaccountofthegrowingfiscalburdenduetotheageingoftheAustralian population,thereisnoreasontoconcludethatadefenceburdenintherangeof2%to3%is unsustainable.Whileitistruethathealthandageingwillsteadilydemandagrowingshareof GDPinthedecadesahead,theconcurrentriseinindividualprosperity(asmeasuredbyGDP percapita)willallowlivingstandardstogrowappreciablyevenifalargershareofnational productisdivertedforpublicgoodslikehealth,agedcareanddefence. AmoredetailedexaminationoftheaffordabilityofAustraliandefencespendingcanbe foundinthe2008ASPIpublicationStrategicchoices:DefendingAustraliainthe21stcentury.

Australiasdefenceeffortinaninternationalcontext
AccordingtotheInternationalMonetaryFund,in2008Australiahadthefifteenthlargest economyonearthmeasuredatmarketexchangerates(andseventeenthusingPurchasing PowerParityPPP).Fromthisannualbountyofaround1.4trilliondollars,Australiafindsthe moneytofunditsdefence.Table5.5displaysAustralias2010defencespending(thelatest yearforwhichcomprehensivedataisavailable)alongwiththatofaselectionofcountries 166

includingallies,regionalneighboursandotherdevelopedindustrialeconomiesaroundthe globe.AllfiguresaregiveninUSdollarscalculatedatprevailingmarketexchangerates.
Table 5.5: Defence spending and burden 2010
2010GDP Country USA China Japan Germany France UnitedKingdom Italy India Canada Russia Spain Australia SouthKorea Netherlands Turkey Indonesia Sweden Taiwan Thailand Malaysia Singapore Israel Philippines Pakistan NewZealand Vietnam PNG 2010Defenceexpenditure $US(b) Country 14,541 USA 5,874 China 5,436 UnitedKingdom 3,288 Japan 2,562 France 2,249 Germany 2,047 Russia 1,633 India 1,581 SouthKorea 1,477 Australia 1,404 Italy 1,231 Canada 1,011 Turkey 778 Spain 733 Israel 704 Netherlands 459 Taiwan 432 Singapore 317 Indonesia 237 Sweden 222 Pakistan 217 Thailand 198 Malaysia 173 Vietnam 140 Philippines 103 NewZealand 10 PNG %GDP % 6.46 4.77 3.64 3.24 2.84 2.57 2.51 2.48 2.38 2.08 2.03 1.92 1.89 1.54 1.52 1.44 1.34 1.3 1.28 1.22 1.15 1.07 1.05 1.02 1.02 1.00 0.45

$US(b) Country 693.6 Israel 76.4 USA 57.8 Singapore 54.4 Pakistan 52.0 Russia 44.1 UnitedKingdom 41.9 Vietnam 30.9 SouthKorea 25.1 Turkey 23.6 Taiwan 21.9 France 20.2 Australia 17.4 India 14.7 Malaysia 14.0 Thailand 11.2 Netherlands 9.0 Germany 8.1 China 7.2 Canada 5.6 Sweden 5.6 NewZealand 4.8 Italy 3.7 Spain 2.6 Indonesia 2.0 Philippines 1.6 Japan 0.043 PNG

Source:IISS:TheMilitaryBalance2012.NoteAustralianresultsvarysomewhatfromlocalreporting.

Withthecaveatthatfluctuationinexchangeratescanmakeasignificantdifferencein relativeranking,therearethreeobservationsworthmaking.First,ourlevelofdefence spendinggivesusabudgetbroadlycomparablewithSouthKoreaandtheNetherlands,but farbelowheavyhitterslikeItaly,Germany,UK,Japan,FranceandChina.Second,we outspendallourSoutheastAsianneighboursbyaconsiderablemargin.Third,theUnited Statesremainsinaclassofitsown. IntermsofdefencespendingasapercentageofGDP,untilrecentlywhenourGDPshare droppedto1.6%,wedevotedsignificantlymorethantheNetherlands(1.4%),Germany (1.3%),Spain(1.0%),Canada(1.3%)andJapan(1.0%).Accordingtothedata,theonlyfully developedWesterncountriestoallocatealargershareofGDPthanusarethe(thenuclear armed)UnitedStates(4.0%),France(2.0%)andtheUnitedKingdom(2.6%).Closertohome, wedevoteasmallershareofGDPthanVietnam(2.5%),India(1.9%),SouthKorea(2.5%), 167

andSingapore(3.6%),butmorethanIndonesia(1.0%),Thailand(1.5%)andthePhilippines (1.0%).Notsurprisingly,werankwellaheadofNewZealand(1.2%). Tosummarise,wespendagreatersharethanmostdevelopedWesternnationsbutalesser sharethanmanyofoursignificantregionalneighbours.Thisprobablyreflectstwothings:(1) thesynergyderivedfromcollectivedefenceinWesternEurope,and(2)thatsomeofour poorerneighbourshavetospendalargershareofGDPtomeetthedemandsofamore challengingstrategicenvironmentthanthatofWesternEurope. Analternativeandoftenilluminatingdepictionoftheeconomicresourcesacountry allocatestodefencecanbeachievedbyplottingitspositiononagraphofGDPagainst defencespendingalongwithothernations.WevedonethisinFigure5.24forsome156 countriesbasedondatacollectedbytheInternationalInstituteofStrategicStudies(IISS).To properlycapturethewidespreadofGDPanddefencespendingvalues,thedatahasbeen plottedonaduallogarithmicscale.
Figure 5.24: GDP and defence spending for 157 countries 2010
1,000,000

100,000 defencespending2010US$(million)

defencespending>4 %ofGDP
10,000

1,000

defencespending<1 %ofGDP
100

10

1 100 1,000 10,000 100,000 1,000,000 10,000,000 100,000,000 GDP2010US$(million)

Source:CompiledfromdatainTheMilitaryBalance2012(IISS).

Acoupleofthingsareimmediatelyapparent.Mostobviously,thereisaclearcorrelation betweendefencespendingandeconomicsize;thelargeranationseconomythemoreit tendstospendondefence.Inaddition,thevastbulkofnationsspendwithinthebandof between1and4%ofGDPondefence.Notsurprisingly,thosecountriesthatspendlarger sharesofGDPtendtohavemorechallengingstrategiccircumstancesthanthosethatspend less,orelsetheyareimpoverishednationsthatneedtospendagreatershareoftheir 168

meagreresourcestoachieveacrediblecapability.SmallsharesofGDPspendingtendto correlatewithadvantageousgeography,strongalliancesandbenignneighbours.But anotherfactorisalsoatplay.Economicallyprosperousdevelopednationstend, understandably,tobeabletoprovidefortheirdefencewithasmallershareofGDP. Moneyisnottheonlyresourcethatanationhasavailabletodevotetoitsdefence;thereis alsopeople.Table5.6listspopulationnumbers,permanentdefenceforcenumbersand populationpercentageinthearmedservicesforourselectionofallies,neighboursand Westernpowers.

Table 5.6: Human resources circa 2011
Armed Forces 2011 2,285,000 1,564,000 1,325,000 1,190,000 1,046,000 655,000 617,000 511,000 455,000 239,000 306,000 302,000 185,000 290,000 251,000 248,000 177,000 178,000 142,000 125,000 109,000 73,000 66,000 59,000 37,000 21,000 10,000 3,000 % of POP 4.87% 2.37% 1.54% 1.34% 1.26% 0.75% 0.71% 0.50% 0.50% 0.46% 0.38% 0.37% 0.33% 0.31% 0.30% 0.30% 0.28% 0.27% 0.23% 0.23% 0.22% 0.20% 0.19% 0.17% 0.12% 0.12% 0.11% 0.05%

Country China India United States Indonesia Pakistan Russia Japan Philippines Vietnam Germany Turkey Thailand France United Kingdom Italy South Korea Spain Canada Malaysia North Korea Taiwan Australia Netherlands Sweden Israel PNG Singapore New Zealand

POP 2011 1,336,718,015 1,189,172,906 313,232,044 245,613,043 187,342,721 138,739,892 126,475,664 101,833,938 90,549,390 81,471,834 71,892,807 66,720,153 65,312,249 62,698,362 61,016,804 48,754,657 46,754,784 34,030,589 28,728,607 24,457,492 23,071,779 21,766,711 16,847,007 9,088,728 7,473,052 6,187,591 4,740,737 4,290,347

Country China United States India North Korea Russia South Korea Pakistan Turkey Vietnam France Thailand Indonesia Italy Taiwan Germany Japan Israel United Kingdom Spain Philippines Malaysia Singapore Canada Australia Netherlands Sweden New Zealand PNG

Country North Korea Israel Singapore South Korea Taiwan Russia Turkey Vietnam United States Thailand Malaysia France Pakistan Germany Spain Italy United Kingdom Australia New Zealand Sweden Netherlands Japan Canada China Indonesia Philippines India PNG

Source:InternationalInstituteforStrategicStudies:TheMilitaryBalance,2011.CIAFactbook.

HereAustraliaislesswellendowed.AccordingtotheCIAFactbook,Australiaranked55thin populationin2010,aheadofCotedIvoireandbelowRomania.Wehaveaboutonethirdthe populationofthelargerEuropeanpowersandlessthanonetenththatoftheUS.Inregional terms,werejustalittlesmallerthanMalaysia,NorthKoreaandTaiwan,butonlyaquarter thesizeofThailandandthePhilippines.Indonesiahasmorethantentimesourpopulation, andwearebutadropintheoceancomparedwithIndiaandChina.Thesoberingfactisthat weaccountforlessthanonethirdofonepercentoftheworldspeople. 169

Ourpermanentarmedforcesin2011amountedtoaround59,000,whichputsusnearthe bottomofthetableinourselectionofcountries.Overall,therearearound61countrieswith armedforcesnumericallysuperiortoours.Asaproportionofpopulation,wehavearound onequarterofonepercentofourpopulationengagedasfulltimemilitarypersonnel.Thisis lessthanEuropeannationsGermany(0.31%)andFrance(0.37%),andbehindtheUnited States(0.50%).Infact,inourselection,theonlyWesterncountrieswecomfortablybeatare thosewellknownstrategicoptimists,CanadaandNewZealand(bothofwhichhavetheir strategicapproachescoveredbymorepowerfulneighbours)andSwedenwhichmakes extensiveuseofreservepersonnel.Inregionalterms,wefallwellbehindSingapore(1.54%), Malaysia(0.38%)andThailand(0.46%)butaheadofJapan(0.20%),China(0.17%),Indonesia (0.12%)andthePhilippines(0.12%). Australiasrelativelymodestrankingintermsofproportionofpopulationneedstobeseen inthecontextofouravowedmaritimestrategy.Withtheexceptionofashortperiodinthe 1960swhichsawconscriptionboosttheArmytoover40,000,Australiahasnever maintainedalargepeacetimestandingArmy.Asacountrywithnolandbordersandno prospectiveadversarieswithanamphibiouscapability,theimperativetodevelopa manpowerintensivelandforceisslight. Impact of the Global Financial Crisis In2009,theASPIBudgetBriefdevotedanentirechaptertothepotentialimpactoftheGFC. Thekeyaspectsofthatanalysisareupdatedbelow.Figure5.25showstherecordedand prospectiveeconomiccontractiongloballyandforadvancedanddevelopingeconomies separately.Ascanbeseen,theimpactwasmoresevereintheformer.Infact,compared withtheinitialestimatesfromearly2009,developingcountrieshavegottenoffevenmore lightlythanexpectedtypically23%lesscontractiontherebywideningthegapbetween theimpactondevelopedanddevelopingcounties. Theresultsforspecificcountriesandsubregionsareshowninthelowergraph.Notethat ChinaandAustraliamanagedtoavoidtheworstoftherecessioncomparedwithour respectivecohorts. Overthepasttwelvemonths,theworldeconomicoutlookhasoscillatedbetween pessimisticanduncertain.TheongoingsovereigndebtcrisisinEuropehascastashadow overtheglobaleconomy,growthinChinahasbeenlessrapidthananticipated,andthe UnitedKingdomisundergoingadoublediprecession.Overall,neartermgrowthprojections areslightlylessoptimistictodaythantheywerethistimelastyear.TheUnitedStates,in particular,isundergoingtheslowestandmosthesitantrecoveryfromrecessioninthe postwarera.EveninAustralia,wheretheimpactoftheGFCwasnotsevere,therecovery hasbeenslowbyhistoricalstandards.

170

Figure 5.25: The Great Recession 10 Developingcountries 8

percentannualrealGDPgrowth

6 World 4 2 Advanced countries 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2 4

15 13
percentannualrealGDPchange

11 9 7 5 3 1 1 3 5
China ASEAN5 Australia UnitedStates Euroarea 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source:InternationalMonetaryFund,WorldEconomicOutlook,April2012.

Atthetime,theGFConlyhadalimitedimpactoninternationaldefencespendingprobably becauseinsufficienttimewasavailabletomakesubstantialadjustments.Threeyearslater, andthelongertermconsequencesarebeginningtoemerge.Asshownearlier,fromaround 2010onwards,substantialcutshavebeenmadeinanumberofcountries. Fromtheperspectiveofdefencespending(andgovernmentspendingmoregenerally,the GFCdidtwothings.First,itrapidlyexacerbatedlongstandingproblemswithgovernment debtinmanyadvancedeconomies,Figure5.26. 171

Figure 5.26: The GFC and government debt 120 UnitedStates Euroarea 100
generalgrossgovernmentdebt%GDP GlobalFinancialCrisis

80

60

40

20

Source:IMFWorldEconomicOutlook,April2012.

Second,theGFCremovedthecomplacencysurroundingthesustainabilityofthefinancial systemingeneralandgovernmentfinancesinparticular.Nolongerisitpossibletopretend thatadvancedeconomiescanlivebeyondtheirmeansforever.Moreover,theGFCforced manycountriestofaceuptothefiscaldilemmacausedbyageingpopulations.A2010study bytheIMFprojectsthat,oncurrentpolicysettings,theaveragegeneralgovernmentnet debtamongG7countrieswillreach200%by2030and441%by2050. Theextenttowhichacountrydecidestoreduceitsdefencespendingasaresultofmounting debtwilldependonmanyfactorseconomic,strategicandcultural.Aproperanalysisof howthesefactorsmightcometogetherforevenonecountryisbeyondthescopeofthis brief.Butaswevealreadyseen,anumberofadvancedeconomiesarealreadyworking towardsfiscalconsolidation,includingthroughcutstodefencespending. Asaguidetotheextentoffiscalpressures,keyeconomicandfiscaldataforcountriesof interesthasbeencollectedinTable5.7.France,Germany,Italy,theUnitedKingdomandthe UnitedStatesallfacesizablegrowingdebts.AndwhiletheUnitedStatesusedtobea possibleexceptionwhenitcametofiscalpressurebecauseitownstheworldsreserve currency,thedevaluationoftheUSdollariserodingthatcomfort. Asthedatamakesclear,therewillbemuchmorepressureonadvancedeconomiestorein indefencespendingthanondevelopingones.Amongtheadvancedcountries,Australiaisin arelativelystrongpositiongivenitslowdebtandrelativelyshallowdownturn. Itisworthnotingthatthedebtheldbyadvancedeconomieswillbemoredifficulttopayoff thanthatindevelopingcountries.Notjustbecauseadvancedeconomiestendtoowea 172

greatershareofGDP,butalsobecausedevelopingeconomiesgrowtwoorthreetimes fasterthantheiradvancedcounterparts.Japan,inparticular,facesanincreasinglyserious situationwhereitsageingpopulationwillimpedegrowthatthesametimeasagedcareand healthcostsriseintheyearsahead.China,ontheotherhand,coulderaseitspublicdebt withinseveralyearsifitchosetodoso.

Referencesandsources
Economic data including GDP, deflators and CPI indices comes taken from the International Monetary Funds World Economic Outlook Database 2012 (April 2012) available at www.imf.org. Most of the defence spending data is taken from successive editions of the International Institute of Strategic Studies The Military Balance from 1980 to 2012. Additional data has been drawn from the Department of Defences Defence Economic Trends produced by the Defence Intelligence Organisation between 2000 and 2007. Defence Economic Trends is available at http://www.defence.gov.au/dio/product.html. Additional national defence spending data has been taken from: Analysis of the FY 2012 Defense Budget Request, 2012, from the Center for Strategic and Budgetary Analysis available at www.csbaonline.org; Chinas National Defense in 2010, the Defense White Paper for the Peoples Republic of China, available at http://china.org.cn/e-white/index.htm; Historical Statistics of Japan; The Statistical Bureau of the Ministry of Internal Affairs and Communications, Japan, http://www.stat.go.jp/english/data/chouki/index.htm. The IMF study referred to is Long-term Trends in Public Finances in the G-7 Economies, Carlo Cottarelli and Andrea Schaechter, SPN/10/13, 2010.

173

Table 5.7: Pressures on government spending that might curtail defence spending
Net government debt (IMF) or Public debt (CIA) as a share of annual GDP 2007 Advanced economies Australia Canada France Germany Italy Japan Korea Netherlands New Zealand Singapore Spain Taiwan United Kingdom United States Regional economies Indonesia Malaysia Philippines Thailand Vietnam Emerging powers China India Russia -1.3% -8.3% 0.6% 14.2% 9.9% 8.5% 9.2% 6.6% -7.8% 8.2% 6.9% 4.0% 31% 60% 28% 43% 52% 9% -1.0% -4.3% -1.9% -3.1% -3.6% 6.3% 6.5% 6.6% 5.0% 8.5% 4.6% -1.6% 1.1% -2.30% 5.3% 6.1% 4.4% 4.2% 5.5% 5.6% 56% 45% 74% 48% 66% 25% 55% 49% 41% 57% -0.2% -3.6% -4.6% -0.8% -2.4% -10% 2.4% -4.5% -4.0% 5.5% -6.0% -4.6% -8.0% -8.0% 3.7% 2.2% 2.2% 3.4% 1.7% 2.2% 5.1% 3.9% 2.8% 8.8% 3.6% 6.0% 3.5% 1.9% 1.8% -2.8% -2.6% -5.1% -5.5% -5.5% 0.3% -3.5% -2.1% -1.0% -3.7% -1.8% -4.4% -3.5% 3.25% 2.1% 0.5% 0.6% -1.9% 2.0% 3.5% -0.5% 2.3% 2.7% -1.8% 3.6% 0.8% 2.1% -2.4% 31% 61% 53% 89% 82% 27% 26% 6% 102% 35% 32% 37% 49% 4.5% 33% 80% 56% 100% 127% 33% 32% 8.3% 118% 57% 35% 78% 80% 0.9% 36% 79% 51% 99% 165% 22% 49% 10% 80% 83% 88% 2009 2012 2005 2010 or 2011 2017

Fiscal balance 2012 (% GDP)

Percentage annual GDP growth

Source:AustralianGovernmentTreasuryPaper1201213,InternationalMonetaryFundWorldEconomicOutlook,April2012, CIAFactbook2012andvariousmedia.

174

Chapter 6 The Cost of War

Introduction

KeyPoints
Since1999,Australiahascommitted morethan$15.3billiononmilitary operations/overseasdeployments.

The200304ASPIBudgetBriefincludedafull analysisofthecostofalldeploymentssince Thetotalcommitmenttooperationsin 19992000.Inlaterbriefs,ratherthanrepeatthat EastTimorhasbeen$4.3billion. extensivediscussion,wevemaintainedashorter format.Thischapterincludesanexplanationofhow Thetotalcommitmenttooperationsin Afghanistanhasbeen$8billion. Defenceisfundedfordeployments,updatedtables ofhistoricaldeploymentcostsandprovidesa Defencehasabsorbed$2billionofthe summaryofthecostoftheIraq,Afghanistanand costofoperations. otherrecentoperations.Inaddition,the accumulatingnumberofdisabilitypensionersarisingfromrecentdeploymentsissurveyed.

Whatdowemeanbythecostofawar?
Asarule,Defenceissupplementedforthenetadditionalcostofanymajormilitary operation.Thismakesgoodsensebecause,inprincipleatleast,itensuresthatDefencedoes nothavetocompromisepeacetimetrainingtofundoperations,andavoidsthemhavingto maintainacontingencyreservetocoverunanticipatedcosts.Thispracticewassuspendedin 200809becauseofasurplusoffunding.Itwasthenreinstatedin200910buthasonlybeen appliedpartiallysincethentogivetheabsorptionofthecostofforceprotectionmeasuresin Afghanistan. Figure6.1showshowthenetadditionalcostofanoperationiscalculated.Inthepast, Defenceonlydisclosedtheaggregatenetadditionaloperationscost,thetotalvalueofnew capitalinvestmentandtheamountrecoveredfrom3rdparties.However,althoughoffsets remainundisclosed,Defencesometimesprovidesitemisedlistsoftheindividualcosts incurredinoperations.
Figure 6.1 Calculating the Net Additional Cost of War
Net Additional Cost of War

Net Additional Operations Cost

Net Additional Capital Investment

Where:
Net Additional Operations Cost Additional costs above normal peacetime expenditure Offsetting savings due to cancelled peacetime activities Costs recovered from 3rd parties

Thenetadditionaloperationscostincludestheadditionalcostofpersonnelallowances, shippingandtravel,repairandmaintenance,healthandinoculations,ammunition, contractedsupport,fuel,inventory,consumablesetc.Offsettingsavingsincludesthemoney savedfromforegoneactivitieslikethecancelledExerciseCrocodile99andtheAvalonAir 175

Showin199900duetothedeploymentofAustralianForcestoEastTimor.Thosecosts recoveredfrom3rdpartiesincludethepartialrecoupingofcostsfromtheUNwhen participatinginaUNpeacekeepingoperation. Thenetadditionalcapitalinvestmentusuallyrepresentstheacceleratedfillingofcapability gapsspecifictotheoperation.Recentexamplesincludethepurchaseofadditionalelectronic warfareselfprotection(EWSP)equipmentfortheAP3CmaritimepatrolaircraftforIraq, andtherapidacquisitionoftheJavelinantiarmourmissileforAfghanistan.Capitalcosts sometimesalsoincludemodificationstoplatformsandadditionalinventorypurchases. Finally,itsworthbeingspecificaboutwhatisnotincluded.Thenetadditionalcostofan operationdoesnotincludepayandallowancesthatwouldnormallybeincurred,orthecost ofoperatingplatformswithintheplannedpeacetimerateofeffort.Nordoesitcoverthe costsincurredoutsideofDefencebytheAustralianFederalPolice,DFATorothersinvolved inoperations.Thus,asidefromadditionalitemslikenewequipment,ammunition,transport andcontractedservices,thenetadditionalcostisthemarginalcostofincreasedADFactivity duetoanoperation.

Whatsthebigpicture?
Figure6.2showsthenetcostofDefencedeploymentsfrom199899to201516.Notethat Defencehadbeendirectedtoabsorbcostsof$22millionin200708,$1,082millionin 200809,$43.1millionin200910,$271millionin201011,$368millionin201112and$193 millionin201213.
Figure 6.2: The net additional cost of ADF operations
2,000 1,800 1,600 1,400 $million(nominal) 1,200 1,000 800 600 400 200 0 SolomonIslands Iraq AfganistanForceProtection Afghanistan EastTimor MinorOperations

Source:DefenceAnnualReportsandBudgetPapers

176

MinoroperationsincludeBougainville,whichcost$109millionbetween1998and2003(of which$43.3millionwasabsorbedbyDefence);BorderProtection,whichwillincurcostsof $152millionbetween2001and2012;andthe2006CommonwealthGames($13million). Figure6.2excludestheforcegenerationcostsnominallyassociatedwithexpandingthe ADFby3,555troopsforEastTimorinlate1999.Thiswasroughly$450millionperannum permanentlyincludedintotheDefencefundingbaseatthetimeofthe2000WhitePaper.In thefigure,AfghanistanincludestheMultinationalInterceptionForce(MNIF)whichbecame, foratime,partoftheIraqoperationinMarch2003. AsshowninFigure6.2,thecostofoperationshasfallenforthefirsttimeineightyears.

Newmoneyforoperationsinthe201213Budget
Inadeparturefrompreviouspractice,thePBSdoesnotexplainthenewsupplementation thathasbeenprovidedtocoverthenetadditionalcostofoperationaldeploymentsbeyond givingthefigures[PBSpage31].HereswhatweknowaboutfundingforADFoperations: Afghanistan ThegovernmenthasfundedtheADFdeploymenttoAfghanistanuntilJune2013atacostof $1.4billionfor201213,including$211millionforenhancedforceprotectionmeasures (bothincludingpreviousfunding).Thetotalcommitmenttothecostofoperationsin Afghanistannowstandsat$8billionsince2001. EastTimor ThegovernmenthasextendedtheADFdeploymenttoEastTimoruntilJune2013andhas provided$87.6millionin201213forthatpurpose(includingpreviousfunding).Thetotal costofoperationsinEastTimornowstandsat$4.3billionincludingforcegenerationsince 1999or$2.5billionexclusiveofforcegeneration.AreducedscaleofoperationinEastTimor isreflectedinthereductioninsupplementationfrom$160millionin201112. SolomonIslands ThegovernmenthasextendedtheADFdeploymenttoSolomonIslandsuntilJune2013and provided$42.9millionoveroneyearforthatpurpose(includingpreviousfunding).Thetotal costofoperationsinSolomonIslandsnowstandsat$349million. Notethatthedurationofthespendingshouldnotbetakenasimplyinganythingfinalabout thelikelylengthofdeployment;operationsarereviewedatleastannuallyandnewfunding isaddedineachbudget.Alsoadditionalmoneyisoftenprovidedpostdeploymentfor repatriationandreconstitutionofequipment.

177

Current operations at a glance

Afghanistan
1,800 1,600 1,400 million$(nominal) 1,200 1,000 800 600 400 200 0
Present deployment: 1550 personnel in Afghanistan plus 800 personnel in broader Middle East area of operations. 2 Chinook helicopters 2 AP-3C Maritime patrol aircraft 3 C-130 Transport aircraft 1 Frigate Total Cost: $8.0 billion (including force protection) Cost in 2012-13: $1.4 billion Duration: 12 years (with a 2 year gap) AfganistanForceProtection Afghanistan

EastTimor
500 450 400 350 million$(nominal) 300 250 200 150 100 50 0
Present deployment: 390 personnel (+ 70 NZDF personnel) Black Hawk helicopters Total Cost: $2.5 billion Cost in 2012-13: $88 million Duration: 14 years

Note:ForceGenerationfundingtotemporarilyexpandtheArmyandAirForce(whichdidnotoccur)isnotincluded.

178

100 90 80 70 million$(nominal) 60 50 40 30 20 10 0

SolomonIslands
Total Cost: $349 million Cost in 2011-12: $42.9 million Duration: 10 years

Present deployment: 80 personnel

Indicative deployed personnel numbers, circa May each year.

7,000
East Timor

6,000

Deployedpersonnel

5,000
Afghanistan Iraq Solomons Cambodia Somalia

4,000

3,000
1st Gulf War Rwanda Namibia

2,000

1,000

Note:numbersdonotincludeapproximately400personnelonborderprotectionduty.

179

Thehumancostofwar
ThefinancialcostsofAustraliasmilitarydeploymentsdonotaccountforthehumancost incurredbydeployedpersonnelandtheirfamilies.Apartialpictureofthiscomplexareais reflectedinbattlecasualtystatisticsanddisabilitypensionsawardedtoADFmembersin recentconflicts.ThesearepresentedbelowinFigures6.3and6.4.InFigure6.4,the percentagesrefertothepercentageofthegeneralveteransdisabilitypensionratewhile theSpecialratereferstototallyandpermanently(ortemporarily)incapacitated. Figure6.3:BattlecasualtiesinAfghanistan2002to2012
70 60 50 40 30 20 10 0
20024 2005 2006 2007 2008 2009 2010 2011 2012 Source:DepartmentofDefencewebsite,asatMay2012.

Woundedinaction Killedinaction

Figure6.4:Pensionsarisingfromrecentconflicts
500 450 400 350 Numberofpensions 300 250 200 150 100 50 0
10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Special

Iraq(2003) Afghanistan EastTimor

Categoryofveteran'spension
Source:DepartmentofVeteransAffairs,asatSeptember2011.

180

Chapter 7 Defence Industry

Sinceatleastthe1970s,Australiahasaspiredtobe selfreliantwhenitcomestoitsowndefence.The caveatsandqualificationstowhatismeantby selfreliancearemanyandchanging,andneednot concernushere.Whatsimportantisthateveryone agreesthatanessentialcomponentofselfreliance isalocaldefenceindustrythatcan(atleast)repair, maintainandadapttheequipmentusedbyour defenceforce.

KeyPoints
Localdefenceindustrygrewtwofold between1995and2006intermsof revenue,buthasremainedstagnant since. Localdefenceindustryisdominated byahandfulofforeignowned companies TheAirWarfareDestroyerprojectis experiencingdifficultiesthatcould worsen.

Tothisend,successivegovernmentshaveadopted policiestoensurethatAustraliasdefenceindustrial baseisadequateforthetask.Thisoutcomeisdeemedtobeimportantenoughfor governmentstopublishformaldefenceindustrypolicystatementsfromtimetotime.The lastsuchstatementwasmadebytheRuddgovernmentinJune2010.Inrecentyears, Defencehasalsoreleasedhealthchecksofparticulardefenceindustrysectorsaspartofan ongoingprocessofassessment. Thereisalsoaseriesofmostlylongstandinggovernmentprogramsdesignedtoassistlocal industry.Theseincludesupportforskillsdevelopment($25millionp.a.),researchand development($30millionp.a.)andexportfacilitation($11millionp.a.).Thegovernment alsotriestoleverageitsforeignarmspurchasestoallowlocalfirmstobidintoglobal defencematerielsupplychains. Despitetheeffortandpriorityaccordedtomaintainingahealthylocaldefenceindustry, thereissurprisinglylittleharddatainthepublicdomainaboutthesizeandshapeofthe sector.Thischaptertriestoredressthatshortfallbycollatingandanalysingwhat informationisavailable.Ouraimistoanalysemacrotrends,suchastherateofgrowthand paceofcommercialconsolidationordiversification.Readersseekingadetailed companybycompanydescriptionofthesectorshouldconsultthelatestAustralianDefence Magazine(ADM)Top40DefenceContractors(seeADMmagazineDec2011/Jan2012),a reliableandinformativesourcefromwhichmuchofthedatausedhereisderived.However, becauseofitsuniquestatusofbeing100%governmentowned,adetailedanalysisofthe shipbuilderASCPtyLtdhasalsobeenincludedhere.

Australian Defence Industry

AccordingtotheDefenceMaterielOrganisation(DMO),theAustraliandefenceindustry employsaround29,000people,about50%ofwhomareemployedbySmalltoMedium Enterprises(SME).AnSMEisdefinedasafirmemployinglessthan200employees.DMO furtherestimatesthatthereareover3,000SMEsoperatinginlocaldefenceindustry,mostly assubcontractorstoasmallnumberofprimecontractors.Inmostcases,SMEsoperatingin thedefencesectoralsotradeinthecivilianeconomy.Thisexplainshow15,000defenceSME

181

jobscanbespreadbetween3,000companies(implying,navely,amerefiveemployeesper SME). OftheamountspentonmaterielacquisitionandsustainmentinAustralia,DMOestimates thataroundathirdgoestolocalSMEsandtwothirdstolargeenterprises.Accordingtothe 2011DefenceCapabilityPlan,around$5.1billioniscurrentlybeingspentinAustraliaevery yearondefencematerielacquisitions($1.9billion)andmaterielsupport($3.2billion).The latterfigureexcludesthe$480millionDMOspendsonfuels,oilsandlubricantseachyear. Applyingalittlearithmetictotheseofficialestimatesrevealsseveralinterestingthings.The averagerevenueperemployeeforalarge(nonSME)defencefirmis$234,500,andforan SMEisonly$117,240peremployee.Therelativelylowrevenueperemployeeindefence SMEsprobablyreflectsthefactthattheyreceivefurtherrevenueassubcontractorstothe largerdefencefirms(i.e.inadditiontowhattheyreceivedirectlyfromDefence).Quite literally,somedefencespendinggetsdoublehandledsotheconsequentialturnoverinlocal defenceindustryexceedstheamountthatDefenceinitiallyspends.Assumingthatdefence SMEsactuallygeneraterevenueperemployeeatthesamerateaslargedefencefirms,total revenueforthesectorwouldbe$6.8billion(ofwhich$1.7billionisdoublecounted). Butinabsoluteterms,evenrevenueof$233,200peremployeeislowcomparedwiththe average($408,000)forAustralianmanufacturingfirms(ABSseries8155for200910).But thislatterfigureisinflatedbythehighoutputperemployeeinthelargescale capitalintensivepetroleumandprimarymetalproduction.Arguablybettercomparatorsare transportequipmentmanufacture($388,500peremployee)andmachineryand equipmentmanufacturing($303,464peremployee).Theremainingdifferenceinrevenue peremployeeprobablyreflectsacombinationofthreefactors:pooreconomiesofscale leadingtorelativelyhighfixedlabourintensiveadministrativeoverheads,anabsenceof mechanisation(duetopooreconomiesofscale),andintrinsicallylabourintensivesoftware andcomputerwork. ThesizeoftheAustraliandefenceindustrysectoriscomparedwithmanufacturingand AustralianindustryoverallinTable7.1. Table7.1:ThescaleofAustraliandefenceindustry(circa2010)
Australian Industry employees revenue ($m) value add ($m) revenue per employee 10,057,000 2,587,204 832,247 $257,254 Australian Manufacturing Sector 955,000 389,980 96,809 $408,356 Australian Defence Industry 29,000 6,800 *2,108 $234,483

Source:ABSseries8155,DMOandASPIanalysis.*estimatedasexplainedbelow

Itfollowsthatdefenceindustryaccountsfor0.29%ofjobsinAustralia,equivalentto3%of jobsinthemanufacturingsector.Intermsofannualrevenue,defenceindustryaccountsfor 0.26%ofAustralianindustryand1.74%ofthemanufacturingsector.Moreover,ifwe assumethatdefenceindustryresultsinthesameratioofvalueaddedtorevenue(31%)as 182

the(relativelyhighvalueadd)machineryandequipmentmanufacturingsector,thedefence sectorgivesrisetojust0.25%ofAustraliasGDP.SoalthoughAustraliandefenceindustryis undoubtedlyimportantforourdefenceforce,itrepresentsonlyasmallfractionofthe overallAustralianeconomy.

Acloserlook
Gettingbelowtheaggregatedataforlocaldefenceindustryisdifficultbecausethereareno officialstatisticsonthedetailedsizeandshapeofthesector.Fortunately,however,theADM hasbeensurveyinglocaldefencecontractorssince1995andhasbeengenerousenoughto maketheirseventeenyearsofdataavailabletous.Twopointsneedtobemadebefore proceeding.First,thenatureofthesurveyresultsinbothlimitationsanduncertaintieson thedatasetthesewillbepointedoutaswego.Second,ASPItakesfullresponsibilityfor theanalysisandconclusionswhichfollow.Whateverviolenceisdonetothedataisourfault alone. Thebestwaytounderstandthedatasetistolookindetailatthelatestresultspresentedin theDec2011/Jan2012editionoftheADM.TheTop40DefenceContractorslist,asitis known,detailsthetop40firmscontractedtodelivergoodsandservicestoDefenceeither directlyorviasubcontractingworktoprimecontractors.Thisincludesnotonlydefence materielproductionandmaintenance,butalsofunctionssuchascatering,cleaningand facilitiesconstruction.Becausetheselatteractivitiesdrawservicesfromthehighly competitivebroadereconomy,theyareoflessinteresttousandarethereforeexcludedas faraspossibleinwhatfollows. ThisisnottoimplythatsuchsuppliersareirrelevanttotheoperationoftheADFfarfrom it,theyareabsolutelyessential.Butourconcerniswithcompanieswithspecialistdefence materielknowledgewhoareusuallyhighlydependentupondefencecontractsforsurvival. IrrespectiveofwhatDefencemightdo,therewillalwaysbecompaniesreadytobuild facilities,cookmeals,cleanbuildings,mowlawnsandtransportgoods.Thesameisnottrue offirmscapableofsupplyingandsustainingmilitaryequipment,anditisonthesefirmsthat wehenceforthfocus. Table7.2liststheADMTop40for2011withdefencematerielandnondefencemateriel companiesseparated.Somecompaniesstraddletheboundarybetweenprovidingciviland defencespecificitems,particularlyintheinformationandtelecommunicationssector. Wevedoneourbesttoassignsuchcompaniesonthebalanceoftheiractivities. ItshouldbekeptinmindthattheADMTop40surveyisvoluntaryandfromtimetotime companieshavechosennottoparticipatesometimesreflectingapolicyofnondisclosure.

183

Table7.2:ADMTop40DefenceContractors2011
Rank Company Predominatelydefencematerielcontractors BAESystemsAustralia RaytheonAustraliaPtyLtd ThalesAustralia ASCPtyLtd AustralianAerospaceLimited BoeingDefenceAustralia TransfieldServices SaabTechnologiesAustralia LockheedMartinAustraliaPtyLimited QantasDefenceServicesPtyLimited DMSMaritimePtyLimited SikorskyHelitech CAEAustraliaPtyLtd CSCAustraliaPtyLtd BabcockPtyLtd CEATechnologiesPtyLimited QinetiqPtyLtd NovaSystems GeneralDynamicsLandSystemsAustralia HawkerPacificPtyLtd ChemringAustralia Rohde&Schwarz(Australia)PtyLtd SafeAirLimited AustralianDefenceApparelPtyLtd InsituPacific AirbusMilitary KBR CommunicationsDesign&ManagementPtyLimited RockwellCollinsAustraliaPtyLtd DaronmontTechnologiesPtyLtd TAE Predominatelynondefencematerielcontractors SercoSodexoDefenceServicesPtyLtd JohnHollandGroupPtyLtd SpotlessServicesAustraliaLtd IBMAustraliaLimited AspenMedical AdagoldAviationPtyLtd GHD DHLGlobalForwarding SinclairKnight&MerzPtyLtd Revenue ($m) 1,800 761 736 696 600 300 210 200 198 135 130 70 69 60 53 51 50 41 38 35 35 35 35 32 32 30 30 27 27 22 21 6,559 308 256 200 156 64 60 41 30 27 1,141 Personnel $peremployee ('000s) 6,000 1,450 3,300 2,000 1,100 1,500 1,200 343 725 420 360 180 152 500 315 257 300 195 75 600 70 46 260 260 72 30 245 164 78 44 180 22,421 3,050 240 600 260 483 33 ? ? ? 4,666+ 300 525 223 348 545 200 175 584 273 321 361 389 453 120 168 196 167 212 507 59 500 761 135 125 444 1,000 122 165 347 493 116 293 101 1,067 333 599 132 1,826

1 2 3 4 5 7 9 10 12 14 15 16 17 20 21 22 23 24 26 27 28 28 28 31 32 33 35 36 36 39 40

6 8 11 13 18 19 25 33 38

Source:ADMTop40DefenceContractors19952011,publishedbyAustralianDefenceMagazine,Dec/Janeditioneachyear.

Surveyingthedatarevealsseveralinterestingthings.Tostartwith,severalcompanieshave surprisinglylowrevenuesperemployee,aslowas$57,000inoneinstance,probably 184

reflectinganoverstatementofthenumberofemployeesengagedindefenceworkwithin thefirm.Conversely,anumberoffirmshavesurprisinglyhighrevenuesperemployee,ofthe sortmoreusuallyattachedtolargescalecapitalintensiveprimaryproduction.Settingaside thepossibilitythatDefenceissimplypayingegregiousmonopolyrents,therearetwolikely explanations.First,somefirmsmayhaveincludedrevenueearnedfromretailingimported equipment.Indeed,severalofthecompaniesinquestionsimportweaponssystemsona largescale.Second,otherfirms(particularlyinthefacilitiesconstructionsector)havea naturalheavyrelianceonsubcontractors. Takingthedataatfacevalue,itsaysthatthetopthirtycontractorsbydefencerevenuehave acollectiveturnoverof$6.6billionandemployaround22,400peopleimplyingaverage revenueperemployeeof$293,000ayear.Whilethesefiguresarebroadlycommensurate withthosederivedearlierfromDefencesaggregatedata,itappearsthatDefencemight haveoverestimatedthenumberofpeopleemployedinthesector(henceleadingtothe alreadymentionedsurprisinglylowaveragerevenueperemployee).Withnofurther informationavailabletodecidethematter,weturnnowtoexaminetheADMdatasetin moredetail. Overthepastseventeenyears,thetopfivefirmsinanygivenyearhaveaccountedfor,on average,65%oftotalrevenueofdefencematerielcontractorsintheADMTop40.In2011, asshowninFigure7.1,thesharewas70%. Figure7.1:RevenuedistributionforADMTop402011
Companydefencerevenue($million)
2,000 1,800 1,600

70%
1,400

16%
1,200 1,000 800 600 400 200 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Source:ADMTop40DefenceContractors19952011,publishedbyAustralianDefenceMagazine,Dec/Janeditioneachyear.

8% 3% 2.8% 2%

Fromyeartoyear,theactualcompaniesinthetopfivechangeascontractsebbandflow. Yetthecurrentmajorplayersareeasilyidentified.Table7.3reproducesthekeyprime contractorsidentifiedinthegovernments2010defenceindustrypolicystatement.Note thatonlyoneofthefirmsthegovernmentownedASCPtyLtdiscontrolledbyan Australianbasedentity,withtheremaindersplitbetweentheUnitedStatesandEurope. 185

Table7.3:KeyAustraliabasedprimecontractors
Prime Parent company or owner Australian Government Country of origin Key activities Per cent of parent revenues n/a Stock exchange listing n/a

ASC Pty Ltd

Australia France, Germany & Spain United Kingdom

submarines and ships

Australian Aerospace BAE Systems Australia Boeing Defence Australia Raytheon Australia Saab Systems Lockheed Martin Australia Thales Australia

EADS

helicopters

<1

Paris

BAE

varied

3.2

London

Boeing

United States

aerospace

0.5

New York

Raytheon

United States

systems integration land and maritime electronic and information systems maritime and varied

1.3

New York

Saab AB

Sweden

3.1

Stockholm

Lockheed Martin

United States

<1

New York

Thales

France

Paris

Source:2010DefenceIndustryPolicyStatement.

Foreignownershipofourkeyprimedefencecontractorsbringsbenefitsandrisks.Onthe plusside,weundoubtedlygetbetterthanotherwiseaccesstoforeignweaponssystems.In addition,foreignsubsidiariesinAustraliacanreachbacktotheirparentownersforskilled personnel,knowledgeandintellectualproperty.Andbecausewehaverelationshipswith armsmanufacturersonbothsidesoftheAtlantic,competitivepressurescanintheorybe broughttobearwhenmakingpurchases. Ontheminusside,becauseforeignownedAustralianprimesaccountforverysmallshares ofparentcompanyrevenue,theyareunlikelytocommandpriorityifacommercialor strategicconflictofinterestarises.Forexample,ifaforeignparenthastochoosebetween supplyingAustraliaoritshomecountrywithscarcemunitionsinacrisis,thereisnoquestion aboutwhatwillhappen.Inmostareasthisisunavoidable;Australiadoesnothavesufficient demandtosupportfullyindigenousdefenceindustrialcapabilitiesinallbutalimitedrange ofnicheareas.Choosingandmaintainingsuchcapabilitiesisastrategicchallengeofthefirst order. TherelativelysmallnumberofprimecontractorsoperatinginAustraliaisconsistentwiththe consolidationofdefencemanufacturinginEuropeandtheUnitedStatesthathasbeen underwaysince1945andwhichacceleratedfollowingtheendoftheColdWar.However,in ourparticularcase,thelocalcycleofhavingasmallnumberoflargedefenceprojects dominatingspendingatanyonetimeisprobablyalsoimportant.Itsperhapsnoteworthy 186

thatrevenueamonglocaldefencefirmsbroadenedbetween1995and2006(astheAnzac andCollinsprogramsdeliveredandended)andnarrowedagainbetween2006and2011. Theconsolidationofvariouslocalcompaniesovertheyearsmayhavealsoplayedarole. SomeofthekeymergersandacquisitionsaredepictedinFigure7.3. Figure7.2:Revenuedistributionfordefencecontractors1995to2011 Percentrevenueintop30defencematerielcontractors

100% 90% 80% 70% 60% 50% 26to30 40% 30% 20% 10% 0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source:ADMTop40DefenceContractors19952011,publishedbyAustralianDefenceMagazine,Dec/Janeditioneachyear.

21to25 16to20 10to15 6to10 1to5

Figure7.3:Keymergers,acquisitionsandnamechangesinlocaldefenceindustry CelsiusTechAustralia 187

TransfieldDefence Thomson CSFPacific ThomsonMarconi Sonar BritishAerospace Australia GECMarconiSystems TenixDefenceSystems SiemensPlesseyES SAABSystems ThalesTrainingand Simulation ThalesUnderwater Systems BAESystemsAustralia ADILimited ThalesAustralia

Withseventeenyearsofdataonlocaldefenceindustry,theobviousquestioniswhetherthe sectorhasgrownorcontractedovertime.Figure7.4providestheanswerusingthe ConsumerPriceIndextoinflatehistoricaldata.Becausetotalrevenuesaredominatedbya smallnumbersoflargeturnoverfirmseveryyear,changestotheADMTop40overtimeare acredibleindicatoroftrendsinthesector.Roughlyspeaking,thesizeofthesectorin revenuetermshasalmostdoubledsincethemid1990s.Lookingmoreclosely,threeepochs canbeidentified;moderategrowthduringthelate1990s,rapidgrowthintheearlyto mid2000s,andstagnationoverthepastsixyearsatahigherthanusuallevel. Figure7.4:Growthandstagnation

7 6
real2011$(billions)

TurnoverofdefencematerielcontractorsinADMTop40

5 4
early 2000s: rapid growth

today: stagnation

3 2
late1990s:moderategrowth

1 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source:ADMTop40DefenceContractors19952011,publishedbyAustralianDefenceMagazine,Dec/Janeditioneachyear.

Atthispointitwouldbenaturaltocomparethetrendsinlocaldefenceindustrywith spendingbyDefence.Unfortunately,repeatedchangestoDefence'saccountingrulesand reportingmakethisdifficult,asdoestheabsenceandunreliabilityofdataintheyears aroundtheturnofthecentury.Evenifthiswerenotso,Defencehasfailedtoreporthow muchitspendslocallyformorethanadecade.Withlargefluctuationsinthescaleofforeign purchasesfromyeartoyear,itwouldbehardanywaytodrawafirmconnectionbetween whatDefencedoesandtheresultingrevenuetolocalindustry.Nonetheless,itisnot surprisingthatrevenuesgrewintheyearsfollowingthe2000WhitePaperasextramoney flowedintoDefence.Similarly,themountingdeferralsofinvestmentandvariousefficiency measuresofrecentyearsbroadlyaccordwiththeobservedstagnationingrowth. Itspossiblethatthelevellingoffinrevenueforlocalfirmsalsoreflectstheincreasing tendencyofgovernmentstopurchaseequipmentofftheshelffromforeignsuppliers. RecentexamplesincludethetwentyfourF/A18SuperHornetsfightersandfiveC17 Globemastertransportaircraft.Fortunately,theUnitedStatesgovernmentcollectsand disclosesdetailedinformationoncommercialandgovernmenttogovernmentarmsexports. 188

ThelatteroccurthroughtheUSForeignMilitarySales(FMS)program.HistoricaltrendsinUS defenceexportstoAustraliaareshowninFigure7.5,whereitshouldbenotedthatthe figuresincludebothequipmentacquisitionsandsustainmentgoodsandservicessuchas sparepartsandrepairofrotableitems.Toallowcomparison,thevalueofeachyears exportshasbeenconvertedfromUStoAustraliandollarsattheprevailingexchangerate beforetranslationinto2011dollars. Figure7.5:USdefenceexportstoAustralia(billion2011A$)

4.5 4 CommercialExportsDeliveries 3.5 3 2.5 2 1.5 1 0.5 0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source:DatafromUSSecurityCooperationAgency,asatSeptember30,2010.

FMSDeliveries

LookingatthesurgeinFMSandcommercialexportstoAustraliafromtheUnitedStatesin theperiod2005to2008,itsplausiblethatspendingwasdivertedfromlocaltoforeign supplierstherebyhelpingtocreatetherecentplateauinlocalrevenue.

Conclusion
Hopefully,thebriefanalysispresentedherewillprovidegristforthemillforthoseinterested inthelocaldefenceindustry.Totheextentthatconclusionscanbedrawnfromthedata,the pictureismixed.Whilethepastdecadeandahalfhaveseenthescaleoflocalindustrygrow substantially,growthhasallbutstalledsincearound2007.Thelikelymainreasonsare slowingdefenceinvestmentcoupledwithariseinimports.Accordingly,thefutureprospects forlocalindustrywilldependonwhetherandhowquicklydefencespendingrecoversfrom thecurrentfiscallydrivenretrenchmentandtheextenttowhichfuturepurchasescome fromoffshore.

189

ASC Pty Ltd (formerly the Australian Submarine Corporation)

TheAustralianSubmarineCorporationwasformedin1985,andin1987wasawardedthe contracttobuildsixCollinsclasssubmarines.Initially,ownershipofthecorporationwas sharedbetweentheAustralianGovernment,submarinedesignerKockumsofSweden, WormaldInternationalandChicagoBridgeandIron,butby1991onlyKockumsandthe governmentremainedasshareholders.In2000,theAustralianGovernmentboughtout Kockumsandbecomethesoleowner.

Overview
Atpresent,ASCisoperatedasaGovernmentBusinessEnterprise(GBE)underthe CommonwealthAuthoritiesandCompaniesAct1997withtheMinisterforFinanceand Deregulationassoleshareholder.ConsistentwithitsstatusasaGBE,thecompanyhasa boardmadeupofexecutiveandnonexecutivemembers.Thecorporatestructureappears below. ASC Modules PtyLtd ASCAWD Shipbuilding PtyLtd ASC Engineering PtyLtd ASC Shipbuilding PtyLtd DeepBlue Tech PtyLtd ASC PtyLtd MinisterforFinanceand Deregulation

ThethreedirectsubsidiariesofASCreflectthediversificationofASCintoareasbeyondthe construction,upgradeandmaintenanceoftheCollinsclass.ASCEngineeringwasestablished toundertakethedesign,constructionandprojectmanagementofcivilheavyengineering projects.Atpresent,ASCEngineeringisnotanactiveentity.DeepBlueTechestablishedto securearoleinthedesignoftheCollinsclassreplacement.Witharound40personnel,Deep BlueTechisworkingonoptionsforthefuturesubmarine.Thelargestofthethreeentities, ASCShipbuilding,wasestablishedtobidforwhathasbecomethe$8.1billionAirWarfare DestroyerprojectfortheRAN.ItstwosubsidiariesASCModulesandASCAWDShipbuilding 190

werecreatedtooperatewithintheAWDAlliancewhichweexploreindetailinthenext section.ASCalsorunsasubmarinetrainingschoolbasedinWAfortheRAN. PuttingasidethelatentASCEngineeringandnascentDeepBlueTech,therearetwomain projectsunderwayatASC:theconstructionoftheAWD,andsustainmentandupgradeof theCollinsfleet.TheformeroccursattheASCSouthfacilityatOsborneSAwhilethelatter occursmostlyatthe(original)ASCNorthfacilityatOsborneSA.Someadditionalsubmarine workisalsoundertakenatASCWestinWAneartotheRANsubmarinehomeport.ASC SouthandASCNorthareseparatedbytheSAgovernmentstaxpayerfundedCommonUser Facilitywhichincludesthemassiveshipliftandhardstandbeingusedfortheconsolidation andlaterlaunchofthethreeAWDsbyASC. TherearetwowaystotrackthescaleofactivityatASCovertime:financialturnoverand personnelnumbers.AsshowninFigure7.6,theASCworkforcegrewduringtheconstruction oftheCollinsfleetandfellbeforerisingagainasthefullvolumeofCollinsclassremediation, upgradeandmaintenanceworkwasfelt.Inrecentdays,theASCworkforcehasgrownto around2,400astheAWDworkloadapproachesitsmaximum. Figure7.6:ASCworkforce1987to2011 ASCworkforce
2,500 AWDBid&Build

Collinsupgradeandmaintenance 2,000

1,500

Collinsconstruction

1,000

500

Source:ASCPtyLtdAnnualReports

OnlyasmallnumberofpersonnelwereemployedbyASContheAWDprojectpriorto2006 (andeveninthatyeartheAWDworkforcewasonlyabout60staff).Consequently,bythe middleofthelastdecade,thesizeoftheASCworkforceengagedinsubmarine postconstructionworkwasclosetothepeakreachedduringtheCollinsconstruction programtwelveyearsearlier.Thisdemonstratestherelativehighlabourintensivityof Collinsthroughlifesupportcomparedwithconstruction. Theconsolidatedcorporateturnoverandprofitforrecentyearsinshownoverleafin Figure7.7,wheretheincreaseinrevenueafterthecommencementofAWDconstructionin 191

mid2007isclear.Notethat,however,ASCsaftertaxprofitasashareofrevenuefellfrom 9.7%in2007to0.8%in2010and1.5%in2011.Thisreflectsadecisiontoreinvestprofits backintothebusiness,includingintofacilitiesandDeepBlueTech. Figure7.7:ASCKeyFinancialResults

800 12%

AWDBuild
700 600 500 400 300 4% 200 2% 100 0 0% Revenue Posttaxprofit 10%

CollinsBuild

8%

6%

Source:ASCPtyLtdAnnualReports

WenowturntoexamineinDickensianfashionthevariousactivitiesofASCinalittlemore detailbeforeconcludingwithsomeobservationsaboutitsfutureownership.

TheghostofsubmarinespastCollinsthroughlifesupport
Forreasonsthatwedonotunderstand,Defencefailedtohaveathroughlifesupport strategyorcontractinplacefortheCollinsclassattheendoftheconstructionprogram. Instead,ASCundertookpiecemealworkasrequestedtomaintain,repairandupgradethe fleet.In2003,alongtermThroughLifeSupportAgreement(TLSA)wasestablishedbetween DefenceandASC.Nominallya15year$3.5billionagreement,theTLSAisessentiallya costpluscontractwithlimitedoptionsforincentivesandsanctions. BecausewedonotknowthepricepaideachyeartoASCtomaintaintheCollins,wehaveto relyonthereportedtotalsustainmentcostsforanindicationofcosts.Notethattotal sustainmentcostsincludemanythingsthatdonotresultinpaymentstoASC(suchasfuel andgovernmentfurnishedequipment).Inparticular,sustainmentofmissionsystemitems suchassonar,combatsystemandelectronicwarfareisseparatelyprovidedbyother suppliersthroughDMO.TotalsustainmentcostsfortheCollinsfleetaregiveninFigure7.8 beginningwiththefirstyearthatdataisavailable,200708.Toallowacomparisonover 192

time,historicalcostshavebeeninflatedusingthe2.5%deflatorappliedtotheDefence budget. Figure7.8:TotalannualCollinsclasssustainmentcosts

600 500 400 201213$ 300 200 100 0 200708 200809 200910 201011 201112 201213
Source:DefenceAnnualReportsand201213PBS

CautionmustbeexercisedwheninferringanythingfromFigure7.8,especiallywithrespect toASC.Notonlyisitalimitedtimeseries,butwehavenowayofknowinghowmuchmoney inanygivenyeargoestoASC.Moreover,largeyeartoyearfluctuationsnaturallyarisedue tothetimingoffullcycledockings,sparespurchases,andthenumberofboatsactually beingoperatedbytheRAN(asopposedtolyingidleabsentacrew). Notwithstandingtheseuncertainties,theoverallcostofsustainingtheCollinsfleetis perceivedtobehigh.Coupledwithlongstandingproblemswiththeavailabilityand reliabilityofthevessels,thishasledtothreeinitiativesthatwillreshapethesustainmentof thefleetandASCsroletherein. First,ASChasinitiatedacomprehensiveprogramtoboostlabourproductivity.Asa governmentownedentityworkingundereffectivelycostpluscontracts,itwouldbe surprisingifinefficiencyhadnotcreptinovertime.Initialreportsconfirmthistobecase, withsubstantialimprovementsachievedoverthepastcoupleofyearsincludingaboostin labourutilisationfrom30%to75%insomeareas. Second,DefenceandASCareintheprocessofnegotiatingaperformancebasedInService SupportContract(ISSC).Bymovingawayfromcostplusreimbursementforwork,ASCwill havestrongincentivestocontinueproductivityandperformanceimprovementswithinits business. Third,thegovernmenthascommissionedanindependentexpert,MrJohnCole,toreview thesustainmentoftheCollinsClass.ThephaseonereportwasdeliveredinDecember2011 withthefinalreportnowdue(seeChapter8ofthisBrief).Thephaseonereportidentifieda hostofproblemswithinandbetweenDefence,DMO,NavyandASCthatcontributetopoor and/orcostlyoutcomesforCollinsclasssustainment.Itisexpectedthatthefinalreportwill resultinremedialactionacrossanumberofareas. 193

Overall,then,itlooksasthoughthearrangementsforsustainmentoftheCollinsclassare finallygoingtobeputonasolidtechnicalandcommercialbasisalbeitseventeenyears afterthefirstvesselenteredservice.ForASC,thiswilllikelymeanamoreintegrated relationshipwithitscustomeraswellashigherexpectationsofperformanceandefficiency.

TheghostofshipspresenttheAirWarfareDestroyerproject
InOctober2001,thelastoftheRANsthreeCharlesFAdamsclassDDGdestroyers,HMAS Brisbane,wasdecommissioned,leavingacapabilitygapintheareaoffleetairdefence.The 2000DefenceWhitePaper(sometimeafterthestabledoorhadbeenleftwideopen) includedProjectSEA4000AirWarfareDestroyertoredresstheshortfall.Afterpreliminary studiesinthefirsthalfofthedecade,theprojectgainedeffectivelyfirstpassapprovalin mid2005whentwocompanies,ASCShipbuildingandRaytheonAustralia,wereselectedas alliancepartnerstoworkwithDefencetotaketheproposalforwardtosecondpass.Athird firm,GibbsandCox,wasdesignatedasthepreferreddesigner;withSpanishbuilder Navantiaalsoengagedasadesignpartner. Twooptionsweredevelopedforsecondpassconsideration:anAustralianised(andsmaller) versionoftheUSDDG51ArleighBurkedestroyer,thesocalledbabyBurke,andthe militaryofftheshelfSpanishF100frigatewithanAustralianisedcombatsystem.Ineach case,thecoreofthecombatsystemwastobetheLockheedMartinAegissystemwithits phasedarrayradar.Purchaseofthecombatsystemcommencedin2006underaFMS programwiththeUnitedStatesgovernment. WhentheF100wasannouncedasthewinnerinJune2007,somepeopleweresurprised. GibbsandCox,thedesigneroftheDDG51,hadbeendesignatedasthepreferreddesigner oftheevolvedoptionbackin2005andmanyperceivedtheF100asa'stalkinghorse'toput commercialpressureontheUSoption.Asitturnedout,theextracostandriskassociated withascaleddownbutonpaperonlyDDG51tippedthebalanceinfavourofthesmaller preexistingSpanishvessel. Fromthecommencementoftheprojectthroughtosecondpass,atotalof$251millionwas spent,excludinglongleadtimepurchasesfortheAegiscombatsystem.Mostofthemoney (roughly$211million)wasspentinthetwoyearsbetweenmid2005andmid2007.It remainstobeexplainedhowsomuchmoneywasspentsimplytomakeadecisionbetween twodesigns. TheAWDAlliance,asitisknown,involvesthreepartiesinacontractualarrangementwhich isnovelforAustralianDefence,seeFigure7.9.ASCisthedesignatedshipbuilder,Raytheon AustraliaisthecombatsystemintegratorandDMOactsasboththecustomeronbehalfof theRAN(andultimatelytheCommonwealth)andasafullparticipantinthealliance. GovernanceisexercisedbyanAllianceBoardmadeupofrepresentativesofthethree partieswithacommitmenttoconsensusdecisionmaking. Theallianceispredicateduponanequitablesharingofrisksandrewardsbetweenthe threeparticipants.Inpractice,thisrevolvesaroundachievingaTargetCostEstimate(TCE) fortheprojectwhichwasdevelopedbackin2007.TheTCEisaround$4.5billionforthe workcoveredbythealliance.Thisincludesthedirectrecoverycostofplannedactivitiesby 194

theparticipantsandtheirrespectivesubcontractors(subcontractorstothealliancework directlytooneoftheparticipants).Theremainderoftheoverall$8.1billionprojectcost involvesotherexpensestobecovereddirectlybyDMO,includinggovernmentfurnished equipmentsuchastheAegiscombatsystem. Figure7.9:TheAWDAlliance

AWDAlliance DefenceMateriel Organisation ASC Shipbuilding Raytheon Australia

CommonwealthofAustralia
USGovernment Navantia(Spain) Subcontractor Subcontractor BAEAustralia ForgacsGroup Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor

DMOalsoholdstheprospectivefeemadeupofanagreedprofitmarginandcorporate overheadprovisionfromwhichthealliancesgainshareandpainshareismanaged. Hereshowitworks.Ifthealliancemanagestomeetthetargetcostestimate,theindustry participantseachreceiveaproportionateshareoftheoveralltargetfee.Iftheprojectcomes inunderbudget,allthreeparticipantssharetheunspentfundsuptotheamountoftwice thefee.Iftheprojectgoesoverbudget,theadditionalcostsaresharedbyallthree participantsuptotheamountoftwicethefee.Afterthispoint,theCommonwealthis responsibleforanyadditionalcosts. Thus,ifthefeewassetatahypothetical10%oftheTCE,theparticipantscouldsharea maximumfeepaymentof20%oftheTCE,orsharetheextracostsandearnzerofee. Becausethefeeincludesnotjustprofitbutalsocorporateoverheadswhicharelikelytobe substantialparticipantshaveastrongincentivetomeetandifpossiblecomeinunderthe TCE. Thecriticalpointisthattherisksandrewardsarepooledforthethreemembersofthe allianceitisthebottomlinefortheallianceasawholethatmatters,nottheindividual performanceoftheparticipants.Highproductivitybyoneparticipant(oritssubcontractors) benefitsallparticipantsproportionately;lowproductivitybyoneparticipant(orits subcontractors)imposescostsonallparticipantsproportionately.Thus,thealliance encouragesnotonlycooperationbutalsoclosemonitoringofperformanceamong participants. InadditiontothegainshareandpainsharebuiltaroundtheTCE,thereareadditional potentialpaymentsandliquidateddamagesassociatedwithprojectschedulemilestones. 195

Theseincentivesandsanctionspreventallianceparticipantsfromsacrificingscheduleto achievetheTCE.Asapracticalmeasure,participantsareabletoprogressivelyclaimpartof theirprospectivefeeprovidedthatprogressmeetsplannedcostandscheduletargets.Ifthis provesnottobecaseatalatertime,thereisprovisionforaclawbackofthefee. AssumingthattheTCErepresentsacredibleestimateofthecostoftheworktobedone,the arrangementhasclearmerits.Notonlyaretherestrongincentivestomeetcostand scheduletargets,butparticipantsareencouragedtoworktogethertosolveproblemsand inhibitedfromshiftingcostsbetweenoneanother.Ofcourse,iftheTCEisuncertainor inadvertentlyerroneous,thewholearrangementbecomesalottery;withthepotentialfor thetaxpayertoberippedoff,orforcommercialparticipantstobetakentothecleaners. Inprinciple,itisalsopossiblethattheparticipantshavegamedtheTCEbysettingit artificiallyhighfromthestartthusmakingiteasytoachieve.Withtheprojectpolitically lockedinlongbeforetheTCEwasset,Defencearguablyfacedasoftbudgetconstraint,with fewincentivestodriveahardbargain.Aswellsee,thisappearsnottohaveoccurred.For thepurposeofwhatfollows,weshallassumethattheTCEiscredible. Althoughthealliancearrangementbringsbenefits,nocontractingarrangementisever devoidofdisadvantagesorperverseincentives.Intheparticulararrangementadoptedfor theAWD,thereare(atleast)twopossibilitiestobeawareof.Inpointingtheseout,wedo notmeantoimputethemotivationsoftheactualparticipants,butrathertoidentifyissues intrinsictothealliancestructure. Thefirstriskisthatoffreeriding.Becausepainandgainissharedamongthemembersof thealliance,itspossibleforparticipantstoallowotherstodotheheavyliftingtomeet scheduleandcosttargetsoreventoimposeadditionalcostsontheallianceinorderto pursueotheropportunitiesatareducedcosttothemselves.Tounderstandwhyanalliance participantmightdoso,consideranalliancewithfourequalparticipants.Ifoneofthe participantsacts(orfailstoact)soastoincreasethecostoftheprojectby$100,theyincura lossofonly$25.Incontrast,underatraditionalfixedpricecustomersupplierarrangement, asuppliercarriesthefull$100burdenofanyadditionalcosts. Nonetheless,alossisaloss;sotheresalwayssomeinventiveforparticipantsinanalliance tocontaincosts.Butwhatifaparticipanthascompetingdemandsonitstimeand resources?Forexample,otherprojectstodeliverorbidfor?Thelogicalcourseofaction mightbetoredirectresources(suchasmanagementattentionandskilledpersonnel)away fromtheeffectivelysubsidisedalliancearrangementtoavoidfullopportunitycosts elsewhere. Whilethatriskarisesinothercontractualarrangements,itisaccentuatedinanallianceby thespreadingofadditionalcostsamongparticipants.And,aswithfreeridingmore generally,thesmallertheshareofthewholeaparticipanthas,themorethetendencyis accentuated.Inthisrespect,alliancesshouldworkbestwhentheyhaveonlyafew members,allwithrelativelysimilarshares.Onthebasisofcontractssignedbackin2007,the relativestakesoftheindustryparticipantsintheAWDAllianceareRaytheon$1.7billionand ASC$2.6billion. 196

ThesecondriskisthattheDMOwillfinditselfwithmixedmotives.Ontheonehand,they willwanttomeettheTCEandschedulemilestonessoastoclaimkudosfordeliveringa complexproject(atleast)ontimeandonbudget.Ontheotherhand,asanagentforthe RAN,theywillbeunderpressuretodeliverasmuchcapabilityascanbeafforded.Itisa simplefactthattherewillemergetradeoffsbetweencost,scheduleandcapability throughouttheproject.Totheextentthatthereisanyambiguityinthespecificationofthe vesselstobedeliveredanditisinevitablethattherewillbesomeDMOwillbeunder pressurefromtheRANtoexploittheambiguitytowardsincreasedcapabilityattheexpense ofcostandschedule. Suchtensionsroutinelyemergeinfixedpricecontractsandcanbecomeproblematic(as witnessedintherecentAEW&CandFFGUpgradeprojects).Whatmakesthealliance differentisthataproportionoftheextracostsofadditionalcapabilitycanbecontinuously passedontotheotherparticipantswithouthittingthebarrierofafixedcontractprice.One wayoranother,DMOwillfaceamoralhazard;eitherdeliveringlessthanitcantotheRAN, orimposingadditionalcostsonitsalliancepartners.Itisdamnedeitherway;unlikeafixed pricecontractwhereitwouldnaturallystrivetoachieveasmuchasitcanfortheRANwithin thefixedcontractprice(andperhapsbeyondifthebasicproductisnotforthcoming),its ultimateallegianceasbothagentandallianceparticipantisunclear.Intheory,analliance amelioratessuchasituationbyprovidingallpartieswithvisibilityofeachothersposition therebyreducingthelikelihoodofunrealisticexpectationsandunreasonableclaims. Enoughofwhatmightgowrong.Letslookatprogresstodate.Itsbeenalmostfiveyears sincetheprojectreceivedsecondpassapproval.Theannualexpenditureonpreand postapprovalphasesoftheprojectsofarisshowninFigure7.10.

Figure7.10:AWDexpenditure($m)
1,000 900 800 700 600 500 400 300 200 100 0
200405 200506 200607 200708 200809 200910 201011 201112 201213 Source:DefenceAnnualReportsand201213PBS

Aegis&postapprovalspending preapprovaldesignspending

197

Todate,thebuildphaseoftheprojecthasspent$3,038millionfromanapprovedproject budgetof$7,883million,representingabout38%ofavailablefunds.Somecareneedstobe takenininferringprogressfromaggregateexpenditurebecauseasignificantshareofthe budgetisallocatedtothecombatsystemandweaponspurchaseswhicharesomewhat unrelatedtotheprogressinphysicalconstruction.Abettermeasurecomesfromcomparing plannedandactualexpenditureonayearbyyearbasisasinFigure7.11.Ascanbeseen,the projectdidwellforthefirsttwoyearsbutthenbegantofailtomeetitsplannedexpenditure targets.

Figure7.11:Plannedandactualexpenditure($m)
1,400 1,200 Budget 1,000 800 600 400 200 0 200708 200809 200910 201011 201112 Actual

Source:DefenceAnnualReportsand201213PBS

Atthetimeofsecondpassapproval,thefirstAWDwasscheduledtobedeliveredin December2014,thesecondinMarch2016andthethirdinJune2017.Ofcourseitsnow knownthatthescheduleforthedeliveryofthefirstAWDhasslippedbytwelvemonthsto December2015duetoearlyproblemswiththeconstructionofmodules. Specificissuesincludedthedifficultyofactivatingnewandreactivatinglongunused fabricationoperations,aswellasproblemswithlearningtoworkwiththestyleofdrawing providedbytheSpanishdesigner.Asaresult,responsibilityforfabricating18ofthe90 moduleswasreallocatedinMay2011.Then,inMarch2012,afurtherreallocationof modulesoccurred,resultinginadditionalworkgoingoffshoretoSpain.Itsunderstoodthat thesechanges,coupledwithrefinementswithintheconsolidationyard,havebeensufficient tomaketherevisedschedulefeasible.Indeed,workiswellunderwayonthefabricationof thefirsttwovesselsandworkhascommencedonmodulesforthethird.And,toputthings inperspective,therearestill43monthsbeforethefirstshipisduetobedelivered. Aswouldbeexpected,theproblemsanddelayshavebeencostlytotheallianceparticipants. ASPIunderstandsthattheallianceisbehindthecurveinmeetingtheTCEwhichmeans that,forthemomentatleast,participantsstandtoforegoatleastsomeoftheiranticipated profitandcorporateoverhead.Thatdoesnotmeanthattheprojectwillnecessarilygoover budgetrelativetothe2007governmentapproval(DMOpresumablyholdssubstantial 198

contingencyfundsinreserve),butitdoesmeanthatthecommercialparticipantsstandto looseallorpartoftheirfeeifproductivitydoesnotimprovesufficiently. With43monthsbeforethefirstvesselisdelivered,thereisalotthatcouldhappen.The constructionofmodulesisbutonestepalongtheroadoftowardsconsolidatingandfitting outthevesselswiththeirpropulsion,communications,navigationandweaponssystems.On thebasisofpastexperience,itwouldbefairtosaythatthehardpartsareyettocome. Someappreciationofthecomplexityoftheprojectcanbegainedfromtheworkforce breakdownreleasedbyDMOinearly2012,seeFigure7.12.

Figure7.12:AWDworkforcedemandsalliancepluslocalcontractors
3,500 wearehere 3,000

2,500

2,000 Trades (6,332workyears)

1,500

1,000

Design (586workyears)

WhiteCollar (3,234workyears) CombatSystem (3,381workyears)

500

0
Feb07 Jun07 Oct07 Feb08 Jun08 Oct08 Feb09 Jun09 Oct09 Feb10 Jun10 Oct10 Feb11 Jun11 Oct11 Feb12

Jun12

Oct12

Feb13

Jun13

Oct13

Feb14

Jun14

Oct14

Feb15

Jun15

Oct15

Feb16

Jun16

Oct16

Source:presentationbyDefenceofficial,January2012

Ofthe135workercenturiesoftoilinvolvedintheconstructionofthethreeAWD,lessthan halfactuallyentailstradespersonsfabricatingthevessels.Despitebeingaproven offtheshelfdesign,thereareclosetosixcenturiesofdesignworkneeded.Theremaining threeandhalfmillenniaofeffortisdividedbetween32workercenturiesofwhitecollar engineeringandadministrationand34workercenturiesforthedevelopmentand installationofthecombatsystemanditsperipheralcomponents.Theformerishardto judgeintheabsenceofabenchmark;certainlytheprojectsdemandstheclosecoordination ofcompatibleinputsfromagreatmanydifferentsuppliersnottomentionthe administrativeburdenoftheallianceitself. Butwhatiscertainlysurprising,atleastinitially,istheverylargeworkloadassociatedwith thecombatsystemandcomponents.However,theexplanationissimple:despitemuchtalk oftheF100beinganofftheshelfoption,thecombatsystemwasalwaysintended(even priortothechoiceofplatform)tobeAustralianisedthroughtheintegrationofanumberof newperipheralsystemswiththecoreAegiscombatsystem.Inthepast,systemsintegration hasbeenthebaneofmanyadefenceproject.Thereisnodoubtthattherearerisksintrinsic 199

Feb17

tothesystemsintegrationaroundthecombatsystemakintothosethathavecausedserious problemsindefenceprojectspreviously.Forthemomentatleast,thingsarereportedly progressingwell.AnditisencouragingthatothercountrieshaveadaptedtheAegissystem totheirspecificrequirementswithonlymanageableproblems.Wewillhavetowaitandsee. Finally,beforeleavingtheAWDproject,thereisthelongtermquestionofthroughlife support.SuccessivenavalplatformshavebeendeliveredtotheRANwithoutacoherent sustainmentplanorcontractinplace.TheCollinsclassisperhapsthemostvisiblefailureof thistype,butotherclassesofvesselhavesufferedsimilarly.Regrettably,defenceprojects havesometimessacrificedthepurchasingofsparestoaccommodatecostpressuresduring acquisition.Letshopethataplanemergessoon.

TheghostofsubmarinesfuturereplacingtheCollins
Justpriortothe2012Maybudget,thegovernmentannouncedthenextstepsintheprocess ofreplacingtheCollinsclasssubmarine.Inbroadterms,thegoalisachievefirstpass approvalinlate2013orearly2014andsecondpassapprovalin2017.Theoptionsbeing consideredare(verbatim): Anexistingsubmarinedesignavailableofftheshelf,modifiedonlytomeet Australiasregulatoryrequirements. AnexistingofftheshelfdesignmodifiedtoincorporateAustraliasspecific requirements,includinginrelationtocombatsystemsandweapons. Anevolveddesignthatenhancesthecapabilitiesofexistingofftheshelfdesigns includingtheCollinsClass. Anentirelynewdevelopmentalsubmarine.

Activitiestotakeforwardtheseoptionshavebeenoutlinedbythegovernment,including: DesignstudiesofmilitaryofftheshelfoptionsbyFrench,GermanandSpanish companies. InitialdesignstudiesforanupdatedCollinsdesignbytheSwedishfirmKockumsthat designedtheCollinsclass. Anexpertsubmarinedesignfirmwillbeengagedtoconductcostandcapability tradeoffanalysisofalloptions. USfirmsSystemsPlanningandAnalysisandElectricBoatwillundertakework relatingtoanumberofsubmarineconceptualdesigns.

Suchstepsarelongoverdueanditisencouragingthatactionisatlastunderwaytoinitiatea projecttoreplacetheCollinswithitslifeoftypelooming.Yettwothingsareconspicuousby theirabsence.First,bywhatmeanswillanentirelynewdevelopmentalsubmarinebe investigated?Second,andmorepertinenttothepresentdiscussion,whatroleifanywill DeepBlueTechplayinanyoftheactionsunderway?Twoobviousalternatives(whichare mutuallyexclusiveduetoaconflictofinterest)tothelatterquestionsare: 1. DeepBlueTechwillworkwithKockumsonanupdatedCollinsdesign(andperhaps alsoonanentirelynewdesign). 2. DeepBlueTechwillbe,orwillworkwith,anexpertsubmarinedesignfirmto conductthecostandcapabilitytradeoffanalysisoftheoptions. 200

Otheralternativesarealsopossible,buttheyallfallintooneoftwocategories;eitherabove thelineassistingDMOtomakeaninformedchoice,orbelowthelineworkingwitha foreigndesigner. UntilclarificationisgainedontheroleofASCingeneralandDeepBlueTechinparticular, thereisnotmuchmoretosay,exceptthatitwouldbeextraordinarynottotapthelatter resourcetoassistinsomeway.Submarineexpertiseisveryhardtocomeby.Perhapsthe MinistersforDefenceandFinanceshouldhaveacupofcoffeeanddiscusshowthisvaluable nationalresource(ownedultimatelybythetaxpayer)canbeputtobestuseoratleastto someuse.

OwnershipofASCPtyLtd
TheownershipofASCpresentsthegovernmentwithadifficultproblem.Thepastdecadeof publicownershiphashardlybeenaresoundingsuccess.RelationsbetweenDefenceandASC havebeendifficultformuchoftheperioddespitebothentitiesbeingpubliclyowned. Therehasalsobeenamanifestlackofcoordinationofactivity,perhapsbestdemonstrated bythedecisionbyASCtodevelopasubmarinedesigncapabilityabsentanysignfrom Defencethatsuchacapabilityisdesired.Moregenerally,untilrecently,anorderlyapproach tolongtermmanagementoftheCollinsfleethasfallenbetweenthegapswithinand betweenASCandDefence. Tosomeextent,theproblemsbetweenASCandDefencereflectthepeculiararrangement wherebyDefencereportstooneMinister,whileASCreportstoanotherMinisterthroughan independentboard.Abitlikedoingbusinesswithafamilymember,itsneverclearwhether youshouldbedrivingahardbargainordoingthemafavour.IfASChadbeencommercially owned,it'spossiblethatamorebusinesslikeapproachwouldhaveemergedsooner.Or perhapsthetaxpayerwouldhavejustbeentakenforarideasthecommercialentity exploitedDefenceslackofacumen. Inprinciple,theCommonwealthwouldprobablybebetteroffifASCwastransferredto commercialownershipinthelongterm.Butthereareseveraldifficultieswiththis proposition.Fromthegovernmentspointofview,aninefficientpubliclyownedentitymight bepreferabletoanefficientprivatelyownedentitywhichitcannotcontrol;transferring ownershipofASCwhilestillretainingstrategiccontrolofAustraliasonlysubmarinesupport andfabricationfacilityisasizablechallenge. AnatleastequalchallengewouldbesellingASCwithoutmakingadecisionaboutthe longelusivenationalapproachtonavalshipbuildingeagerlysoughtbyvestedinterestsof varioushues.Thefearisthatthegovernmentcouldveryeasilyfinditselfatthemercyofa monopolydomesticshipbuilderfollowingthesaleofASC. Finally,thesaleofASCiscomplicatedbytheongoingmassivecontractsithaswith Defencecontractsthatwouldfeelthecoldwindsofcommercialduediligencebeforeasale couldproceed.Oneofthedifficultissueswithasalewouldbetheindemnificationofthe buyerfortherisksembeddedinexistingcontractsandallthemoralhazardthatentails. Sometimestheproblemyouknowisbetterthanoneyouhavenotyetexperienced. 201

PostscriptpublictransparencyofASCandtheAWDproject
InpreparingthisdiscussionofASCPtyLtdandtheAWDAlliance,itbecameapparentthat theamountofpublicdisclosureoneachissurprisinglylow.Thequantityofusefuldetail providedintheASCannualreporthasdeclinedsignificantlysince2003.AndasfortheAWD Alliance,whichisspendingbillionsoftaxpayersdollars,weonlygetanoccasionalpress releaseandacoupleofparagraphsintheDefenceAnnualReport.Thisisnotgoodenough giventhattheAWDAllianceinvolvestwofullygovernmentownedentitiesandasingle minoritycommercialparticipant.

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Chapter 8 Reviewing Defence

Thepasttwelvemonthshavewitnessedagreatmany defencerelatedreviews.Eventhosewithakeen interestindefencemattersareunlikelytohavehad timetoreadthemall.Tohelpfillinthegaps,this chaptersurveysandsummarisesthosereportswhich haveseenthelightofday,includinganumberof internalreviewswhichhavebeendisclosedpublicly.

KeyPoints
Overthepastfinancialyear: SixteenexternalreviewsofDefence havebeenunderway,ofwhich thirteenhavereported Sixmajorinternalreviewshave occurredwithinDefence,ofwhich tworeportedpublicly FourParliamentarydefencerelated inquiriesareunderwayandten reportshavebeenreleased

Whysomanyreviews?

Reviewsoftenarisebecausesomethinghasgone wrong,suchasthefailureoftheRANamphibious fleetinearly2011orthesocalledSkypeincidentatADFAaroundthesametime.Atother times,reviewsarepartoftheorderlydevelopmentofpolicy;asisthecasewiththecurrent ForceStructureandrecentForcePostureReviews. Irrespectiveofwhetherareviewseekstosolveaproblemorevolveexistingpolicy,itcan eitherbeundertakenbyDefenceitself(aninternalreview)orbyindependentconsultants (anexternalreview).Overthepasttwelvemonths,therehavebeenatleastsixmajor internalandsixteenexternalreviewsunderwayforatleastpartofthetime,seeFigure8.1. Becauseitisoftenunclearwhenareviewbeginsandends,thedurationofreviewshasbeen takenfromthedaytheyareannouncedtothedaythateitherthereportisreleased,orthe governmentsresponsetothereportisreleased. Theseeminglylargeproportionofexternalreviewsreflectsfourfactors.First,manyinternal reviewsarenotdisclosed.Second,itcanbevaluabletohaveexternalpartiesbringfresh ideasandbroaderexperiencetoaproblem.Third,thereissometimesapoliticalimperative foratransparentlyindependentexamination.Fourth,whenthingsgoseriouslywrong,ora fundamentalrethinkofpolicyisneeded,thereisnopointinaskingahierarchical organisationlikeDefence(withstronginternalvestedinterests)tosecondguessitself.Put simply,ifthecurrentDefenceleadershiphadthesolutions,theproblemswouldnotarisein thefirstplaceandpolicywouldnotneedashakeup.Consistentwiththis,overthepasttwo decades,mostofthebigchangestoDefencehaveonlyarisenafterexternalreviews. ParliamentarycommitteesalsoroutinelyconductinquiriesintoDefence.Atpresent,there arefourdefencerelatedcommitteeinquiriesunderway,andtensuchinquirieshavebeen tabledthisfinancialyear.Detailsoftheseandpriorparliamentaryinquiriescanbefoundon thewebsitesoftheJointStandingCommitteeonForeignAffairs,DefenceandTrade,Joint StandingCommitteeonIntelligenceandSecurity,andtheSenateStandingCommitteeon ForeignAffairs,DefenceandTrade.Giventhetransparencywithwhichparliamentary committeesconducttheirbusiness,noattemptismadetorecountthedetailsofcurrentand pastdefencerelatedparliamentaryinquirieshere.Itshouldbenoted,however,that parliamentaryinquiriesareofteninstrumentalinbringingaboutrealchangestoDefence; suchastheRAAFF111desealresealinquirytabledin2009. 203

Table8.1:Disclosedexternalandinternaldefencerelatedreviews201112

Source:MinisterialandDefencemediareleases.Note,thedurationofReviewsistakenfromthedateof announcementtothedateofpublicreleaseofeitherthereport,ortheGovernmentsresponse.

Whatdotherecentreviewstellus?
ThetwentytworeviewsdepictedinFigure8.1aresummarisedinsequencefrombottomto toponthepageswhichfollow.Inaddition,anoverviewofDefencesresponsetothefive culturalreviewsinitiatedfollowingtheSkypeincidentappearsisattheendofthechapter. Tosavespace,theoftenlengthyandpassivelywordedconclusionsandrecommendationsof reviewshavebeenabridgedwherenecessary. Giventhe3,000pluspagesofthecollectivereviews,ithasnotbeenpossibletoread everything.Fortunately,mostofthereviewshaveusefulexecutivesummaries.Inanycase, threeoverarchingimpressionsemergefromthereviewsdisclosedoverthepastyear: Defenceundertakesanincrediblybroadrangeofcomplexactivities,frommilitary operationstotheacquisitionandsustainmentofhightechplatforms. Althoughperformanceinsomeareasisofahighstandard,therearesystemic problemswiththecontrolofresourcesandaccountabilityacrossmuchofthe organisation.Itremainstobeseenwhetherthelatestroundofreformswillbe sufficienttofixtheunderlyingproblemsindeeditsdoubtful. Insomeareas(forexample,culture)Defencehasacceptedverydemandingand prescriptiverecommendationsthatwillinevitablydiverttimeandeffortfromother activities.Withnoadditionalresources,thequestioniswhatwillbecut?

204

Support for Injured or Ill Project Review of current practices

Dates: Duration: Authors: Submissions: Report: Cost: AugusttoDecember2010(releasedApril2012) 20months KPMGconsulting nonesought 281pages(releasedunderFreedomofInformation) Unknown

Background
Thisreviewwasinitiatedin2010byDefencetosupportthedevelopmentofaseamlessand integratedsupportprocessforinjuredorillADFmembers.Detailsofthereviewremained undisclosedtothepublicuntilthemediagainedaccesstothedocumentunderFreedomof InformationlegislationinApril2012.

Scope
ThereviewexaminedDefence,singleServiceandDepartmentofVeteransAffairsincident reporting,welfare,healthcare,rehabilitation,compensationandtransitionpolicies, processesandservices.

Report
Allindicationsarethatthereportwascomprehensive,widelyconsultedandthoughtful.A secondphaseofwork,renamedtheSupportforWounded,InjuredorIll,hassincebeen initiatedtodeliverconsistentsupporttoallwounded,injuredorillmembersduringtheir serviceandaftertransitionfromtheADF.

Keyconclusionsandrecommendations
Thereviewconcludedthattheextantarrangementwasgenerallygoodandresultsinahigh returntoworkrateforrehabilitatedmembers.However,thereviewalsofoundthata morecoordinatedandintegratedapproachwouldbelikelytoimproveoutcomesforADF membersandtheirfamilies.Indeed,thereviewfoundthat;somemembersarefalling throughthegapsandnotreceivingthesupporttheyareentitledtoand/orrequire,some injuredorillmembersandtheirfamiliesdonotfeelsupportedbyDefence,andthatthe currentsystemdoesnotalwaysenabledefencetoeffectivelyandefficientlysupportits injuredorillmembers. Thereviewmadethirtyonerecommendationsandoutlinedtheworknecessaryforthe secondphaseoftheproject(thenplannedtobeundertakeninearly2011).Apartfrom identifyingtheneedforsystemicchangewithinDefenceandtransformationalchangetoa newpartnershipbetweenDefenceandDVA,specificrecommendationsincluded; identificationofasingleDefencesystemowner,amembercentricsupportframework,and enablingCommandtobettertakeresponsibilityforwelfareandcasemanagement.

Outcomes
InApril2012,Defenceannouncedthatworktoimplementthe31recommendationsfrom thereviewiswellunderwayandmuchoftheworkisexpectedtobecompletethisyear.

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Independent Review of the Intelligence Community

Dates: Duration: Authors: Submissions: Report: Cost: December2010toJanuary2012 14months RobertCornall(formerSecretary,AttorneyGeneral'sDepartment) RufusBlack(ethicist,managementconsultantandtheologian) 38publicsubmissionsreceived 57pages(publicreport)plusaclassifiedversion Unknown

Background
Thisreviewwasaplannedfollowupofthe2004AustralianIntelligenceCommunity(AIC) reviewundertakenbyPhilipFlood(theFloodReview)inthewakeoferroneousassessments ofIraqsweaponsofmassdestructionprograms.

Scope
Acomprehensiveexaminationofhowwelltheintelligencecommunityispositionedto supportAustraliasnationalinterests,nowandintothefuture,includingnationaland internationalworkingrelationships,levelofresourcing,andimplementationofprior reforms.Agenciesconsidered:AustralianSecurityIntelligenceOrganisation(ASIO),the AustralianSecretIntelligenceService(ASIS),theDefenceImageryandGeospatial Organisation(DIGO),theDefenceIntelligenceOrganisation(DIO),theDefenceSignals Directorate(DSD)andtheOfficeofNationalAssessments(ONA).

Report
Thereportprovidesawellwrittenandorderlyprimeronthenatureofintelligenceandthe structure,activitiesandrecentdevelopmentoftheAIC.Tertiarystudentsinrelevantfields willundoubtedlyfindthereportausefulresourceforassignments.

Keyconclusionsandrecommendations
Thepublicreportdrawssevenconclusionsbutoffersnorecommendations.Overallthe conclusionsarepositiveandencouraging:thesubstantialinvestmentinintelligence post9/11hasbeenjustified,internationalintelligencepartnershipsthestrongesttheyhave everbeen,theintelligenceagenciesareworkingtogetherwellandarebeginningtowork moreeffectivelywithothernationalsecurityagencieswithingovernment.Thefinal conclusionwasthat:theprincipalnewchallengesforthenextfiveyearsorsowillbeto betteraligntheAICsprioritieswiththenewgeopoliticalandtechnologicalrealitiesfacing Australiaasamiddlepowerwithglobalinterests.So,overall,everythingishonkydory. However,whenreleasingthepublicreport,thePrimeMinstersaidthatthereviewhad maderecommendationstohelpmaintaintheperformanceofthecommunityinaperiodof resourceconstraints.Shesaidthattherecommendationscoveredsuchareasaspriority settingandmissionintegration,performanceevaluation,supportforinnovationand strategiesformanagingintelligencecollectionintheageofabundantinformation.Thus, consistentwiththepublicreport,thereisminimalsignofanyproblems. Outcomes:Nildisclosed,thoughthe2012Budgetreprioritised$82million,includingthe deferralofplannedgrowthfortheAustralianSecretIntelligenceOrganisation. 206

Review of the Defence Accountability Framework

Dates: Duration: Authors: Submissions: Report: Cost: March2010toAugust2011 20months RufusBlack(ethicist,managementconsultantandtheologian) nopublicsubmissionscalledfor 127pages(noclassifiedreport) Unknown

Background
ThisreviewwasinitiatedbyDefencein2010toexamineaccountabilityinthecontextofthe StrategicReformProgram.Theauthor,RufusBlack,hadpreviouslyledtheteamfromthe McKinseyfirmwhichassistedwiththe2008DefenceBudgetAudit(PappasReview).

Scope
ThereviewwastaskedtoassesstheefficiencyandeffectivenessofDefencesgovernance andaccountabilityframework,andtheassociateddecisionmakingarrangements.The underlyingdefenceorganisationalstructurewasimplicitlyoutofscope(criticallylimitingthe reviewspotential).ThescopesensiblyexcludedtheADFoperationalchainofcommand.

Report
ThereportprovidesananalysisofaccountabilityanddecisionmakingwithinDefence. Despiteanoverlayofmanagementjargonandmanycolourfuldiagramsfullofarrows,the reportmanagestocapturemanyofthecomplexitiesandmaladiesafflictingDefence.

Keyconclusionsandrecommendations
DecisionmakingandStrategicdirectionsetting:ThenumberofcommitteesinDefence shouldbereduced(andfuturegrowthconstrained)andtheirroleasadvisoryforumsshould beemphasised.Atthesametime,morerobustcommitteeprocedureshouldbeintroduced. Defenceneedstohaveacorporateplan. Personalaccountability:Individualsneedtobemadeaccountableforoutcomes.Business andindividualperformancemanagementneedstofocusonconcretetargetswithmore robustapplicationofrewardsandsanctions.Disappointingly,thereportlackscredible suggestionsforwhatformthesemighttake.Internalcontestabilityshouldbeincreased. Accountabilityacrosstheorganisation:Asamatrixmanagedentity,businessunitsin Defencearehighlyinterdependent.Agreementsbetweenbusinessunitsshouldbetightened toreinforcejointoutcomes.Accountabilityforwholeoflifecostsandthedeliveryof capabilityshouldbestrengthened. Cultureandskills:Outcomesbasedlanguageshouldbeadopted.Anewmodelofpersonnel skillsdevelopmentisneeded.Riskmanagementshouldberefined.Newbehavioursshould berolemodelled.

Outcomes
Therecommendationsarebeingprogressivelyimplementedalongwithadditionalmeasures notsuggestedbythereport(e.g.thecreationofanextralayerofmanagementatthe associatesecretaryleveloverseeingpersonnel,defencesupportandIT). 207

HMAS Success Commission of Inquiry

Dates: March2010toFebruary2012 Duration: 24months Authors: Roger Gyles QC Submissions: nopublicsubmissionscalledfor Report: 406pages(part1),288pages(part2),170pages(part3) Cost: Unknown Thereportwasredactedforlegalandprivacyreasons.

Background
IncidentsofunacceptablebehaviourwereallegedtohaveoccurredonHMASSuccess betweenMarchandMay2009.FollowinganinternalDefenceinquiryandthe commencementofaSenatecommitteeinquiry,theChiefoftheDefenceForce commissionedanindependentCommissionofInquiryinMarch2010.

Scope
ThereviewinvestigatedtheallegedincidentsaboardHMASSuccess,thesubsequent responsebyNavy,andDefencesprocessesandproceduresforsuchsituations.

Thereportanditsconclusions
Thereportwasdeliveredinthreeparts.Thefirst(tabledon22February2011)dealtwiththe situationaboardHMASSuccessandincidentsallegedtohaveoccurredthereinearly2009. Thereportedidentifiedafailureofpersonalconduct,thefailureofdiscipline,thefailureof authorityandtheinappropriatecultureaboardHMASSuccess. Thesecondpartofthereport(tabledon7July2011)dealtwiththeNavyshandlingofthe allegedincidentsincludingthelanding(i.e.restrictingtoonshorepostings)ofthreesailors. Itfoundverysignificantshortcomingsinthemanagementofthethreelandedseniorsailors andrecommendedbothanapologyandcompensation.TheReportalsorejectedcriticisms ofbiasmadeagainsttheoriginal2009Defenceinquiryintotheallegations. Thethirdandfinalpart(tabledon9February2012)dealtwithcommand,militarydiscipline, redressofgrievanceprocesses,commanddecisionsandadministrativelaw,equityand diversityandunacceptablebehaviour,andinquiries.Thegovernmentsresponseispending.

Outcomes
AnactionplanisunderwaytoaddresstheissuesidentifiedinpartoneoftheReportfocusing onleadership,culture,alcoholmisuseandbehaviourwhileashore. TheChiefoftheNavyhasapologisedtothethreelandedseniorsailorsforthefailureto accordthemproperprocess,andanofferofmonetarycompensationhasbeenmadeto eachofthem.Inaddition,theChiefoftheDefenceForceandtheChiefoftheNavyhave apologisedtotheauthorsofthe2009Defenceinquiry. AsaresultofpartsoneandtwooftheReport,adverseadministrativeactionhasbeen initiatedagainsteighteenindividualswhorangeinrankfromAbleSeamanthroughtoStar Rankedofficers.Someresultsarestillpending,butactionshaveincludedformalcensure, reductioninrankandformalcounselling. 208

Plan to Reform Support Ship Repair and Management

Dates: Duration: Leadauthor: Submissions: Report: Cost: February2011toJuly2011 6months PaulRizzo(privatesectorexecutiveandcompanydirector) nopublicsubmissionscalledfor 98pages Unknown

Background
FollowingtheunforeseencollapseoftheRANamphibiousfleetinearly2011ontheeveofa cyclonehittingtheQueenslandcoast,thegovernmentcommissionedanindependentteam toreviewtherepairandmaintenanceoftheamphibiousandsupportshipfleet.Thereview wasundertakenbyPaulRizzowiththeassistancefromAirViceMarshalNeilSmith(rtd)and RearAdmiralBrianAdams(rtd).

Scope
Thereviewwastaskedtodevelopaplantoaddressproblemsintherepairand managementoftheamphibiousandsupportshipfleetandalsotoexaminethesupport arrangementsofcurrentandfutureRANvessels.

Report
Thereportiswellresearched,clearlywrittenanddamning.Itprovidesanindepthinsight intothefracturedbusinessprocesses,skillsshortfallsandconfusedaccountabilitieswithin Defence.

Keyconclusionsandrecommendations
AtotaloftwentyfourrecommendationweremadebytheReview.Ofthese,sevenwere strategicinscope: Formaliseassetandsustainmentmethodologies. Takewholeoflifedecisions. EstablishcloserworkingarrangementsbetweenDefenceandDMO. Establishanintegratedriskmanagementsystem. RebuildNavyengineeringcapability. Reinstatetheculturalimportanceoftechnicalintegrity. ConfirmDefenceCapabilityPlan(Maritime)Resourcing.

Theremainingseventeentacticalrecommendationsdealtwithspecificissuessuchas planningfortheageingofvessels,increasingresourcesforcapabilitymanagement, establishingNavyworkforceplanning,andfosteringengineeringtalent. Overwhelmingly,therecommendationswereaboutestablishingthebasicpreconditions (whichclearlyshouldalreadyhavebeeninplace)forbusinesslikemanagementofthefleet.

Outcomes
DefencefullyacceptedthereportsrecommendationsandtheGovernmentandDefenceare implementingthem. 209

Review of Shared Services

Dates: Duration: Author: Submissions: Report: Cost: May2011August2011 3months McKinseyandCompany nonesought 217pages unknown

Background
The2008DefenceBudgetAudit(thePappasReview)identifiedsubstantialpotentialsavings fromtheconsolidation(workforcereductions)intheareaofsharedserviceswithinDefence. SharedservicesincludethoseactivitiesprovidedtobusinessunitswithinDefencebythe DefenceSupportGroup,ChiefFinancialOfficerGroupandChiefInformationOfficerGroup. In201011Defencecommissionedaninternalreviewintosharedservices.

Scope
Accordingtothe201011DefenceAnnualReport,thereviewwasundertakentoexamine theoverlapandduplicationoffunctionsacrossDefence.Thereviewfocusedonreducing unnecessarysupportcostsintheformofcorporateandadministrativeoverheads,suchasin Finance,HumanResources(HR)andICT.ThereviewalsolookedatNonMateriel Procurement,CommunicationsandPublicAffairs,Legal,DefenceSecurity,Infrastructureand Logistics. AgainaccordingtotheAnnualReport,itisanticipatedthatthereviewwillcreatefurther opportunitiesforefficiencyandwillfundamentallychangethewayDefencedelivers servicesandwillachievefurthersavingsthatcanbereturnedtoGovernment.

Report
Notreleased

Keyconclusionsandrecommendations
Althoughthereporthasnotbeenreleased,fourculturalreformdirectionshavebeen disclosed: Defineaculturalaspirationtosupportsharedservicesreforms,centredon promotingaservicedeliverymindset. Haveleadersrolemodelthisqualityservicedeliverymindset. Developastorytosupportrationaleforsharedservicesrelatedculturalchange. Reinforcesharedservicesrelatedculturalchangeusingrewardsandrecognition,link tocareerprogression,andtestingthroughfocusgroups.

Outcomes
InMay2011,thegovernmentannouncedasecondphaseofSRPrelatedsavingswouldbe realisedprimarilythroughfurtherimprovementstosharedservicesdesignand implementation.Atthattime,projectedcivilianpersonnelnumberswerecutby1,000 positionsasaresultofsharedservicesandotherreforms.

210

Review into the Treatment of Women at ADFA and in the ADF

Phase1TheReviewintotheTreatmentofWomenatADFAApril2011to3Nov2011 Phase2ReviewintotheTreatmentofWomenintheADFcommencedNov2011

Duration: Leadauthor: Submissions: Report: Cost:

Phase2tobecompletedin2012 MsElizabethBroderick(SexDiscriminationCommissioner) SubmissionsandsurveysfromwithinDefenceweresought 232pages(Phase1report) $6.7millionwhichincluding$2.0millionforafollowupauditin12months.

Background
On11April2011,theDefenceMinisterannouncedthatMsElizabethBroderick,theSex DiscriminationCommissioner,wouldleadanexaminationofthetreatmentofwomenatthe AustralianDefenceForceAcademy(ADFA)andintheAustralianDefenceForce(ADF).This followedtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesofhimself andafemalecadetengagedinsex.

Scope
ThereviewwasaskedtoexaminethetreatmentofwomenatADFAandintheADFandto reviewtheprogressofexistingstrategiesidentifiedbytheChiefoftheDefenceForces WomensAdvisoryGroup.

Report
Thereviewusedqualitative(interviewsandmeetings)andquantitative(surveys)methodsto gatherinformation.Researchwasalsoundertakenintothetreatmentofwomeninforeign defenceforces.Phase1ofthereportwasreleasedon3November2011dealingwiththe treatmentofwomenatADFA.PhaseTwooftheReview,whichexaminesthetreatmentof womeninthewiderADF,isexpectedtobecompletedin2012.Thephase1reportmade31 recommendations,including; Asapriority,toaddresstheissueofisolationandtoincreasesupervisioninthe residentialsettingtheCommandantadoptasystembasedonamodelofResidential AdvisorsforeachfirstyearDivision(onemaleandonefemale)whowillliveinthe residentialblocktoprovideafterhourssupervision. ADFAteachequityanddiversityprinciplesascorevaluesunderpinningethical leadership. ADFA,incollaborationwithanexperteducator,providecadetswithinteractive educationon:sexualethics,respectfulandhealthyrelationships;themeaning, inappropriatenessandimpactofsexistlanguageandsexualharassment;the meaningofconsent;theappropriateuseoftechnology;andstalking,controllingand threateningbehaviours.

Outcomes DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thischapter).Ofthe31recommendationsofferedbythereview,allhavebeenagreedor agreedinprinciplebyDefence.ThePhase2reportwillbeconsideredinthecontextofthe PathwaytoChange. 211

Independent inquiry into the management of the so-called Skype incident at Australian Defence Force Academy
Dates: Duration: Leadauthor: Submissions: Report: Cost: April2011toDecember2011 8months Mr Andrew Kirkham QC nonesought unknown unknown

Background
InApril2011,followingtheSkypeincidentinwhichanADFAcadetallegedlybroadcast imagesofhimselfandafemalecadetengagedinsex,theDefenceMinisterannouncedthat ViceChiefoftheDefenceForcewouldappointaninquiryundertheDefence(Inquiry) Regulations1985intothemanagementoftheSkypeincidentanditsaftermath. Asidefromtheincidentitself,issueswereraisedinthemediasoonafterregarding: thelevelofsupportprovidedtothecadets,particularlythefemaleofficercadetin theaftermathoftheincident; subsequentallegationsofunacceptablebehaviouratADFA; ADFAsmanagementoftheincident,includingdisciplinarymattersrelatingtothe femaleofficercadet,andconcernedabsencewithoutleaveanduseofalcohol,being managedconcurrentlywiththeincident.

On9April2011,CommandantADFA,CommodoreKaferwasdirectedbyhisCommanding Officer,thethenViceChiefoftheDefenceForce(VCDF),totakeleavefromADFA.

Scope
TheinquiryexaminedthemanagementoftheSkypeincidentanditsaftermath.

Report
Althoughthereporthasnotbeenreleased,keyfindingandjudgementsweredisclosedina MinisterialPressReleaseon7March2012.Giventhesensitivityandcontroversy surroundingtheSkypeincident,itwouldbeinappropriatetotryandsummarisethose disclosures,apartfromnotingthattheinquiryfoundnolegalbasisforactionagainst CommodoreKafer. Theinterestedreadershouldconsult:
http://www.minister.defence.gov.au/2012/03/07/ministerfordefenceoutcomesofthekirkhaminquiry/

Outcomes BasedonthefindingsintheKirkhamInquiryreportandtheBroderickReport,theViceChief ofDefenceForcedeterminedthatCommodoreKafershouldresumehisdutiesas CommandantADFA.Thishasoccurred.

212

Review of the Management of Incidents and Complaints in Defence, including civil and military jurisdiction
Dates: Duration: Leadauthor: Submissions: Report: Cost: April2011toSeptember2011 5months MrGeoffEarley(InspectorGeneraloftheAustralianDefenceForce) Fourteenwrittensubmissions,primarilyinternaltoDefence,werereceived. 169pages $19,000

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.Thisisoneofthosereviews.

Scope
ThereviewwasaskedtoexaminethemanagementofincidentsandcomplaintsinDefence withspecificreferencetothetreatmentofvictims,transparencyofprocessesandthe jurisdictionalinterfacebetweenmilitaryandcivillaw,whichmayleadtountimelydecision makingprocesses.

Report
ThereportexaminesthearrangementsinplacewithinDefenceforthemanagementof incidentsandcomplaints,includingasurveyofearlierreviews,comparisonwithforeign armedservicesandextantADFpolicyandprocesses.

Keyconclusionsandrecommendations
Thereportmadethirtyeightrecommendations,including: TheproductionofauserfriendlyComplaintsandAlternateResolutionManual shouldbeexpeditedtocomplement,orreplaceifappropriate,existingdetailed guidanceprovidedbyDefenceInstructions. Fundingshouldbemadeavailableasamatterofprioritytocontractoutthetaskof reducingthecurrentgrievancebacklogofcasestosuitablyqualifiedlegalfirms. Inthelongerterm,competencybasedcomplaintshandlingtrainingshouldbe developedasapromotionprerequisite. Thepresentationofcomplexpolicyguidanceinstructionsshouldbesimplifiedto bettermeetthedifferingneedsoflikelyendusers. ThewayinwhichDefencerespondstomediacriticismofincidentreportingand managementshouldbereviewedtoprovide,whereappropriate,amorerobustand swiftrebuttalwithenhancedvisibilitytoADFpersonnel.

Outcomes
DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thisChapter).Ofthethirtyeightrecommendationsmade,allhavebeeneitheragreedor agreedinprinciplebyDefence. 213

Review of the Use of Alcohol in the ADF

Dates: Duration: Leadauthor: Submissions: Report: Cost: May2011toSeptember2011 5months
Professor Margaret Hamilton AO Chair of the Independent Advisory

Panel on Alcohol (Member of the Australian National Council on Drugs)

nonesought 163pages $153,000

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.Thisisoneofthosereviews.

Scope
advisetheADFoncurrentorganisationalcultureandindividualattitudestowardsalcohol; recommendevidencebasedpolicy,strategiesandprogramstominimisealcoholrelated harmandsupportculturalchangewithintheADF;andidentifyshort,mediumandlongterm goalsthatwillsupportasustainableADFAlcoholManagementStrategy.

Report
ThereportprovidesanextendedexaminationofuseofalcoholintheADF,includingasurvey ofacademicliteratureregardingalcoholuseinworkplaces.Fivespotlightanalyseswere undertaken:recruitmentandearlytraining;situationsofdrinking;deployment,including preparation,decompressionandpostdeployment;safetyanddiscipline;andinvolvement withhealthandsupportservices. Thereportmadeeightrecommendations: DevelopanoverarchingADFwidealcoholpolicyinconjunctionwiththe developmentoftheADFAlcoholManagementStrategy. Reducethesupplyandsaleofhigherstrengthalcoholproductspermittedtobesold ormadeavailableonADFlocationsandatADFfunctions. Adoptavisionandaplanforimplementationofalcoholharmreduction. Developanapproachtocollectingandrespondingtoalcoholrelateddata. Auditoftheavailabledataregardingthedeterminantsofthesupplyandavailability ofalcohol.Establishavalidandreliablereportingsystemforalcoholsales. DevelopawholeofDefenceAlcoholIncidentReportingSystem ExaminetheconsistencyandinterfacebetweenDefenceandState/Territorylaws regardingalcoholandrelatedlawenforcementpractices. Formalliancesandpartnershipswithotherorganisationsandindividualexpertson alcoholoutsideDefence.

Outcomes
DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thisChapter).TheeightrecommendationsoftheReviewofAlcoholuseinDefencehave eitherbeenagreed,oragreedinprinciple,byDefence.

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Review of Social Media and Defence

Dates: May2011toSeptember2011 Duration: 4months Leadauthor: MrRobHudson(HeadofDigital,SocialMediaconsultingcompanyGeorge PattersonY&R) Submissions: nonesought Report: 369pages Cost: $296,000

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.Thisisoneofthosereviews.

Scope
ThereviewwasaskedtoexamineDefence'sobligationsinrelationtotheuseofsocial mediabyitsemployeesandtheorganisation,andmakerecommendationstomitigate associatedrisksandtoharnessopportunitiestoimproveDefence'sworkandreputation.

Report
Thereportprovidesanexhaustivediscussionofthepractical,legal,policyandpublic relationsaspectsofsocialmediaandDefence.Ofparticularinterestisthechapteron managingsocialmediacrises.

Keyconclusionsandrecommendations
Thereportmadesevenrecommendations: EstablishaDigitalExecutiveOversightCommittee(DEOC)orsimilar. Reviewpoliciesrelatingtotheuseofsocialmedia,theinternetorcyberactivities. Reviewsocialmediatraininganditspriorityanddeliverytoensureconsistency. Humanandsoftwareresourcesshouldbedefinedandprovidedtosupportthe understandingandmanagementofsocialmediainDefence. Defenceshouldinvestigatethebenefitsofaligningcontentstrategiesacrossofficial socialmedia. DefenceshoulddevelopasocialmediacrisisplanthatalignswithexistingPR, marketingandbrandcommunicationplans. Defenceshouldmaintainitscurrentbranddirectionofpeoplefirstinitssocial mediaactivities.

Outcomes
DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thisChapter).ThesevenrecommendationsoftheReviewofSocialMediaandDefencehave beenagreedbyDefenceandarebeingimplemented.

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Review of the Personal Conduct of ADF Personnel

Dates: Duration: Leadauthor: Submissions: Report: Cost: April2011toAugust2011 4months
Major General C.W. Orme AM, CSC

nonesought 70pages Nil

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.Thisisoneofthosereviews.

Scope
ReviewthepersonalconductofAustralianDefenceForcepersonnel,withafocuson assessingtheAustralianDefenceForcescodesofconductandhowbehaviourmatches them.ThereviewwasalsoaskedtoreviewallpolicyandlegislationthatgovernsADF conductandidentifyopportunitiestostrengthenandclarifytheobligationsofADFmembers tobehaveappropriatelyatalltimes.

Report
Thereport,BeyondCompliance:Professionalism,trustandcapabilityintheAustralian professionofarms,providesaninterestinginsightintoADFthinkingmuchofthediscussion isaboutpublicperceptionsratherthanactualconduct.Thereportrecommended: Developanoperationsfocusedcultureunderpinnedbytheprofessionofarms construct,toprovideprofessionalfocusonbothServicesuccessaswellasan institutionalfocus,byarticulationoftheAustralianprofessionofarmsconcept. TheServicescontinuewiththeirprogramstoimproveavenuesofcommunicationfor memberstoreportconcerns,throughboththechainofcommandandalsothrough confidentialmethodsofreporting. DevelopastrategiccommunicationsprogrambasedontheAustralianprofessionof armsconstruct,communicatingthenatureoftheAustralianmilitaryprofession. Develop:(1)arevisedCommonoathofenlistment;(2)revisedcodesofconduct;(3) aprogramofprofessionalsocialisationandeducationinleadership,followershipand ethics;(4)revisedannualmandatorytrainingemphasisingADFculture. Sponsorscholarlyresearchtoinformpolicydevelopment,ProfessionalMilitary Education,anddoctrine,underthemanagementandoversightoftheAustralian DefenceCollege.

Outcomes
DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thisChapter).Therecommendationshaveeitherbeenagreed,oragreedinprinciple,by Defencewithtwoimportantcaveats;Defencedoesnotagreetotheconstructprofessionof armsortotheintroductionofspecificcodesofconductoroathofenlistment. 216

Review of Employment Pathways for APS Women in the Department of Defence

Dates: May2011toAugust2011 Duration: 3months Leadauthor: MsCarmelMcGregor(DeputyPublicServiceCommissioner)secondedto theDepartmentofDefenceforthereview. Submissions: Defenceinternalsubmissionstothereviewwererequested Report: 90pages Cost: $228,000

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.Thisisoneofthosereviews.

Scope
ThereviewwasaskedtoexaminepathwaysforwomenintheAustralianPublicService (APS)intheDefenceorganisationandrecommendmethodstoovercomeculturalbarriers, recommendmethodstoimproveleadershiprepresentationratesofwomenintheDefence APSandrecommendmethodstoimproveprogressionoutcomesforAPSwomenwithin overallAPSframeworks.

Report
Thereportpresentstheresultsofconsultation(includingfocusgroupsandfacetoface interviews),dataanalysisandliteratureresearch.

Keyconclusionsandrecommendations
Thereportmadetwentyrecommendations,including: Issueanexplicitstatementtoseniorleadersandstafftoreinforcetheimportanceof genderdiversitytobuildasustainableworkforce. Embedafocusonidentifyinganddevelopingwomenforleadershiproles,includinga facilitatedshadowingandcoachingcomponent,inthenewtalentmanagement system. Developastrategytoimproveworkplaceflexibility. DevelopabrandingandattractionstrategyforAPSrecruitmentthatpromotesthe varietyofAPSjobswithinDefence,andexplicitlypublicisesseniorAPSwomenas rolemodels. EstablishwomensnetworksacrossDefencewithSeniorExecutiveServicewomenin sponsorshiproles.

Outcomes
DefencehasformulatedaresponsetotheReviewsintoDefenceCultureentitledPathwayto Change:EvolvingDefenceCulture(anoverviewofDefencesresponseappearsattheendof thisChapter).Ofthetwentyrecommendationsmade,allhavebeenagreedbyDefenceand arebeingimplemented. 217

Review of allegations of sexual and other abuse in Defence

Dates: Duration: Leadauthor: Submissions: Report: Cost: April2011toApril2012(Phase1) 12months(Phase1) LawfirmDLAPiper Over1,000 13pages(redactedextractsfromPhase1report),Phase2pending Asat30April2012,$9.076m(Phase1)

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesofhimself andafemalecadetengagedinsex,theMinisterforDefenceannouncedthatanexternallaw firmwouldbeengagedtoreviewtheallegationsofsexualorotherformsofabusethatwere drawntotheattentionoftheMinistersoffice,aswellastoDefenceandthemedia followingtheADFAincident.

Scope
Phase1reviewedallallegationsofsexualorotherabuseandanyrelatedmatterstomakean initialassessmentofwhetherthemattersallegedhavebeenappropriatelymanagedandto recommendfurtheractiontotheMinister.Phase2willreviewDefencesprocessesfor assessing,investigatingandrespondingtoallegationsofsexualorotherformsofabuseto considerwithanysystemicissuesidentifiedinPhase1.

Report
Thereviewreceivedcommunicationsinrelationtoallegationsofpastabusefromover1,000 people.TheReviewidentifiedallegationsfrom775peoplewhichfellwithinitsTermsof Reference,someinvolvingmultipleincidents.Inapressrelease,theMinistersaidthatthe findings,issuesandrecommendationsareseriousandconcerning.Theyidentifyspecific andsystemicissuesrequiringfurtherconsiderationbyGovernment. Thephase1reportmadeaninitialassessmentoftheallegationsandconsideredoptionsfor resolvingthecomplaints.Atleasttenindividualrecommendationsweremadeinthephase1 report,ofwhichonlyeighthavebeenmadepublic.Amongotherthings,thereview recommendedthatasuiteofoptionsshouldbeadoptedtoprovidemeansforaffording reparationtopersonsaffectedbyabuseinDefencecomprising: publicapology/acknowledgements personalapology cappedcompensationscheme facilitatedmeetingbetweenvictimandperpetrator healthservicesandcounselling.

Outcomes
NextstepsarependingtheformulationofaGovernmentresponsetothePhase1report. Theinterestedreadershouldconsult: http://www.minister.defence.gov.au/2012/03/07/ministerfordefencereleaseofredacted extractsfromexecutivesummaryandfindingsofvolume1ofthedlapiperreport allegationsofsexualandotherabuseindefence/ 218

Review of the DCP 2011-12

Dates: Duration: Author: Submissions: Report: Cost: 201112 unknown ChiefofCapabilityDevelopment nopublicsubmissionscalledfor unknown unknown

Background
TheDefenceCapabilityPlan(DCP)isreviewedatleastonceandsometimestwiceayear.The lastfullupdatetotheplanwasreleasedinAugust2011.AsexplainedinChapter3ofthis Brief,theplanismanifestlyunachievable.ThisisunderstoodbyDefenceandamajorreview oftheplanhasbeenundertaken.Innormalcircumstances,theresultswouldhavebeen takentothegovernmentforapprovalandreleasedasanupdatedPublicDCPearlierthis year.However,uncertaintyinthecurrentfiscalenvironmenthaspreventedfinalisationof theplan.

Report
DefenceadvisethatarevisedPublicDCPcanbeexpectedsometimefollowingthe2012 Budget.

Review of the Defence Budget

Dates: Duration: Author: Submissions: Report: Cost: 201112 unknown ChiefFinancialOfficer nopublicsubmissionscalledfor unknown unknown

Background
Toquotetheannualreport:concernsthatDefencedidnotadequatelyforecastits expenditurefor201011,andthatconsequentlyDefenceunderspentitsfinancialallocation, resultedintheMinisterforDefenceannouncingaChiefFinanceOfficerledreviewof Defence'sbudgetestimatepracticesandprocesses.Thisreviewwillincludecapitalprograms andrunningcosts,anditisexpectedtoimproveDefence'sbudgetestimateprocessesin timeforthe201213Budget.

Report
Itisunknownwhether(butunlikelythat)thereportwillbereleased.

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Inquiry into allegations of inappropriate vetting practices in the Defence Security Authority and related matters
Dates: Duration: Author: Submissions: Report: Cost: May2011toFebruary2012 9months DrVivienneThom(InspectorGeneralofIntelligenceandSecurity) nopublicsubmissionscalledfor 64pages Unknown

Background
On16May2011,allegationswereairedontheABCLatelineprogramaboutinappropriate securityvettingpracticesattheDefenceSecurityAuthoritysvettingcentreinBrisbane. FollowinganinitialinvestigationbytheInspectorGeneralofDefence,thematterwas referredtotheindependentInspectorGeneralofIntelligenceandSecurity(IGIS)on27May. Allegationsaboutpoorsecurityprocesseshadariseninanearlier(JunetoSeptember2010) internalenquirybutwerenotfollowedupbytheDefenceSecurityAuthority.

Scope
Theallegationsofinappropriatesecurityvettingpracticesandrelatedmatters.

Report
Theinvestigationconfirmedthesubstanceoftheallegations;incorrectdatahadbeen insertedintothesecurityvettingprocess.Eightcontributingfactorswereidentified;delayed andinadequatesystemsupgrades,inadequateformaldocumentationandmanuals, inadequatetrainingforcontractorsandAPSstaff,theuseofdelegateswhohadnot completedformalqualifications,poorsystemsandprocesschangemanagement,inadequate qualityassurance,inadequatemanagementoversightandcontractualarrangements, sustainedpressureforoutputfollowingincreasesindemand.Thereviewfoundnoevidence thatstaffhadimpropermotiveswhenmodifyingdataorhadattemptedtosubvertor misleadthesecurityclearanceprocess.

Recommendations
AtotalofthirteenrecommendationsweremadebytheReviewregardingprocesses, qualifications,resourcing,informationsystemcompatibility,contractoroversight,change managementandperiodicreview.ItwasalsorecommendedthatDefencewritetothethree Latelinecomplainantsandacknowledgethattheirallegationsinrespectofdataentrywere true.

Outcomes
TheGovernmentacceptedallofthereportsrecommendationsandimplementationis underway.InFebruary2012,itwasestimatedthatfullimplementationwouldtakebetween eighteenandtwentyfourmonths.TheSecretaryofDefencehaswrittentocomplainants andacknowledgedtheirallegationsinrespectofdataentryweretrue.AsatFebruary2012, 3,100highlevelsecurityclearanceshavebeenvalidatedofaround5,300applicationsmade duringtheperiodoftheinappropriateworkpractices.

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Independent Review of the Potential for Enhanced Cruise Ship Access to Garden Island Sydney
Dates: Duration: Author: Submissions: Report: Cost: June2011toMarch2012 9months DrAllanHawkeAC(formerSecretaryoftheDepartmentofDefence) 27submissionsfromgovernmentandprivatestakeholders. 165pages $192,140

Background
Ananalysisofgrowthinthecruiseshippingindustry,commissionedbytheNSWMinisterfor PlanninginMay2009,identifiedemergingcapacityissuesforlargecruisevesselsthatcannot fitunderSydneyHarbourBridge.Becausetherearenonewviableberthinglocationseastof theBridge,itwassuggestedthatcontinuedoccasionaluseofGardenIslandbylargecruise linersunabletofitundertheHarbourBridgebeconsidered.InJune2011,theDefence Ministercommissionedanindependentreviewintothematter.

Scope
ToassesswhetherthereisscopetoenhancecruiseshipaccesstoGardenIslandwithout adverselyimpactingNavymaritimeoperations.

Report
Thereportprovides(1)anorderlyexaminationofthecompetingstrategicandcommercial imperativesfortheuseofGardenIslandand(2)adetailedexaminationoftheoptionsfor enhancedaccessbycruiseships.

Keyconclusionsandrecommendations
Toquotefromthepressreleaseaccompanyingthereleaseofthereport:TheReviewfound thatcurrentandfutureNavycapabilityrequirementsofGardenIslandareessentially incompatiblewithcruiseshipaccessoverthelongterm,exceptontheexistingbasis,where alimitednumberofrequestsforberthbookingsisconsideredbyNavybasedonextended noticeandlimitedvisitsperyear. Forthemediumterm,thereviewsuggestedthatanadditionalmooringpostattheOverseas PassengerTerminal(OPT)couldhelpmeetthecruiseindustrysrequirements..This additionalmooringpost/dolphinhasbeeninstalled.Forthelongerterm,thereview identifiedfiveoptionsrequiringsignificantinvestment,including: dispersingcruiseshipoperationstotheOPT,AtholBayandPortBotany creatingspaceatGardenIslandforcruiseshipsbycreatingnewNavywharfage;to theeastofGardenIsland,atGlebeIslandand/orWhiteBay,oroutsideofSydney.

Outcomes
TheDefenceMinisterannouncedthatthereportoftheGardenIslandReviewwillbe consideredbyGovernmentinthecontextofthefinalreportoftheForcePostureReview, andthatboththeGardenIslandReviewandtheForcePostureReviewreportwillfeedinto thenextDefenceWhitePaper. 221

Force Structure Review 2013

Dates: Duration: Author: Submissions: Report: Cost: March2012toearly2013 tba MajorGeneralMichaelCraneAM,DSC nonesought tba Unknown

Background
Thegovernments2009DefenceWhitePaperintroducedafiveyearplanningcycleinvolving astrategicassessment,budgetaudit,ForceStructureReview(FSR)andWhitePaper.Tothis end,aFSRwascommissionedwithinDefencewiththegoalofcontributingtotheplanned 2014WhitePaper.However,inMay2012thegovernmentannouncedthattheWhitePaper wouldbebroughtforwardtothefirsthalfof2013.Onpastprecedents,thereportwillnot bemadepublic.

Scope
InapublicpresentationtotheRoyalUnitedServicesInstituteofWAinMarch2012(priorto theannouncementofa2013DefenceWhitePaper)theheadofthereview,MajorGeneral Crane,outlinedthescopethenenvisaged. Atthattime,itwasbeingassumedthatthefundamentalsofourstrategiccircumstances haventchangedgreatlyand,accordingly,anentirelycleansheetreviewwasnot envisaged.Consistentwiththis,theFSRplannedtoconsiderwhetheranyforcestructure adjustmentsarenecessaryasaresultofwhathaschangedinourcircumstancessince 2009andrunaruleroverForce2030tocheckthatitwilldeliveracoherentADFthatworks asitisintendedto.Thefocuswastobeonrefiningtheplannedfutureforce.Thiswill includecheckingthattherequiredenablersandFundamentalInputstoCapability,suchas personnel,facilitiesandsoon,areorwillbeinplace. Giventherecentfundingcutsandannouncementofanacceleratedscheduleforthenext WhitePaper,itispossiblethatthescopeoftheFSRhasbroadened.

Australian Defence Force Posture Review

Dates:June2011toMarch2012 Duration:10months Authors:AllanHawkeACandRicSmithAOPSM(formerSecretariesofDefence) Submissions:34publicsubmissionsreceived Report:64pages,30March2012 Cost:Unknown

Background
Thegenesisofthereviewremainsunclear.Andalthoughitsrationaleisclearlyexplainedin itstermsofreference,theannouncementofthereviewinJune2011surprisedmany observers.However,itisknownthatanAustraliaUnitedStatesForceStructureWorking

222

GrouphasbeenunderwaysinceJune2010intandemwiththeUSGlobalForcePosture Review.

Scope
ThereviewwastaskedexaminedthedispositionoftheADFinlightofthechangingstrategic, economicandsecuritylandscape.Morebroadly,theReviewalsoexaminedlogisticssupport requirements,trainingareasforlargescaleandjointtrainingexercises,demographicand economicfactors,publiccommunicationsstrategies,andengagementwithindustry, particularlythemineralsandpetroleumresourcesindustriesinAustraliasNorthandWest.

Report
AprogressreportwasdeliveredtothegovernmentinDecember2011andthefinalreportin March2012.Itfoundthatthattherewasnopressingneedtochangethelocationofthe ADF'sbases,althoughchangeswereneededtoincreasethecapacityofbases,facilitiesand trainingareas,especiallyinthenorthandwestofthecountry,tofacilitateahigher operationaltempo'inNorthernAustraliaandourapproaches,theimmediate neighbourhoodandthewiderAsiaPacificregion'.ItfoundthattheADFposturemust supportoperationsinAustraliasNorthernapproaches,disasterreliefandhumanitarian assistanceoperationsinourneighbourhood,stabilisationoperationsintheSouthPacificand EastTimorandenhancedcooperationwiththeUSandregionalpartners. Thereportnotedanumberofsignificanttrends,bothinternalandexternaltotheADF,that impactontheADF'sforceposture.Attheharderendofmilitaryoperations,thereport observedthatAsiaPacificmilitarymodernisationhasimplicationsforAustralia'scapability edgeandrepresentsapotentialthreattotheADF'sbasesandlogisticschains.Italso observeddemographicandeconomictrendsthataretransferringeconomicweighttothe northwest,wheretheADFdoesnothaveanextensivepermanentpresence.It recommendedamorevisibleADFpresenceinthearea,butsaidthat'potentialthreatsto Australiasresourceandenergyinterestsshouldnotbeexaggerated'. TheADF'sJointamphibiouscapabilitywasenvisagedashavingatransformationaleffecton Navy,ArmyandtheADFgenerally,drivingforcepostureconsiderations.

Keyconclusions,recommendationsandoutcomes
Thereviewmadeatotalof39recommendations,includinganupgradetoRAAFLearmonth (Exmouth,WA),enhancementstoportfacilitiesatBroome,anupgradetotheCocos (Keeling)Islandsairfieldtosupportmilitaryaircraftoperations,planningforanavalbasein Brisbanefortheamphibiousandfuturesubmarinefleets,upgradestofacilitiesatFremantle forfutureRANandmoreusebyUSNavyassets,theconsiderationofhardeningand resilienceimprovementsatforwardmainbasesandbarebasesandatleastoneadditional allseasontrainingarea. Onreleaseofthereport,theMinisterforDefencesaidthatthe'reportwillnowformpart ofthesecurityandstrategicconsiderationsfeedingintothe2013DefenceWhitePaper'.

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Submarine Sustainment Review

Dates: Duration: Author: Submissions: Report: Cost: August2011to 8months JohnColes(independentexpertfromBMTDefenceServicesintheUK) nonesought 49pages(Phase1report)finalreportdueinApril2012 Unknown

Background
Formanyyears,theCollinsclasssubmarinefleethassufferedfrompooravailabilityand costlymaintenance.InAugust2011,thegovernmentreleasedthetermsofreferenceforan independentreviewofsubmarinesustainmentbyUKexpertJohnColes.From1997to2005, MrColeswasChiefExecutiveoftheUnitedKingdomsWarshipSupportAgency,whichis responsibleforthemaintenanceandrepairofallRoyalNavysubmarines,ships,and auxiliaries.

Scope
ThereviewwillprovideaplantoimprovetherepairandmanagementoftheRANsubmarine fleet.

Report
ThePhase1reportwasreleasedinDecember2011.Thefinalreportispending.

Keyconclusionsandrecommendations
ThePhase1reportidentified(largelyverbatim): pooravailabilitycausedbyacrewshortfall,lackofsparesandunreliableequipment alackofcohesioninstrategicleadership governmentagenciesandindustrynotworkingcollectivelyasanenterprise alackofclarityaroundaccountability,authorityandresponsibility submarineknowledgethinlyspread lackofrobustnessofNavyscontributiontomanningandsustainment nolongtermstrategicplanforefficientuseofassets DMOseekingdirectinvolvementatthetacticallevel unclearrequirementandunrealisticgoals aperformancebasedethosnotbeingembeddedinASC andnolongtermstrategicplanforefficientassetutilisation. Interimrecommendationsweremaderegarding(paraphrasing): properlyresourcingtheprovisionofspares tightergovernanceofreductionstosubmarineavailability proceedingwithanewInServiceSupportContactbetweenDMOandASC betteroversightofdefectclassificationandmanagement industryandengineeringfamiliarisationforseniorcrewmembers.

Outcomes
Theimplementationoftheinterimrecommendationshascommenced. 224

Study into alternative crewing for Navy support ships

Dates: Duration: Authors: Submissions: Report: Cost: December2011toJune12 5months RearAdmiralDavydThomasRANR nonesought inprogress approximately$130,000

Background
TheMinisterDefenceandMinisterforDefenceMaterielannouncedastudyintoalternative crewingstrategiesforNavysupportshipsinDecember2011.Thestudywasmotivatedby therapidprocurementofHMASChoulesandtheconsequentdifficultiesNavywillhavein crewingtheamphibiousforceandothershipsduringtransitiontothenewLanding HelicopterDock(LHD)ships.

Scope
Themediareleasesaid: NavywillworkwithotherFederalagenciesandAustraliasmaritimeindustrytoexaminethe feasibilityofalternatecrewingoptionstobetterutiliseNavysuniformedworkforceandtake advantageofskillsandexperienceinthecivilianshippingindustry. Thisreviewwillexaminetheviabilityofcrewingsomeofourvesselswithamixofcivilianand militaryorevenallciviliancrews. SuchcrewingarrangementsalreadyoperatesuccessfullyintheRoyalNavyintheUnited KingdomandacrosstheUnitedStatesGovernmentsTransportCommandinsupportofthe UnitedStatesNavy. ThesealternatearrangementscouldapplytoselectedsupportshipssuchasHMASChoules oncethefirstCanberraClassLandingHelicopterDockhasbeendelivered,andtheNavys auxiliarytanker,HMASSirius. ItwillnotapplytoNavyswarships,includingfrigates,AirWarfareDestroyers,Landing HelicopterDocksandpatrolboats. ThestudymayalsoprovideacomplementarystrategytoreinvigorateAustraliasmerchant shippingindustry.ThisisinlinewiththeseriesofreformsannouncedbytheMinisterfor InfrastructureandTransport,AnthonyAlbanese,onFriday9September2011,underthe GovernmentinitiativeStrongerShippingforaStrongerAustralia.

Developments
InMarch2012,theMinisterforDefenceannouncedthatthenewlypurchased6,500tonne amphibioussupportvesselSkandiBergenwouldbecrewedunderaciviliancrewing arrangement.ThevesselwillremainwithinDefenceserviceuntilthearrivalofthefirst purposebuiltLandingHelicopterDock(LHD)middecade,atwhichpointitwillbehanded overtotheAustralianCustomsService. 225

Pathway to Change: Evolving Defence Culture

A Strategy for Cultural Change and Reinforcement Date: Author: Report: Cost: publishedMarch2012 TheDefenceCommittee 58pages unknown

Background
FollowingtheSkypeincident,inwhichanADFAcadetallegedlybroadcastimagesof himselfandafemalecadetengagedinsex,theMinisterforDefencecommissionedaseries offivereviewsintoDefenceculture.ThisistheDepartmentofDefencesresponsetothose reviews.

Astrategyforchange
PathwaytoChangeoutlinesafiveyearstrategytoevolveDefenceculture.Thedocument saysthatDefencesculturalintentis: Wearetrustedtodefend,proventodeliver,respectfulalways. Inadditiontothe109specificrecommendationscontainedinthereportsoftheDefence culturereviewsand30otherpiecesofadviceorrecommendationsfromtheReviewofthe DefenceAccountabilityFrameworkandtheReviewofSharedServices(allofwhichare containedinanannextothedocument),PathwaytoChangeidentifiesfifteenkeyactionsto betaken: 1.Alignseniorleadership(allColonelequivalentandExecutiveLevel(EL)2andabove) behaviourandmodellingwiththePathwaytoChange. 2.Overafiveyearperiod,increasediversitywithinleadershipgroups. 3.FullyimplementtheReviewoftheDefenceAccountabilityFrameworkplanningand accountabilitymechanismsthatsupportefficientinternalcollaborationandeffectivedelivery ofreforms. 4.AllColonel/EL2equivalentandabovetoworkwithjointeryandintegrationastheirprime decisionmakinglens(ratherthanGrouporServicespecific). ReissuetheSecretaryandCDFguidanceontheintegratedADFcareer managementprocessforallstarrankandSESpromotions. Inprinciple,managepositiontenuresothatstaffstayinrolesforthetimerequired toassuremaximumexpertiseandsustainedaccountabilityfordeliveryofjointand complexintegratedgrouproles. 5.ConductDefencewidediscussiononvaluesandbehaviourstobettercapturethespiritand theletteroftheReviews'recommendations,thedifferencesinthethreeServicesandAPS, andDefence'soverarchingculturalintent. 6.Ensurethatalleducationandtrainingprogramsareinformedbytheagreedvaluesand behaviours. 226

7.Reviewourcommunicationstrategy,includingsocialmediastrategy,tocommunicatethe PathwaytoChangeandhighlightitsrelevancetobroaderreformefforts. 8.FullyimplementagreedADFAreforms. 9.ApplyprinciplesofADFAreformstoallnewstartertrainingandinstitutesacrossDefence. 10.Implementagreedpeoplemanagement,work,performanceandpolicymeasuresthat underpinreformobjectives. 11.Reconfigurethelivingenvironment,facilitiesandconditionsinlinewiththePathwayto Changeculturalintent. 12.Addressthebacklogofgrievances,andsimplifyresponsestoandmanagementof unacceptablebehaviourtomakecorrectiveprocessesfasterandmoretransparent. 13.Implementstaffing,structuresandreviewprocessesthatenablethePathwaytoChange. 14.Developsupportingpoliciestoensurefullimplementationofrecommendationsfrom independentculturereviewsandassociatedreforms. 15.Establishresearchanddatacollectionprocessestoinformongoingdevelopmentand implementationofthePathwaytoChange.

Assessment
Itiseasytobescepticalaboutculturalchangeprograms,butitappearsthatDefenceis seriousaboutcreatingacultureconsistentwiththeirstatedintent.Accountabilityfor specificinitiativeshasbeenassignedandatimetableset.Also,itsworthrememberingthat manyoftheinitiativesreflectthethoughtfulworkandexpertadviceofthevariousreviews undertakenoverthepastyear. Butspareathoughtforthosepoorsoulswhonowhavetoimplementthisstrategyandall therecommendationsarisingfromtheindividualculturalreviews.Thedegreeof prescriptionintherecommendationsofsomeofthereportswashigh.Moregenerally,itis unavoidablethatnarrowlyfocusedreviews(suchasthoseintoDefenceculture)willmake recommendationswithouttakingintoaccounttheopportunitycosttheyimposeonother activities.Naturally,toanexpertundertakinganindepthreviewtheirsisthemostcritical andimportantareaofall.TheriskisnotjustthatDefencewillfinditselfchurningthrough thebutcherspaperinnavelgazingworkshops,butthatthecumulativeadditionalburdenof reporting,recording,monitoring,trainingetc.willimposecoststhatoutweighthebenefits.

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228

Chapter 9: Selected Defence Projects

TheDefencePBSliststhetop30projectsbyexpenditureforthefinancialyear.Foreach,the approvedprojectexpenditure,cumulativeexpendituretodateandinyearexpenditurearegiven alongwithasuccinctstatusreport(see201213PBSVol2,DMO,p.153156).Projectslistedinprior PBSaresimilarlyreportedon(seePBSp.167173).TheDefenceAnnualReportincludessimilar informationalongwithanexplanationofexpenditureapprovalvariationsforeachproject(see 201011DARVolume2,DMO,p.4650). PerhapsbecauseofthebrevityofthestatusreportsinthePBSandAnnualReport,pertinent informationissometimesomittedwiththeresultthatalessthanfullpictureemerges.Toredress thisproblem,weveproducedannotatedversionsofthestatusreportsforselectedprojectsthat attempttofillinsomeofthekeygaps.Thishasproventobeadifficulttaskbecauseoftheneedto searchforinformationinolddocuments,pressreleasesandspeeches. Amongotherthings,wehavegonebacktofindouttheoriginalschedule,goalandcostforeach projects,bothatinitialconceptionandatthemilestoneofgovernmentapproval.Intheformercase, wevelimitedourarchaeologicaldiggingtonoearlierthanthetargetssetinthe2000DefenceWhite Paperand2001PublicDefenceCapabilityPlan.Todootherwisewouldbeastimeconsumingtous asitwouldbeembarrassingtoDefencesplanningstaff. Ratherthanstrictlykeeptothecurrenttop30projectslistedinthisyearsPBS,weveselectedsome thatwethinkarethemostimportantandinterestingofthosefromrecentyears,seeTable9.2.This makessensebecauseitspossiblethatahighlytroubledprojectwillnotmakethetop30forthe simplereasonthatprogressisstalledandveryfewdollarsarebeingexpended.Aswell,insome instanceswe'veselectedprojectsbecausetheyrepresentimportantcapabilitiesorarepertinenttoa discussionofthisyears'budget.Tohelpunderstandthemyriadoftermsandfiguresthatmakeup thelinguafrancaofdefenceprojects,alexiconisprovidedinTable9.1. Table9.1:Defenceprojectnomenclature
DefenceCapabilityPlan(DCP) Firstpassapproval Secondpassapproval Approvedexpenditure(July2011) Realcostincreases(scope) Realcostincreases(transfer) Realcostincreases(other) InitialplannedIOC IOCattimeofapproval CurrentIOC DelaytoIOC Initialprojectcostestimate Thepubliclistingofdefenceprojectspendingapproval.Firstpublishedin2001. Theinitialapprovalofaprojectallowingoptionstobedeveloped. Thefinalapprovalofaprojectallowingacquisitiontoproceed. TheapprovedexpenditureasgiveninthelastrelevantDefenceAnnualReport Costchangesduetochangesinthenumberandtypesofequipmentincluded. Transfersfrom/tootherprojectsandpartsofDefence(e.g.facilities) Costincreasesduetootherthanscopeandtransfers(e.g.costoverruns) TheinitialtargetdateforfieldinganinitialoperationalcapabilitygiveninDCP. ThetargetdateforfieldinganIOCatthetimeofsecondpassapproval. LatesttargetdateforfieldinganIOC. currentIOCminusIOCattimeofapproval TheinitialcostestimategivenintheDCP.

229

Table9.2:ASPI20selectedprojects
Project #
AIR 5077 Phase 3 AIR 5276 Phase 8B AIR 5333 AIR 5349 Phase 1 & 2 AIR 5376 Phase 2 AIR 5376 Phase 3.2 AIR 5402 AIR 6000 Phase 2A/2B AIR 8000 Phase 3/4 AIR 9000 Phase 2 JP 2048 Phase 4A/4B JP 2070 Phase 2 LAND 17 Phase 1A LAND 106 LAND 116 Phase 3 SEA 1390 Phase 4B SEA 1439 Phase 3 SEA 1439 Phase 4A SEA 1448 Phase 2B SEA 4000 Phase 3

Name
Airborne Early Warning and Control Aircraft AP-3C Electronic Support Measure Upgrade New Air Defence Command and Control Systems Bridging Air Combat Capability F/A-18 Hornet Upgrade Hornet Structural Refurbishment Program Stage 2 Air to Air Refuelling Capability Joint Strike Fighter Aircraft C-17 Globemaster III Multi Role Helicopter Amphibious Deployment and Sustainment Lightweight Torpedo Replacement Artillery Replacement 155mm Howitzer Upgrade of M113 Armoured Personnel Carrier Bushmaster Protected Mobility Vehicle Standard Missile Replacement Collins Class Submarine Reliability and Sustainability Collins Replacement Combat System Anzac Ship Anti-Ship Missile Defence Air Warfare Destroyer Build

Approval
Dec 1997 Sep 2004 Nov 1992 Mar 2007 Apr 1998 Jan 2004 July 2003 Apr 2010 Mar 2006 Apr 2004 Jun 2007 Jul 2001 Nov 2009 Nov 1993 Nov 1998 Sep 2004 Sep 2000 Jan 2003 Nov 2005 Jun 2007

230

AirborneEarlyWarningandControlAircraft(AIR5077Phase3)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: n/a n/a n/a n/a pre2000 Dec1997 n/a Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213 289**

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m Planned expenditure Actual expenditure Difference

3,857 266 619 215

200304 200405

3,837 3,286 289 Nov2006 201213 >68months n/a 2,170 n/a

200102

200203

238 233 5

404 567 163

516 528 12

462 518 56

296 373 77

439 58 381

160 43 117

68 17 51

97 268 171

385 176 209

401 313* 88*

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS AirborneEarlyWarningandControlAircraftAIR5077Phase3 PrimeContractor:Boeing(UnitedStates) Thisphase,referredtoasProjectWedgetail,willprovidetheADFwithanAirborneEarlyWarningandControl(AEW&C) capabilitycomprisingsixaircraftandassociatedsuppliesandsupport.[A] ProjectWedgetailisbeingmanagedasaProjectofConcernduetothesignificantscheduleslippageandtechnicalrisksthat havebeenencounteredinthedeliveryofthiscapability.[B]Ongoingissueswithsubsystemtechnicalmaturityand integratedsystemperformancehaveresultedinBoeingnotmeetingthereviseddeliverydatesofDecember2010and subsequentlyMarch2012.Boeingnowplanstodeliverthefirstaircraftinitsfinaloperatingconfigurationinmid2012. During201213,thisprojectwilldeliverthefinaloperatingconfigurationsforthesixaircraftandassociatedgroundsupport systems.Theprojectwillalsodeliverthefinalelementsofthelogisticssupportrequirementsbymid2013.[C]

Source:201213PBS Thekeyriskforthisprojectiscompletionofthetestandevaluationprogram.[D] Scope changes post approval: the number of aircraft was increased from four to six in June 2004 because A Defencehadorderedsixradarunitsintheinitialprocurement. Problemsincludedintegrationoftheradars,stabilityofthemissionsystemsoftware,integrationofthe B communicationsandelectronicwarfaresuites.Thelastsignificantproblemwastheintegrationofthe ElectronicSupportMeasuressystemwiththeairframeandothermissionsystems. InJanuary2010theCommonwealthandBoeingsignedafiveyear,$800millionInServiceSupportcontract, C whichcoversthemaintenanceandsupportofthesixaircraftaswellasongoingdevelopmentworkbyBoeing andNorthropGrummantoachievethefull,contractedradarperformance. The timeframe for the test and evaluation program has been reset at least twice in the past three years, D suggestingthatthedifficultywasinitiallyunderestimated. WedgetailhasbeenalonganddifficultprogramforboththeCommonwealthandthePrimeContractor.Apart fromthenegotiatedscopechangeandassociatedincreaseintheapprovedexpenditure,theconsiderablecost ASPI overrunsthathavebeenexperiencedhavemostlyfallenuponBoeingduetothecontractualarrangements.In Comment essence,thiswasanR&Dprojectthatthecontractoragreedtodeliveragainstafixedpriceamistakethatis unlikelytoberepeated.
Ministeratapproval:IanMcLachlan Acquisitionstrategy:Commercialacquisitionfromprimecontractor

231

AP3CElectronicSupportMeasureUpgrade(AIR5276Phase8B)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a 200405 Sep2004 nil Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

114 0 0 0

200304 200405

130 74 13 20072009 Dec2010 May2013 29months 75100 114 >14

200102

200203

Planned expenditure Actual expenditure Difference

31 9 22

47 49 2

63 44 19

40 44 4

26.6

24

41

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

AIR5276Phase8BAP3CElectronicSupportMeasureUpgrade[A] Primecontractor:BAESystemsAustralia. AIR5276Phase8BcommencedformalFactoryAcceptanceTestingandprototypeaircraftmodificationasscheduledin February2012.Followingcompletionoftheseactivitiesinmid2012,acomprehensiveaircraftgroundandflighttest programwillbeundertaken,culminatingindeliveryofthefirstupgradedaircraftbylate2013.[B] InadditiontointroductionintoserviceofthefirstmodifiedAP3COrionaircraft,modificationofthesupportingground systemsandsimulatorswillcommenceinearly2013,withcompletionforecastlate2013.Thisprojectisbeingmanagedas aProjectofConcern.[C] Source:201213PBS ThisphaseispartofawiderprojectintendedtoupgradetheAirForceAP3COrionmaritimepatrolaircraft. In2005theANAOnotedthatmajoraimsoftheprojectwereto'contributetothelifeextensionto2015of A theaircraftfleet,largelythroughasignificantreductionintheweightoftheoperationalaircraft'and' enhancetheaircraft'smilitarycapabilities'. The remaining phases of AIR 5276 and some minor project work have been consolidated into the AP3C CapabilityAssuranceprogram,designedtokeepthefleetoperationallyeffectiveuntilitsretirement.In2011 B theplanneddateforwithdrawalwas2019,buttheannouncementinthebudgetofadelaytotheacquisition ofreplacementP8aircraftmayseethatdateextendedintotheearly2020s. ThisprojectwasaddedtothelistinOctober2010.The201112AdditionalEstimatesmakesthefollowing observations:AIR5276Phase8BremainsontheProjectsofConcernlist,duetopoorcontractorperformance C againsttheprojectschedule.ArevisedcontractbaselineforaMarch2013deliverywasapprovedin November2011.Takingintoconsiderationtheongoingriskoffurtherdelay,Defencehascommittedto deliverbyDecember2013.Theprototypeaircraftisexpectedtoentermodificationinearly2012. LiketheFFGupgrade,thisprojecthasdemonstratedthedifficultyofmajorupgradestoageingplatforms.If ASPI theoriginalwithdrawalfromservicedateof2015wasmaintained,thereturnoninvestmentwouldhavebeen comment poor.Asitis,externalitiesmakethisupgradeprogrammorecosteffective. Ministeratapproval:RobertHill Acquisitionstrategy:Commercialacquisition

232

NewAirDefenceCommandandControlSystems(AIR5333)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):
$m 200102 200203 200304

2001 n/a n/a n/a pre2000 Nov1992 n/a 274 117 23 0

200405

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

274 246 2 n/a Dec2007 Mid2011 41months 150200 165 0

201112 201213

200506

Planned expenditure Actual expenditure Difference

38 24

51 27

32 10

32 9

27 63

27 19

34 34 0

30

14 24 22 23 36 8 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

NewAirDefenceCommandandControlSystemsAIR5333 Primecontractor:BoeingAustraliaLtd AIR 5333 (Project Vigilare) has replaced the Air Defence Command and Control System with new systems at Northern RegionalOperationsCentreandEasternRegionalOperationsCentre.ThePrimeContractorforAIR5333isBoeingDefence AustraliaLtd.[A]OutsidethemaincontractwithBoeing,theprojecthasalsodesignedanddeliveredanintegratedADFAir Defence System communications network. The Vigilare capability represents a highly networked command and control capability for the RAAF combining surveillance, airspace battle management and provision of the RecognisedAir Picture (RAP)tohigherDefenceheadquarters.TheRAPcombinesdataandinformationfromover250sourcesinnearrealtime. The Vigilare capability includes integrated voice and data communications across security domains and a sophisticated implementationoftacticaldatalinks,includingLink11andLink16.[B] During201213,thisprojectwilloverseetheremediationofnoiserelatedissuesinkeyVigilareequipment,whichwillallow theprojecttoprogresstoFinalOperatingCapabilityandprojectclosure,plannedforlate2012.[C] Source:201213PBS After its initial approval a contract was signed with ADI in 1993, only to be terminated and retendered in 1996.BoeingAustraliawasnamedpreferredtendererin1998,butitwas2004beforeacontractwassigned. A During this period the scope was increased in August 2003 to incorporate command and control for air defence. The difficulties of integrating a wide variety of disparate data sources and communications interfaces B requiredmadeasignificantcontributiontothescheduledelayswithProjectVigilare. Vigilare has been a Top 30 project in terms of expenditure in recent years, but is now moving towards its C conclusion, with only a modest expenditure expected this FY before the project is formally closed late in 2012.ItwasontheProjectsofConcernlistfrom2008toJune2011. Theprojectwasbesetwithdelaysfromthestartandtodayallpartiesinvolvedhaveacknowledgedthatthey ASPI initially underestimated the effort required to complete the project; the rampup of Commonwealth and comments contractorstaffwasslow;deliveryofsomeGovernmentFurnishedaspectsoftheprojectwasslow,andsub contractorsweredelayedbytheslowflowdownofrequirementsfromtheprimecontractor. Ministeratapproval:RobertRay Acquisitionstrategy:Commercialsale

233

BridgingAirCombatCapability(AIR5349Phase1)
FirstmentioninDCP: n/a Initialplannedfirstpass: n/a Actualdateoffirstpass: Mar2007 Delaytofirstpass: n/a Initialplannedsecondpass: n/a Actualdateofsecondpass: Mar2007 Delaytosecondpass: n/a Approvedexpenditure(July2011) 3,296 Realcostincreases(scope): 0 Realcostincreases(transfer): 132 Realcostincreases(e.g.costoverrun): 107
$m 200102 200203 200304 200405

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

3,275 2,699 49 n/a Dec2010 Dec2010 none n/a 3,546 n/a

201112 201213

200506

Planned expenditure Actual expenditure Difference

55

548 285

564 935

1401 965

493 365 128

177 108* 69*

49**

263 371 436 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

BridgingAirCombatCapabilityAIR5349Phase1 PrimeContractor:Boeing,throughaForeignMilitarySalescasewiththeUnitedStatesNavy Phase1oftheprojectacquiredanddelivered24F/A18FBlockIISuperHornetmultiroleaircraftandassociatedsupport systemsandservices.[A]ThisaircombatcapabilitywillbemaintainedthroughtothetransitiontotheF35JointStrike Fighter.[B] During201213,theprojectwilldeliverallremainingelementsoftheaircraftmissionandsupportsystems,alongwitha numberofsoftwareupdates,toachieveFinalOperationalCapabilityscheduledforlate2012.[C] Therearenokeyrisksidentifiedfor201213astheprojectisnearcompletion. Source:201213PBS A B Twelveoftheaircraftwereconfiguredas'F+'models,allowingupgradelatertotheEF18Gelectronicwarfare configurationifdesired. ThereisnopublicstatementoftheplannedwithdrawalfromservicedatefortheSuperHornetfleet.They willpresumablyservealongsidetheF35forsomeperiod,especiallyiftheconversionof12aircrafttotheG configurationproceeds. TheInitialOperationalCapabilitywasachievedonscheduleinDecember2010. On schedule and under budget (although some of the variation apparent in the figures above is due to foreignexchangevariations),thisofftheshelfacquisitionhasbeensuccessfulbyanymeasure.

ASPI Comment Ministeratapproval:BrendanNelson Acquisitionstrategy:USGForeignMilitarySalesProgram

234

F/A18HornetUpgrade(AIR5376Phase2)
FirstmentioninDCP: 2001 Initialplannedfirstpass: n/a Actualdateoffirstpass: n/a Delaytofirstpass: n/a Initialplannedsecondpass: pre2000 Actualdateofsecondpass: April1998 Delaytosecondpass: n/a Approvedexpenditure(July2011) 1,971 Realcostincreases(scope): 223 Realcostincreases(transfer): 34 Realcostincreases(e.g.costoverrun): 3
$m 200102 200203 200304 200405

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

1,877 1,614 25 n/a Nov2009 Aug2011 21 n/a 1,300 n/a

201112 201213

200506

Planned expenditure Actual expenditure Difference

166 195

222 194

125 81

134 175

183 154

210 165

110 149

125 96

159 118

107 70 37

90 151* 61*

25**

29 28 44 41 29 45 39 29 41 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

F/A18HornetUpgradeAIR5376Phase2 Primecontractor:TheDMOistheprimesystemsintegratorofelementsprovidedbyBoeing(US),BoeingDefence Australia,Raytheon(US),theUSN,Saab(Sweden),Elta(Israel)andElbitSystems(Israel).[A] TheprojectprovidesseveralupgradestotheF/A18(Classic)Hornetweaponsystemtoachieveimprovedmission situationalawareness,includingradarandelectronicwarfarecapabilities.[B]Projectinitiativesalsoprovideforanupdated flightsimulatorforF/A18aircrewtraining,deliveredinitiallyaspartoftheearlierAIR5376Phase2project.During 201213,theprojectwillachieveservicereleasewiththedeliveryofallequipment. [C] Source:201213PBS

A Scopechangespostapproval:incorporationofJammer(AIR5376Ph2)andElectronicWarfareSelfProtection (AIR5376Ph3C)inMay2007. This project encountered difficulties in the integration of its components. Given the disparate commercial and national sources of the subsystems and the fact that the upgraded aircraft have an Australianunique configuration, the project office's performance has been pretty reasonable. A two year delay with no significant cost increase is perhaps better than might have been expected given the performance of other programswithsignificantsystemintegrationwork. UpgradedA/BaircraftaresimilarincapabilityandconfigurationtotheUSN'sC/Dmodels. Thislongtermprojectisapproachingitsconclusion,andhasresultedinasignificantboosttotheaircombat capabilityofthe'classicHornet'fleet.Earlierassessmentsofregionalcapabilitiessuggestedthattheywould remain competitive for the rest of this decade, with reduced effectiveness beyond. With the most recent deferralofF35purchases,theplannedtimebetweentheservicedeliveryoftheF35andthewithdrawalof theclassicHornetsisgettingverytight.

ASPI comment

Ministeratapproval:IanMcLachlan Acquisitionstrategy:DMOmanagedintegrationofcommerciallysourcedsystems.

235

HornetStructuralRefurbishmentProgramStage2(AIR5376Phase3.2)
FirstmentioninDCP: 2001 Initialplannedfirstpass: n/a Actualdateoffirstpass: n/a Delaytofirstpass: n/a Initialplannedsecondpass: 200304 Actualdateofsecondpass: Jan2004 Delaytosecondpass: nil Approvedexpenditure(July2011) 952 Realcostincreases(scope): 0 Realcostincreases(transfer): 0 Realcostincreases(e.g.costoverrun): 1
$m 200102 200203 200304 200405

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

951 319 0 install200607 200250 831 >581

201112 201213

200506

Planned expenditure Actual expenditure Difference

41

53 56 3

106 67 39

125 96 29

61 56 5

17 11 6

16 0 16

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS HornetStructuralRefurbishmentProgramStage2 PrimecontractorL3MAS AIR5376Phase3projectwasformallyclosedon5November2011.TheremainingactivitiesassociatedwiththeStructural RefurbishmentProgramaretobecompletedundertheGovernmentapprovedHornetStructuralAssuranceConsolidation Program(HSACP).TheHSACPhasbeenestablishedtocompletetheremainingStructuralRefurbishmentProgramPhase1D program,remediateanumberofknownageingaircraftissuesandinvestigateotherpotentialageingaircraftrisksto achievingthefleetplannedwithdrawaldate.[A]SomeofthesavingsmadeinAIR5376Phase3werereinvestedaspartof theHSACPapproval.TheHSACPwasestablishedwithintheF/A18A/BHornetinservicesustainmentprogram. Source:201112AdditionalEstimates TheF/A18HornetUpgradeAir5376Phase3.2projectisastructuralmodificationprojectthatisrequiredtoaddress structuraldeficienciesidentifiedduringtheF18InternationalFollowOnStructuralTestProgram.Theprojectisdivided intotwostructuralrefurbishmentprograms,eachprovidingadifferentamountoffatiguelifetotheaircrafttoallowthe HornetfleettoreachitsPlannedWithdrawalDateasexplainedbelow: Anumberofaircraftwillhavetheircentrebarrels(theprimaryloadbearingstructureintheaircraft)replacedalongwith afewotherdiscretemodificationsandinspectionsprovidingcontinuedairworthinessfrom85%to100%oftheintended structuralfatiguelife.ThisprogramiscalledStructuralRefurbishmentProgram(SRP)2.[B] TheremainderoftheHornetfleetwillundergoarangeofotherdiscretestructuralmodificationsprovidingcontinued airworthinessfrom78%to85%oftheintendedstructuralfatiguelife.ThisprogramiscalledSRP1D.[C] Source:ANAOMajorProjects201011 GiventhereducingtimeframebetweentheexpectedinservicedateoftheF35JointStrikeFighterandthe A plannedwithdrawaloftheF/A18A/BHornets,managingtheHornetfleetistakingonadditionalimportance. Theinitialestimatewasthat49aircraftwouldundergothecentrebarrelreplacementunderSRP2.Following B theresultsoffatiguetestingbytheDSTO,thenumberwasreducedto10,allofwhicharenowcompleted.30 centrebarrelswereprocuredforthisprojectunderanFMSpurchase. C Asoflate2011,32ofaplanned59aircrafthadundergoneupgradesundertheSRP1Dprogram. GiventheimportanceofthecontinuedserviceabilityoftheHornetfleettotheaircombatcapabilityoutto 2020,itistobehopedthatthisprogramandfollowonworkaresuccessfulintheirgoal.The'onagain,off again' experience with the F111 doesn't fill us with confidence, but the state of knowledge of the Hornet structureandfatiguelifeafterthisprogramshouldgiveafirmerbasisforfuturemanagementthanwasthe casewiththeF111.

ASPI comment

Ministeratapproval:RobertHill Acquisitionstrategy:Commercialacquisition/ForeignMilitarySalefromUnitedStates.

236

AirtoAirRefuellingCapability(AIR5402)
FirstmentioninDCP: 2001 Initialplannedfirstpass: n/a Actualdateoffirstpass: n/a Delaytofirstpass: nil Initialplannedsecondpass: 200203 Actualdateofsecondpass: July2003 Delaytosecondpass: 0.5months Approvedexpenditure(July2011) 1,866 Realcostincreases(scope): nil Realcostincreases(transfer): 135 Realcostincreases(e.g.costoverrun): 154
$m 200102 200203 200304 200405

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

1,801 1,477 174 2006 late2009 late2012 >30months 1500to2000 2,077 >$77
201112 201213

200506

Planned expenditure Actual expenditure Difference

189

214 188

110 194

167 116

198 61

260 315

425 178

493 276 217

234 151 83

174

26 84 51 137 55 247 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

AirtoAirRefuellingCapabilityAIR5402 PrimeContractor:EADSCASA(TradingasAirbusMilitarySpain) ThisprojectwilldeliverfivenewgenerationAirbusA330MultiRoleTankerTransport(MRTT)aircraft,tobeknownasthe KC30AinRAAFservice,andtheassociatedthroughlifesupportinfrastructureforthenewfleet.[A] During201213,theprojectwillcompleteoperationaltestingofthepodrefuellingsystemwithRAAFF/A18Hornet receiversinAustralia;undertakeAustralianmilitarycertificationandservicereleaseoftheaircraftsystems,training, publicationsandotherelementsnecessarytosupportachievementofanInitialOperationalCapability(forpodsairtoair refuellingandairlogisticsservices);completetestingofmodificationstothemilitaryavionicsandAerialRefuellingBoom SysteminSpain;completefinalconversionactivitiesanddeliveryofthefifthaircraft;refurbishandredeliverthefirst (prototype)aircraftonthecompletionoftestinginSpain;anddeliverupgradestothesimulationtrainingdevicesinline withmodificationstotheaircraftfleet. Thekeyriskfortheprojectisthescheduleforcompletionoftestinganddocumentationforacceptanceandintroduction intoserviceoftheboomrefuellingsystem.[B]ThisprojectcontinuestobemanagedasaProjectofConcern.[C] The new aircraft replace the capability previously provided by five Boeing 707 aircraft. Unfortunately, the A repeated deferrals of the replacement project in the 1990s coupled with delays with the project after approvalhaveledtoasubstantialcapabilitygap.ThefinalB707waswithdrawnfromserviceinmid2008. Certificationofthetypeforairtoairrefuellinghastakenconsiderablylongerthanwasplanned.Some redesignworkandsoftwarechangeswererequiredwhenanearly2011inflightincidentbetweenthetanker B aircraftandaPortugueseAirForceF16resultedintherefuellingboomseparatingfromtheaircraft.Thetype hadpreviouslyreceivedcertificationinSpaininlate2010. C ASPI comment AIR5402wasfirstplacedontheProjectsofConcernlistinOctober2010. Thisisanexampleofthesortofdelaysthatoccurwhenbeingaleadcustomerforanewdesign.Tobefair, that wasn't the planthe Royal Air Force was originally planning an earlier inservice date, but financial problems caused the RAAF to move to the front of the queue. Nonetheless, the capability gap of this important'forcemultiplier'isnowfouryearsandcounting.

Ministeratapproval:RobertHill Acquisitionstrategy:CommercialacquisitionfromEADS(Airbus)

237

JointStrikeFighterAircraft(AIR6000Phase2A/2B)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a 200607 April2010 34months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate(total): Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m Planned expenditure Actual expenditure Difference

2,664 0 0 0

200304 200405

2,362 130 103 2014 2016 2018/19? 4+years >$10.5b TBD n/a

200102

200203

43 71 28

65 59 6

103

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS F35JointStrikeFighterAIR6000Phase2A/2B PrimeContractor:LockheedMartin LockheedMartiniscontractedtotheUnitedStatesGovernmentforthedevelopmentandproductionoftheF35Joint StrikeFighter(JSF).Australiaisprocuringtheaircraftthroughagovernmenttogovernmentagreement.[A] Thisphaseoftheprogramwilldeliver14ConventionalTakeOffandLandingF35aircraftandassociatedsupportsystems. Thefirsttwoaircraftwillbedeliveredin201415intheUnitedStatesfortestingandtrainingpurposes.[B]Purchaseof another12aircraftwilloccurtwoyearsafterthepreviouslyanticipatedtimetable.[C] Source:201213PBS

A B C Australiaisaformalmemberoftheinternationalpartnershipcontributingtothesystemsdevelopmentand demonstrationphaseoftheF35.ThismembershipresultsinawaiverofR&Dcostamortisationinanyfuture purchase. ThetwoaircraftwillnotbeexclusivelyforAustralianuse,butwillbepartofacommonpooltobeusedbythe participatingnations. ThereisnodelaytotheplannedIOCasaresultofthisdecision,whichappearstohavemovedthepurchase th oftheearlyaircraftinthe12toouteryears,withoutmovingthedeliveryofthe12 andfinal. Anothersetbacktoaprogramthathashadtroublemeetingitsplannedmilestones.Giventhedecisionofthe USGtodeferitsownacquisitionofsome179aircraft,theAustraliandecisionisaprudentone.However,the considerablebufferoftimebetweenthearrivaloftheF35andretirementofthe'classic'Hornetsbuiltinto RAAF plans is being eroded to the point where aging aircraft management of the Hornets is now a crucial issuefortheaircombatcapability.

ASPI comment

Ministeratapproval:StephenSmith Acquisitionstrategy:PurchasefromtheUnitedStatesaspartofinternationalpartnership.

238

C17GlobemasterIII(AIR8000Phases3&4)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass(phase3): Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: n/a n/a March2006 n/a n/a March2006 n/a Approvedexpenditure(July2012)(ph3) Cumulativeexpenditureto30June2012 Budgetestimate201213(phase3) InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

2,055

200304 200405

1,846 1,334 40 ? ? Sep2007 n/a 1,864 n/a

200102

200203

Planned expenditure Actual expenditure Difference

386

795 746

241 164

23 12

16 6

6 5 1

49 16 33

40

386 49 77 11 10 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

PrimeContractor:Boeing,throughaForeignMilitarySalescasewiththeUnitedStatesAirForce Phase3providesaglobalheavyairliftcapabilitybasedaroundtheBoeingC17GlobemasterIIIaircraftandrelated provisions,includinganenhancedUScommonelectronicwarfareselfprotectionsystem.[A]During201213,theproject willcontinuematuringC17sustainmentrequirements,includingsparesandtheprocurementofancillaryitemssuchas trainingdevices,roleexpansionequipment,groundsupportequipmentandmaterielhandlingequipment.[B]Thekeyrisk fortheprojectisthecomplexdesign,buildingintegrationandtransportationchallengesassociatedwithachievingdelivery oftheCargoCompartmentTrainerintimetocommenceincountryC17loadmastertrainingbytheendof2014. Phase4providesanadditionaltwoC17GlobemasterIIIaircraftandrelatedprovisionsC],includinganenhancedUS commonelectronicwarfareselfprotectionsystemtotheexistingglobalheavyairliftcapabilityacquiredunderProject AIR8000Phase3.[C]ThefifthC17aircraftisnowinservicewiththeRoyalAustralianAirForceandthesixthaircraftison schedulefordeliverybyDecember2012.FinalOperationalCapabilityisexpectedinJune2013uponinstallationofthe enhancedUScommonelectronicwarfareselfprotectionsystem. During201213,theprojectwilltakedeliveryofthesixthaircraftandwillinstallanenhancedUScommonelectronic warfareselfprotectionsystemineachoftheaircraft.OnscheduleinstallationoftheenhancedUScommonelectronic warfareselfprotectionsystemrepresentsamajorrisktotheprojectasitismanagedbyanumberofdifferent organisations,andtheUnitedStatesexportlicenceprocessisnowmorerigorous.

AccordingtotheANAO,thereisnothingAustralianuniqueabouttheC17s. Thetrainingandsupportelementswerethecomponentsoftheinitialacquisitionphaseoftheprojectthat B containedwhatrisktherewas.However,thetransitionintooperationsandsupportoftheseaircrafthasbeen smooth. Ineachof2011and2012theprocurementofanadditionalaircraftwasannouncedintherunuptothe C budget.Phase4initiallycoveredthefirstadditionalaircraft,butnowencompassesboth. The201213PortfolioBudgetStatementnotesthat'onscheduleinstallationoftheenhancedUScommon D electronicwarfareselfprotectionsystemrepresentsamajorrisktotheprojectasitismanagedbyanumber ofdifferentorganisations,andtheUnitedStatesexportlicenceprocessisnowmorerigorous'. TheinitialdecisiontoacquirefourC17aircraftseemedtoshortcircuittheestablishedplanningprocessesfor AIR 8000, which at the time was anticipating 'replacement or refurbishment of the C130H Hercules.' ConventionalwisdomatthetimewasthatadditionalC130Jmodelswouldbeacquired,andtwosuchaircraft ASPI remainedintheDCPuntildecisionsin2011and2012toacquiremoreC17ssawthemremoved. comment Despite the apparently opportunistic acquisition decisions, the initial aircraft were delivered ahead of scheduleandonbudgetinanotherdemonstrationofthereliabilityofofftheshelfacquisitions.TheC17has rapidlybecomeareliableandvaluableplatformfortheRAAF. Ministeratapproval:(Phase3)BrendanNelson;(Phase4)StephenSmith Acquisitionstrategy:USGForeignMilitarySaleProgram

239

MultiroleHelicopter(AIR9000Phases2,4and6)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a 200102 April2004 22months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

3,751 2,597 239 7

200304 200405

3,656 2,098 260 2007 July2010(RAN) 201213 >24months 350400 957 >557

200102

200203

Planned expenditure Actual expenditure Difference

107

138 120 18

183 329 146

432 262 170

273 307 34

429 451 22

424 262 162

393 265* 128*

260**

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS MultiRoleHelicopterAIR9000Phases2,4and6 PrimeContractor:AustralianAerospace[A] Thisprojectisacquiring46MRH90helicoptersfortheArmyandNavy.Phase2represents12ArmyMRH90(additional SquadrontosupportArmyliftcapability).Phase4replacesArmysBlackHawksintheairmobilityandspecialoperations rolesandPhase6replacesNavysSeaKingmaritimesupporthelicopters.Fifteenaircrafthavebeenacceptedasat28 February2012.TheMRH90programhassuffereddelaysofovertwoyearsandwasdeclaredaProjectofConcerninlate 2011.[B] During201213,thisprojectaimstoachieveInitialOperationalCapabilityforNavy,andintroducefullflightandmission simulatorsintoservice.Thekeyrisksforthisprojectwillberectifyingarangeoftechnicalissuesandtogeneratethe necessaryflyingratestomeetNavyandArmyrequirements.[C] Source:201213PBS

A AustralianAerospaceiswhollyownedbyEurocopter,apartoftheEuropeanAeronauticDefenceandSpace Company(EADS) AccordingtoaMinisterialstatement,theprojectis'runninglateprimarilyduetosignificanttechnicalissues whichhavetriggeredearlyindicatorsandwarningsthresholdsforscheduleandcontractorperformance, resultingindelaysofabouttwoyears,andthereremainsariskthattheprogramwillbefurtherdelayed'. PerhapsworsethanthescheduledelayisthefactthattheANAOisnowestimatingthatonly80%ofthe plannedcapabilitywillbedelivered.(Source:ANAO201011MajorProjectsReport) ArmyandNavyhavehadtomakeuptheshortfallinflyinghoursbyagreaterrateofeffortintheirexisting fleets. Despitethehelicopternothavingachievedservicestatusanywherepriortocontractsignature,the complexityofthisacquisitionwasinitiallyunderestimatedandcategorisedas'AustralianisedMilitaryOffthe shelf',onlytobelaterelevatedto'developmental'status.Itwillbeinstructivetocomparethisacquisitionto thepurchasefortheRANthroughFMSoftheRomeomodelSeahawkamachinethatisalreadyoperatingin numbersandwhichappearstobegenuinelyofftheshelf.

ASPI comment

Ministeratapproval:RobertHill Acquisitionstrategy:CommercialacquisitionfromAustralianAerospace.

240

AmphibiousDeploymentandSustainmentLHD(JP2048Phase4A/4B)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a Jan2004 n/a 200506 June2007 ? Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

2,965 0 9 0

200304 200405

3,066 2,192 158 2010 June2015 December2014 6months 700900 2,953 >2,053

200102

200203

Planned expenditure Actual expenditure Difference

24

1 220

132 136

615 631

553 558 5

707 636* 71*

158**

219 4 16 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

AmphibiousDeploymentandSustainmentJP2048Phase4A/4B PrimeContractor:BAESystemsAustraliaDefence ThisprojectwillacquiretwoCanberraClassAmphibiousShipsreferredtoasLandingHelicopterDock(LHD).Thisprojectis oneofanumberofprojectsgroupedundertheAmphibiousDeploymentandSustainment(ADAS)Program,designedto replaceandenhanceNavy'samphibiousandafloatsupportcapability. Navantia,asubcontractortoBAESystems,isconstructingtheLHDhullsinSpain.BAESystemsisconstructingthe superstructuresinWilliamstowndockyard.L3CommunicationsissubcontractedtoBAEtosupplythecommunications systemandSaabSystemsAustraliatoprovideandintegratethecombatmanagementsystem.[A]BAEwilldeliverthefirst shiptotheDMOinearly2014[B]andthesecondshipinthethirdquarterof2015. ThehullofthefirstshipwillbetransportedtoAustraliaviaHeavyLiftShiparrivinginthethirdquarterof2012. SuperstructureconsolidationandinstallationofCombatandCommunicationssystemswillbeundertakeninWilliamstown afterthehullarrives.ThehullofthesecondshipwillbelaunchedinSpaininmid2012. Thekeyrisksforthisprojectremainthechangeinrequirementsfromeitherregulatorychangeorrequirementscreepand theriskassociatedwiththecomplexsystemintegration.[C] Source:201213PBS WhiletheLHDsarebasedonanexistingSpanishBPEdesign,thereareAustralianuniquechanges,including A theincorporationofanexistingSAABCombatSystem,andthedevelopmentandintegrationoftheinternal andexternalcommunicationsystems.Source:ANAOMajorprojectsreport201011 B C ThehullofthefirstvesselwaslaunchedfromNavantia'sslipwayinFebruary2011. According to ANAO's reporting of the project risk matrix, many of the risks have been reevaluated to 'moderate'.Thecombatsystemfunctionalityappearstobethelargestremainingrisk. For vessels of this size and complexity, this project seems tobe proceeding very well, as evidenced by the bringingforwardoftheIOCforthefirstvesselbysixmonths.

ASPI comment Ministeratapproval:BrendanNelson Acquisitionstrategy:Commercialacquisition.

241

LightweightTorpedoReplacement(JP2070Phase2)
FirstmentioninDCP: 2001 Initialplannedfirstpass: n/a Actualdateoffirstpass: n/a Delaytofirstpass: n/a Initialplannedsecondpass: 200102 Actualdateofsecondpass: July2001 Delaytosecondpass: nil Approvedexpenditure(Jul2011) 342 Realcostincreases(scope): 0 Realcostincreases(transfer): 0 Realcostincreases(e.g.costoverrun): 0
$m 200102 200203 200304 200405

200506

Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200607 200708 200809 200910 201011

337 249 33 2010 250350 288 nil

201112 201213

Planned expenditure Actual expenditure Difference

42 38

55 43

75 29

37 29

45 19

34

18.2

46 8 38

19 21* 2*

33**

4 12 46 8 26 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

LightweightTorpedoReplacementJP2070Phase2 PrimeContractor:EuroTorp,Thales ThisprojectwilldeliverMU90AntiSubmarineLightweightTorpedoes,integratedwiththeAnzacandAdelaideclass frigates.[A]JP2070Phase2isbeingmanagedasaProjectofConcerninconjunctionwithJP2070Phase3.[B] During201213,thisprojectwillcontinuetosupportoperationaltestandevaluation,completeshipmodifications, establishinservicesupportarrangementsanddeliveressentialspares. Thekeyriskforthisprojectisdelaytothesuccessfulcompletionofoperationaltestandevaluation.Elementsofthisrisk includeavailabilityoffleetassetsandadverseweatherconditions.Theprojectismitigatingthisriskthroughcloseliaison withNavy. Source:201213PBS

A B ASPI comment The initial goal of JP 2070 was to fit the MU90 lightweight torpedo to a range of ADF surface and air platforms.Integrationsproblemsledtotheairborneplatformsbeingdescoped. JP2070wasaddedtotheprojectofconcernslistinJanuary2008. Whilethingsnowseemtobegoingmoreorlesstoplan,onservicedeliveryofthenewnavalcombat helicopterswiththeirMk54lightweighttorpedoes,theNavywillhavetomanagetwodifferentlightweight torpedoesandtheirassociatedsupplychainsandsupportmechanisms.

Ministeratapproval:PeterReith Acquisitionstrategy:Commercialacquisition.

242

UpgradeofM113ArmouredVehicles(LAND106)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a pre2001 Nov1993 n/a Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m Planned expenditure Actual expenditure Difference

885 441 250 2

200304 200405

884 763 26 Nov2005 Dec2007[A] >24months 450600 729 >129

200102

200203

7 58 51

26 30 4

34 44 10

78 13 65

118 13 105

116 109 7

100 144 44

115 149 34

97 88 9

100 66* 33*

26

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS UpgradeofM113ArmouredVehiclesLAND106 PrimeContractor:BAESystemsAustraliaDefence Thisprojectwilldeliver431M113AS4vehiclesinsevenvariantsnamelypersonnel,fitters,recovery,command, ambulance,logisticsandmortar.[B]TheprojectisupgradingtheArmy'sM113A1vehiclestoimproveprotection,lethality, mobilityandhabitability.Theupgradereplacesmostofthevehicle,retainingonlythehull,hatches,reardoorand communicationssystems.Thefinalcontracteddeliverydateforall431vehiclesisDecember2012,butthecontractoris deliveringaheadofschedule.[C] During201213,thisprojectwillcompletedeliveryofthefinalvehicles(logisticandmortarvariants)andassociated technicalpublications.[D]Finaldeliveriesofprojectrelatedsparepartswillalsobeachieved,astheprojectmovestowards projectclosurebyJune2013. Thekeyriskforthisprojectisproductionslippage,whichwillremainuntilallproductioniscomplete.Theproduction schedulereliesonthecontractormaintainingthecurrentmanufacturingcapacitiesofitsBandianaandWingfieldfacilities.
Source:201213PBS

B C

ASPI comment

In2009ANAOnotedthat'theupgradedM113sachievedalimitedInitialOperationalCapabilityasof December2007andcould,ifcircumstancesrequired,bedeployed.However,Defencehasyettocomplete theOperationalTestingandEvaluationoftheupgradedvehicles,whichisnecessarytoachieveOperational Release. Scopechangespostapproval:anadditional$227maspartofthe2000WhitePaperdeliberationsand$214m duetotheadditionof81extravehicles. This refers to a revised schedule, not the original plan. This project suffered a number of delays along the way,duetoengineeringproblemsandproductioncapacitybeinginsufficient. Thefinalvehicleswillbedeliveredintimetobepartofapartialmothballingofthefleet.TheMinisterial budgetreleaseobservedthat'Army[willbe]reducingtheuseofM113AS4vehiclesandM1A1Abrams tanks.SomeofthesevehicleswillbeplacedintemporarystorageandArmywillcontinuetoreviewthese fleetstoensureaviablemechanisedcapabilityismaintained'.TheChiefofArmyhaspublicallyendorsed Armyscontinuingrequirementforthevehicle. Onceagain,amidlifeupgradeprogramhasproventobemoredifficultandexpensivethananticipated.The timingofthefinaldeliverieswasalsounfortunate,as5RARand7RAR,whowouldbeextensiveusersofthe vehicles,arecurrentlyemployedinlightinfantryroles.

Ministeratapproval:RobertRay Acquisitionstrategy:Commercialdevelopment/acquisition

243

BushmasterProtectedMobilityVehicle(LAND116Phase3)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: n/a n/a n/a n/a n/a Nov1998 n/a Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:
200506 200607 200708 200809 200910 201011

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m 200102 200203 200304

930 515 0 0
200405

1,032 771 58 n/a n/a Dec2004 n/a n/a 295 n/a

201112 201213

Planned expenditure Actual expenditure Difference

31 9

47 49

63 44

40 44

26.6

24

41

67 87 21

58

22 2 19 4 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

BushmasterProtectedMobilityVehicleLAND116Phase3 PrimeContractor:ThalesAustralia Thisproject,referredtoasProjectBushranger,willdeliver838vehiclesinsevenvariants(troop,command,mortar,assault pioneer,directfireweapon,ambulanceandairdefence).ThevehicleswillprovideprotectedlandmobilitytoArmyunits andAirForceAirfieldDefenceGuards.All300troop,command,assaultpioneer,mortar,directfireweaponandambulance variantsundertheoriginalcontracthavebeendelivered.Deliveryof144EnhancedLandForcevehicleswascompletedin April2009anddeliveryof293ProductionPeriod3(projectLAND121)vehicleswascompletedinFebruary2012. Theprimefocusoftheprojectfor201213isthecompletionofthedeliveryof101protectedmobilitytroopvariants approvedasProductionPeriod4toaddressattritionandfutureoperationalrequirements.Deliveryofthesevehicles commencedinFebruary2012.[A] AkeyriskisthatfitmentofExternalCompositeArmourbuttonstotheprotectedmobilityvehiclewillbeaffectedbyvehicle availabilityimpactingonschedule,howeverthisriskisbeingmitigatedbycomprehensiveliaisonbetweenthePrime ContractorandArmytoestablishfitmentprioritiesandschedule.[B] Source:201213PBS

The201112AdditionalEstimatesnotes:Governmentapprovedtheacquisitionofanadditional70Protected MobilityVariantTroopVariantsandMiddleEastAreaofOperationsUpgradeKitsunderthisprojectand31 vehiclestoreplacedamagedvehicles.Theprojectwillcommenceacquisitionofanadditional101Production Period4Bushmastervehiclesthisfinancialyear. ANAOnotesthat'thereisabacklogofengineeringchangessuchasthedesignandintegrationofblackout curtains,duetotheCommonwealthandThalesreprioritisingengineeringefforttohigherpriority operationallyfocusedtasks.Thisbacklogneedstobeaddressedinordertobaselinethevehicle's configuration'.It'sunderstoodthattheseissuesarebeingaddressed,andthedrawdownofforcesin Afghanistanwillallowlowerprioritytaskstobeaccommodated. Creditwhereit'sdue.Despitesignificantdevelopmentproblems,theBushmasterhasbeenavehicleinthe rightplaceattherighttimeforArmy.

ASPI comment

Ministeratapproval:JohnMoore Acquisitionstrategy:Commercialdevelopment/acquisition

244

ArtilleryReplacement155mmHowitzer(LAND17Phase1A)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a 200506 Nov2009 39months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofcontract: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

324 0 0 0

200304 200405

322 122 29 200810 Dec2011 Dec2011 150200 348 >148

200102

200203

Planned expenditure Actual expenditure Difference

2 0.5

76 79 3

111 33 78

29

1.5 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

Artillery Replacement 155mm HowitzerLAND 17 Phase 1A

PrimeContractor:throughseveralUnitedStatesGovernmentForeignMilitarySalescases Thisprojectwilldeliver35M777A2lightweighttowedhowitzers,acommandandcontrolbattlemanagementsystemand coursecorrectingfuses.[A] The35M777A2howitzershavenowbeenreceivedandthefinalversionofthebattlemanagementsystemsoftwarehas beendelivered.[B]During201213,thisprojectwillcompletedeliveriesofthehowitzersandthebattlemanagement systemsintoArmyunits.TheprojectwillalsoestablishaForeignMilitarySalescasefortheacquisitionofthecourse correctingfuseelementofthecapability. ThekeyriskforthisprojectisachievingcompleteintegrationandinteroperabilitywithintheADFJointFiresdigital commandandcontrolenvironment. [C] Source:201213PBS

A B

ASPI comment

LAND17Phase1Cwastoacquireselfpropelledhowitzersbutwascancelledaspartofthebudgetsavings measures. Army is reportedly delighted with the performance of the new guns, as the move into the world of digital systems, GPS positional information and inertial guidance greatly reduces the time required to set up the gunsandlargelyremovesthenecessityfor'mandraulic'taskssuchasplottinggridreferences. The joint fires digital command and control environment is a major technical challenge. As is usual with military C4ISR projects, the integration of disparate legacy systems and data formats to produce a robust networkisnotastraightforwardtask. Withthecancellationinthebudgetoftheselfpropelledhowitzersintendedtobeacquiredunderphase1C, theArmywillhavetheM777A2asitsprincipleindirectfiresupportweaponforsometimetocome.While notofferingthesametacticalflexibilitybyvirtueofrequiringatow,thelightweightnatureofthegunsmeans thattheabilitytoairliftartillerysupportwillbemuchenhanced.

Ministeratapproval:JohnFaulkner Acquisitionstrategy:ForeignMilitarySalefromUnitedStates.

245

StandardMissileReplacement(SEA1390Phase4B)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a 200304 Sept2004 3months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m Planned expenditure Actual expenditure Difference
200102

612 0 0 2

200304 200405

399 314 19 200810 May2003 August2010 79months 450600 553 0

200203

80 38

96 66

78 77

79 58

58 33

49 22 27

90 27* 63*

19**

42 30 1 21 25 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

Sea1390Phase4BStandardmissilereplacement PrimeContractor:USDepartmentofDefenseunderanFMSarrangementandvariouscommercialcontracts;Lockheed MartinUS,AAICorporation,BAESystemsUSandThalesAustralia. ThisprojectistoupgradefourAdelaideClassFrigates[A]withtheSM2SurfacetoAirMidCourseGuidancemodemissile capability;acquiretheweapons,andprovidemissiletechniciantraining. Theplanned201213outcomeistheinstallationofthetestedSM2Stage2MidCourseGuidancesystemsoftwaretoallof theremainingAdelaideClassfrigatesandshorebasedsupportfacilitiesfollowingthecompletionoftestinginmid2012. ThiswillfinalisetheinstallationofthiscapabilityintheAdelaideClassfrigates.[B] Source:201213PBS

B ASPI comment

Thisisthefinalstageofawiderprojectthatseekstoregainacomparativeregionalmaritimecapabilityby upgradingtheremainingfourAdelaideClassFFGs,andtoensurethattheyremaineffectiveandsupportable untiltheirremovalfromservicebetween2015and2021.EachFFGisreceivinganimprovedAntiShipMissile Defence(ASMD)system;anOnBoardTrainingSystem;anElectronicSupportSystem;anupgraded UnderwaterWarfareSystem,upgradeddieselgeneratorsandothershipsystems. Source:ANAO InitiallythisprojectwastoupgradesixFFGs,buttheretirementoftwohasresultedinthereductionofscope tofourshipsets(withverylittlebackinthewayofreducedoverallcost). The overall FFG upgrade project is a good illustration of the pitfalls inherent in midlife upgrades. With a significant overrun in schedule and (effectively) a 50% cost overrun, if the FFGs retire as planned between 2015and2021,thereturnoninvestmentwillbemuchlessthanwasinitiallyanticipated.

Ministeratapproval:RobertHill Acquisitionstrategy:ForeignMilitarySalefromUnitedStatesandcommercialcontracts.

246

CollinsClassSubmarineReliabilityandSustainability(SEA1439Phase3)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a 200102 Sept2000 nil Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

411 326 13 FCD 250300 310 >10

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

405 310 38 1

200304 200405

200102

200203

Planned expenditure Actual expenditure Difference

39

102 36 66

50 39 11

55 31 24

39 32 7

35 31 4

34

42 32 10

24

14

13 13

Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS CollinsClassSubmarineReliabilityandSustainability(SEA1439Phase3) Majormodificationstofirefightinghalondistribution,sewageautomation,diesels,andsubmergedsignalejectorcontinue duringfullcycledocking(FCD).Outsideofthesedockings,planninganddesigncontinueforthespecialforcesexitandre Source:201213PBS entrycapabilityandLandBased Test Facility.

Thescheduleforthisprojectisdictatedby(andcontributesto)thetimethatCollinsclasssubmarinesspend infullcycledocking(FCD).Asnotedinourrecent'Mindthegap'publication,theFCDscheduleformostofthe previousdecadewasfarfromtheoptimaltwoyearsoutofthewater,eightyearsin(withonesixmonthmid cycledocking).Oneboatwasoutofthewaterforoverthreeyears,andanotherforfive. Todaythesituationappearstobegettingclosetothetwofourfourtwopatternthatwillallowthefleetto havefourboatsinthewateratanygiventime.

ASPI comment

Ministeratapproval:JohnMore Acquisitionstrategy:ContractwithgovernmentownedASC.

247

Collinsreplacementcombatsystem(SEA1439Phase4A)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a n/a 200102 Jan2003 nil Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

450 0 1

200304 200405

450 430 5 FCD Seenotesbelow 455

200102

200203

Planned expenditure Actual expenditure Difference

0 26

85 54

158
126

95
90

47
64

48 38

24.8

7 5* 2*

26 31 32 5 17 10 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

SEA1439Ph4ACollinsReplacementCombatSystem PrimeContractor:UnitedStatesDepartmentofDefenseunderFMSandanArmamentsCooperativeProject. ProjectSEA1439Phase4AisacquiringaReplacementCombatSystem(RCS)anditsassociatedsupportinfrastructurefor theCOLLINSClassSubmarine. Majoracquisitioncontractshavebeenestablishedforthefollowing:

TheUSNavyTacticalCommandandControlSubsystemconsistingoftheAN/BYG1(V)8whichincludesthe WeaponsDirectionequipment; RationalisationandimprovementstotheSonarprocessingsolutionpreviouslytrialledintheCOLLINSClassas partoftheCombatSystemAugmentation(CSA)Initiative(ProjectSEA1446);and NewtrainingandsupportinfrastructurebeinglocatedattheRANsSubmarineTrainingSystemsCentre(STSC)in HMASSTIRLING,WesternAustralia. Source:DMOwebsite(dated2009)

OperationalReleasewasgainedinJan2011.LogisticssupportcertificationactivitiesareexpectedtobecompletedbySept 2011.Projectclosureisexpectedearly2012. Source:DefenceAnnualReport201011 SeethenotesforPhase3.It'shearteningtoseethattheCollinsmaintenancecycleisgettingbackontrack ASPI and the progress with the combat system. But the fact remains that it will be over 30 years after project comment initiationbeforealloftheboatsintheCollinsfleethavethefullsuiteofwarfightingsystemsasintended. Ministeratapproval:RobertHill Acquisitionstrategy:ContractwithgovernmentownedASC.

248

AnzacShipAntiShipMissileDefence(SEA1448Phase2B)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a n/a 200405 Nov2005 4months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

462 0 149 0

200304 200405

676 351 52 200810 Dec2009 Late2013 >45months 75100 249 >149

200102

200203

Planned expenditure Actual expenditure Difference

81 53

56.1

131 94

76 58 18

59 65* 6*

52**

28 37 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS

AnzacShipAntiShipMissileDefenceSEA1448Phase2B PrimeContractor:CEATechnologiesProprietaryLimitedandtheAnzacShipIntegratedMaterialSupportProgramAlliance (comprisingtheDMO,SaabTechnologiesAustraliaandBAESystems) ThisprojectwilldeliveraphasedarrayradarsystemtotheAnzacclassfrigatefortargetindication/tracking,midcourse guidanceandtargetilluminationfortheEvolvedSeaSparrowMissileinconjunctionwithothersensorandcombat managementsystemupgradesdeliveredunderSEA1448Phase2A.[A] During201213,theprojectwillcontinuetodeveloptheStage2finalphasedarrayradarsoftwarecapability,fordelivery bymid2013withseaacceptancetestinginlate2013.[B] TheprojectwillalsoprogressinstallationinHMASAruntaandprepareforsubsequentshipinstallations. Thekeyriskforthisprojectissuccessfullyachievingtheupgradetomeetcapabilitysoftwarerequirementswithinthe plannedscheduledprogramgiventhenatureofsoftwaredevelopmentrisks.[C] Source:201213PBS

TheCEAradarwasnottheinitialmaterielsolutionanticipatedforthisproject,whichhadatleastone'false start'.TheCEAFARradarfittedtoHMASPerthhasreportedperformedwellinseatrials,butthisremainsa developmentalproject. ANAOnotesthat:'SuccessfulcompletionofacceptancetestingforHMASPerthhasseentheStage1 capabilityofthephasedarrayradartechnologyachieveinitialmaterielcertification;however[theriskthat thephasedarrayradarwillnotmeettherequiredfunctionalperformancespecificationsanditsintegration complexityintotheupgradedANZACCombatManagementSystemmaybeunderestimated]willnotbe retireduntilallcapabilityisdelivered(Stage2softwareupdatein2013). ThiswasaprojectofconcernbetweenJune2008andNovember2011. Asuccessfuldeliveryofthisprojectwillrepresentastepupinfleetairdefencecapabilitycomparedtothe current ability resident in the FFGs. The future AWDs will be a further advance. The current signs are very promising,butthisprojectisnotyet'outofthewoods'.

C ASPI comment

Ministeratapproval:RobertHill Acquisitionstrategy:Alliancecontractandcommercialacquisition

249

AirWarfareDestroyerBuild(SEA4000Phase3)
FirstmentioninDCP: Initialplannedfirstpass: Actualdateoffirstpass: Delaytofirstpass: Initialplannedsecondpass: Actualdateofsecondpass: Delaytosecondpass: 2001 n/a May2005 n/a 200506 June2007 11months Approvedexpenditure(July2012) Cumulativeexpenditureto30June2012 Budgetestimate201213 InitialplannedIOC: IOCattimeofapproval: CurrentIOC: DelaytoIOC: Initialprojectcostestimate: Actualcostattimeofapproval: Costincreasespriorto/atapproval:

200506 200607 200708 200809 200910 201011 201112 201213

Approvedexpenditure(Jul2011) Realcostincreases(scope): Realcostincreases(transfer): Realcostincreases(e.g.costoverrun):

$m

7,926 0 0 0

200304 200405

7,870 3,733 622 2013 July2016 July2017 12months 3,5004,500 7,207+ >2,707

200102

200203

Planned expenditure Actual expenditure Difference

315 441

600 734

1137 918

1146 944 202

841 701* 130*

622**

126 134 219 Source:DefenceAnnualReports,exceptfor*201112DefencePAESand**201213DefencePBS Air Warfare DestroyerSEA 4000 Phase 3 PrimeContractor:theAWDAlliance

TheAirWarfareDestroyerprogramisbeingdeliveredunderanalliancebasedcontractingarrangementbetweenASCAWD ShipbuilderPtyLtd,RaytheonAustraliaPtyLtdandtheGovernment,representedbytheDMO.[A] ThisprojectwilldeliverthreeHobartClassAirWarfareDestroyersandtheirsupportsystemtotheRoyalAustralianNavy, providingasignificantincreaseindefencecapabilities,fromareaairdefenceandescortduties,rightthroughtopeacetime nationaltaskinganddiplomaticmissions. During201213,thisprojectwillachieveanumberofkeymilestones,includingkeellayingandcommencementofhull consolidationforthefirstship.[B]FinaldeliveriesofForeignMilitarySalesequipmentforthefirstship'sAegiscombat systemwillbereceived,testingoftheAustralianTacticalInterfacehardwareandsoftwarewillbecarriedoutandthe integrationoftheCombatSystemThroughLifeSupportFacilitywillbecompletebymid2013.[B] Areasofriskandopportunityfortheprojectin201213includemanagingtherecruitingandtrainingofpeopletoensurea sensibleworkforceprofileisachieved,aworkplanthatdevelopscoreshipbuildingskillsandimprovesthelongterm performanceoftheshipyards.[D]Akeyareaforworkforcedevelopmentin201213willbebuildingtheteamthatwill consolidateblocksandintegrateequipmenttobuildthecompletewarship,whichwillbedoneontheGovernmentof SouthAustralia'sCommonUserFacilityadjacenttotheASCshipyardinAdelaide.DeliveryofhullblockstoAdelaideand maintainingasafeworkplaceintheshipyardswillalsobeimportant. Source:201213PBS

A B C

Seechapter7ofthisbriefforareviewofthealliancearrangementsandobservationsofthepotentialimpact ofthealliancearrangementontheprogressionofthisproject. Theconsolidationphaseisanimportantandpotentiallyfraughtstep.Giventhedifficultiesexperiencedwith the module constructionwhich resulted in a reallocation of the shipyard work shares between ASC, BAE, Forgacs and Navantia and a delay of a year in the project schedulethere are bound to be a few fingers crossedwhenthemodulesarebroughttogether. AccordingtoDMO'sfigures,theshipyardworkforceshouldpeaksometimeinthenexttwelvemonths. Workiscontinuingapaceonthemoduleconstructionandhopefullythoseproblemsarebehindtheproject.

ASPI However,theintegrationoftheAegiscombatsystemwiththemanyothersystemsthatconstitutethe comment warfightingcapabilityofthesevesselswillbeamajorundertakingwhich,givenpastexperience,hasthe

potentialforfurtherscheduleandpossiblycostoverruns. Ministeratapproval:BrendanNelson Acquisitionstrategy:Alliancecontract

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Chapter 10 Australias Foreign Aid

AustraliasforeignaidisadministeredbytheAustralianAgencyforInternational Development(AusAID).ThedeclaredfundamentalaimofAustraliasaidprogramistohelp peopleovercomepoverty.Nonetheless,itwouldbenavetothinkthatAustraliasaid programdoesnotalsoworktofurtherourbroadernationalinterests. Australiasstrategicinterestsareanimportantsubsetofitsnationalinterests.Inthis chapter,weexaminetheoverallforeignaidprogramwithafocusonhowitfurthersour strategicinterests.Extensivedetailsofaidinitiativesinspecificcountriesareavailableonthe AusAIDwebsitewww.ausaid.gov.au.Also,theMinisterialStatementonInternational DevelopmentAssistancereleasedwiththe201213Budgetisclear,comprehensiveand readable.

HowmuchdoesAustraliaspendonforeignaid?
In201213Australianforeignaidwillamountto$5.2billion,correspondingto0.35%of GrossNationalIncome(GNI).Thisisanominalboostof$289milliononlastyear,and4.0% annualgrowthinrealterms(usingthenonfarmGDPdeflator).Afterapausein200910due totheGFCwhengrowthwaslimitedto2.1%,foreignaidhasbeenincreasedstronglyfor threeyearsinarow. Thisyearsincreasecompletesalongerperiodofrobustgrowthintheaidbudget.Since 200001foreignaidhasincreasedinrealtermsbyanaverageof6.3%perannum.Butthings havenotalwaysbeensofavourableforAustralianforeignaidasFigure10.1shows.
Figure 10.1: Australian spending on foreign aid 1971-72 to 2012-13
6

5 averagerise6.3% perannum2000 2012 4

201011$(billion)

averagerise0.7% perannum1971 2000

Source:201213MinisterialStatementonAustraliasInternationalDevelopmentAssistanceProgram

251

 InmuchthesamewaythatdefencespendingismeasuredasashareofGDP,foreignaid spendingisoftenmeasuredasashareofGNI.Viewedinthismanner,thefallingpriority accordedtoaidfromthe1970stothe1990sisveryclearinFigure10.2.

Figure 10.2: Australian foreign aid as a share of GNI 1971-72 to 2012-13
0.5 averagefall2.1%perannum1971 2000
PercentageofGrossNationalIncome

0.4 averagerise3.2% perannum2000 2012 0.3

0.2

0.1

Source:201213MinisterialStatementonAustraliasInternationalDevelopmentAssistanceProgram

Nodoubtmanyfactorscontributedtoahigherpriorityforforeignaidthiscentury.Froma strategicperspective,theerodingconditionsinthefragilestatesonourperipherywouldbe reasonenoughtodomore. Ininternationalterms,Australianforeignaidspendingisunimpressive.In2010,thelastyear forwhichcomparativedataisavailable,Australiaranked15thoutof23OECDcountriesfor aidasashareofGNI,seeFigure10.3.Notonlydowefallbelowtheaveragefor industrialisednations,butour0.35%ofGNIisonlyhalfoftheagreedUnitedNationstarget of0.7%. Untilthisbudget,thegovernmenthadpromisedtoincreaseAustraliasforeignaidto0.5%of GNIby201516.However,thatgoalhasnowbeendeferreduntil201617.Consistentwith theslippageofthetarget,AustraliasOfficialDevelopmentAssistance(ODA)asashareof GNIfor201213willremainconstantat0.35%ratherthanrisetoaround0.38%asplanned lastyear. Indollarterms,thisrepresentsashortfallofroughly$442milliondollars.Tomeetthe delayedtargetdate,ODAisnowplannedtoincreasetoaround0.37%ofGNIin201314, 0.41%in201415,0.45%in201516.AssumingthatGNIgrowsat2.5%perannum,thiswill resultinatotalshortfallof$2.8billionoverthefouryearscomparedwithpreexistingplans.

252


Figure 10.3: Comparison of Official Development Assistance from OECD nations
1.2 1 ODA/GNI2010 0.8 United Nations Target 0.6 0.4 0.2 0 OECD Average

Source:201112OECDFactbook

Howisthemoneyspent?
AttheriskofgreatlyoversimplifyingthecomplexityofAustraliasforeignaideffort,Figure 10.4setsoutthegrosscategoriesofaidandhowtheyhavechangedsince2010.Thisyear newcategorisationsofaidspendinghavebeenintroduced,representednowintermsof strategicgoals.AsanoverallbreakdownofODA,thecategoriesinclude16%spenton savinglives,22%onpromotingopportunitiesforall,19%onsustainableeconomic development,35%oneffectivegovernance,1%onhumanitariananddisasterresponse,and 7%oncrosscuttingactivities.
Figure 10.4: The composition of Australian foreign aid by Strategic Goals 2010-2013
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 201011 201112 201213 CrossCutting HumanitarianandDisasterResponse EffectiveGovernance SustainableEconomicDevelopment PromotingOpportunitiesforAll SavingLives

Source:AusAIDannualreportsandbudgetpapers

253

Wheredoesthemoneygo?
Theannualaidbudgetiscomposedofacountryspecificprogramandaglobalprogram,see Figure10.5.ThelatterincludespaymentstovariousdevelopmentbanksandUNand Commonwealthagencies,includingemergencyaidthroughtheWorldFoodProgram. Becauseofmultiyearpayments,theglobalprogramcanvarygreatlyfromoneyeartothe next(accrualaccountingsmoothsthepaymentsinreporting).
Figure 10.5: AusAID Global and Country Programs
5 TotalGlobalPrograms TotalCountryPrograms 4 201011$(billions)

Source:AusAIDannualreportsandbudgetpapersdoesnotincludespendingbyotherdepartmentsordepartmentalspending

AustraliancountryspecificaidismostlygeographicallyfocusedonAsiaandPacificIsland states,althoughlocationsfurtherafieldareincreasinglybenefiting.Figure10.6showsthe sizeofcountryspecificaidbyregionsince1998. Figure 10.6: Australian aid spending by region 1998-2012
4
Other Africa

3
201011$(billion)

SouthAsia EastAsia ImmediateRegion

Source:AusAIDannualreportsandbudgetpapers

254

 Inthepast,Australianaidtendedtobeoverwhelminglyfocusedoncountriescloseto Australia.ThispriorityisstillapparentinFigure10.6wherethecategoryofimmediate regionincludestheislandstatesofthePacific,PNGandEastTimor.Thoughnotshown, mostoftheaidtoEastAsiagoestoSoutheastAsiaandtoIndonesiainparticular. Nonetheless,recentincreaseshavebroadenedthespreadoffundingtomoredistant locationsasshowninFigure10.6.Inpart,thisreflectssubstantialnewaidtoAfrica,Pakistan, IraqandAfghanistan. Table10.1listsAustraliascountryaidbyvaluefor201213(includingapportionmentfrom globalprogramswherepossible).Anadditional$1.7billionisprovidedthroughcore contributionstomultilateralorganisations.Thiscountryspecificdataprovidesaninteresting pictureofAustraliasaidpriorities.
Table 10.1: Australian aid spending by partner country 2012-13
Australian Aid 2012-13 Country Indonesia PNG Africa Solomon Islands Afghanistan Vietnam Philippines East Timor Bangladesh Pakistan Cambodia Vanuatu Burma Palestinian Territories Laos Sri Lanka Samoa $(million) 578.4 491.7 386.0 239.4 201.7 150.4 128.7 127.1 100.5 96.4 94.7 72.9 63.8 56.7 54.9 47.1 45.5 Country Nepal Tonga Nauru Kiribati Latin America Iraq Caribbean India China Mongolia Bhutan Tuvalu North Pacific Maldives Niue Cook Islands Australian Aid 2012-13 $ (million) 34.8 33.8 31.6 30.4 28.0 22.3 19.7 18.3 18.1 15.6 11.4 11.1 9.6 7.1 4.5 3.7

Source:201213MinisterialStatementonAustraliasInternationalDevelopmentAssistanceProgram

HowdoesaidfurtherAustraliasnationalinterests?
Asidefrommakingusfeelbetteraboutourselves,foreignaidfurthersournationalinterests intwoways.First,bilateralaidtocountriesestablishesaquidproquothatfacilitatesaccess to,andinfluencewith,foreigngovernments.Second,aidcanbolstertheinstitutions, infrastructureandhumancapitalnecessaryforeconomicdevelopmentandpoliticalstability. Therationaleforthefirstcategoryisselfevident;thesecondfurthersournationalinterest byimprovingthestabilityofcountriesimportanttooursecurity.

255

 MuchofAustralianaidisentirelyofthefirstsort.Untilthisyear,forexample,wegavea smallamountofaidtoChinaeachyear,whichhadnosignificantimpactonits1.3billion peopleoritseconomicdevelopment.Otheraid,likethattoSolomonIslands,isdirectly focusedonachievingtangibleimprovementsingovernance,humansecurityandeconomic development. AninformativepictureemergesbytakingtheratioofAustralianaidtoarecipientcountrys GDP.Highratiosindicatearealefforttomakeadifferenceinacountry;smallratiosreflect largelydiplomaticgesturesthatwillhopefullyberepaidthroughaccessandinfluence. Table10.2listsAustralianaidrecipientsindescendingorderoftheratioofAustralianaidto nationalGDP.Notsurprisingly,PacificIslandsheadthelistfollowedbyothercountriesfrom theimmediateregion.NotethatsomesmallerPacificcountrieshavebeenomittedbecause economicdatawasnotavailable.Forcomparison,thelatestGDPpercapitainPPPdollars hasbeenincludedasameasureoftherelativelevelofpovertyinrecipientcountries.Clearly, Australianaidisonlylooselydirectedonthebasisofneed.
Table 10.2: Australian aid as a share of GDP
Ratio of Australian aid to GDP (PPP) 23% 11.9% 6.9% 14.2% 4.2% 4.6% 2.9% 0.74% 0.19% 2012-13 Australian Aid (A$m) 9.2 3.7 116.7 55.5 25.5 28.6 22.0 78.3 444.3 2.2 145.7 4.0 2012 per capita (US$) 3,400 5,800 3,300 4,900 6,200 6,000 7,500 3,100 2,500 9,100 1,000 8,400 Ratio of Australian aid to GDP (PPP) 0.5% 0.3% 0.08% 0.10% 0.06% 0.09% 0.05% 0.06% 0.05% 0.015% 0.035% 0.0002% 2012-13 Australian Aid (A$m) 40.2 4.8 9.0 18.4 510.1 116.1 35.1 77.1 109.1 21.0 82.1 3.1 2012 per capita (US$) 2,700 6,000 4,500 1,300 4,700 3,300 5,600 1,700 4,100 3,900 2,800 3,700

Country Tuvalu Niue Solomon Islands Vanuatu Kiribati Samoa Tonga East Timor PNG Cook Islands Afghanistan Maldives

Country Laos Bhutan Mongolia Nepal Indonesia Vietnam Sri Lanka Bangladesh Philippines Iraq Pakistan India

Cambodia 0.4% 61.5 2,300 China 4.3 8,400 0.00005% Sources:201213MinisterialStatementonAustraliasInternationalDevelopmentAssistanceProgram,CIAFactbook,IMFWorld EconomicOutlookApril2012.

ThelevelofaidtoGDPatwhichaidbecomesanentirelydiplomaticgestureisimpossibleto define,thoughitishardtoarguethatfiguresbelow0.5%ofGDPreflectaseriouseffortto haveasignificantimpactexceptperhapsinalimitedarealikegovernance. Conversely,itisclearthatAustraliaistryingtomakearealdifferenceinthosecountries whereaidapproachesorexceeds5%ofGDP.AsTable10.2shows,thiscategoryisentirely withinourimmediateregion.

256

Australiasmilitarycooperationprogram
AlliedtoAustraliasinternationalaideffort,isthe$84millionayearDefenceCooperation ProgramrunbytheDepartmentofDefence.Accordingtothe200809PBS,theDefence CooperationProgramsupportsthegovernmentsstrategicobjectivesby: contributingtoregionalsecurity workingwithallies,regionalpartnersandotherstoshapetheglobalandregional environmentinawayfavourabletoAustraliaandtheADF consolidatingacceptanceofAustraliaasanobviousandlegitimateparticipantin deliberationsonissuesthataffectregionalsecurity encouragingandassistingwiththedevelopmentofdefenceselfrelianceofregional countries.

Inpractice,theDefenceCooperationProgramprovidesassistancetoregionalsecurityforces throughmilitaryadvisors,traininginitiatives,bilateralexercises,capacitybuilding,and equipmentandinfrastructureprojects.AlongstandingpartoftheDefenceCooperation ProgramisthePacificPatrolBoatProgramthatprovided22PatrolBoatsalongwithtraining andtechnicalsupportto12PacificIslandcountries.Thesevesselsallowthecountries involvedintheProgramtoindependentlypolicetheirmaritimeterritories. Figure10.7setsoutthespendingontheDefenceCooperationProgramoverthepast twentyoddyears.Foreaseofdisplay,individualcountryspendinghasbeenaggregatedinto convenientcategories.Countryspecificdatafor201112and201213appearsinTable10.3. NotetheincreaseinfundingdirectedtowardsPNGin201213. Figure 10.7: Defence Cooperation Program1987 to 2012
180 160 140 201213$(millions) 120 100 80 60 40 20 0 South Pacific and East Timor Papua New Guinea Southeast Asia Other Regional Engagement

Source:DefenceBudgetPapersandAnnualReports

257


Table 10.3: Defence Cooperation Program2011-12 and 2012-13
Country South Pacific East Timor Vanuatu Solomon Islands Tonga Samoa Cook Islands Fiji Marshall Islands Micronesia Tuvalu Kiribati Palau DCP Housing Pacific Patrol Boats Sub-total Papua New Guinea Source:201213PBS 241 183 260 376 222 2,424 18,570 31,612 12,250 289 267 255 171 235 1,820 19,136 31,691 21,410 5,771 947 792 1,663 72 91 4,862 1,096 924 2,394 108 134 2011-12 ($000) 2012-13 ($000) Country Southeast Asia Singapore Philippines Thailand Malaysia Indonesia Vietnam Cambodia and Laos Brunei Sub-total Other regional activities Defence International Training Centre Total 114 3,686 2,913 3,229 3,834 1,760 1,197 49 16,782 6,502 5,357 72,503 82 3,307 3,152 4,148 4,105 2,102 1,353 21 18,270 7,291 5,464 84,126 2011-12 ($000) 2012-13 ($000)

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About The Australian Strategic Policy Institute

TheAustralianStrategicPolicyInstitute(ASPI)isanindependent,nonpartisanpolicy institute.IthasbeensetupbythegovernmenttoprovidefreshideasonAustraliasdefence andstrategicpolicychoices.ASPIischargedwiththetaskofinformingthepubliconstrategic anddefenceissues,generatingnewideasforgovernment,andfosteringstrategicexpertise inAustralia.ItaimstohelpAustraliansunderstandthecriticalstrategicchoiceswhichour countrywillfaceoverthecomingyears,andwillhelpgovernmentmakebetterinformed decisions. Formoreinformation,visitASPIswebsiteatwww.aspi.org.au.

ASPIs Research Program

EachyearASPIwillpublishanumberofpolicyreportsonkeyissuesfacingAustralian strategicanddefencedecisionmakers.Thesereportswilldrawonworkbyexternal contributors. Strategy: ASPIwillpublishupto6longerstudiesonissuesofcriticalimportancetoAustralia andourregion. StrategicInsights: Aseriesofshorterstudiesontopicalsubjectsthatariseinpublicdebate. SpecialReports:GenerallywrittenbyASPIexperts,SPECIALREPORTSareintendedto deepenunderstandingoncriticalquestionsfacingkeystrategicdecisionmakersand,where appropriate,providepolicyrecommendations.Insomeinstances,materialofamore technicalnaturemayappearinthisseries,whereitaddstotheunderstandingoftheissueat hand. SpecialistPublications: ASPIalsoproducesvaluablereferencetools,suchasTheCostof DefenceandtheAustralianDefenceAlmanac. StrategicPolicyForums:Theseareonlineroundtablediscussionsundertakenwhenasubject ofcriticalimportancerequiresdebate.Theybringtogetherarangeofexpertstodiscussthe mainpolicyalternatives,theresultsofwhichprovidepolicymakersandthebroaderpublic withaccurateandauthoritativeinformationaboutcrucialstrategicpolicychoices. PolicyAnalysis:GenerallywrittenbyASPIexperts,POLICYANALYSISisprovidedonlineto givereaderstimely,insightfulopinionpiecesoncurrentstrategicissues,withclearpolicy recommendationswhenappropriate. CommissionedWork: ASPIwillundertakecommissionedresearchforclientsincludingthe AustralianGovernment,stategovernments,foreigngovernmentsandindustry.

259

ASPIs Programs
TherearefourASPIprograms.Theyproducepublicationsandholdeventsincludinglectures, conferencesandseminarsaroundAustralia,aswellasdialoguesonstrategicissueswithkey regionalcountries.Theprogramsareasfollows. StrategyandInternationalProgram: ThisprogramcoversASPIsworkonAustralias internationalsecurityenvironment,thedevelopmentofourhigherstrategicpolicy,our approachtonewsecuritychallenges,andthemanagementofourinternationaldefence relationships. OperationsandCapabilityProgram: ThisprogramcoversASPIsworkontheoperational needsoftheAustralianDefenceForce,thedevelopmentofourdefencecapabilities,andthe impactofnewtechnologyonourarmedforces. BudgetandManagementProgram: Thisprogramcoversthefullrangeofquestions concerningthedeliveryofcapability,fromfinancialissuesandpersonnelmanagementto acquisitionandcontractingoutissuesthatarecentraltothegovernmentspolicy responsibilities. NationalSecurityProgram:ThisprogramcoversASPI'sworkonAustralia'snationalsecurity priorities,emergingissues,relatedstrategies,andthedevelopmentofnationalsecurity arrangements.

260

Glossary
ADF AES AEW&C ANAO APS CDF CIOG CSP CUC DAR DCP DFRB DHA DMO DRP DSG DSTO EWSP FADT FBT FMA GDP GNI GST NPOC OPA PAES PBS SES 261 AustralianDefenceForce AdditionalEstimatesStatements AirborneEarlyWarning&Control AustralianNationalAuditOffice AustralianPublicService ChiefoftheDefenceForce ChiefInformationOfficerGroup CommercialSupportProgram CapitalUseCharge DefenceAnnualReport DefenceCapabilityPlan DefenceForceRetirementandDeathBenefits DefenceHousingAuthority DefenceMaterielOrganisation DefenceReformProgram DefenceSupportGroup DefenceScienceandTechnologyOrganisation ElectronicWarfareSelfProtection ForeignAffairsDefenceandTrade FringeBenefitsTax FinancialManagementandAccountabilityAct1997 GrossDomesticProduct GrossNationalIncome Goodsandservicestax NetPersonnelandOperatingCosts OfficialPublicAccount PortfolioAdditionalEstimatesStatements PortfolioBudgetStatement SeniorExecutiveService

262

The Cost of Defence ASPI Defence Budget Brief 20122013

RRP $15.00