Policy Discussion Paper - Australia Defence Association

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Measuring the adequacy of defence funding is fraught with misconceptions and faulty measurements. Thus measuring adequacy by reference to a percentage of GDP is misleading when GDP is growing (or contracting) in real terms each year. Similarly, measuring on the basis of the proportion of Federal outlays spent on defence is susceptible not only to the demands made upon the economy by the government but also on the seemingly innumerable variations in accounting practice. Similarly, the adequacy of a given dollar amount can only be measured against an assessment of what is needed and no such assessment exists in this country. Notably, in this context, assessments - even commitments - of desirable outlays in the 1976 and 1987 defence White Papers and in the 1986 Dibb Review have never been met. (Incidentally, in the two latter cases, the objective of a three per cent of GDP spent on defence was set. The current figure is about 1.8 per cent and falling. The inadequacy of this measure is highlighted if a comparison is made with 1989/90. In that year, defence spending amounted to $7827 million or 2.1 per cent of GDP. Current budgeted defence spending at 1.8 per cent of GDP amounts to just on $9000 million in 1989/90 dollars, a 15 per cent increase in real terms.

Meanwhile, military personnel numbers in the ADF fell by a massive 23 per cent as jobs were contracted out and Defence struggled to maintain essential equipment levels. Similarly the commitment in the 1994 White Paper to five year defence budgets was abandoned with the change of government in 1996. Seemingly the only commitments ever met are those to reduce funding. On the other hand, the Association's calculations show that, if GDP grew by an average three per cent in real terms annually, the government could, by allocating just 10 per cent of the estimated revenue growth to defence, increase defence outlays by more than $700 million annually, achieving a defence outlay of some $14.6 billion in 2000 values in just five years. This figure would represent around 2.1 per cent of estimated GDP and 8.0 per cent of a balanced federal budget. This would be achieved with no cuts to existing government programs and, indeed, with ample scope for their expansion. Furthermore, it would restore to defence the priority it enjoyed as recently as 1994/95.

The Table shows how Federal government spending priorities in key areas have changed over the past decade.

Changes in Federal Commitments

	1989/90	1994/95	1999/2000
Defence	8.8	7.9	7.1
Education	6.9	7.9	7.6
Health *	13.4	13.9	22.9
Welfare *	29.6	35.3	33.0
Treasury #	24.6	20.2	17.2
Other	16.7	14.8	12.2
Total	100	100	100
Total as percentage of GDP	24.2	27.1	26.0

The Association cannot assess whether a $14.6 billion outlay would be sufficient but we would be most surprised if it were not. The only test of funding adequacy is whether the ADF is equipped, staffed, trained and supported to be able to carry out its mission. The leaderships of both government and opposition are clearly committed to an increase in defence funding and, in 1997, encouraged the Joint Standing Committee on Foreign Affairs, Defence and Trade to inquire into its adequacy. In an all-too-tentative report, the Committee recommended an average annual increase of between 1.5 and 2.5 per cent in real terms, this in the context of an economy growing at between three and five per cent in real terms! It was a recipe for going backwards.

The Committee's report also noted in what was a savage indictment not only of the defence administration but also its political savvy that the Defence Department was not able to quantify its requirements. In this sense, the debate is going nowhere. Unless there is a degree of understanding of what is needed for defence coupled with a credible timetable for achieving that necessary level of capability, the debate is pointless. What can be said, however, is that in East Timor Australia has struggled to meet and sustain a very minor military operation that, like all such commitments, arose with almost no warning. That is no small indictment of successive governments and their defence advisers.

Capital equipment and/or capability replacement is a central and continuing requirement for any national defence force. The Association is concerned at the experience of the ADF virtually since the end of World War II (and before) that replacement programs have not been properly programmed to ensure timely delivery to operational units. The experience of the reorganised Defence Department following implementation of the 1972 Tange reforms has, if anything, been worse than that of the pre-Tange era. Currently the ADF is operating a number of equipments which are either well past their safe and fully capable operational life or have accepted a decline in platform numbers.

The temporary reductions in capability are caused primarily by a lack of timely decision making over the Collins class submarines and ANZAC frigates. In the Association’s view, the delays have resulted from over-optimistic estimates of the time required to complete the projects, constant pressure on funds allocated to capital equipment programs, undisciplined processes which led to altered priorities and, above all, a failure to draw up a long-term acquisition program extending over a 20-25 year period. Such a program would not only cover the expected life of most major platforms but would act as a guide to successive governments on the funding that would be required for defence in normal circumstances. The Association suggests that there may even be a case for providing a legislative basis for such a program to reduce the incessant manipulation of the acquisition program for bureaucratic or political reasons.

In an attempt to overcome the effect of program delays, Defence has reinstated a tendency to try to extend the life of major equipments by modernisation, a practice that was uniformly unsuccessful and costly in the past. Modernisation of capabilities is important, especially for weapons and electronics upgrades, but extending the life of platforms is fraught with risk. Currently, the ADF is considering a life-of-type extension for the Fremantle class patrol boats because it cannot make up its corporate mind on the type or number of replacements. The Fremantles are currently between 15 and 20 years old and, for a hard-worked vessel of this size, a 15 year life is about as long as can reasonably be expected. This question has substantial implications for a major non-defence task, the policing of Australia’s offshore zones, and the delay is scandalous. In the Association's view, it is almost impossible to make any judgement on the adequacy of funds for capital equipment/capability replacement and modernisation in the absence of an indicative long-term program that is insulated from manipulation for other reasons.

Since 1991, Defence has attempted to reduce personnel costs by a program of civilianisation and commercialisation. While the concept has considerable value and useful work has been done, the objective of improving combat readiness and reducing personnel wastage has not been achieved. The attempt, through the Ready Reserve Scheme, to increase readiness failed through a series of misjudgements about the purpose of the scheme, its operation and the target group to be recruited. Nevertheless, the net effect of the 1991 Force Structure Review and the proposals contained in the 1997 Defence Efficiency Review have been to reduce regular military personnel numbers by 27.1 per cent (from 68,630 in 1991 to a targeted 50,000 by 30th June 2000). In the same period, the number of all military personnel (including reserves) has fallen by 24.6 per cent (from 71,961 full time equivalents to 54,230). The Auditor-General noted recently that 26 per cent of regular and 66 per cent of reserve personnel are NOT available for immediate deployment on operations.

Anecdotal evidence of the stress imposed upon units in the field has been supported by the recent Board of Inquiry report into the recent Blackhawk helicopter crash. Not only are personnel working harder to meet operational and administrative requirements but the wastage of skilled personnel either leaving the ADF or being transferred to headquarters is having an increasingly deleterious effect. The Association has for many years been critical of the growth in the regular officer corps. Based upon data provided in Defence Annual Reports, the Association notes that the officer corps has grown from 13.7 per cent of the regular ADF in 1977 to 23.0 per cent in 1999. Despite this growth, anecdotal evidence suggests that the ADF in general and the Army in particular experienced considerable difficulty in providing sufficient officers for the deployment to East Timor. Similar shortfalls occurred in non-commissioned ranks and volunteers had to be called for from the reserve force.

The ADF's personnel management practices, driven as they are by cost considerations, attempt to ensure that there is no reserve of personnel in the force. Units are manned to precise levels, training and leave absences are borne by the units themselves and many units are maintained below authorised strength. There is an endemic shortage of air crews in all three Services. This practice was partly responsible for the inability of the ADF to sustain what was in reality a quite small military operation in East Timor. The Association considers that personnel policies that attempt to provide a purely military career structure for all full-time personnel are mistaken. The ADF should be able to recruit short-term personnel, especially among air crews and non-military specialisations such as medical, legal and some engineering branches. Moreover, by lateral recruiting at higher ranks from former Service personnel, the ADF should be able to make more economic use of its people while also providing a reserve to fill long or short-term gaps.

The Association is conscious of past debates which suggested that Defence was switching resources from personnel to equipment or vice versa. Our view has always been that the debate was artificial. While the switching undoubtedly occurred, it was a product of alleged financial stringency which itself was a product of a misuse of resources through excessive and wasteful management structures and processes.

The end of the Cold War and the long overdue adoption of a regional security strategy has led to an increase in the operational tempo of the ADF. A greater demand for surveillance operations by the RAAF's Maritime Reconnaissance Group, naval and air exercises with regional nations, peacekeeping tasks and a continuing high utilisation of the RAN's Fremantle patrol boats for enforcement tasks in the offshore zones has resulted in greater pressure being placed upon aging equipment.

While the tempo of such operations will necessarily be limited by the availability of units and platforms, the cost in wear and tear is not insubstantial and demands on maintenance will grow. Skimping on maintenance, always a temptation in periods of financial stringency, is a high risk solution but is increasingly pursued in the face of cost blowouts in acquisition programs.

Peacekeeping or enforcement tasks have been a notable feature of military operations in recent years. Following the commitments to Cambodia, Somalia and Rwanda, the former government reduced its notional commitment to such operations effectively to no more than 200 personnel. The Association considers such a commitment to be both timid and unhelpful to Australia's wider security interests. The most effective commitment Australia made to such operations was in Somalia where a larger force - a battalion group - took over an area of responsibility and demonstrated a wide range of skills in restoring public order and rebuilding community structures. In our view, this will be the essence of effective peacemaking and Australia has superior skills and experience. We believe that effective peacemaking will depend less upon forces drawn from a multitude of countries than on those drawn from a relatively small number of countries with skilled and disciplined forces. The East Timor experience reinforces this view, just as it reinforces the conclusion that operational commitments are largely unpredictable.

While funding for peace operations will be based upon a case-by-case basis as well as upon international sources, the Association believes that Australia will need to maintain rather larger forces at a higher level of readiness to be able to respond to emergencies in a more timely fashion. It has been a commonplace statement that peacekeeping requirements should not be a determinant of force structure but that misses the point. It may mean that 3rd Brigade remains the primary combat force but other units and formations, including reserve units, could be prepared for low intensity/low risk peace operations. In our view, this would be a more realistic role than preparing to meet the imaginary threat of incursions on to the Australian mainland.

The Association is not able to comment upon current stockholding policy but would draw attention to two key factors which, we believe, have not been given sufficient weight due mainly to financial limits. The first is the failure to provide adequate stocks of consumables for training purposes. The financial stringencies have led to changes of policy such as that which argues that not all soldiers need to maintain proficiency in shooting, a somewhat extraordinary notion to say the least. The second issue concerns war stocks and the invariable experience of almost every armed force committed to combat that usage rates, especially for ammunition, vastly exceed the staff estimates.

The Association supports a high level of investment in research and development for Australia's defence. The ADF tends to be a consumer of equipment produced elsewhere but, over many years, has shown a marked ability to modify equipment to enhance its performance. In an era in which high performance equipment is more freely available to potential adversaries, this ability may be the key to maintaining the ADF's technological edge. Funds committed to defence R&D have shown a regrettable tendency to decline in real terms in the past decade and amount to a mere two per cent of defence outlays. R&D outlays are inherently risky. It is a matter of fine judgement to decide when a project should be abandoned because it appears to be unproductive. While no project should be financially open-ended, a hasty decision to abandon a project on grounds of cost may deny the ADF an important operational advantage. Australia's participation in the Technical Co-operation Program with the United States, United Kingdom, Canada and New Zealand is an important defence asset. Australia should seek to make a large contribution to the work of the program to ensure that its value is not diminished in the eyes of its partners.

The Defence Efficiency Review appointed by the Defence minister in October 1996 proposed a number of administrative and organisational reforms which, it calculates, has the potential to redirect up to $1 billion annually from support areas to combat capability. This assessment far exceeds the most optimistic calculations of, among others, this Association. The Defence Reform Program established to implement the proposals of the DER has reduced the target to $730 million, still a very large figure. What is surprising is that comment to date has not remarked upon the scandalous waste that this saving represents in the past. Even so, the Association is not persuaded that the DER has dealt effectively with the core administrative problem which is less a matter of inefficient organisation but of wasteful process. The DER does not appear to have considered what the Association regards as a need to devolve decision-making to more realistic levels so as to speed up time-consuming processes.

An examination of the DER report suggests that Defence administration involves extensive management of a range of different processes and reporting requirements which in essence duplicate each other but respond to differing demands by internal and external authorities. To some degree, the problem arises from a lack of co-ordination between Commonwealth authorities generally and it is not within the competence of Defence to resolve. Nevertheless it does result in a waste of public funds and demands some attention, possibly at Cabinet level. The DER proposed a reduction in military personnel numbers of some 4700 with only about half to be redeployed to operational units. This suggests an opportunity lost to restore some credibility and readiness to those units and to reduce workloads.