The real situation behind the budget-day hype, gunsmoke and mirrors
In terms of defence spending Budget night each year perpetuates somewhat of a confidence trick on the Australian public.
The Budget and its surrounding hype pretends sufficient investment is being made in Australia’s defence for the future (as opposed to just the minimum to cope with the present). The 2005/06 Budget is no different.
Major defence systems (ships, aircraft, armoured vehicles, etc) are in service for 25-45 year periods (and sometimes longer) and defence planning and capability development therefore needs to follow a 15-25 year replacement or modernisation cycle.
Because we do not provide or sustain the level of phased investment required we are continually extending equipment in service, and postponing or scaling back its replacement or modernisation.
Each year the defence budget comprises three main components: personnel (around 40%), operating costs (around 25-35%) and capital investment in new equipment and facilities (around 20-30%).
Unless the size of the defence force is increased or decreased the personnel percentage changes little.
As the ADF is about as small as it possibly could be (its down near 30% from 1990) the personnel costs overall are relatively unchanged from last year (except for inflationary pressures).
The operating costs of training or actually using the defence force (steaming time for ships, ammunition, fuel, rations, track miles for armoured vehicles, flying hours for aircraft, exercises, etc) can be budgeted for planned activities and these are usually the first cuts made when funding is periodically slashed.
As crises, wars and disaster relief missions usually cannot be forecast these are generally (but not always) paid for by subsequent supplementation of the budget rather than taken from the monies allocated to defence for other purposes.
In this budget the supplementation is 454.4 million (about 2.6 per cent of total defence funding for 2005/06).
Well over half of the nominal increase in defence spending this year (879.7 million) is really just the extra money required to pay for existing overseas operations rather than investment to modernise the defence force for the future.
In real terms, money needed to fight wars and provide disaster relief is technically defence (or foreign aid) current spending.
It is not defence investment for modernisation and the future.
The figures for overseas operations thrown around on budget night with much publicity are simply irrelevant to the sums needed to rebuild the defence force for the future after decades of comparative neglect in the past.
The real measure of a government's commitment to its defence responsibilities, especially a long-term plan and sustained investment in our defence, is the capital expenditure component for this year alone.
This is the figure that is really important because this is the funding tipped into the first year of the rolling ten-year Defence Capability Plan (DCP).
This programs investment in new or refurbished equipment out 10 years in detail and roughly identifies likely further costs out an additional 15 or so.
In terms of defence, the key figures to note in the 2005 budget are:
- the total figure allocated to defence is $17.495 billion;
- this is a real (not nominal) increase on the previous budget of about 3 per cent (with most of the increase due to increased operational and personnel costs rather than increased capital investment);
- personnel costs are about 40 per cent of the total (about the same as last year) and operational costs comprise around 34 per cent (35.6 per cent last year;
- the amount of defence capital investment is $4.595 billion or about 26 per cent of the total;
- the defence allocation is about 1.9 per cent of GDP and approximately 8.53 per cent of the total federal budget (around the same as last year); and
- the percentage of the federal budget devoted to social security, health and education is about 68.3 per cent (68.58 per cent last year).
Defence spending overall (but not capital investment) has been increased by around three per cent in real terms each year since 2000.
This sounds encouraging at first but is still quite inadequate to cancel out the static or declining spending of the 1972-2000 period, which saw the ADF’s equipment block obsolescence problem grow ever-increasingly worse.
This period also saw the defence force decrease in size by around half (even allowing for the end of National Service in late 1972), as personnel numbers were cut in order to redirect the limited funding provided to capital investment, rather than increase the defence budget overall to the levels promised in various Defence White Papers.
The three per cent real increases each year are meant to extend out to 2010-11.
To permit effective forward planning they need to be continued for much longer and a decision on the decade out to 2020 was meant to be announced in this budget but, disappointingly, was not.
It will take a long time and will require significant investment to cancel out three decades of neglect under governments of both political persuasions.
Defence spending really needs a much more substantial boost to catch up to where it should be. For example, if you compare the amounts of investment promised in various defence White Papers over the last 20 years to the amounts actually provided, the deficit is at least $120 billion (or about 7-8 years worth of defence budgets using today's dollars).
The other way of understanding the extent of the problem is to note that for most of the 20th Century Australia invested roughly equal amounts in defence, social security, health and education.
By 2005, however, we are spending about 8.5 times more on social security, around 4.5 times more on health and just on 4 times more on education than we are spending on defence.
Defence is the only one of these four areas of governance that is wholly funded federally.
The large and escalating increases in social security, health and education spending over the last three decades by federal and state governments do not, at first, appear as stark a comparison to defence investment as they actually are because of this.
The 2005 federal budget is no different and, for the first time ever, federal spending on education will exceed that for defence even though the former is a predominantly a state responsibility and the latter wholly a federal one.
This is not to say that spending in these other areas of major government responsibility is not important. It is simply to note that defence spending is at least as important but continues to lag seriously behind.
The graph below indicates the comparison of federal outlays on defence with federal outlays on social security, health and education since 1976.
Note that this graph records only federal spending and does not include the significant spending by the states and territories in the latter three areas.