A View from Canberra: Dollars and sense | ADM Mar 2011

A Special Correspondent | Canberra

In all the debate about the proposed taxpayer levy plus cuts to government programs to raise $5.6 billion in funds for disaster recovery, your correspondent has been astonished that there wasn’t one demand for defence to wear some of the pain.

Australia has a long and rich history of assorted lobby and special interest groups demanding that the defence budget be cut. This is well covered in the 1994 monograph Searching for Insecurity by Peter Jennings, now defence department deputy secretary for strategy.

That was a response to the Secure Australia Project, a product of the post-cold war left which believed Australia could get by in this happy new world with a much smaller defence force. Jennings noted that many of those arguing for a cut in defence spending saw defence as little more than a source of cash which could be spent on their various pet causes. When this theme emerges again, as it inevitably will, it might be instructive for all proponents of a smaller defence budget to sit down around a large table to argue about whose pet cause is deserving of funding and by how much.

For someone surveying the post-Queensland flood devastation or waiting for hours for treatment in a crowded under-staffed hospital emergency room, there must be a better way. The sums of money involved in defence seem vast and not always well-spent – after all, who else managed to blow $1 billion on Seasprite helicopters.

There’s a perception that the defence budget is fat and bloated. Who says that, you might wonder? The answer is defence itself, in its incoming government brief, released last year in a flurry of openness after the government successfully wooed the independents.

In a paragraph headed “Fat and bloated perception of defence budget” defence said there still existed a view that there was plenty of fat within defence. Although ill-conceived it said, that did render defence an obvious target for any major budget reshaping. So what’s the prospect of $26 billion defence budget being pared away to fund social housing at remote indigenous communities? The answer is none at all.

But Dr Mark Thomson, Australian Strategic Policy Institute analyst and premier defence budget expert, said at the ADM2011 Congress last month that the incoming government brief did sound a warning that come budget time, the finance department would be out hunting for savings. And for defence the capital equipment budget is an alluring target, especially as defence hasn’t been able to spend all its funds, which have then been reprogrammed out into the future. Thomson says it gets really interesting in the lead-up to 2012-13 when the government plans to return the budget to surplus.

“That’s when the government looks around and tightens the belt in every single quarter it can because a surplus is electoral gold in the Australian psyche,” he said.

Budget papers already show programmed defence capital investment program taking a suspicious $1 billion dip in 2012-13, by itself not especially exceptional considering the current slowdown in approval of defence major projects.

Thomson says this is where the government has the discretion to play with defence spending, as an alternative to the clearly impossible task of sacking and later rehiring 1,000 people. On the plus side, the improvement of the US dollar exchange rate has saved the government around $11-12 billion over a decade on what it would have to pay for new US defence equipment. As well, treasury projections point to a steady improvement in the deficit out to the magic year of 2012-13.

On the downside, nature has whacked the nation with floods and cyclones, with the Commonwealth facing a damage and reconstruction bill of some $5.6 billion, which will be part-covered by $2.8 billion in spending cuts. As well, there’s a $1 billion delay in infrastructure spending and $1.8 billion from the infamous flood levy.

However, come 2012-13 the government will still have to supplement defence for around $1.4 billion for the cost of operations in Afghanistan. If the government fails to get the flood levy legislation, the much heralded surplus drops to a mere $700 million. And, Thomson says, that’s cutting it way too fine. So if defence and industry can’t manage to spend all budgeted equipment funds, as is likely this current financial year, the treasurer will be very happy to direct it to a bigger better surplus.