The 2022-23 defence budget is a conflicted program. In keys ways it acknowledges and responds to a changing world, but in others it is still a relic of an earlier time.
Let’s start with the funding line. At $48.6 billion between the Department of Defence and the Australian Signals Directorate, it’s a substantial and growing sum. In nominal terms it’s a healthy 7.4% increase on 2021-22. Despite high inflation, it’s still a real increase of 3.8%. For those interested in spending as a percentage of GDP, it’s 2.11% based on the government’s GDP predictions. Of course, using GDP to measure defence spending is a crude tool; 2021-22’s defence budget started off at 2.09% but is now a hair below 2.0% at 1.98% because GDP has recovered so strongly, not because the government didn’t deliver its funding commitment.
Indeed, we should note that as in the previous five years, the government has once again delivered the funding it committed to back in the 2016 Defence White Paper. And there’s the rub. That funding line was developed in 2015 before China’s de facto annexation of the South China Sea, before its neighbours became aware of the implications of its campaign of coercion, and certainly before Vladimir Putin’s invasion of Ukraine reminded us that war is still a thing.
While the government showed commendable fortitude in maintaining its White Paper funding commitment during the pandemic when its bottom line took a substantial hit, its own assessments have highlighted the growing uncertainty and risk in our strategic environment. Is it time to reconsider a funding model developed nearly seven years ago, particularly when that funding line continues throughout the forward estimates, at which point it will be based on assumptions over ten years old?
Nevertheless, the government has shown that it recognises the changing nature of competition and conflict. It’s pouring an additional $4.2 billion over the forward estimates and $9.9 billion over the coming decade into the Australian Signals Directorate to deliver greater offensive and defensive cyber capabilities. That will result in a doubling of ASD’s funding in just a couple of years to over $2.2 billion per year. Whether ASD can find double its current number of people is another matter. I’m pretty sure that offensive cyber experts don’t grow on trees, and a lot of those who are currently working in the field aren’t the kind of people who are going to get a top secret security clearance.
But if the pudding is staying the same size while somebody is getting more of it, then somebody has to get less. Over 85% of ASD’s additional funding is coming out of the Department of Defence’s funding. To be precise, it’s coming out of Defence’s capability acquisition program. There are reductions of over $1.5 billion per year over the next three years compared to the plan a year ago.
Of course, concerns over Defence’s ability to spend its acquisition budget probably played a role, since the department has come up around a billion short of its spending target in each of the past two years. But it seems clear that the government has prioritised the emergent demands of the cyber domain over traditional equipment programs. What we can’t see from the PBS is whether it is adapting elsewhere – by pursuing the small, the smart and the cheap rather than huge industrial age projects, for example.
Its megaprojects simply aren’t delivering in relevant capability in meaningful timeframes. The cancelled Attack class submarine program will have spent $3 billion by the end of 2021-22. What’s worse, Defence is still going to spend another half billion on it in 2022-23, a year after the program was cancelled. That’s for a capability the prime minister admitted would be obsolete the day it would eventually be launched sometime in the mid-2030s.
Which other programs need to face this same truth? The war in Ukraine seems only to have solidified the supporters and opponents of Defence’s planned $30+ billion investment in armour in their positions. But even its supporters can’t be happy with the fact that by the end of 2022-23 we will have spent over $2.3 billion on the Boxer combat reconnaissance vehicle with only 25 vehicles delivered (and those from overseas) five years after the project was approved.
If these capabilities are so important, why are we happy to accept such woeful timelines? No announcement on the successful bidder for the $20+ billion infantry fighting vehicle program accompanied the budget, though it may yet happen during the election campaign. But will we be happy with a similar delivery schedule? One might say that the M-113 has been obsolete for three decades already, so where’s the harm in waiting yet another one for its replacement? Or one might also learn from the Ukrainians who went from easy beats to the toughest land force in Europe in eight years and ask how they turned things around without waiting for projects that take decades to deliver.
Just as new capabilities are taking a long time to arrive, so are Defence’s new people. Two weeks ago, the government announced an increase of 12,500 military personnel in the coming decade and a further 6,000 the decade after that. It’s not spelled out in the PBS, but ASPI understands that the $38 billion for the first 12,500 is already built into Defence’s current funding model. This year’s PBS gives a hint of how long it will take for them to arrive; there’s no increase in ADF personnel compared to the previous plan until 2024-25. In other words, they don’t start to arrive for over two years. And considering the ADF is already 1,600 people short of where it’s meant to be right now, even that might be optimistic. It’s taken Defence the six years since the 2016 White Paper to grow by around 1,800 and, based on the PBS, it’s actually gone backwards in the last year.
Another noteworthy number that illustrates the changing role of the ADF. For the first time, Defence spent more on domestic operations assisting the civil authority with Covid Assist and flood relief ($257.9 million) than it did on operations overseas ($255.3 million). But there’s little indication in the PBS that Defence is structuring itself to better meet contingencies of that nature.
The 2020 Defence Strategic Update gave us a few glimmers of different thinking, with hints that Defence would explore asymmetric approaches to deterring threats. So far there’s been few signs of that happening. The reprioritisation of away from traditional capabilities in favour of cyber revealed in this year’s budget is promising, but there’s a lot more that can be done.
Marcus Hellyer is ASPI’s senior analyst for defence economics and capability.