Commentary | 23 May 2014

The US guide to the Australian defense budget

The US guide to the Australian defence budget

Andrew Kwon

CogitAsia

23 May 2014

Please click here for full online text.

  • Andrew Kwon

The US guide to the Australian defence budget

Andrew Kwon

CogitAsia

23 May 2014

Please click here for full online text.

  • Andrew Kwon

Executive Summary

Recently, the Australian government under Prime Minister Tony Abbott unveiled its first federal budget. Among the centerpieces has been the announcement to increase the defense budget, something the U.S. government has long asked of the Australians. The Abbott government has proposed that under its budget, Australia would increase defense spending from its current level of 1.6 percent to 2 percent of gross domestic product (GDP) by fiscal year 2023-24. However, it is best to take a closer look to understand what the budget increase actually entails and what it means for the United States.

Here are some key data points:

  • Rather than increase from 1.6 to 1.7 percent of GDP for fiscal year 2014-15, the Abbott government would see it rise to 1.8 percent – a $US2.1 billion or 8 percent year-to-year increase from $24 billion to $26.1 billion.
  • Cuts worth $1.1 billion will be undertaken over the next four years through “back-room” reforms which are expected to find, for example, $561 million in civilian staff redundancies – 1500 fewer positions which includes service providers.
  • The procurement arm of the Australian defense establishment, the Defence Materiel Organisation (DMO), will also receive an increase in capital investment worth $489 million.

What are things to be aware of?

The changes proposed appear self-explanatory. However, there are important factors one must be aware of before taking the budget at face value.

Institutional resistance to reform: One of Australia’s most respected strategic thinkers, Dr. Alan DuPont, recently noted that the Australian Department of Defence (ADOD) “holds the dubious distinction of being the most frequently reviewed department in the Commonwealth Public Service for the least amount of gain.”

But this institutional resistance to reform is not only due to comfort with the status quo, it is also due to cynicism that has resulted from the experience of previous measures to enforce greater cost control and efficiency. The lack of past follow through with reform implementation due to the shifting governmental priorities and lack of reinvestment of savings resulting from successful examples of reform back into the ADOD itself has made many cautious. This is especially true given that among the election promises of the Abbott government has been to return the federal budget to surplus by 2018-19, making critics understandably skeptical of the latest round of defense reforms.

Funding absorption amid organizational flux: One issue, noted by the Australian Strategic Policy Institute’s (ASPI) parliamentary submission to the Abbott government shortly before the latter released the Commission of Audit Report, is the feasibility of matching the year by year growth rate required of the defense budget to reach the “2 percent of GDP” goal given the ADOD’s historic difficulty in absorbing extra funds.

The ASPI submission points out that the projected growth rate of the budget would need to be approximately 5 percent annually if the government seeks to reach its “2 percent of GDP” goal. As mentioned, the ADOD has had historic difficulty in absorbing funding principally due to being unable to fully spend the increase. The most recent case of this was in the early 2000s when the ADOD struggled to absorb and expend a 3 percent annual growth despite high operational tempo and organizational expansion.

This leads to the second point of personnel. While the ADOD is facing the considerable challenge of responsibly managing its increased budget, it is faced with the concurrent challenge of rebalancing its ‘tooth to tail ratio,’ the proportional number of civilian personnel to uniformed personnel. With a required reduction of 1200 civilian staff and 300 service staff in the next four years, defense policymakers will be faced with a situation where they must juggle the task of crafting an organization that can adequately and responsibly manage a larger budget while undergoing structural reform that will make the organization leaner.

The lack of a white paper: Perhaps the most important element in the context of this budget is the lack of a white paper. Though two defense white papers were put together by the previous Labor government, both have been made redundant by the Abbott government’s announcement that yet another will be released.

Beyond general guidance provided by the budget over the disbursement of funds, there is currently no overarching framework that definitively lays out the long term strategic reasoning behind spending. In light of this, the defense establishment must not only formulate multiple restructuring scenarios based on hypothetical cuts, personnel reforms, and project funding, it must also hold off on actual implementation till the release of a new white paper provides the definitive vision necessary to move forward.

Why does it matter?

Though Australia’s commitment to the U.S. alliance is unquestioned, Washington should recognize the internal focus for Australia. As the ADOD undergoes a period of flux, U.S. contingencies should plan to account for a degree of leeriness in Canberra over the prominence of Australia’s role. In the near term, senior officials will prioritize caution as they seek to soften the pains associated with institutional reorientation. Adapting the tooth-to-tail ratio, struggling to absorb increased funding and, more importantly, waiting on clearer strategic guidance may force Australia’s military into an undesirable, yet understandable, holding pattern.