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A bleak outlook for defence spending

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COMMENTS

3 February 2009 09:35

Sam Bateman is a Senior Fellow with the Maritime Security Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.

Mark Dodd’s piece in The Australian two weeks ago referred to an independent audit of Australia’s defence budget that recommended cutting defence spending by $3billion. Subsequently however, not much discussion has occurred of how major cuts to the defence budget might be achieved; salami slicing ideas, such as cutting travel, have been mainly mentioned.

It’s most unlikely that the Government will maintain its current commitment to 3% real growth in defence spending. The Australian economy is moving into recession, and very low growth rates, or even negative growth, are predicted for the next few years.

Defence spending is currently about 2% of GDP. If 3% real growth in defence spending were to be maintained despite the low rates of GDP growth, this would mean that defence spending could reach about 2.4% of GDP by 2011 — higher than it’s been in many years, and probably questionable in our current strategic circumstances. A higher share of the national 'cake' to Defence will not happen, given all the other pressures on government, and the economic stimulus, health, education and welfare programmes that have already been announced.

The recession gives the government a good excuse to walk back from many of its current commitments. And when the chips are down, there are fewer votes in Defence than in other Federal government programs. Rather than 3% real growth in defence spending, we should be thinking in terms of force structure options with say, 1% real growth in defence spending, zero growth, or 1% real decrease. These are the types of ‘wicked problem’ that must now be exercising the white paper and capability planning writing teams.

What are the options? The Prime Minister has indicated his support on several occasions for expanding Australia’s naval capability. However, with the present economic outlook, this could only be achieved by quarantining major naval projects — the air warfare destroyers and large amphibious ships — from cancellation or delays. But wave goodbye to any thoughts of an expanded submarine fleet.

If this strong commitment to a larger navy is to be believed, then it will only be achieved at the expense of cuts in other parts of the ADF. The Joint Strike Fighter is an obvious target, but cut backs in personnel numbers, both military and civilian, are more likely. That raises real question marks about any expansion of the army and the future of our current overseas commitments. Australia is unlikely to be alone in this regard, as other countries adjust to the realities of the economic meltdown.

Personnel costs are the nemesis of defence budgets. Capital equipment and operating costs can be cut or deferred, but unless a decision is made to cut numbers, personnel costs just go on increasing. In tight financial times, they tend to become a larger percentage of the defence budget until a decision is made to cut numbers.

There are great dangers downstream if defence and the ADF continue their planning against the commitment of 3% real growth. Defence spending has a certain momentum about it. It’s hard to turn it off, but the longer it takes to appreciate the need for cuts, the harder the ultimate crunch.

In fact the current situation is not unlike the one Australia had in the early 80s. Then the ADF continued to plan for increased expenditure although all economic indications were that it should have been planning for the opposite.

Defence planning became a mess, and the Dibb Review was set up to sort it out — and we ended up with the budgetary and planning discipline of Defence of Australia. History could be about to repeat itself.

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