Hard times

Hard times: then and now

Earlier today, I took up an invitation to speak at the annual Australian Defence Magazine Congress. My task was to provide an update on the defence budget and make predictions about where it’s headed. The first part was easy, the second less so. Here’s an outline of what I said.

Where are we now?

In May 2009 the government released an ambition blueprint for the ADF of the future—Force 2030—accompanied by a 21-year funding commitment and a decade-long $2 billion Strategic Reform Program (SRP). The funding commitment lasted all of 10 days, before $8.8 billion of promised funding was ‘reprogrammed’ (i.e. deferred) to beyond 2016 in the 2009–10 Budget. (That budget is examined in grisly detail here.)

Over the next three Budgets, Defence went on a wild ride. When the dust settled in May last year, Defence had seen a further $1.8 billion of promised funding deferred, had handed back $1.6 billion in unspent funds, absorbed $2.5 billion in unfunded measures and copped a demand to find an extra $10 billion of new savings (i.e. reduced funding) above and beyond the SRP. All up, since the publication of the 2009 White Paper, $25 billion of scheduled White Paper funding has been lost one way or another.

Meanwhile, Defence has reported billions of dollars in efficiency savings from the SRP. This shouldn’t be taken at face value. While some laudable reforms have occurred—especially in shared services and material sustainment—the reported savings are implausible in both scale and detail. Further efficiencies are possible in Defence and prudent management would see them sought as a priority.

Be that as it may, Defence is now doing it hard. The recent cuts have been deep and painful; funding is 10.5% below last year’s level and defence spending as a share of GDP has fallen to 1.56%, the lowest level since 1938.

And new problems have emerged. Permanent ADF numbers are 1900 fewer than budgeted for, supposedly because of labour market conditions (notwithstanding growing unemployment over the period). It might be that ADF members see the writing on the wall and are seeking better long-term prospects beyond a defence force financial distress.

Curiously, falling numbers aren’t reflected in the officer ranks. There are 159 more full-time uniformed officers—mostly due to additional senior officer positions—and 351 more civilian executive level officers than budgeted for. As has long been the case, personnel numbers in Defence are an emergent phenomenon rather than a managed resource.

It’s with the burden of severe budget pressures and once again out of control workforce numbers that Defence awaits its fate in the form of the 2013 White Paper.

Where are we headed?

Despite a number of embarrassing leaks, there’s little certainly about what the 2013 Defence White Paper will contain. But while history never repeats itself, it sometimes rhymes. So perhaps we can gather insight from past events.

Many people, the Defence Minister included, have drawn parallels between the present situation and the years following our withdrawal from Vietnam. Given that both involve the end to long-term land-based expeditionary operations, the comparison is somewhat apt. But from a budgetary perspective, I think the best analogue of our present situation can be found in the period following the 1987 Defence White Paper. The 1987 document was conceived on the tail end of the Reagan build-up, just as the 2009 White Paper was born in the final years of the US military build-up accompanying the wars in Iraq and Afghanistan. Of course, in each case, the world soon changed in important ways. Just as the war in Afghanistan is drawing down today, the Cold war ended abruptly a couple of years after the 1987 White Paper. On the economic side, Australia slipped into recession soon after 1987, causing similar fiscal challenges to those facing both sides of Australian politics today. Given the similarities, it’s hardly surprising that both the 1987 and 2009 White Papers made funding promises that were broken.

So what can the years after 1987 tell us about what to expect? In 1987 spending levels of between 2.6% and 3.0% of GDP were deemed necessary to deliver planned capability going forward. By 1994, defence spending had fallen to 2.1%. And although the1994 White Paper said that spending would be held at round 2% of GDP, by the eve of the subsequent White Paper in 2000 defence spending had fallen to 1.74%.

The 1990s saw the ADF revert to survival mode. Key big-ticket acquisitions were retained but were based on the concept of ‘fitted-for-but-not-with’ some key mission systems. Readiness was allowed to decline, and cuts to the force structure and extensive outsourcing saw ADF numbers fall. I suspect that we are headed down this road again.

To date, what separates the events of the 1990s and those of today is the extent of unreality—approaching denial—that pervades official discussion of defence policy. Just as the economy slipped into recession in 1990, a Force Structure Review (PDF) was commissioned to align defence planning with the realities of funding. The resulting adjustments were substantial and enduring. No such exercise has occurred this time around. Instead, just about everything that was promised in 2009 is still on the table—along with some additional big-ticket items from the Force Posture Review.

Perhaps the 2013 White Paper will make the hard decisions necessary. It certainly should, but initial signs are far from encouraging. Irrespective of whether money becomes available, the latest Defence Capability Plan is manifestly unrealistic, with envisaged project approval rates far in excess of anything achieved in recent times.

It remains to be seen how much the 2013 White Paper says about the future of the ADF, but one way or another it’ll say something about Australia’s ability to face up to hard decisions.

Mark Thomson is senior analyst for defence economics at ASPI. Images courtesy of Department of Defence.

Meanwhile, Defence has reported billions of dollars in efficiency savings from the SRP. This shouldn’t be taken at face value. While some laudable reforms have occurred—especially in shared services and material sustainment—the reported savings are implausible in both scale and detail. Further efficiencies are possible in Defence and prudent management would see them sought as a priority.

Be that as it may, Defence is now doing it hard. The recent cuts have been deep and painful; funding is 10.5% below last year’s level and defence spending as a share of GDP has fallen to 1.56%, the lowest level since 1938.

And new problems have emerged. Permanent ADF numbers are 1900 fewer than budgeted for, supposedly because of labour market conditions (notwithstanding growing unemployment over the period). It might be that ADF members see the writing on the wall and are seeking better long-term prospects beyond a defence force financial distress.

Curiously, falling numbers aren’t reflected in the officer ranks. There are 159 more full-time uniformed officers—mostly due to additional senior officer positions—and 351 more civilian executive level officers than budgeted for. As has long been the case, personnel numbers in Defence are an emergent phenomenon rather than a managed resource.

It’s with the burden of severe budget pressures and once again out of control workforce numbers that Defence awaits its fate in the form of the 2013 White Paper.

Where are we headed?

Despite a number of embarrassing leaks, there’s little certainly about what the 2013 Defence White Paper will contain. But while history never repeats itself, it sometimes rhymes. So perhaps we can gather insight from past events.

Many people, the Defence Minister included, have drawn parallels between the present situation and the years following our withdrawal from Vietnam. Given that both involve the end to long-term land-based expeditionary operations, the comparison is somewhat apt. But from a budgetary perspective, I think the best analogue of our present situation can be found in the period following the 1987 Defence White Paper. The 1987 document was conceived on the tail end of the Reagan build-up, just as the 2009 White Paper was born in the final years of the US military build-up accompanying the wars in Iraq and Afghanistan. Of course, in each case, the world soon changed in important ways. Just as the war in Afghanistan is drawing down today, the Cold war ended abruptly a couple of years after the 1987 White Paper. On the economic side, Australia slipped into recession soon after 1987, causing similar fiscal challenges to those facing both sides of Australian politics today. Given the similarities, it’s hardly surprising that both the 1987 and 2009 White Papers made funding promises that were broken.

So what can the years after 1987 tell us about what to expect? In 1987 spending levels of between 2.6% and 3.0% of GDP were deemed necessary to deliver planned capability going forward. By 1994, defence spending had fallen to 2.1%. And although the1994 White Paper said that spending would be held at round 2% of GDP, by the eve of the subsequent White Paper in 2000 defence spending had fallen to 1.74%.

The 1990s saw the ADF revert to survival mode. Key big-ticket acquisitions were retained but were based on the concept of ‘fitted-for-but-not-with’ some key mission systems. Readiness was allowed to decline, and cuts to the force structure and extensive outsourcing saw ADF numbers fall. I suspect that we are headed down this road again.

To date, what separates the events of the 1990s and those of today is the extent of unreality—approaching denial—that pervades official discussion of defence policy. Just as the economy slipped into recession in 1990, a Force Structure Review (PDF) was commissioned to align defence planning with the realities of funding. The resulting adjustments were substantial and enduring. No such exercise has occurred this time around. Instead, just about everything that was promised in 2009 is still on the table—along with some additional big-ticket items from the Force Posture Review.

Perhaps the 2013 White Paper will make the hard decisions necessary. It certainly should, but initial signs are far from encouraging. Irrespective of whether money becomes available, the latest Defence Capability Plan is manifestly unrealistic, with envisaged project approval rates far in excess of anything achieved in recent times.

It remains to be seen how much the 2013 White Paper says about the future of the ADF, but one way or another it’ll say something about Australia’s ability to face up to hard decisions.

Mark Thomson is senior analyst for defence economics at ASPI. Images courtesy of Department of Defence.

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