Inflated ambitions and DWP 2013
8 Aug 2012|

Before turning its attention to the future force structure of the ADF, the team writing the 2013 Defence White Paper will have to grapple with the rising cost of even maintaining the existing force. This will be a particular issue in the coming decade with the delivery of some substantial new capabilities—two amphibious ships that will be the Navy’s largest ever vessels, three air warfare destroyers, the completion of the enhanced land force initiative, and replacement of almost every aircraft in the RAAF’s frontline inventory.

There will be a ‘double whammy’ from all of this new kit. Firstly, there’s the immediate cost of personnel and sustainment overheads. New platforms are almost always more expensive to acquire in real terms than their predecessors by virtue of their added complexity, which also results in higher through-life costs as well. Aircraft, for example, cost about twice their purchase price in the first twenty years of their lives. And service personnel are usually fairly keen to be paid and are, on average, more costly than the civilian workforce.

The second impact is the effect sometimes called ‘defence inflation’. My colleague Mark Thomson pointed out in his 2008–09 Cost of Defence brief (and earlier here) that the cost of sustaining the activities of the Department of Defence increases at a rate somewhat above the CPI. This is due to a number of factors, some of which are relatively easy to estimate, while others are more subtle. In the former category are things like wages. The same growth in real weekly earnings that has seen Australians become more prosperous in the past few decades means that maintaining numbers in the ADF costs more every year. Similarly, health costs for defence personnel easily outstrip the CPI—just as they do for the rest of us. It’s harder to calculate the magnitude of defence inflation for things like sustainment, but specialised skills, equipment and components are all increasing in cost faster than inflation.

The net result of these impacts will be that future governments will have to do at least one (and most likely some combination) of the following things just to keep the ADF that we either have now, or that is about to be delivered:

  • provide real increases in the defence budget
  • cut numbers of civilian and/or military personnel (there’s almost three times as many uniformed as civilian folk, so substantial cuts will probably have to include both)
  • mothball or dispose of some equipment

The first of these options doesn’t seem likely in the near future due to the combined reluctance to run a budget deficit or raise taxes. Government has ruled out cutting the number of service personnel. We’ve seen a little of the third option in action; two of the Navy’s coastal mine hunters are de-crewed and being held on ‘extended readiness availability’ and the Army has put some of its armoured vehicles into long-term storage, despite a clear preference not to.

But those measures are not going to keep the wolves from the door in perpetuity. Even if—and it’s a big ‘if’—a one-off saving of 10% could be generated, defence inflation of 2% above CPI would negate the effect in just five years. So the inexorable upwards creep of costs is going to mean that either more money is going to have to be found, or at least some of the capabilities of ADF will be hollowed out. And we haven’t even started talking about the likely additional cost of future equipment yet—which increases at a rate well above that of sustaining the current fleets. (As we saw in this recent post.)

It’s to be hoped that these inconvenient truths are exercising the minds of the White Paper team. The last thing Defence needs is another White Paper that has a fundamental mismatch between aspiration and resources. It would be far better to scale back plans for the ADF and actually provide the funds required to achieve those more modest ambitions than to aim higher and underfund it, leaving future governments with an even bigger problem, and the ADF with a mandate they can’t possibly deliver on. But modest ambitions aren’t reflected in the Minister’s recent speech to ASPI which, if anything, pointed to a bigger set of strategic challenges and hence greater expectations of Defence.

(In a companion piece to this article, Mark Thomson will explain in a forthcoming post why he thinks we could spend less on defence without a calamitous decline in our ability to defend ourselves.)

Andrew Davies is senior analyst for defence capability at ASPI and executive editor of The Strategist.