Australia needs to mobilise in order to address the strategic challenges it is facing. The Defence Strategic Review (DSR) proposes ways to do that. However, the 2023-24 Defence Portfolio Budget Statements (PBS) does not yet incorporate the recommendations of the DSR. In essence it is a document that is already overtaken by events.

So while the PBS always poses many questions that it doesn’t completely answer, this year those questions are particularly perplexing. Here is a list of 10 question that remain unanswered. It’s by no means comprehensive.

The acquisition program

1. In the government’s October budget, the military equipment acquisition program’s predicted expenditure for 2023-24 was $13,460.5 million. This figure has fallen to $12,355.8 million in the 2023-24 PBS. This is a decline of over $1 billion in the military equipment acquisition program.

• Why has this decrease occurred since the October budget?
• Why is funding being moved out of the military equipment acquisition program at a time the government has said the ADF urgently needs to acquire new offensive capabilities?

2. Expenditure in the military equipment acquisition program has increased every year since 2013-14. Nevertheless, it consistently falls short of forecasts, that is, every year’s actual achievement falls well short of the predictions made in earlier years’ PBSs (e.g., 2022-23’s original target was $14,580 million but it will achieve only $12,006 million). Meanwhile, the DSR noted that the acquisition program was already 24% overprogrammed in the forward estimates. If acquisition funding continues to decline against forecasts, overprogramming will increase, resulting in more projects being delayed, reduced or cancelled.

 Moreover, the DSR has injected $7.8 billion in new requirements into the acquisition program, further exacerbating affordability challenges. And there are other new measures that require funding (see below).

• How will Defence manage a further $7.8 billion in requirements in a program that is already 24% overprogrammed?
• Why does Defence consistently underachieve against its acquisition spending predictions?
• How will it all fit in an overprogrammed acquisition program whose funding consistently falls below predictions?

3. The Defence Portfolio Budget Statement (PBS) doesn’t incorporate the recommendations of the DSR. The PBS states that it reflects the Top 30 acquisition projects ‘prior to the full implementation of decisions related to the Defence Strategic Review. The full range of adjustments are anticipated to be finalised for the 2024-25 PBS.’

In essence the PBS presents an investment plan that has been overtaken by events. This creates on-going uncertainty for industry, and it also means that there is a risk that money could continue to be spent on lower priority projects while Defence rebuilds the Integrated Investment Program.

• How confident should we be that funds will not continue to be spent on lower priority projects instead of on new DSR requirements?
• How reliable is the information in the PBS considering it reflects an investment program that will be reshaped over the coming year?

Shipbuilding

4. The Hunter-class frigate program has spent $2,559 million with $780 million more forecast for 2023-24. Nevertheless, it still does not yet have a viable design it can build.

The first frigate is currently scheduled for delivery around 2032, so we likely will not have the first deployable element of capability until 2033. By that time Defence likely will have spent $20 billion on the project.

Moreover, according to a recent Australian National Audit Office report, Defence assesses that the project’s $45 billion investment program provision is insufficient to deliver the full nine vessels.

• Is this the best use of $20 billion over the coming decade at a time we urgently need maritime warfighting capability?
• Should we be proceeding with the program when the budget provision is already insufficient?
• Is the option of cancelling the program within the scope of Admiral Hilarides’ review of maritime capability? If not, why not?

The nuclear submarine program

5.The government has announced a new Australian Submarine Agency to deliver and sustain nuclear submarines. This is reflected in a new program in the PBS, namely ‘2.16 Nuclear-Powered Submarines’. The program’s funding over the forward estimates is $8.9 billion. According to Defence, this funding will be administered by the ASA, not by the Department of Defence. Estimated expenditure includes $3,720 million in 2025-26.

Also, Defence has also stated that the $268-368 billion budget for nuclear submarines over the next three decades includes over $100 billion in contingency.

• How will the ASA’s funding be managed?
• If it is separate to the Department of Defence, how will a relatively small agency manage $100 billion in contingency?
• What is the expenditure of $3.7 billion 2025-26 planned for? Some description of scope and content must be available to provision for this early multi-billion expenditure.

People

6. At a time of virtually unconstrained personnel funding, the ADF has only grown by 410 people since the 2016 Defence White Paper. That’s an average of around 60 per year. In some years it has gone backwards. Nevertheless, Defence has a whole needs to grow from its current 75,464 to 101,000 by 2040 to operate the force set out in its current acquisition plans. And those plans are expanding not contacting, so the 101,000 is probably an underestimate.

• Why is it reasonable to assume Defence can recruit 26,000 people to get to the 101,000 needed to operate the force structure in Defence’s acquisition plans, given recruitment and retention performance since 2016?
• How does Defence incorporate risks around the achievability of its personnel goals in its force structure planning?
• When making investment decisions, does Defence assess capabilities that require fewer people to deliver the same effects more positively that those that require significantly more people? If not, why not, given the known workforce challenges?

7. The ADF’s workforce allocation for 2023-24 has been reduced from 62,735 in the October budget to 59,673 in the 2023-24 PBS. This appears to be reasonable since the ADF is currently more than 4,000 below the original target. However, future years’ allocations have remained unchanged, meaning there will still need to be a jump of 4,000 in 2024-25. This seems heroic considering the average annual increase of 60.

• Will future years’ allocations also be revised downwards?
• How realistic are the ADF workforce allocations set out in the PBS? Are we simply kicking the can down the road?

8. The recent APS external workforce audit stated that Defence employed 8,311 contractors at an annual cost of $2,487 million. According to Defence’s definition, contractors perform work normally done by APS or ADF staff. Noting the cost differential between public servants and contractors, Defence is likely to be paying an overhead of between $1-1.5 billion per year for contractors that could be spent on military capability.

According to the PBS, Defence’s APS workforce allocation is forecast to grow by 2,419 over the forward estimates.

• Has Defence assessed the value for money of using 8,311 contractors in APS/ADF roles?
• What is the reason for the planned growth in APS workforce? Is it intended to bring contracted tasks back within the Department? Or is it simply keeping up with other growing measures such as a AUKUS and the guided weapons enterprise?
• As Defence cuts contractor costs and numbers, what is its plan to place the lost workforce?

The Pacific

9. The PBS shows $923.9 million being spent on a new Enhanced Pacific Engagement measure over the forward estimates. This cost is to be absorbed by Defence. Since Defence Cooperation Program expenditure on Pacific countries was $185.6 million in 2022-23, this measure will essentially double the funding going to Pacific countries.

• What is the money being spent on?
• Do Pacific countries have the capacity to absorb this additional defence aid?

Infrastructure

10. The government has stated that to implement the DSR it will invest $3.4 billion in enhancing military infrastructure in northern Australia. However, significant works were already underway in the north, such as $1.2 billion of work occurring at RAAF Base Tindal in the Northern Territory and $568 million in runway upgrades occurring on Cocos Island.

• How much of the $3.4 billion in DSR infrastructure work was already underway or in existing plans?
• What are the new elements?
• What pre-existing plans for northern infrastructure are being accelerated over the next three years?

Innovation

11. The PBS notes that the Advanced Strategic Capabilities Accelerator will be funded at $748.4 million over the forward estimates that will be absorbed by Defence. However, ASCA will replace Defence’s existing innovation programs (the Innovation Hub and the Next Generation Technologies Fund) that were already being funded at $2 billion over the decade (i.e., an average of $200 million per year or $800 million over four years), suggesting there is little additional annual funding going toward innovation.

Perhaps a bigger issue is that the ASCA funding represents less than half a percent of Defence’s total budget. This a very small amount to spend on innovation.

• What new money is being provided to ASCA over this next four years, or is the funding all internal reallocations?
• How does the Australian Department of Defence’s level of investment in R&D compare to other organisations that seek a technological advantage?
• Does Defence track its R&D funding? Where does it report its R&D funding and outcomes?

 And a final one: GWEO

12. The DSR stated that $32.2 billion in expenditure for the establishment of the Guided Weapons and Explosive Ordnance Enterprise had been announced by the previous government for which no additional funding provision had been made. But no announcements have been made about which guided weapons will be built in Australia, or how many, or when. The 2020 Force Structure Plan did make provision for around $100 billion in guided weapon projects; is the $32.2 billion somehow in addition to this? Is it Defence’s assessment of a potential local premium?

• What is the basis for the $32.2 billion figure? Why are numbers that appear to lack any basis included in the DSR?
• When will the government make firm announcements about which guided weapons will be built in Australia and more importantly, when will deliveries of missiles manufactured domestically actually begin?

 

Dr Marcus Hellyer is Head of Research at Strategic Analysis Australia. He is also a Strategic Advisor at C2 Robotics.