Lavishly funded but broke: Australia’s Defence Department needs a zero-based budget

A river of cash is flowing into Russell Offices, but without a zero based budget, nothing will happen fast.

Written by

Michael Shoebridge

The Australian Defence Department is broke.  That must sound outrageous to almost every other military on the planet – and to pretty much every other part of the Australian Federal bureaucracy who are looking at efficiency dividends and a government obsessing over its ability to deliver a budget surplus. 

$52.6bn in taxpayer funding this financial year for a military of around 60,000 people is serious money. The Defence budget has been growing every year since 2013-14, when it was $26.1bn – that’s sustained, big, real growth, not just inflation.

But Defence is broke. It can’t find the money to do anything new that’s not already in its existing plans.  It certainly can’t seem to shift funds or attention to anything different quickly. ‘Quickly’ in Russell Hill Defence headquarters language, appears to mean within 4 years or, more cynically, ‘during my tenure here in leadership’.

For perspective, 4 years ago, Australia had not experienced the late 2019 national bushfire disaster, or the Covid pandemic, and the wars in Ukraine and the Middle East weren’t just not happening, they were not expected to happen. Toyota had a bigger market capitalisation than Tesla, and China’s BYD didn’t sell a single car in Australia. Many things are possible faster than we would like to acknowledge or imagine.

Defence is bankrupt while flush with cash because its basic planning approach makes it so. While the rest of the world is adapting to short planning cycles and being responsive to unexpected big events, Defence has held on to its long-term planning and business processes, built for a time when Australia only faced ‘wars of choice’ not necessity. And when we had at least 10 years of warning time before any war threatening Australia that our military might need to fight, so urgency was a foreign concept.

These Defence processes were also built for the decades when Defence spending was tight and so investments had to be eked out over years. It’s allocated every dollar it is getting this year and over the coming decade to things it’s wanted for years – and has even stuffed more things it wants than it can afford into its Integrated Investment Program.

The business processes that do this over and over again are the molasses that every minister who wants something not in ‘the plan’ finds themselves bogged in. Even the heads of the military’s three services – the Chiefs of the Navy, Army and Air Force face the same problem and are unable to free up $100 million out of $52 billion to do something they know is essential but isn’t already a line item – like buying a few hundred small uncrewed undersea systems otherwise known as armed underwater drones. Or investing $500 million in real contracts with capable Australian firms to supply key ‘consumables of conflict’ our military will need if a war actually happens.

Defence’s own behaviours and processes are the root cause here – and these can be changed, but probably only with new leadership and healthy, sustained political direction. Blaming the previous government or blaming the Albanese government misses the point – it’s the same Defence organisation, now with the same senior leadership for years, that is the heart of the problem.

In the corporate world, an organisation – called, say ‘Defence Inc.’ that was as moribund and rigid as Australia’s Defence organisation would face a shareholder revolt, a board spill and a head office clean out – or a hostile takeover to release its capital and assets for more productive use.

In the less extreme version of a new board and senior leadership, this Defence Inc. would experience a comprehensive reset, starting with a zero-based budget.  That means that all of Defence’s current plans and budget line items would be rubbed out and a new plan would be built from the ground up, justified not by the inertia of what others had already decided years ago, but by what the health and success of the organisation now, in the next two and three years – and the longer term – requires.

A zero-based budget lets all obsolete assumptions about how things are done and what our military needs be left behind and the reality of today’s environment and threats be faced and planned around instead.  It frees up money and people and ends briefs to ministers saying ‘Yes, Minister, letting Rafael start missile production in Australia is a good idea – we just can’t afford it until 2034’.

It’s the opposite to most reprioritisation or savings exercises which start ‘top down’ with all the current plans and the current budgets and looks for specific items to take out. Instead, it starts at zero and builds a new plan and budget from the ground up.

Some big obvious things will get funding priority in any zero-based budget exercise.  Paying the salaries of our defence people, both military and civilian (after cutting the bloated top structure in both the ADF and Public Service), maintaining and operating the current ships, planes and vehicles.  Exercising and patrolling, keeping bases maintained and capable.  A zero-based budget exercise will find much of the available funding consumed by these standing and unavoidable costs, but it will not be encumbered by things that are there because ‘they have already been agreed and are in the plan’. That will free up money and people to do important things Defence says it can’t do now. 

It will also end the merry go round of savings exercises in Defence on capability that has no Service or group wanting to say that anything in the current plan can go, because of the rational fear that their reward for being collegiate will be someone else getting the cash they give up. It will end the mutual backscratching, that leads the Navy to stay silent when there’s discussion of heavy armoured vehicles without active self protection against current threats, and makes sure the Air Force is silent on programs like the underarmed Hunter frigates being delivered on a meaningless timescale.

It’s not just the contents of the Integrated Investment Plan, stuffed with the pet rocks of senior officials and governments of times past, that need to go. It’s also the assumptions, untested mindsets and moribund concepts that have gone into developing the plans and projects. The current slow-moving ‘Integrated Investment Program’ hides many rigidities, for example, baking in the ridiculous, luxurious notion that everything has to be integrated with everything else.

This concept has taken an even more extreme form, with Richard Marles embracing Defence advice that our small military needs to operate systems that are ‘interchangeable’ ‘seamlessly’ with our huge US ally’s military. That’s a recipe for the ADF buying exclusively from big US firms and tying itself into a cost structure even the Pentagon is struggling to afford, built on timelines measured in decades.

In talks last week, Minister Marles advocated that the New Zealanders join this never-ending pursuit of seamless interchangeability with us and with our US ally, making it even harder, more complex and less likely to ever deliver a practical result.

The Ukrainian military knows that trying to integrate everything with everything is a recipe for failure.  And if you are operating a very wide set of different platforms and systems, like Soviet-era tanks and air defence launchers as well as leading edge Patriot missile systems, integrating everything is impossible and probably counterproductive. Instead, they excel at ruthlessly focused integration. Their guiding question is ‘What needs to work with what else to get the result I want?’ followed by ‘How fast can we do this?’. This ruthlessly focused approach has led to successes like being able to fire an advanced US air to air missile from a Soviet-era fighter plane using Starlink satellite communications and a smartphone gaffer taped into the cockpit to shoot down Russian planes and helicopters. It works and was delivered in months not decades.

In contrast, Australian defence officials are taking 4.5 years to study eagles, microwaves and anything else they can conceive of before beginning a multi-year exercise to arrive at a potential contract a decade from now for something that can protect Australian military personnel from the armed drones in use today.

‘Delivering yesterday’s solutions tomorrow’ is not a recruiting slogan that is destined to win in today’s employment market for talented young Australians. And when Australia’s world-leading advanced technologies can already deliver many of those solutions today, it’s yet another vote of no confidence in Australian industry.

Ending this planning construct based around everything needing to be integrated with everything else is essential. As is killing the notion that its normal for projects to buy capability with spend spreads of a decade or more because time is our friend and this lets more toys be fitted into the Defence budget suitcase.

Until a zero-based budget is begun in Defence, no amount of feverish reprioritisation of current plans and spends will do anything other than inflict random and painful cuts to our military. That’s what Defence is likely to serve up to its ministers for the May budget. A light garnish that looks like a speedy acquisition or two will probably be used to mask this underlying truth. Like the ‘rapid’ acquisition of missiles that has been announced and reannounced on an annual basis since 2020.

And until Defence can show practical, real results from how it is spending the funds taxpayers are giving it, there is little chance that any prime minister or treasurer will throw new money at Defence. 

Defence Inc. needs new leadership that takes the organisation through a zero-based budgeting approach to create a Defence organisation that’s in touch with Australia’s security needs, able to prioritise what it does simply, and then implement at the speed of our world and many public and private organisations.

If Defence were a publicly-traded company, this would already be happening – because of the glaring gap between what Defence exists to do and what it is achieving with the enormous resources available to it.