Questions on Defence’s mid-year budget update
Unpacking the Strategic Review dollars

$765 billion over ten years gets Australia a weaker military while the AUKUS subs and Hunter frigate spends ramp up.

Written by

Marcus Hellyer

The Defence 2023-24 Portfolio Additional Estimates Statements (PAES) were published on Thursday 8 February. The PAES outlines changes to the Defence budget since the Portfolio Budget Statements were released in May 2023. In essences, it is the most current information on the state of the Defence budget.

The Defence portfolio will be considered at Senate estimates hearings on Wednesday 14 February. Therefore the Parliament will have had only three working days to consider the PAES.

To support Parliament and the public’s consideration of the PAES in that very limited timeframe, Strategic Analysis Australia is publishing the following questions on the Defence budget.


ADF numbers

The PAES now makes a clear distinction between workforce demand and workforce supply, i.e., what Defence’s requirement is and what its actual uniformed workforce is (Table 13, page 21). This is a good development.

In the 2022-23 PBS, the ADF workforce requirement for 2023-24 was 62,735. In the 2023-24 PBS the workforce target was revised down to 59,673, essentially reflecting the hard reality that that the ADF was only at 58,642 actual people, around 4,000 people below the requirement.

However, the PAES clarifies that the requirement for 2023-24 is still 62,735 and the 59,673 figure was merely anticipated supply. In sum, even if the ADF hit the 2023-24 target, it was still 3,000 short of the requirement. That requirement continues to grow over time.

At Senate estimates hearings in October 2023, Defence said the ADF was at 57,218—a further fall of 1,424, meaning the ADF was 5,517 (8.8%) below its requirement.

In the 2023-24 PAES, workforce supply has recovered somewhat to 58,454. This is an improvement of 1,236 since October 2023, but still 188 short of the ADF’s starting point at the end of 2022-23, 1,219 of its (reduced) target for the year, and 4,281 (6.8%) short of the ADF’s requirement.

The situation is worst in Army, with a shortfall of around 3,000 (around 10%). Navy is around 900 short of its requirement, with the media reporting on Anzac frigates needing to be tied up for lack of crew.

Even the Air Force is suffering from workforce shortages. The key capabilities of the F-35A and P-8A have had their flying hours reduced over the entire forward estimates (by 2,000-2,500 hours per year for F-35A and by 600-1,400 hours per year for P-8A; see PAES Tabe 31, page 44), with the following justification:

‘P-8A Poseidon reduction reflects current workforce limitations, with projected increase aligned with workforce growth.’

‘F-35A phasing variation reflects current workforce limitations and projected workforce growth, with a new total of 12,000 due to maturing understanding of training demand and preparedness requirements.’     

Considering the ADF is already below its requirement and has barely grown since the 2016 White Paper, the achievability of the planned growth in the ADF’s workforce requirement of around 15,000 appears questionable.

  • How has the ADF grown by 1,236 personnel in four months since October 2023 when it had been declining? Does this represent a turnaround in Defence’s recruitment and retention strategy? Or is it simply an artefact of reporting cycles?
  • What impact is the shortfall of 4,000-5,000 personnel having on ADF capability? How is the 10% shortfall in Army personnel affecting its ability to bring new capabilities into service?
  • How is Defence’s persistent inability to meet its workforce requirements being addressed in the current redesign of the Integrated Investment Program? Is Defence developing a force structure that requires fewer people than the current plan?

Workforce budget

In the Key Cost Category table (Table 8b, page 17) estimated workforce expenditure has increased by $927.7 million since the PBS, despite the shortfall in ADF numbers.

  • Why is workforce expenditure increasing above the PBS estimate when actual workforce numbers are below what was planned for 2023-24?

Acquisition and sustainment budgets

Estate and Infrastructure Program

The estimated acquisition spend has decreased by $1,729.3 million (9.8%) (Table 9, page 18) since the PBS. The bulk of this is in a dramatic underachievement in estate and infrastructure spending, which planned for $4,166.2 million, but is now estimated in the PAES at $2,799.8 million, a decrease of $1,366.4 million (32.8%).

We should note, however, that should Defence achieve $2,799.8 million, it would still be its largest acquisition spend on estate and infrastructure on record.

Key underspends are listed in Table 66 (page 102). Several of these affect key northern bases and infrastructure. These include: Cocos (Keeling) Islands Airfield Upgrade, spending $42.1 million rather than $159 million; US Force Posture Initiative Training Area and Ranges Upgrades (all in the Northern Territory), spending $165 million rather than $263.3 million; and RAAF Base Tindal and USFPI Initiative airfield works, spending $246.5 million rather than $317.5 million.

  • Why is the Estate and Infrastructure investment program missing its PBS target by so much?
  • Why did Defence originally plan an Estate and Infrastructure spend that was well over $1.5 billion greater than any previous achievement? Why was it confident that was viable when so much of it was being conducted in remote areas?
  • What is the impact on the ramp up of Defence’s northern bases and infrastructure and implementation of the US Force Posture Initiative?

Military Equipment Program

The savings in the estate and infrastructure acquisition budget have not been redirected into other areas of acquisition, such as the Military Equipment Acquisition Program. That has actually decreased by $298.7 million. Considering Defence received a foreign exchange adjustment of an additional $480 million in 2023-24 (the bulk of which would have gone into the acquisition program), MEAP spending should have increased not decreased.

Moreover, the freeing up of $1,729.3 million in the Estate and Infrastructure program represented an opportunity to accelerate the acquisition of key military capabilities in the short term, as recommended by the Defence Strategic Review, or to jump start Australian industry’s development and production of autonomous systems, munitions and other attritable systems. It doesn’t appear that this opportunity was taken.

  • Why were the funds freed up in the Estate and Infrastructure program not put towards the rapid acquisition of military equipment that the DSR has said is urgently needed?
  • Were any of these funds used to accelerate the enhancement of Australian defence industry’s medium and small companies?

Sustainment Program

Rather, the funds appear to have gone into the personnel budget (discussed above) and to an increase in sustainment spending estimate for 2023-24 of $715.5 million. This continues a long pattern of Defence underestimating its sustainment spending (for example, it spent $772.8 million more than its budget estimate in 2022-23).

Table 1: In-year increases in sustainment spending (A$m)

PBS estimate9,474.210,975.012,091.312,588.012,952.214,975.615,360.4
Actual spend11,060.411,579.312,095.913,228.214,386.815,748.416,075.9
Increase over budget estimate1,586.2604.34.6640.21,434.6772.8715.5

Note: Actual spend figure for 2023-24 is the PAES estimate, which may yet change.

  • Why does Defence consistently underestimate its sustainment requirements?
  • What has driven the increase in estimated sustainment costs this year?

Individual acquisition projects

SAA has not had time to fully review all major projects. We should also note that the 2022-23 edition of the ANAO Major Projects Report was not tabled until the afternoon of Friday, 9 February, again leaving little time for analysis to inform Senate estimates hearing. Therefore we have limited the discussion to small number of prominent projects. The most useful information in the PAES is in the Top 30 Military Equipment Acquisition Program Approved Projects by 2023-24 Forecast Expenditure (Table 64, starting on page 86).

LAND 4503 Phase 1 (Armed Reconnaissance Helicopter Replacement—aka Apache helicopters)

This project, which is acquiring 29 Apache attack helicopters, has a total approved budget of $5,146 million. Its estimated spend by the end of 2023-24 is $229 million.

This was always a controversial program due to the burgeoning threats to crewed aircraft and the growing number of alternative ways to deliver the effects sought from armed reconnaissance helicopters through uncrewed and autonomous systems. That vulnerability has been reinforced by events in the war in Ukraine where attack helicopters have essentially be rendered irrelevant.

The US Army announced on 8 February that it is ceasing development of its Future Attack and Reconnaissance Aircraft (FARA). The Chief of Staff of the Army, General Randy George, stated “We are learning from the battlefield—especially in Ukraine—that aerial reconnaissance has fundamentally changed. Sensors and weapons mounted on a variety of unmanned systems and in space are more ubiquitous, further reaching, and more inexpensive than ever before.” In contrast, the Australian Department of Defence appears to be continuing with this exquisitely expensive, irrelevant capability.

  • Why is the Department of Defence continuing to acquire a small number of exquisitely expensive yet increasingly irrelevant platforms?
  • Has the Australian Department of Defence drawn fundamentally different lesson on the future of aerial battlefield reconnaissance from the US Army? If so, why?
  • What role does the Army see the Apache filling in a battlefield dominated by anti-aircraft threats that cannot be met by uncrewed and autonomous systems that can be acquired more cheaply and that we can afford to lose?

LAND 4507 Phase 1 (MRH Rapid Replacement – aka Blackhawk helicopters)

The 2023-24 PBS said that five Blackhawks would be delivered this year. After deciding to permanently ground and destroy Australia’s MRH-90 helicopters, leaving the ADF with no battlefield lift capability, the Government announced that Blackhawk deliveries would be accelerated. In media appearances ministers have stated 12 would be delivered this year, but the PAES states it will be seven.

The 2023-24 estimated that $676 million would be spent this financial year, however the PAES has revised this estimate significantly downward to $396 million, a reduction of $280 million. Reduced spending is inconsistent with accelerated deliveries.

  • How many Blackhawk helicopters will be delivered this financial year?
  • How is reduced in-year spending consistent with accelerated delivery of more helicopters?
  • What trooplift capability does the ADF currently have? Can it conduct operations such as counter-terrorism and hostage recovery?
  • How will the Army maintain battlefield flying skills with only a small number of Blackhawks and leased commercial helicopters? Is Army Aviation suffering retention issues?
  • When will the full Blackhawk capability be in service and the ADF’s trooplift capability re-established?

AIR 9000 Phase 2/4/6 (MRH-90 Multi-Role Helicopter)

There has been considerable discussion in Parliament and the media recently about the Government’s decision to permanently ground and then (with what can only be described as unseemly haste) destroy the ADF’s fleet of MRH-90 helicopters after a fatal crash in the Whitsundays. The outcome of the crash investigation has not been publicly released so we do not know whether a technical issue was responsible for the crash, justifying the grounding. This has left the ADF with a significant capability gap that will likely not be addressed for several years (see Blackhawk discussed above).

Commentators have also asked why the Government did not offer the helicopters to Ukraine. The Government first responded by saying the Ukrainians had not expressed interest. When it was shown that Ukraine had indeed expressed interest, the Government stated that the Department of Defence had decided they were not suitable for Ukraine. Finally the Government stated it was too late to restore the helicopters anyway, which have been disassembled. Throughout this episode, the Government has justified its actions by stating it is acting on the advice of the Department of Defence.

Questions on the crash investigation:

  • What is the status of the various investigations into the tragic MRH90 crash in the Whitsundays?
  • Are any of these reports with Ministers? When were they provided to Ministers?
  • When will government announce the findings?

Questions on responsibility for the decision to permanently ground the aircraft

  • Was the decision to permanently ground the aircraft made before or after the investigations were complete? Were the outcomes of the investigations used as justification to permanently ground the aircraft?
  • Who signed off on the advice to government to permanently ground the aircraft?
  • Who in government took that advice? Were Ministers asked to ‘agree’ the decision or to ‘note’ it as a Defence decision?

Questions on the decision not to offer the MRH-90 helicopters to Ukraine:

  • Why does the Government maintain that Defence advice is the best way to judge the utility of the platform for the Ukrainians when it could just ask the Ukrainians?
  • When was advice given to Government that the MRH-90 was unsuitable for the Ukrainians? Did any part of Defence discuss this with any Ukrainian officials?
  • Did the cost to Australia of establishing a Ukrainian MRH-90 capability play a role in the Government/Defence decision?

SEA 5000 Phase 1 (Hunter Class Frigate – Design and Construction)

The Hunter-class frigates approved budget to date is $7,623 million, although Defence has stated that the total provision being held for the program is around $45 billion. Estimated spending for 2023-24 has grown from the PBS estimate of $890 million to the PAES estimate of $1,250 million. By the end of this financial year, total spend on SEA 5000 Hunter frigate will reach $4,318m. Nevertheless construction has not yet started.

Considering that annual cash flow has now reached over $1 billion and is likely to grow well beyond that after construction starts to around $1.5-2.0 billion, it is useful to consider how much will have been spent before any actual capability enters service. The ANAO MPR does not provide a schedule as the Government has not yet agreed to one (in itself a remarkable situation considering we are now five and a half years on from second pass approval), but Defence officials have suggested in parliamentary hearings that the first frigate will be operational around 2033. That means the project will have spent at least $20 billion before the Navy receives any actual capability in around a decades time. This does not appear to be consistent with the key recommendations of the Defence Strategic Review.

There has been considerable speculation in the media that the Government is considering attenuating the planned nine-ship program to six or even three frigates. However, cutting vessels at the back end of the program will do nothing to free up funding and resources in the next decade, the period that the DSR has identified as crucial to our security. Therefore it is difficult to see how any recommendations of the independent surface fleet review can be implemented with either cancelling the Hunter or the Government increasing defence funding.

  • When will construction start on the Hunter-class frigate (beyond production of ‘prototyping’ blocks)?
  • When will there be an agreed budget and schedule for the Hunter program?
  • What is Defence’s current estimate for the first frigate to be operational?
  • What is Defence’s estimate for how much will have been expended by the time the first frigate enters service? This can be easily answered from the project’s estimated spend spread.
  • Will reducing the construction program free up funding and resources for other priorities in the 2020s?

SEA 1180 Phase 1 (Offshore Patrol Vessel)

The PAES states that by the end of this financial year, the OPV project will have spent $2,260 million, or nearly half of its $4,695 million approved budget. Nevertheless, none of the 12 planned vessels have yet been commissioned. Acceptance of the first vessel is over two years behind schedule according to the ANAO Major Project Report. The MPR refers to an emergent seaworthiness risk around fire protection.

There has been significant commentary on the utility of an almost unarmed vessel in an era of strategic tensions. Is the OPV capable of performing roles other than constabulary? If not, is it worth the investment of resources and people?

  • How significant are the emergent seaworthiness risks? Are they a factor in the schedule delay? Can they be remediated in a timely manner?
  • When will the first OPV be commissioned and achieve IOC?
  • What role will ADF use the OPV for other than constabulary? Can it perform warfighting roles?
  • Does the OPV still provide value for money in Australia’s current strategic environment?

AIR 7000 Phase 1B (Triton UAV)

With the Government’s approval (since the PBS) of a fourth aircraft, the total approved project budget is now $3,095 million, a large sum for a very small fleet. The Ukrainians have destroyed a Russian AEW&C aircraft suggesting even sophisticated surveillance aircraft are vulnerable to modern air defences.

The first aircraft has flown in the US. However by the end of 2023-24 the project will only have spent $116.7 million of its $427.2 million facilities budget, suggesting that the facilities needed to support the capability are not ready to support the aircraft. According to the 2022-23 ANAO Major Projects Report, Initial Operating Capability has moved 23 months from July 2024 to July 2025-June 2026.

  • Does the project represent value for money at a total cost of over $3 billion for only four aircraft?
  • Does a fleet of four aircraft represent a viable capability? What happens if one or more aircraft are lost to accident or hostile action?
  • Will facilities be ready in time to support the capability?

Funding for Ukraine

The PAES measures table (Table 6, page15) lists further support for Ukraine of $176 million, presumably in additional to the $189.6 million set out in the PBS 2023-24. This is commendable. However this is not new or additional government spending; this funding is being absorbed by Defence, which reduces the funding available to implement the DSR—Ukraine’s gain is the ADF’s loss.

Similarly the PAES noted $237.5 million in funding to replace the Bushmasters that the ADF provided to Ukraine, but this funding also is being absorbed by Defence.

  • How much military assistance has Australia now provided to Ukraine in total?
  • How much of this is being absorbed by Defence (i.e., being taken away from other priorities) and how much was ‘new’ funding?

The Australian Submarine Agency

We will discuss the nuclear-powered submarine budget in a separate piece.

Australian Signals Directorate

The REDSPICE program announced by the previous government in the first 2022-23 budget set out a significant funding increase for the Australian Signals Directorate. This essentially doubled its planned funding in 2023-24 from $1,027.7 million to $2,277.5 million. To its credit ASD appears to have been able to manage this increase in funding.

However, ASD’s funding continues to grow at a rate above what was first set out when the REDSPICE program was announced. In the PBS 2022-23, its funding for this financial year was $2,277.5 million. In the PBS 2023-24 this year’s funding has grown to again to $2,475.3 million. The PAES increase that by a further $384.2 million to $2,859.5 million—that’s nearly another $600 million in addition the roughly $1.2 billion REDSPICE increase. No explanation is provided in the PAES for the increase.

  • What is driving the additional increases in ASD funding beyond the original REDSPICE program?

Dr Marcus Hellyer is Head of Research at Strategic Analysis Australia.