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Defence investment plan hits first pot hole

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SEA 1000 Phases 1&2 for the Future Submarine program have achieved first pass approval. (DCNS)

A $1.2 billion reduction in the Government’s annual equity injection into the Department of Defence’s accounts is set to filter through into a roughly half-a-billion dollar cut to the $32.3 billion Defence budget first outlined in the May 2016 federal budget.

The withdrawal of Defence equity funding was revealed in the 2016/17 Portfolio Additional Estimates Statements (PAES) released just prior to the Avalon Airshow.

On top of the change in equity funding – which will also see significant reductions in the Major Capital Investment, Major Capital Facilities and Minors Program spend – Defence resources will be further squeezed in coming years by reductions totalling $288.6 million over the next three financial years (2017/18 to 2019/20) courtesy of savings measures termed as efficiency dividends.

Following the release of the new Defence White Paper in 2016, the Turnbull Government was keen to reverse accumulating declines in Defence resourcing imposed over the previous five years, as part of a long-term election undertaking to return Defence funding to two per cent of gross domestic product (GDP) by 2020/21.

In addition to committing to boost overall Defence funding, the government also undertook to redress long neglected areas within Defence, such as fixing shortfalls in capability sustainment and re-prioritising ‘Key Enablers’ – which comprise the facilities, integration or support functions that really do make a difference in the Australian Defence Force being able to successfully carry out the tasks expected of it by Government.

According to the figures in the PAES, Defence’s Major Capital Investment Program is now set to decline 6.3 per cent (-$457.1 million) to $6,786.1 billion over 2016/17, while the Capital Facilities Program spend will decline 17.5 per cent (-$307.5 million) to $1,450.6 billion.

The Minors Program – which is of particular interest to smaller firms being encouraged by the government to rise to the task of supplying a greater percentage of the Australian Defence Force’s overall needs – will decline 37.4 percent (-$31.3m) to $52.5m, from the original $83.8m first budgeted.

Defence is also having to find savings to fund increased costs for operations overseas, with appropriations for Departmental Outcomes being boosted by $810.4m, including $36.1 million in funding for Operation Highroad – NATO-led operation in Afghanistan – whose 2016/17 Budget estimate has quadrupled to $95 million, as part of a total of $391 million expected to be spent by 2018/19.

The reduction in Defence resources, when combined with increased operational costs, largely reflects the net effect of the reallocation of funds between operating and capital, resulting in the reduction in the equity injection appropriation, partially offset by foreign exchange movements which have impacted negatively on Defence funding.

The withdrawal of resources from the overall Defence budget will also see reductions in Defence’s Capability Sustainment Program, which is forecast to fall by $73.4 million across the eight sustainment categories prior to an internal adjustment (-$315.8 million) which tracks the movement of funds into the hands of capability managers. Navy and Air Force sustainment have nevertheless been spared from these reductions, with a $38.7 million increase to Navy, and a $65.9 million increase for Air Force – taking its total 2016/17 sustainment allocation to $2,246.4 million.

As at publication date, the PAES notes that 29 projects have been approved in 2016/17, with a further 66 projects approved since publication of the 2016/17 Portfolio Budget Statements, and including a number announced by government but not previously published. The 2016/17 Defence budget papers listed a total of 36 projects to be put up for consideration over that financial year – 10 of which were seeking first pass approval and 23 seeking second pass approval. Another three were proposed to be considered for interim approvals.

Of the 29 project approvals achieved in 2016/17, the PAES provides details of only 13 – three relating to first pass and 10 relating to second pass. The three projects having achieved first pass are:

AIR 5349/6 – Advanced Growler;

JOINT PROJECT 2060/3 – ADF Deployable Health Capability; and

SEA 1000/1&2 – Future Submarine Program.

The ten projects having achieve second pass are:

AIR 5440/1 – C-130J Block Upgrade Program;

ESTATE 2253 – Garden Island Critical Infrastructure Recovery Project – Stage 1;

INV 1/1 –  Innovation Hub Launch and Funding;

JOINT PROJECT 157/1 – Replacement National Support Base Aviation Refuelling Vehicles;

JOINT PROJECT 500/2 – Electronic Warfare Operations Support;

LAND 53/1BR – Night Fighting Equipment Replacement Program;

LAND 154/2 – Joint Counter Improvised Explosive Device Capability;

LAND 3025/1 –  Deployable Special Operations Engineer Capability;

SEA 1448/4B – ANZAC Air Search and Radar Replacement; and

SEA 1778/1 – Deployable Mine Countermeasures – Organic Mine Countermeasures.