Prime Minister Tony Abbott has already promised that voters will find the May budget “pretty dull” compared with the previous effort. But for the defence industry, things are about to get interesting.
Minister for Defence Kevin Andrews has reiterated the Coalition election pledge to increase the Defence budget to two per cent of GDP by 2023‑24.
And looking even further ahead, Defence expenditure is projected to remain at two per cent of GDP all the way through to 2054-55, at least according to Treasurer Joe Hockey’s Intergenerational Report.
If by chance that level of Defence funding does end up being just the right amount to meet Australia’s security needs in the context of competing priorities for decades to come, analysts probably will fall off their chairs – as the Treasurer suggested the public would when they saw the enormity of the budgetary challenge faced by the federal government outlined in the report.
The government’s battle to reduce spending will surely put the two per cent of GDP promise in jeopardy eventually.
That being said, last year’s budget did contain good news for Defence, with spending set to reach an all-time high of $29.3 billion, representing 1.8 per cent of GDP.
Although most of the year-on-year increase in funding had actually been preprogrammed by the previous government, the budget that was handed down in May 2014 did set spending on a “credible path” to that two per cent target, according to Australian Strategic Policy Institute (ASPI) senior defence economics analyst Dr Mark Thomson.
Of course, setting aside more money is not enough in itself.
“You cannot turn Defence spending on and off like a tap; you have to mobilise industry, you have to initiate projects,” Dr Thomson argued in a speech at the ADM Congress in February.
Industry is still waiting for the forthcoming Defence Capability Plan (DCP) and Defence Industry Policy Statement – that are expected to be published following the release of the 2015 Defence White Paper – to make everything clear.
The Coalition promised to publish its new White Paper within 18 months of taking office; that is by March 2015. With the document not anticipated to be released until July at the earliest, it remains to be seen to what extent funding allocated for any new initiatives will be detailed in this year’s budget.
As for the DCP, the First Principles Review of Defence has called for this “shopping list” of projects to be superseded by a new Defence Investment Plan. Indeed, this and other recommendations that could affect how defence companies do business are examined in detail in this edition of Australian Defence Business Review.
While industry considers the possible implications of the First Principles Review report’s proposals, which envisage the abolition of the Defence Materiel Organisation and Capability Development Group in their current form, and the establishment of what will be known as the Capability Acquisition and Sustainment Group, promised funding increases appear to be on track.
But in the absence of a serious incident in our region that serves to focus minds on matters of national security, future Defence funding plans will likely come under increasing pressure, and not only as a result of the federal government’s efforts to reduce overall spending.
If the electorate is not excited by the prospect of a rising Defence budget, the two per cent of GDP promise may well end up making way for something that voters might find more interesting, namely the money being spent elsewhere or avoiding paying more tax.
This editorial first appeared in the March-April 2015 issue of Australian Defence Business Review.