ASPI report highlights potential funding gap

Defense is due to receive a record $48.6 billion in funding this fiscal year, in line with commitments made by the coalition government at the launch of the Defense Strategic Update (DSU) 2020. But this is not may not be enough yet.

In addition, the new Labor government may be tempted to dip into the defense budget to meet other commitments, says Dr Marcus Hellyer, senior analyst at the Australian Strategic Policy Institute (ASPI).

In this era of growing uncertainty, an increasingly belligerent China, Russian adventurism and domestic economic pressures, the defense budget is fully committed to acquiring new capabilities and expanding the Force. Australian defence, he says in the ASPI Defense Budget Brief for 2022-23.

Addressing issues

Dr Hellyer said the new Labor government will have significant issues to address and perhaps the most important will be the size of the defense budget.

It is already under pressure from inflation, the acquisition of new and larger capabilities, including nuclear submarines, cost understatements and a growing contractor workforce. .

Although Labor has declared its support for the current level of defense funding, it will still have to decide between competing priorities.

“As Australians face rising costs of living, soaring energy prices and overwhelming pressure from housing affordability, it can be tempting to cut defense spending in the face of competing budget priorities “, did he declare.

“However, the government should be aware of the results of such action. The budget is already full, with no pots of unallocated money.

All short-term windfalls resulting from the cancellation of Attack-class submarines and SkyGuardian armed drones have been donated to the Australian Signals Directorate’s REDSPICE cyber program.

Pressures DSU2020

Dr Hellyer said even keeping the defense budget strictly at 2% of GDP would lead to multi-billion dollar cuts to the Memorandum of Understanding funding line, inevitably leading to capacity cuts.

“Furthermore, it is not clear that the DSU funding line is even sufficient to realize the current investment plan,” he said.

“This program includes much larger or more platforms than the ones they replace, as well as entirely new capabilities that all require significantly more manpower.”

Many new features will cost more than expected. New nuclear submarines will cost significantly more than conventional Attack-class submarines.

Dr Hellyer said Labor’s first task should be to understand the affordability of the current plan.

Next, he will have to ensure that the planned force structure is aligned with what the government thinks the ADF should do.

Then there is the issue of people, with the former government proposing an ambitious 20,000 member expansion of the ADF. The average annual growth is about 300.

Dr Hellyer said that in these difficult times, the government must seize every opportunity to increase its capabilities, even if it means canceling the Defense’s long-term vision for the future force.

Invest wisely

It could mean doing more with what we’re already getting. For example, new Arafura-class offshore patrol vessels could be equipped with anti-ship missiles, similar to many similar platforms in service around the world.

Dr Hellyer said there were encouraging signs that Defense was moving more towards cheaper, disposable and highly autonomous systems that could be produced quickly by Australian industry.

“Investing more in such systems is a crucial hedging strategy against the risk inherent in megaprojects,” he said.

“Moreover, such systems will figure prominently in future wars, no matter what happens to the megaprojects.”

The current Defense funding trajectory stems from the 2016 Defense White Paper, when Australia’s strategic circumstances were very different. What might have seemed like a lot of money for future capabilities then, doesn’t seem like it now.

Dr Hellyer said the defense budget was always full. Defense inevitably overscheduled to ensure it could still spend all the money it received from the government. Any extra capacity meant some projects had to be delayed.

But Defense no longer enjoys the luxury of a 10-year warning period in the event of the emergence of a credible threat, a basic element of previous strategic orientations.

“Our warning period has evaporated, so we cannot continue to delay the delivery of new or replacement capabilities to some indefinite point in the future, especially when many key DSU capabilities are already scheduled for completion. 2020s and 2030s,” he said.

Strategic risk

Navy capabilities face substantial risks. Hunter-class frigates won’t be available in useful numbers until the end of the next decade, and new nuclear submarines until the 2040s.

By then the Anzac frigates and Collins submarines will be half a century old.

An immediate increase in capacity could be achieved by upgrading the OPV fleet, outfitting these new 1800 ton vessels which have just entered service with the Naval Strike Missile (NSM).

In addition to megaprojects, Defense should pursue simple technologies that can be acquired quickly and in quantity.

“This includes disposable drones which Australian industry can design and produce on a large scale. This includes guided weapons which will be consumed in large quantities in any future conflict and which Australian industry can produce,” he said. .

“We see signs of this approach with the announcement of the acquisition of sea mines.”

Lessons to be learned

Addressing the 2022 Cost of Defense launch function in Canberra last week, Dr Hellyer said Australia had learned during the Covid pandemic the dangers of relying on global markets for key items and products.

“The MoU was sort of the defense supply chain white paper. As a result, we are spending billions to promote the Australian defense industry, including creating a sovereign guided weapons industry,” he said.

“Yet we still submit to the whims of the international energy market and let it control the price and availability of our own gas and coal resources.”

He said energy security should surely align with national security, with some gas production reserved for consumers.

“How does it make sense to favor the Australian defense industry when we are putting the whole Australian manufacturing sector at risk. The argument seems to be that the world will not see Australia as a reliable supplier if we book some Australian gas to Australians.

Yet, he said, Western Australia reserved 15% of its gas for domestic use and the rest of the world was still lining up to buy the remaining 85%.

“Probably the best thing we can do to improve Australia’s security is to electrify everything as quickly as possible and accelerate the transition to renewable energy. Xi Jinping cannot turn off the sun,” he said.

A full analysis of defense budget pressures by Marcus Hellyer will appear in the June issue of ADM.

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