Multi-billion dollar programs face axe as Albo warns of major defence budget crunch

Defence programs worth billions of dollars could be wound back or scrapped entirely, as the Federal Government warns of a looming budget crunch for defence.

Multi-billion dollar defence programs could be wound back or scrapped entirely as the Albanese government faces a budget crunch ahead of the release of the most important review of Australia’s defence force.

The Defence Strategic Review, to be released on Monday, has found that in the twilight years of the former government, $42bn worth of key defence projects were pledged for the upcoming decade without any allocation in the budget.

At the same time, the Morrison government stripped the defence budget by about $14bn.

Since receiving the review – conducted by former ADF chief Sir Angus Houston and Stephen Smith – Defence Minister Richard Marles has had to decide whether or not to accept recommendations of the review.

Some of the recommendations call for scrapping, or winding back any programs not in line with Australia’s capability goals.

An unclassified version of the Defence Strategic Review will be made public on Monday. Picture: NCA NewsWire / Gary Ramage

In an entire chapter in the public version of the DSR focused on finances and resources, the reviewers found the former Coalition government had significantly overpromised on projects, while siphoning money away from the defence budget.

The review found that the former government’s critical funding commitments – namely $7.9bn for critical cyber capability REDSPICE beyond 2025-26; $32.2 billion for establishing a guided weapons and explosive ordinance enterprise; and $1.9bn to achieve AUKUS pillar 2 – were all made without any provision in the budget.

Meanwhile, the review found that Defence’s budget for the planning decade from 2022-23 to 2031-32 had been reduced by $14bn – $2.7bn of which was transferred to other agencies and $3.2bn in efficiency dividends.

A further $9bn allocated to a strategic reserve account to support activities in the 2016 Defence White paper was redirected elsewhere.

For the sake of new capability requirements, being able to sustain existing capabilities and needing to address severe workforce shortages, Mr Marles will need to make difficult decisions and trade-offs to manage the defence budget over the immediate period.

The review found the previous government announced $42bn in defence projects it had no means to fund, while reducing the budget for the same period by $14bn. Picture: NCA NewsWire / Gary Ramage

Last month, Mr Marles told the parliament the 2016 Defence white paper had provided for $30bn of procurement expenditure throughout the following decade, but within two years the former government had “quietly reallocated” $9bn of that out of the department.

“The Integrated Investment Program is the 10-year procurement schedule for Defence. After a decade of those opposite making announcements without any funding, it is estimated that the over programming of the IIP next year will be 32 per cent,” he said last month.

“ What that means is that for almost one-quarter of what Defence plans to buy it has absolutely no money for.

“That is the legacy that those opposite have left us. It is literally all announcement and no delivery. It is as if they thought they could walk onto the battlefield with a megaphone and announce our adversaries into submission.”

The review called for some projects to be scrapped or wound back, to allow others to be expanded. Picture: NCA NewsWire / Gary Ramage

It’s expected the review will recommend the government wind back the $18-21 billion LAND400 Phase 3 from its initial commitment of procuring and supporting up to 450 next-generation infantry fighting vehicles to just 129.

The review will recommend completely cancelling the LAND 8116 Phase 2 project which would have implemented a second regiment of Army self-propelled howitzers.

The money saved in winding that program back could instead be spent on accelerating and expanding programs like LAND 4100 Phase 2 project, which would allow more ground forces to interdict and destroy maritime surface threats.