Defence industrial base can’t be devoted to AUKUS alone

United States Navy Virginia-class submarine USS Minnesota alongside Fleet Base West in Western Australia.

The comfortable world we have known since 1945 has disappeared. Gone, just like that. Increasingly mixed messages from Washington and the untroubled circumnavigation of Australia by Chinese warships make it clear we need to do much more now to defend and protect ourselves.

The days of languid defence procurement must end immediately. If we don’t act with urgency to respond to our deteriorating strategic environment, aspirations for any sort of reasonable security will just be a pipe dream.

It is abundantly clear our defence industrial base is a strategic asset in such a difficult security climate. We must ensure our defence and defence-related industries are ready and must have sufficient surge capacity in an era of crisis and possible conflict.

Despite recent uplifts, Australia’s defence budget is under tremendous pressure and will seriously struggle to meet the desired capability requirements set out in the National Defence Strategy.

It has had to absorb a huge range of funding pressures, including the additional costs of the AUKUS nuclear-powered submarine enterprise (including putting around $9bn into the industrial bases of the US and UK), Ukraine support, infrastructure upgrades and spiralling workforce costs. Inflation and a weaker dollar have also eroded our defence spending power.

Defence has not been provided with sufficient additional funding to cover this. Acquisitions appear to have slowed considerably over the past two years, and most of the projected additional budget for the next decade will be eaten up by inflation, workforce and estate maintenance pressures.

This situation is challenging industry’s capacity to sustain a viable workforce, and develop the future capability and capacity required to address emerging requirements, and has the potential to threaten the financial viability of hundreds of small to medium enterprises.

Our analysis of data from Defence portfolio budget statements shows significant reductions in near-term spending.

Between the October 2022 and May 2024 budgets, projected spending over the forward estimates fell 9.3 per cent for defence acquisitions, while services sustainment declined 4.1 per cent. In their place, spending rose for workforce (7.4 per cent), digital (15.2 per cent), and security and estate (19.4 per cent) purposes.

While workforce and infrastructure are important areas, they should not be funded via clawbacks from the decreased equipment acquisition.

This funding pattern poses a real risk of weakening Australian defence industry capabilities to build and supply critical platforms. Once that national capability is eroded, it will be hard to rebuild. It is urgent that we review funding requirements; develop, immediately implement and stick to an industrial plan to reflect our strategic circumstances; update procurement practices, and; reduce barriers such as the mounting burden of regulation.

The December Mid-Year Economic and Fiscal Outlook reflected a “reprioritisation of $72.8bn over the next decade” via updates to the Integrated Investment Program.

While the Australian government needs to make challenging decisions about prioritisation, the list of capabilities that have been affected is huge. The government advises that the number of projects in the defence investment program has been reduced from over 500 to “the high 200s”.

The ADF also plays a key role in disaster relief responses, such as Tropical Cyclone Alfred.

There is a range of cuts – the Hunter-class frigate program from nine to six; offshore patrol vessels from 12 to six; Infantry Fighting Vehicles from 450 to 129. There was also not acquiring a fourth squadron of F-35 Joint Strike Fighter; cancellation of the navy’s Mine Countermeasures project; two sealift and replenishment ships, and; the strategic communication satellite program.

While the merits can be debated, overall this represents a large capability impact that will affect our defence industrial base.

While the government has added and accelerated projects, Ai Group members report a steep decline in what is flowing through the system, which is affecting the defence industrial base now. The data reveals a clear and concerning pattern – you can’t build a future if you don’t have a now.

The ADF also plays a key role in disaster relief responses, such as Tropical Cyclone Alfred. An underfunded and ill-equipped defence becomes obvious in peacetime as well as in conflict.

Delivering AUKUS submarines is a serious endeavour deserving serious funding. But, we are robbing Peter to pay Paul from a range of other projects to pay for it.

Any serious analysis tells us the Trump administration will at some point tell – not ask – us to increase our defence spend to at least 3 per cent of GDP, just as it has told NATO countries. We can either be dragged there or start the serious work ourselves.

We will continue to work through these complexities to make sure Australia is secure and resilient as global threats increase. A little less conversation and a little more action – our nation’s security depends on it.

Innes Willox is chief executive of the AI Group.