Is funding glass half empty or half full in government’s first NDS?

There are two ways to look at the Albanese government’s long-term funding plans set out in its first National Defence Strategy (NDS) and the recent budget documents.

Defence Industry Minister Pat Conroy (centre) announces the Ghost Shark progran, which will provide long-range autonomous undersea warfare capability. Picture: Department of Defence

There are two ways to look at the Albanese government’s long-term funding plans set out in its first National Defence Strategy (NDS) and the recent budget documents.

The government itself is likely thinking it’s done better on defence than anyone could reasonably expect given the competing pressures of tax cuts, cost-of-living relief, the housing crisis, rebuilding manufacturing, achieving Net Zero, and ever-growing cost of health care and the National Disability Insurance Scheme.

After all, when it came to power, it kept the long-term funding model left behind by the previous government, and that had real growth built into it every year out to 2030. It’s also retained the previous government’s commitment to a 10-year funding line, set out in black and white in the NDS, rather than vague percentages of GDP that wobble up and down over time.

It’s also dealt with some other pressing Defence funding issues left behind by its predecessor. The first was the massive funding gap between the cancelled French Attack-class program and the ambitious nuclear-powered submarine program that the Morrison government embarked upon. When it left office, that government hadn’t programmed funds to fill that gap. The Albanese government has found $38.2bn to do that over the coming financial decade.

Marcus Hellyer.

The Albanese government also inherited the slow motion train crash that is occurring in the navy’s capability, with frigates having to be retired well before they are replaced. That’s the result of a decade of bad shipbuilding decisions by the previous government (noting that those decisions were largely made on advice from the leadership of the Defence Department). To deal with that, this government has found $11.1bn to acquire the new fleet of general purpose frigates recommended by the surface fleet review. It’s a desperate last roll of the dice to save the navy and it’s by no means guaranteed of success, but at least the government is trying something to avert a capability disaster.

All up, the government is adding $5.7bn in the four years of the forward estimates and $50.3bn to the decade on top of the growth path that was there already. The other way of looking at the Defence budget is less sanguine. The Albanese government also inherited its predecessor’s assessment of our deteriorating strategic circumstances and agreed with it.

It also agreed with the Defence Strategic Review’s (DSR) assessment that we face the most challenging strategic environment in decades, and that we no longer had warning time to prepare for the real risk of conflict.

The government’s recent NDS stated that things had gotten worse, just in the year since the DSR.

From that perspective, $5.7bn in the forwards is hardly commensurate with the need for urgent action, particularly with most of that money sitting out in the last year of the forwards.

Moreover, the $5.7bn represented an increase of just 2.4 per cent on the previous plan, not even compensating Defence for three years of high inflation that had eaten away its buying power. The DSR recommended moving from a “balanced” force that can do a bit of everything to a “focused” force that is designed to execute a “strategy of denial”, which, according to the NDS, requires “increasing the range and lethality of the ADF”.

In the $330bn capability plan we can see how far we are moving from a balanced investment strategy. At 38 per cent of that pot, maritime capabilities get more than land (16 per cent), air (14 per cent) and cyber (7 per cent) combined.

That’s in part due to the huge bow wave of deferred, delayed and cancelled shipbuilding projects that have pushed funding requirements into the coming decades. It’s also due to the huge cost of SSNs – already requiring $53-$63bn just this decade, and that only gets us to the arrival of the first Virginia-class submarine. The government may be putting $50.3bn of new money into Defence over a decade but, except for $1bn of it, it’s all going on SSNs and general purpose frigates.

Since the effects of recent years’ inflation mean Defence is starting in a deep hole, there’s less money for other previously planned capabilities. The government has said it has substantially reduced the level of programming in the investment plan. That’s jargon for Defence has had to accept a lot of delays, cuts and cancellations in its capability ambitions. We haven’t seen a full list of those measures, but some of the movements we have seen have real capability impacts. For example, with the government seeking to grow the navy and refocus the army on amphibious operations, it seems strange to cancel two new logistics ships that both services will need.

The air force is being hit by the shifting balance. Arguably it’s been the most effective service in boosting its capability in the past decade, becoming a small but ­advanced fifth-generation air force – but this plan doesn’t back our winners.

Over the forward estimates its capital budget will be just $11.5bn compared to army’s $19.5bn and the navy’s $30.9bn (including the SSNs). Over the decade it doesn’t get any new aircraft beyond what is already on order, despite air power’s obvious contributions to a “strategy of denial”.

Regardless of the number of dollars there are, delivering the capability plan means being able to spend them but Defence is still wedded to the conspiracy of optimism that has characterised its performance over past decades.

Acquisition spending needs to ramp up dramatically, to a massive 42 per cent of its total budget by the end of the decade, despite it being stuck around 29-31 per cent since 2016. It’s hard to see it getting there; over that period it’s underspent its acquisition plans by $25bn. The flip side of that is that sustainment and workforce spending continue to grow faster than planned.

Even though ADF numbers have barely grown since 2016, workforce spending is growing rapidly, outstripping inflation. The ADF is currently short of its workforce target by 5000 – if by some miracle Defence could recruit them, the budget would be in even worse shape.

Those workforce challenges raise serious questions about Defence’s ability to operate the focused force structure now built into its acquisition plans. Even if it can deliver on that planned 38 per cent investment in maritime capabilities, will it be able to grow its 800-strong submariner force into the 3000 needed for its future SSN fleet?

As we have discovered with Defence’s ongoing recruitment and retention challenges, there are some things that money just can’t buy.

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Dr Marcus Hellyer is head of Research at Strategic Analysis Australia.