Tag Archive for: defence budget

The case for fixed Australian defence white paper cycles

The number of years between Australian defence white papers (DWPs) has been shrinking. Between 1976 and 2009, it averaged a little over eight, which was similar to the average times between British and Canadian defence policy reports. Over recent years, however, Australia has had fresh strategic guidance documents in 2009, 2013 and 2016. The average is now one every 3.5 years.

The Labor Party has reflected deeply on Australia’s foreign and defence policies while in opposition (see Shadow Foreign Minister Penny Wong’s address to the Lowy Institute), so there’s a growing expectation that if it were to win the next election we could soon see another white paper round.

The problem with DWPs is that they disrupt Defence and industry. Industry’s immediate reaction to the announcement of a new one is to pause. Boards and executives delay decisions until they have greater clarity and certainty about defence investments.

Similarly, the Defence civilian organisation and the three services either lose personnel to work on the white paper or are forced to delay work while they await directions. Meanwhile, the services’ top brass stop focusing on potential future operations to defend their approved investments against rivals, while probing for any opportunity to grow their own budgets, personnel numbers, platforms or roles. The defence budget is finite, so for them a DWP is effectively a zero-sum game.

The benefits of a good DWP are equally clear. Good strategic guidance provides industry and Defence with a clear direction, sharp priorities and well-defined objectives. They can get back to work in earnest, with confidence.

When DWPs are too frequent, the defence community ends up in a constant state of uncertainty, anxiety and introversion. If they’re too far apart, procurements might be delayed or roles and capabilities grow beyond the scope of what was envisaged in the last one.

We’ve found that three different reasons are offered for developing a new DWP:

  • The world has changed.
  • New guidance on strategic capability decisions is required.
  • The government has planned or committed to a date.

The idea that significant changes in the international environment and threat-based assessments require a new DWP probably best describes Australia’s current approach. For example, the end of the Cold War prompted a wave of Western defence papers (in the UK in 1990 and Canada and Australia in 1994).

The problem with this is that the meaning of ‘significant’ is usually a matter of personal judgement. Rarely will a global change be as stark as the collapse of the Soviet Union.

For example, perhaps China’s aggressive behaviour in the South China Sea and its announcement of its Belt and Road Initiative are game-changers that require a new Australian DWP.

It might equally be argued that, at least since 2000, Beijing’s been quite open about its intentions and strategic aspirations. Its growth in military power has largely been trending steadily for two decades. Perhaps its current behaviour should be no surprise to anyone who’s been paying attention. What do we know now about China that we didn’t know, or at least predict, back in 2009?

If we allow threat perceptions to decide when a new DWP is necessary, then the spacing between them can only be reactive and haphazard.

A second method might be to begin the DWP process in the lead-up to a round of major procurement decisions, or perhaps because a new government has different criteria for such decisions. Before simply replacing old weapons with new ones, it might be prudent to ask whether they’re still needed and, if so, what types they should be. The timing of the 2009 Australian DWP allowed it to do that. It described a far more powerful and competitive Indo-Pacific region before announcing 12 new submarines and nine new anti-submarine warfare frigates.

The obvious problem with this approach is that not all procurement decisions are on the same cycle. If we were to say, for example, that a DWP should be published before ‘significant’ procurement decisions, then once again what’s ‘significant’ is largely in the eye of the beholder.

Clearly, replacing the RAAF’s combat aircraft would be a significant procurement decision, but would replacing its transport aircraft require a full White Paper? If a major platform, such as the M1 Abrams tank, is expected to remain in service until 2035, should the DWP be published in 2020, or 2025, or 2030? The answers will largely be arbitrary.

Alternatively, the timing of DWPs could be set on a fixed schedule, as in the US, where a Quadrennial Defense Review has been published every four years since 1997, and its release synchronised with the following year’s budget request since 2006. Japan also opts for a fixed schedule, but on an annual basis.

A fixed schedule for DWPs would remove the uncertainty in industry and Defence about when they’ll be announced, improve the efficiency of the white paper process, and remove the temptation of the political class to prepare them more frequently than might strictly be necessary.

If we take this course, how many years apart should DWPs be?

We think it’s probably sufficient for Australia to set its DWP at every eight years, with a more limited review at the midway points. An eight-year cycle would be a return to the norm before the turbulent period since 2009.

US third offset has profound implications for Indo-Pacific (part 1)

America’s military-technological advantage, an aspect of its strategic power since the end of the Cold War, is eroding. In response, the Pentagon launched the third offset strategy in 2014—a department-wide effort to find new ways, both technological and institutional, to leap ahead of its competitors. In a new report for the United States Studies Centre, I argue that for the US the third offset is partly an answer to matching its stagnating defence budget with its strategic ambitions.

As Washington concentrated on fighting wars in Iraq and Afghanistan, Beijing (and Moscow) invested in advanced missile technology, satellites, intelligence and reconnaissance assets, and networking capabilities. That has allowed China and Russia to employ anti-access and area denial (A2AD) strategies that have raised the cost and risk to the US if it decides to intervene in a conflict close to those countries’ borders. The decreasing effectiveness of American forces in a high-end conventional conflict may also have an impact on Washington’s credibility with allies in the region.

But A2AD strategies are only one part of a broader set of challenges the US faces to its continuing military superiority. Another is an emerging great-power competition over strategic technologies. Access to technical and scientific innovation is proliferating. China is investing heavily in an effort to create new national industries in artificial intelligence, quantum computing and robotics, and it’s building up an advanced defence industrial base. It is also making significant reforms to the People’s Liberation Army, shrinking its size and strengthening its logistical and support capabilities in an effort to fight and win ‘local wars under informationised conditions’.

Further, technological funding and innovation have shifted from government labs to the private sector, particularly in critical technologies like artificial intelligence. The increasing focus on dual-use technologies, investments in new start-ups and technical talent reflects new areas of geostrategic rivalry. This trend has even been evident in Australia, particularly in the higher education sector.

Finally, the cost to the US of maintaining its lead is growing. This is occurring along two fronts. First, the US’s existing platforms and capabilities are unable to adequately and cost-effectively defend themselves in a ‘salvo competition’. Second, Washington is likely to continue to face budget caps that will hamper its ability to compete with China on a platform-for-platform basis. This is evident from the range of priorities that are competing for limited resources, including nuclear modernisation, army procurement programs and military readiness.

Rather than a single strategy, the third offset is more accurately described as a set of three interrelated efforts. The first involves placing bets on current and future technologies that will, in theory, allow the US military to maintain its ability to project power into contested environments. The second looks to some of the new technologies, like AI, unmanned systems and solid-state lasers, to permit the US to economically compete with great powers and simultaneously maintain its global military posture. The third effort involves reforming and building on the way the Pentagon procures and develops new technologies to take advantage of private-sector developments.

The Pentagon is largely continuing these efforts under Secretary of Defense James Mattis, even if ‘third offset’ has been dropped from the official lexicon. New organisations like the Defense Innovation Board, headed by Alphabet chairman Eric Schmidt, continue to meet, and others, like the Defense Innovation Unit Experimental (DIUx), have increased their presence in Silicon Valley and are starting to see some successes. The Pentagon has continued to increase its research, development, testing and evaluation budget requests; appropriation increased by 11.2% in fiscal year 2018 compared to 2017. Another study has estimated that individual budget lines and projects for a range of third offset technologies increased by 43% between fiscal years 2015 and 2017, representing a ‘serious strategic uplift’.

While these individual budget increases are positive signs, there appears to be little consensus or movement to raise the Budget Control Act caps in an effort to move some third offset capabilities from prototype to production. One recent example is the US Navy’s electromagnetic railgun technology: resources started shifting away from it towards more conventional-powered artillery as it neared the final testing and evaluation stage.

For Australia, the third offset’s success or failure will have profound implications for the US’s future military posture in the Indo-Pacific. The third offset can’t replace Washington’s political will or national interest in maintaining the US alliance system, but it can provide a degree of reassurance for allies that worry about the effectiveness of US forces in a high-end conflict. As the third offset will benefit from an exchange of defence science information and coordination, as well as input from multiple allies on new operational concepts and innovation, Australia is well positioned to contribute in a meaningful way.

Some things should be above politics

‘The goalposts weren’t just moved, they were cut down and used for firewood.’ That’s how former Defence Department secretary Dennis Richardson characterised the impact of defence budget cuts as the three-year political cycle drove the government of the day to chase a surplus after the GFC. The disruption to the planning, acquisition and sustainment activities of defence and industry hollowed out many capabilities and caused significant inefficiencies in taxpayers’ investment in defence.

The better part of a decade beyond the GFC, the world is a very different place. The rules-based international order—taken for granted despite it underpinning seven decades of unprecedented prosperity and growth—faces existential challenge. Destabilising influences abound. In our own region, a nuclear-armed North Korea, attempts to establish an Islamist caliphate in Southeast Asia, and concern over trade routes through the South China Sea are but three examples.

In these uncertain times, the current government has articulated a clear vision for a secure and resilient Australia. The 2016 Defence White Paper—a blueprint for Australia’s role in maintaining peace and stability in the Indo-Pacific region—is backed by a credible, decade-long funding plan. With the most recent federal budget confirming that defence spending will reach 2% of GDP within the decade, Defence has medium- to long-term stability for its planning. The First Principles Review has made fundamental changes to leadership and management that—properly implemented—should make the planning and delivery of defence capabilities increasingly effective.

The defence industry policy and the naval shipbuilding plan aim to provide greater certainty about long-term investments in capability. The requirement for defence industry to have sovereign elements is featuring more prominently in government decision-making to ensure that defence equipment is more effective and affordable over the whole of its operational life.

That policy and funding certainty is giving local industry the confidence to invest in new technology, take on more employees, and commit to training the next generation of Australian scientists, engineers and tradespeople. In my own state of South Australia, over 1,000 defence jobs have been created in less than 12 months. Thousands more will follow.

But progress can easily be reversed. Opposition parties are wont to commit to policies that differentiate them from the government. A future incumbent may seek to rebalance political priorities, undermining the stability needed to make efficient and effective long-term investments.

Historically, defence has proven to be a soft target for budget savings through force restructures, outright cuts or, more subtly, widespread deferral of procurement decisions. Think that won’t happen again? The 2009 Defence White Paper was also lauded by many as a credible strategic direction for the defence of the nation. Despite that, our short election cycle led to decisions which prompted respected commentators to observe that the ‘plans set out in 2009 are in disarray; investment is badly stalled, and the Defence budget is an unsustainable mess’.

While there’s no substitute for good leadership, there is a better way to manage any government’s first and most fundamental responsibility—a bipartisan agreement setting out Defence’s priorities and the funding needed to support them across the forward estimates. If that phrase sounds familiar, you may recall my previous writing on this topic in 2013.

There is an international precedent. Since 1988, Danish defence budgets and policy have been set by multiyear agreements between the government and opposition. Recent agreements, supported by seven of the eight parties represented in the Danish parliament, cover strategic policy, major acquisitions, force structure and even the general scope of overseas deployments. There are other examples of cross-party engagement in security planning and oversight, such as the US Quadrennial Defence Review or, here in Australia, the role of the Parliamentary Joint Committee on Intelligence and Security.

A truly bipartisan approach to defence in Australia would create a new strategic and political paradigm, allowing sensible dialogue on security interests to underpin the making of the agreement and shifting the political focus to its implementation. A bipartisan approach is the only way that our large and growing expenditure on defence will effectively bring both security in uncertain times and economic benefit to the nation.

That is why as chair of the Joint Standing Committee on Foreign Affairs, Defence and Trade, I have tasked the Defence Sub-Committee to conduct a formal inquiry into the benefits and risks of a bipartisan Australian defence agreement, as a basis of planning for, and funding of, Australian defence capability.

The parties of government must put the national interest first if the momentum achieved by the government—against budgetary and political headwinds—is to provide the lasting, secure future that the next generation of Australians need and deserve.

Preconditions for defence innovation success (part 1): the customer’s role

Are there any guarantees in life? Of course not.* But it’s possible to improve the odds of success in just about every area of human endeavour, and that includes developing innovation projects in the defence domain.

You’ll note I used the word ‘domain’ and not ‘market’—this post looks at the end user. With a defence industry capability plan and defence export strategy just around the corner, and the new Centre for Defence Industry Capability bedding itself in at the hub of a new business environment, it might be thought strange that this post doesn’t focus on industry and academia. But the innovation process begins with the end user. Service personnel are the customers in a market for defence goods and services, but their primary concern is the operational outcome of the innovation process: what works, what’s actually affordable, and what advantage do I gain from adopting it? That’s where the innovation process begins.

Why the focus on innovation? Because a small country deploying a small defence force won’t derive either an operational advantage or an economic advantage from trying to do the same thing as everybody else, only cheaper. Innovation—in equipment, organisation and process—is the difference between being ordinary, vulnerable and possibly irrelevant, on the one hand, and effective, strong and resilient, on the other.

First, some market-speak. Defence is a monopsony market. That means the defence customer has a significant shaping effect on the market: its size, its behaviour and the barriers to entry. If the ADF is the initial (and possibly sole) customer for a new piece of equipment, or service, then that product’s success depends significantly on how the ADF addresses both the operational need and the opportunity to be innovative in meeting it. It also depends on the partners and suppliers Defence chooses to deliver the new capability—and making a wise choice is a precondition (one of many) for innovation success.

So what are the preconditions for innovation success that the defence customer needs to satisfy? There are a dozen, in my view, and they ought to shape key attributes and behaviours on the part of Defence and the ADF. Technical and professional mastery are essential, of course; situational awareness—understanding the wider world as well as the immediate threat environment—ensures that those skills remain relevant; experimentation and R&D ensure that Defence actually understands its needs properly and can articulate them; Defence and the ADF need to be flexible enough to adopt and exploit what new technology can deliver; they and industry need to understand each other if the innovation process is to work properly; and in a technology-driven monopsony market, Defence can’t allow its industry base to wither into irrelevance. (The full list is here.)

Defence is mobilising itself to satisfy those preconditions, but it still needs to overcome some cultural hangovers that actively stifled opportunities in the past for innovation by industry as well as the ADF.

Defence’s processes have traditionally been risk-averse, almost to the point of being self-defeating: projects have been slow and decision-making has been ponderous. A process designed to protect taxpayers has often, perversely, squandered their money by being too risk-averse and losing sight of both the user’s needs and, on occasion, the opportunity to deliver a wider strategic benefit to the nation.

There haven’t been enough of the essential links between end users, university researchers and industry. All too often those relationships have been strained through the medium of a risk-averse acquisition process and industry policy.

There are many things we can’t and shouldn’t do in this country, and we must be prepared to pay others to do them for us. But by what measure is it considered a wise investment automatically to spend dollars earned by Australian taxpayers to enrich the taxpayers in another country? We can, should and must do more in Australia.

The leverage afforded by defence expenditure is vital. Deliberately opening up more of the defence market and the defence budget to Australian industry has been a shot in the arm to innovators; they’ve been helped by easier access to end users through events such as the recent Army Innovation Day. A stronger presence in the export market will help further.

Defence expenditure is significant enough that it must not be viewed on a narrow, transactional basis, with projects approved and funded in isolation from each other on the basis of the cheapest (aka ‘best value’) vendor. For years that approach worked against wider organisational and operational synergies and resulted in the continual fragmentation of Australia’s industry base, rendering it suboptimal and very fragile. Defence is a strategic activity and the government has at last acknowledged that expenditure on such a scale must be treated as a strategic activity also.

The 2016 Defence White Paper and Defence Industry Policy Statement address these challenges. But to continue satisfying the preconditions for innovation and operational advantage in both industry and Defence, we need to see the emerging cultural changes embedded permanently in the ADF and in Defence’s capability development and acquisition processes. The early signs are very promising, but Defence and industry together need to make those changes future-proof.

* Apart from death and taxes.

Budget 2017: the highlights

Long story short: the government continues to deliver the funding promised in its 2016 Defence White Paper.

Next financial year, the Defence budget will grow by over 6% in real terms, to reach $34.7 billion—equivalent to 1.9% of GDP. Further strong growth is planned over the next three years, with defence spending scheduled to reach 2% of GDP in 2020-21.

Of course, the largest beneficiary of the growing defence budget is capital investment and, by extension, defence industry. Over the next four years, the major capital investment program will grow from $7.4 billion $11.7 billion. Growth is proportionally even more impressive in the minor investment program, which will expand from $75 million to $235 million, again over four years. Facilities investment will experience more modest growth, going from $2 billion to only $2.6 billion over the same period.

As usual, additional operational supplementation was provided in the Budget, including $510 million for operations in Iraq and Syria (Operation OKRA) and $267 million to support operations in the Middle East (Operation ACCORDIAN). A little over $903 million will be spent in total on operations next year. At present, there are 2,300 ADF personnel deployed overseas.

The only downside for Defence in the Budget was an efficiency dividend of $304 million over four years, coming from reductions to spending on contractors, consultants and overseas travel. Although that’s only a tiny fraction of the $151 billion planned for the next four years, it should provide some measure of useful discipline.

This year’s budget saw the initial appearance of two interesting projects. The first was the recently approved Future Submarine Design and Construction project. Valued at $935 million, it’s projected to spend $127 million this year, and $319 million next year. Smaller, but no less important, is the Future Frigate Design and Construction project. With an approved value of $335 million, it’s anticipated to spend $146 million this year, and $133 million next year.

If money spent is a measure of progress, the naval shipbuilding program has come sprinting out of the blocks.

Perhaps the most impressive thing in the Budget Papers is the prodigious list of projects planned for approval next year. All up, there are 20 projects scheduled for first-pass approval, and 37 for second-pass. Key among them are the second-pass approval of the next phases of the Offshore Patrol Vessel and Future Frigate programs. On past experience, the approval of 57 projects in a single year is an ambitious goal—but it’s one that must be met if the $200 billion Integrated Investment Plan is to remain on schedule.

On the personnel front, over the next four years the Navy will grow by around 540 positions, Army by 760, and Air Force by 400. Over the same period the number of civilians will increase by around 850, from 17,350 to 18,200. The planned new civilian and military positions—which were initially announced in the White paper—reflect the additional demands flowing from the expanded scale and range of capabilities to be operated by the ADF.

So, that’s how it looks; no shocks, and no surprises. Past Defence Budgets have often been more exciting than this year’s. But if an absence of excitement is the price to pay for fulfilled promises and steady progress, bring it on.

The 2017 ASPI Defence Budget Brief will be released on 25 May.