Current debate over how to defend Australia in a more threatening strategic environment points to an urgent need to strengthen the capabilities of the ADF, partly through purchasing new types of weapons incorporating the latest technologies.
Standing in the way of that need being realised are two factors. One is a trillion dollars of government debt and intense demands for higher expenditure on other public priorities ranging from health care to climate change. The other is a perception that any shift in defence investment away from more established to new types of weaponry would threaten jobs and growth.
Among the few options available to Defence to overcome both obstacles is avoiding a significant price premium for preferring the domestic over foreign supply of major weapons platforms and systems through a more targeted approach to Australian industry participation.
That option need not detract from Australia’s independence or economic welfare. Indeed, available data indicates positive outcomes can be achieved, on both fronts, if at least part of what’s saved through avoiding high price premiums in some areas of defence capability development can be re-invested in others.
However, that depends on avoiding the defence industry policy pitfalls of the recent past. Linking an updated defence capability plan to an outdated industry policy is, at best, a high-risk venture. More realistically, it represents a path to disappointment.
This paper addresses how Defence can not only save money when purchasing a new cadre of weaponry but do so in a way that benefits the economy. Both issues relate to affordability which may ultimately determine the impact of the Defence Strategic Review.
https://aspi.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2024/12/13224707/SI174-Budgets-DSR_banner.jpg4511350nathanhttps://aspi.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2025/04/10130806/ASPI-Logo.pngnathan2022-08-30 06:00:002024-12-13 22:49:32Budgets, the economy and the Defence Strategic Review
Innovation in northern Australia is thriving. It’s not clear why there’s a culture of innovation in the north, and perhaps that represents a focus for social research. However, there’s no doubt that innovators in northern Australia are seizing the opportunity to pursue solutions that generate economic benefits, contribute to national resilience, and respond to defence needs.
This special report highlights how innovators in the north are at the leading edge of the fourth industrial revolution and draws attention to the challenges they face.
Industry 4.0 represents opportunities to transform, but it’s not just about developing and adopting smart technology. And it’s not about evolutionary or transformative change; it’s a different way of thinking that will allow us to leap into a different future. To reap the transformative benefits from Industry 4.0 we need to adopt leading-edge technology in the best way to deliver better outcomes from the perspective of a wider range of interests.
But there are barriers. Australia has regulatory and standards frameworks and mechanisms that have evolved from traditional Industry 2.0 process thinking and Industry 3.0 manufacturing. There are inherent conflicts within and between sectors that safeguard the status quo of outdated and broken supply chains and wasteful manufacturing paradigms.
Through the lens of real experiences and success stories, this special report shines a light on the opportunities and challenges, and highlights what’s needed to better harness those opportunities. In particular, we need to: • Drive national capability through a philosophical positioning that’s supported by practical examples of innovation. • Acknowledge that economic theory underpinned by a need to have large-scale manufacturing and production lines for viability is thinking not aligned with the opportunity that Industry 4.0 presents. • Align government thinking and practice with the growing environmental, social and governance mindset of business and the growing expectations of investors, consumers and the community. Northern innovators have a commitment to Australia, its future and the kind of world that they want to create for future generations. Thus, they conceptualise, create and deliver by leveraging Industry 4.0 thinking and technology.
Technology doesn’t drive change, but how they use it does. This is sovereign capability in action.
https://aspi.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2024/12/12222031/SR188-Breaking_down_barriers-banner.jpg4501350nathanhttps://aspi.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2025/04/10130806/ASPI-Logo.pngnathan2022-08-03 06:00:002025-03-06 16:59:41Breaking down the barriers to Industry 4.0 in the north
The cost of Defence ASPI defence budget brief 2022–2023
One hundred & thirty-three million, one hundred & ninety-one thousand, seven hundred & eighty dollars & eighty-two cents per day.
Executive summary
Shortly before the recent election, the previous government released a defence budget that continued its record of delivering the funding it promised in the 2016 Defence White Paper (DWP) and subsequent 2020 Defence Strategic Update (DSU).
This year, the consolidated defence funding line (including both the Department of Defence and the Australian Signals Directorate) is $48.6 billion, which is 2.11% of GDP based on the Budget papers’ estimates of GDP. That funding represents a very substantial nominal growth of 7.4%. It’s the 10th straight year of real growth, but with inflation running hot, it’s hard to determine a precise percentage; we’ve estimated it at 3.8% based on the Budget papers, but, if inflation stays around 5%, the real growth figure will be less. That will hurt Defence. Just as inflation eats into Australian families’ budgets, it’s eroding Defence’s buying power.
Despite disruptions to supply chains, Defence and its industry partners have achieved significant increases in acquisition spending. While Defence may have fallen short of its acquisition spending target in 2021-22, it still achieved a $2.1 billion increase on the previous year, which was itself a $1.5 billion increase. That’s translating into growing local spending, both in absolute terms and in relative terms compared to overseas spending. We’ve written previously that the Australian defence industry will need to eat a very large elephant as Defence’s acquisition and sustainment budgets grow.
So far, it’s demonstrating that it has the appetite to do that.
Capability continues to be delivered across all domains. There’s no doubt that the ADF is getting better. But we’re seeing the realisation of risks inherent in an acquisition program built around megaprojects. Such projects take years or decades to design and deliver, while spending huge sums for little benefit in the short term. When they encounter problems, those problems are big. The Attack-class submarine program has cost over $4 billion and delivered nothing. The Hunter frigate program continues to experience delays and won’t get a vessel into service for over a decade. The Boxer combat reconnaissance vehicle project has spent close to $2 billion, but only 25 training vehicles have been delivered. While the nuclear-powered attack submarine (SSN) program has the potential to deliver a huge step-up in undersea warfare capability, it’s the mother of all megaprojects and has a risk profile to match. As the megaprojects ramp up (with over $20 billion in infantry fighting vehicles potentially added to the list of committed funds), their cash flow requirement will increase, tying the government’s hands at a time of rapidly growing strategic uncertainty and evaporating warning time.
The new government will have some significant issues to address. Perhaps the biggest one is the size of the defence budget. The incoming government has said that it supports the current level of funding. While that continues to grow in real terms, it was originally developed in 2015 and hasn’t changed since then, despite the significant worsening of our strategic circumstances. Russia’s illegal and unjustifiable invasion of Ukraine has reminded us that war has not gone away and remains a tool of authoritarian states. China’s influence in our near region is growing and could result in a permanent Chinese military presence. The US is looking to its allies and partners to do more, as they must.
As always, the government will need to adjudicate between competing priorities for funding. At a time when Australians are dealing with the rising cost of living, spikes in energy prices and the grinding pressure of housing affordability, it may be tempting to reduce defence spending in the face of competing budget priorities. However, the government should be aware of the results of doing so. The budget is already full, with no pots of unallocated cash. Any short-term windfall delivered by the cancellation of the Attack-class submarine is already gone-as the cancellation of the SkyGuardian armed uncrewed air vehicle to help deliver a $9.9 billion offset for the REDSPICE cyber program reveals. So even holding the defence budget strictly at 2% of GDP will result in substantial, multibillion-dollar reductions to the DSU funding line, inevitably leading to cuts in capability.
Furthermore, it’s not clear that the DSU funding line is even sufficient to deliver the current investment plan. That program includes platforms far larger or more numerous than those they’re replacing as well as entirely new capabilities, all requiring a much larger workforce. Many capabilities have ended up costing more than was originally budgeted for in Defence’s investment plan. The SSN program will cost significantly more than the Attack class; it’s anybody’s guess how much more. So the first order of business should be for the government to understand the affordability of the current plan.
Then it will need to assure itself that the planned force structure is aligned with what the government thinks the ADF should be doing. It’s easy to make a case for the tactical utility of any capability, but how does it fit in the overall strategy? The government will need to make decisions about which sovereign capabilities it needs to hold and where it can rely on allies and partners. And the nub of our current security challenge is that the former are growing while the latter are shrinking.
A further challenge that the government will need to consider is Defence’s people problem. The number of contractors in Defence’s external workforce continues to grow at significant cost, but Defence can’t deliver its ambitious capability program without them. Is that growth the best option available to Defence or simply the only one? Moreover, the investment program will require 20,000 more uniformed personnel to operate the capabilities it’s acquiring. With the ADF averaging net annual growth of only 300, is that target attainable? And, if it’s not, is the future force structure viable?
In these testing times, the government needs to seize every opportunity available to it to increase capability rapidly, even if that means overruling Defence’s long-term vision for the future force. That means doing more with what we’re already getting, such as increasing the lethality of the offshore patrol vessels that are soon to enter service.
There are encouraging signs that Defence is engaging more actively with ‘the small, the smart and the many’; that is, cheaper, disposable, highly autonomous systems that can be produced rapidly by Australian industry. Investing more heavily in such systems is a crucial hedging strategy against the risk inherent in the megaprojects; plus, such systems will figure heavily in future warfare, whatever may become of the megaprojects.
Similarly, the new AUKUS partnership’s advanced technologies programs and the sovereign guided weapons enterprise offer the prospect of delivering meaningful capability soon. Yet we’re two years into the guided weapons enterprise and still have heard nothing about which weapons will be produced and how it will be done. We can’t apply the kinds of timelines and processes inherent in the megaprojects to these lines of effort.
Overall, the government has its work cut out for it. Whatever path it chooses, it will need to bring the Australian public along on the journey. To do that, the government will need to reset the conversation about the defence budget and how it’s spent. That will require a commitment to transparency, accountability and sharing information. That means accepting the risk that bad news will get out along with the good, but an informed public is fundamental to democracy.
Confusion reigns in discussions about the cost of the Department of Defence’s equipment projects. Whether we’re talking about media articles, parliamentary committee hearings, letters to the editor, duelling internet commentators or any other forms of discourse that address Defence acquisitions, the only thing that’s clear is that we’re almost always talking past each other when it comes to the cost of military equipment. Defence doesn’t help when it releases only a bare minimum of information. This sorry state of affairs reached its peak several years ago, when it turned out that when Defence said that the cost of the Attack-class submarine was $50 billion it really meant that the cost was somewhere around $90 billion.
The situation gets even murkier when commentators compare the cost of military acquisition projects here in Australia with ones overseas. It’s very rare that we can make a direct, apples-to-apples comparison between local and overseas projects, and very often it’s more like apples-to-orangutans. Being completely unaware of the basis of the costs they’re comparing doesn’t stop some commentators from making strong claims about the rapacity of foreign arms companies or the competence of the Australian Defence Department.
This report attempts to be a guide for the perplexed. It’s not a technical manual, but a plain-English discussion that unpacks the cost of Australian defence equipment projects. While it would be useful for those working in the field of defence and strategic studies to read the whole report, it can also be used a reference tool explaining key terms such as ‘constant’ and ‘out-turned’ dollars or different cost-estimation methodologies.
It’s important up front to acknowledge that the cost of modern military equipment can be eye-wateringly high, and there’s always a ‘sticker shock’ when we compare the costs of military systems with the costs of their civilian counterparts. Those costs are driven by the constant quest for better capability that provides an advantage in a life-and-death business. That striving in turn drives rates of cost escalation that greatly outstrip inflation in the broader economy. No Western country has yet found a way out of that endless cost spiral, and Australia is certainly not an exception.
Anyone discussing cost has to understand what’s included in the price. It’s here that comparisons of Australian and overseas projects are difficult. Australian defence project costs include all the elements needed to get a capability into service, which are known as the fundamental inputs to capability. They comprise much more than the military equipment itself and can include facilities, training systems, documentation, intellectual property, integration of the new equipment (such as a missile) onto existing systems (such as the aircraft that will launch it), science and technology programs, and so on.
Elements other than the equipment aren’t trivial and can sometimes make up half of the total acquisition cost. Australian projects also include significant risk provisions, known as contingency. In contrast, most overseas programs don’t include all of those elements, so their cost can appear significantly smaller.
In this report, I provide a hypothetical example that illustrates how the cost grows as we include these factors. If we start with available off-the-shelf equipment costing $1 billion and adjust for price escalation (including inflation and capability enhancements) and factor in all fundamental inputs to capability and contingency, we quickly get to a total acquisition cost of $3.5 billion. That’s before we include operating costs.
The report also briefly examines a current, real-world example by comparing the cost of Australia’s Hunter-class frigate project with analogous international projects. While we attempt to make some assessments, the exercise confirms that comparisons are difficult when we don’t have visibility of what’s included in the price tag.
We also attempt to debunk the popular and deeply held view that Defence projects frequently go over budget. Based on the public evidence, the opposite is in fact the case. Once the government considers a business case and gives Defence approval to enter into contracts to acquire a particular system with a set budget, the department rarely goes over budget. However, it must be said that, before that point, Defence’s estimates of the funding needed to acquire a capability can grow significantly as its understanding of its requirements and the possible solutions develops. It’s here that the infamous ‘blowouts’ generally occur, not after actual acquisition commences.
Some commentators have suggested that focusing on the cost ignores the value those systems provide—why quibble over a few billion here or there when the security of the country is at stake? I’d argue that it’s difficult to assess value for money if you don’t understand how much money you’re paying. This study aims to help Australians understand how much they’re paying. It’s only then that we can make informed decisions about military spending.
Chapter 1: Introduction
One of the greatest areas of confusion in public discussions of the cost of defence is the price of military equipment. It’s hard to know what Australia is paying for its weapons, which makes it hard to know whether we’re paying the right price or getting value for money.
The Defence Department doesn’t release information on the price it’s paying for particular items, but only high-level project costs—and then only for some projects. Those numbers include a wide range of elements beyond the equipment itself. Public discussion is confused and confusing when commentators take the project-level numbers and crudely reverse-engineer the cost of individual items from them.
To address that shortcoming, commentators look for relevant cost information overseas. But often the issue gets even murkier when Australian costs are compared with overseas numbers. Some national defence agencies, particularly the US Defense Department, publish very detailed information, yet their numbers are generally not amenable to a direct apples-to-apples comparison with Australian data.
The following is an example that illustrates why we need to be cautious even when using numbers from a reliable source. The Defense Security Cooperation Agency (DSCA) manages the US’s Foreign Military Sales program which allows partner countries to acquire US-made military equipment at the same price as the US military. The DSCA has to notify the US Congress of potential sales that have been approved by the US State Department. Those notifications are public and are a useful source of information, but they can be misleading when misused.
In April 2020, the DSCA notified Congress of the potential sales of 10 AGM-84L Harpoon Block II air launched anti-ship missiles (Figure 1) to India for US$92 million and of 10 of them to Morocco for US$62 million.1 It would be wrong to assume that India was being gouged US$9.2 million per missile while Morocco was getting them at a bargain price of US$6.2 million. Both sales also included ‘containers, spare and repair parts, support and test equipment, publications and technical documentation, personnel training and training equipment, US Government and contractor representatives’ technical assistance, engineering and logistics support services, and other related elements of logistics support’.
In fact, the cost of a Harpoon missile itself is nowhere near US$9.2 million, or even US$6.2 million. At almost the same time as those DSCA announcements, the US Navy awarded a contract to Boeing in May 2020 worth nearly US$657 million for 467 Harpoon Block II missiles and support equipment for various foreign military sales customers.2 So the price of an individual missile was less than US$1.4 million.
This example shows that we need to be careful even when comparing numbers taken from the same source that seem to have similar scope. But it also shows that the cost of a weapon itself is only one part of the total cost of a project or program and that the weapon is only one part of an effective military capability. Depending on whether you’re developing a cost for the weapon or for the capability, you’ll come up with dramatically different numbers.
Figure 1: Harpoon anti-ship missile: US$1.4 million, US$6.2 million or US$9.2 million?
Unfortunately, many commentators aren’t careful when using cost figures whether from here or overseas. This results in murky numbers being used to justify strong claims such as that the US’s latest nuclear-powered submarine would cost substantially less than the Attack-class conventional submarine, or that Australia is being taken for a ride by unscrupulous company X or country Y, and so on.
In this report, I start by looking at why the ‘sticker shock’ for modern weapons is so high to start with. I then look at how different definitions of cost sit along the spectrum from weapon to complete capability resulting in very different scope. I explain key concepts in cost estimation. The report then provides a hypothetical example illustrating how these definitions and concepts increase the cost as we move from weapon to capability. We’ll reinforce that with a real-world example drawn from the Navy’s Hunter-class frigate program. The report ends with a chapter that examines the validity of the popular view that Defence’s projects often go over budget.
The Australian Strategic Policy Institute was formed in 2001 as an independent, non‑partisan think tank. Its core aim is to provide the Australian Government with fresh ideas on Australia’s defence, security and strategic policy choices. ASPI is responsible for informing the public on a range of strategic issues, generating new thinking for government and harnessing strategic thinking internationally. ASPI’s sources of funding are identified in our Annual Report, online at www.aspi.org.au and in the acknowledgements section of individual publications. ASPI remains independent in the content of the research and in all editorial judgements. It is incorporated as a company, and is governed by a Council with broad membership.
ASPI’s core values are collegiality, originality & innovation, quality & excellence and independence.
Important Disclaimer
This publication is designed to provide accurate and authoritative information in relation to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering any form of professional or other advice or services. No person should rely on the contents of this publication without first obtaining advice from a qualified professional.
This publication is subject to copyright. Except as permitted under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Enquiries should be addressed to the publishers. Notwithstanding the above, educational institutions (including schools, independent colleges, universities and TAFEs) are granted permission to make copies of copyrighted works strictly for educational purposes without explicit permission from ASPI and free of charge.
First published May 2022.
Cover image: ADF’s new Australian designed Hawkei protected vehicle at the Thales Protected Vehicles facility in Bendigo, Victoria. Defence image library, online.
Funding
No specific sponsorship was received to fund production of this report.
Defense Security Cooperation Agency (DSCA), ‘India—AGM-84L Harpoon air-launched Block II missiles’, media release, US Defense Department, 13 April 2020 DSCA, ‘Morocco—AGM-84L Harpoon air-launched Block II missiles’, media release, US Defense Department, 14 April 2020: https://www.dsca.mil/press-media/major-arms-sales/morocco-agm-84l-harpoon-air-launched-block-ii-missiles ↩︎
US Defense Department, ‘Contracts for May 13, 2020’, US Government↩︎
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In line with previous Agenda for Change publications from 2016 and 2019, this piece is being released in anticipation of a federal election as a guide for the next government within its first months and over the full term. Our 2022 agenda acknowledges that an economically prosperous and socially cohesive Australia is a secure and resilient Australia.
ASPI’s Agenda for change 2019: strategic choices for the next government did, to a great extent, imagine a number of those challenges, including in Peter Jennings’ chapter on ‘The big strategic issues’. But a lot has changed since 2019. It was hard to imagine the dislocating impacts of the Black Summer fires, Covid-19 in 2020 and then the Delta and Omicron strains in 2021, trade coercion from an increasingly hostile China, or the increasingly uncertain security environment.
Fast forward to today and that also applies to the policies and programs we need to position us in a more uncertain and increasingly dangerous world.
Our Agenda for change 2022 acknowledges that what might have served us well in the past won’t serve us well in this world of disruption. In response, our authors propose a smaller number of big ideas to address the big challenges of today and the future. Under the themes of getting our house in order and Australia looking outward, Agenda for change 2022 focuses on addressing the strategic issues from 2021 and beyond.
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One hundred & five million, eight hundred & fifty-three thousand, five hundred & seventy-three dollars & seventy-seven cents per day.
Executive Summary
Little has changed in the defence funding picture since last year. This year’s budget continues to follow the trajectory of solid real annual increases set out in the 2016 Defence White Paper. The consolidated defence budget (that is, the budget for the Department of Defence and the Australian Signals Directorate) reaches $38.7 billion in 2019–20. Real growth is only 1.3%—the smallest increase under the Coalition government—and the budget has actually decreased slightly as a percentage of GDP (from 1.94% to 1.93%) because GDP has grown faster than the defence budget.
But those figures are a little misleading. Late in the previous financial year, $620 million was moved forward into 2018–19 from 2019–20, making the former a little bigger and the latter a little smaller than planned. If that hadn’t occurred, real growth would have been 4.6% and the budget would have been 1.96% of GDP. Ultimately, it makes no real difference to Defence which year it gets the money—it got it and has already spent it.
The real story is that the government so far has delivered on its White Paper funding commitments. The White Paper presented a 10-year fixed funding line that would not vary as GDP fluctuated up and down. We’re now four years into that decade. Once we take all variations into account (such as adjustments due to foreign exchange rates and supplementation for operations), the $143.2 billion in funding Defence has received over those four years is within 1% of the White Paper funding line. Granted, Defence has had to fit more things into that envelope; it doesn’t seem to have received additional funding to cover its contribution to the Pacific Step-up announced by the government last year, for example. But it’s rare that Defence has had such funding certainty.
The other key issue to note is that the defence budget, at least for planning purposes, has already moved well beyond 2% of GDP. According to the Portfolio Budget Statements (PBS), the budget will hit that milestone in 2020–21, meeting the government’s White Paper commitment. But after that the budget continues to grow, hitting almost 2.2% by the end of the forward estimates. In essence, the White Paper funding line and a 2% of GDP funding line diverge significantly. The difference is substantial, reaching $5 billion a year and totalling over $22 billion for the remainder of the decade after 2020–21. That gap is even bigger if GDP fails to grow at 2¾% or at 3% from 2021-22 as forecast in the budget papers.
During the 2019 election campaign, the government reaffirmed its commitment to restoring the budget to 2% of GDP, but it was silent on whether it was committed to the White Paper funding line. The forward estimates figures in the PBS suggest it is. But if it isn’t, Defence will have a major headache, as any move back towards 2% will entail large reductions and deferrals to planned capability.
Much of the increased funding is planned to flow into capital acquisitions. Indeed, for Defence to have any chance of delivering the significantly larger and more capable—and therefore significantly more expensive—future force outlined in the White Paper, that must happen. On paper, the capital budget grows very strongly, hitting 39% of the total budget by the end of the forward estimates. According to the White Paper’s funding model, it stays there for the rest of the White Paper decade. That would deliver a massive increase in which the capital budget alone reaches $19 billion by the end of the forward estimates and nearly $23 billion by the end of the decade. Since 2013–14, when the Coalition came to power, that’s real growth of 155% and 185%.
Will it happen? Prognostication is a risky art, but there are a few reasons to be cautious about counting chickens. There are some heroic annual leaps built into the capital budget in the forward estimates, for example, of 19% in real terms in 2020-21 and 15.5% 2021-22. Yet it can be hard to spend money. We noted last year that Defence was underspending against the White Paper’s capital predictions, and that trend has continued. The shortfall now totals over $5 billion since the White Paper, and probably only a third of that at most is due to foreign exchange adjustments.
Despite a rapid increase in capital as a percentage of the total defence budget early in the Coalition’s term, since the White Paper it’s hovered stubbornly around 30%. It is, however, difficult to assess the precise situation as neither the Defence PBS nor the annual report give data on actual achievement in the capital and sustainment programs. Rectifying this information gap should be straightforward and would strengthen transparency.
Moreover, as Defence increases capital spending, it is likely to need to increase sustainment spending in order to use the new equipment as well as personnel spending in order to crew it. We also noted last year that sustainment spending was exceeding predictions by roughly the same amount that capital was underspending. That trend has continued this year.
The rise in operating costs can been seen in the increase in the Chief Information Officer Group’s suppliers budget. This covers much of the cost of running the ICT backbone that allows the networked force to function. It’s an enabler that’s absolutely vital to capability. Since 2008–09, it’s grown by 148% in real terms while the Defence budget has only grown by 36%. It’s not just the cost of capital acquisitions that’s rising much faster than inflation.
The personnel picture also suggests there are some deep challenges in the plan. The White Paper put the ADF on a trajectory from 58,000 personnel to 62,400. That’s only an 8% increase to cover the constantly increasing complexity of the Defence organisation and its component parts. Nevertheless, the ADF hasn’t been able to achieve even the modest White Paper increases. Overall, it’s only increased by 600 actual people against a target of around 1,730 over the period since the White Paper. If increasing capital spending quickly is hard, increasing ADF numbers seems even harder. It looks like that is starting to hurt—HMAS Perth will be up on blocks for two years after its latest upgrade for want of a crew.
In short, there may well be structural factors that will hinder Defence in achieving the capital spending predicted in the PBS and White Paper. Sustaining capital spending at around 40% of the total budget might just not be achievable.
It’s possible that the lack of any updates to the Integrated Investment Plan (IIP) since the White Paper was released in early 2016 is due to Defence and the government grappling with the eternal problem of how to make everything fit the funding envelope. Rather than silence, there needs to be a better conversation between government, Defence, industry and the public. Rather than depicting the IIP as carved in stone, all stakeholders need to regard it as a living organism that evolves in response to and in anticipation of new circumstances and requirements. If there are now major pressures on and in the IIP, then the government has to make some big decisions on how to manage them.
And in our strategic environment, with our system of government, some transparency and informed public debate would be in order.
The substantial investment the government is making is delivering greatly enhanced capability across all of Defence’s capability streams. Underneath the headlines about heavy investment in locally assembled protected and armoured vehicles, the digitisation of the Army (often referred to as its highest priority) continues, as do enhancements to soldier systems. The delivery of key air capabilities such as P-8A maritime patrol aircraft and trainers is nearing completion. The Air Force still has some way to go to get the Reaper and Triton unmanned aerial systems into service. And Defence is in something of a golden age of infrastructure investment. Also, the upgrades necessary to keep the Anzac-class frigates and Collins-class submarines a relevant capability for many years during the long transition to the future fleet are being delivered.
The other key capability transition from the classic Hornet to the F-35A has entered a critical phase. While the first F-35A aircraft have arrived in Australia and supporting infrastructure has been delivered, the fleet’s flying hours will need to increase nearly sixfold over the next four years to achieve final operating capability. As with every other platform, the increase in capability delivered by the new air combat fleet will come at significantly greater cost, particularly if the F-35A hourly flight cost continues to be twice the classic Hornet’s.
This year in Chapter 5 we provide an update on progress in the Naval Shipbuilding Plan (NSP), which is at the core of the investment program and the government’s Defence Industry Policy. In many regards, the NSP has made great progress. The Arafura-class offshore patrol vessel has started construction on schedule. In the past year, BAE’s Type 26 was selected as the design for the Hunter-class future frigate. Importantly, the revised commercial strategy under which ASC Shipbuilding become a subsidiary of BAE has been implemented, and a head contract for the frigate program has been signed in an astonishingly short time.
In contrast, the Future Submarine Program delivering the Attack-class submarines took nearly three years to sign its head contract, which is the strategic partnering agreement. But it’s done now, and Defence has repeatedly stated that the long negotiations over the agreement haven’t affected schedule.
Progress continues on underpinning programmatic elements of the shipbuilding enterprise. Development of the Osborne South surface shipyard should be completed in time to start prototyping of frigate blocks in 2020. Work has commenced on the submarine yard, though its mainly still in the design phase. The development of the necessary workforce was always one of the greatest risks and that hasn’t changed. Nevertheless, several measures to address this risk are underway, including the start of the Naval Shipbuilding College (which in reality has more of a coordination function than an instruction-delivery function) and the release of the Naval shipbuilding strategic workforce discussion paper to inform development of a shipbuilding workforce strategy. While the number of skilled workers required may sound large and some skills in short supply, it’s small compared to both Adelaide’s and Australia’s workforce. This means that the challenge is not insoluble, but also that the supply of shipbuilding workforce will always be exposed to changing demands for workers in the broader economy.
But as the schedule for the future frigates and submarines becomes clearer, we can see that we won’t get the first of the frigates into service until around 2030. All going well, the first submarine won’t be in service until 2034 or 2035, despite a conservative design philosophy based on using only currently mature technologies. Even if they deliver the planned capability, that’s a long time to wait.
Moreover, the annual cash flow for the NSP is ramping up quickly. It passes $2 billion this year even though the two biggest programs (frigates and submarines) don’t start construction for several more years. Last year, we predicted that the annual cash flow for the NSP would reach $3.5–4 billion; that’s looking increasingly certain. We also predicted that Defence will have spent over $20 billion before the first frigate and submarine become operational. That’s looking conservative.
Meanwhile, as we review in Chapter 1, Australia’s strategic circumstances are increasingly uncertain as China’s power grows along with its willingness to use that power outside of the rules-based global order. US military power is increasingly stretched, and that can’t be rectified through greater spending. So far, the government hasn’t signalled any substantial changes either to the military strategy of the White Paper or its force structure, but it’s likely we’ll need to become more self-reliant, at least in some areas of military capability. That probably can’t wait until the 2030s.
The ships being delivered by the NSP will enter an operating environment characterised by proliferating threats, such as cheap anti-ship cruise missiles and potentially hypersonic missiles as well as a more congested undersea domain. While modern warships are designed to defeat a range of threats, this has meant they have become exquisitely expensive, so much so that they can only be acquired in small numbers. The value-for-money calculus doesn’t favour billion-dollar manned platforms that are too valuable to risk losing.
The capability we need in the future could be enabled by another fundamental development reshaping the world: the ‘fourth industrial revolution’ (4IR). The key elements of the 4IR include autonomous systems, artificial intelligence (AI), more accessible space resources, and 3D printing. While these have the potential to ‘democratise’ technology by increasing the threat posed by non-state actors, they could help militaries to break out of the vicious cycle of increasingly complex but increasingly expensive manned platforms.
Chapter 6 suggests ways to hedge in the development of our future naval capability. The key is to devote more resources to autonomous systems. Even the US Navy, the world’s largest, seems to have realised that this is the only viable way to deliver greater mass and is making significant investments in unmanned platforms that will complement manned vessels. The ADF needs to do the same to compensate for its lack of mass, to get new capability sooner, and perhaps most importantly to remove humans from an increasingly lethal battlespace. Moreover, the technologies in fields such as AI can be integrated into legacy platforms to enhance their effectiveness. Australian industry and academia are well placed to contribute to this—perhaps even better placed to do so than export large finished platforms.
Of course, it will require investment, but it needs to be done. Currently, less than 1% of Defence’s budget goes into its innovation funds. That must be increased, and in a way that connects innovation to the large, well-funded programs in the IIP. But just as important is imagination and a willingness to pursue the disruptive potential of new technologies so they aren’t dismissed out of hand as poor substitutes for traditional platforms.
Chapter 7 briefly considers the way forward after the election. ASPI recently published Agenda for change 2019: strategic choices for the next government, which proposes policy recommendations for the new government in the areas of strategy, defence and security. Rather than duplicate them here, we refer readers to that document. However, there’s no doubt that the world has changed fundamentally since the 2016 White Paper. There’s no point investing billions in military capability if it doesn’t support Australia’s political or military strategy. It’s time for a new Defence White Paper so that the government can assure itself that the strategic triumvirate of ends, ways and means are properly aligned to preserve Australia’s security.
Author Marcus Hellyer discusses key findings of this years report with Michael Shoebridge
This publication is subject to copyright. Except as permitted under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Enquires should be addressed to the publishers.
Notwithstanding the above, educational institutions (including schools, independent colleges, universities, and TAFEs) are granted permission to make copies of copyrighted works strictly for educational purposes without explicit permission from ASPI and free of charge.
In 2018, many commentators pronounced the rules-based global order to be out for the count. This presents serious challenges for a country such as Australia, which has been an active contributor and clear beneficiary of that order. The government that we elect in 2019’s federal election will be faced with difficult strategic policy choices unlike any we’ve confronted in the past 50 years.
This volume contains 30 short essays that cover a vast range of subjects, from the big geostrategic challenges of our times, through to defence strategy; border, cyber and human security; and key emergent technologies.
The essays provide busy policymakers with policy recommendations to navigate this new world, including proposals that ‘break the rules’ of traditional policy settings. Each of the essays is easily readable in one sitting—but their insightful and ambitious policy recommendations may take a little longer to digest.
Previous Agenda for change publications are also available here: 2016 and 2013.
Launch Event
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The private security guarding sector is a vital piece of the national security puzzle that has not been drawn into Australia’s counterterrorism planning.
There are more than 120,000 licenced security guards in Australia. The security industry has more than double the personnel of Australia’s combined police agencies and permanent Australian Defence Force. Private security staff provide the ‘eyes, ears and hands’ before any terrorist attack and an ability to be first responders after any security-related incident.
This report outlines the problems that are holding the guarding sector back from being an active participant in national counterterrorist plans and presents recommendations to enable the private security industry to become an effective part of our counterterrorist capability.
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The transition from the Collins-class submarines to the future submarine fleet will be more complex than any previous capability transition that Defence has undergone. The submarine enterprise will be in constant transition, rather than completing a short, bounded transition process. Traditional distinctions between design and build, between upgrade and sustainment, and indeed between different classes of vessel won’t be as absolute, requiring Defence and its industry partners to think differently.
Overall, Australia’s submarine capability must be treated as a single enterprise, not two distinct fleets.
They’ll need to address challenging risks to prevent a decline in submarine capability and, ultimately, grow the submarine force and supporting enterprise. Overall, Australia’s submarine capability must be treated as a single enterprise, not two distinct fleets.
Even if the Australian Government tries to get out of the Collins business as soon as possible, it will still need to extend at least three Collins submarines and operate them to around 2042 to prevent a capability gap. However, that approach wouldn’t provide a greater number of submarines until around 2044. Extending all six Collins would provide more submarines from 2032 and also help to mitigate one of the key challenges in the transition: the development of a much larger number of submariners. Under this option, the last Collins would be in service until around 2048, and it would be 45 years old. Regardless of which option the government chooses, it’s likely that some Collins boats aren’t even halfway through their service lives, and some members of the last Collins-class crew haven’t yet been born.
…and some members of the last Collins-class crew haven’t yet been born.
There doesn’t appear to be any way to achieve a fleet of 12 submarines before roughly 2054 without breaking out of the two-year future submarine production drumbeat. Doing so would require even greater spending on submarine construction and disrupt the continuous build cycle that the government is committed to.
At least three, and probably more, Collins boats will need to undergo some life of type extensions and serve for at least another 20 years, so maintaining ASC’s ability to sustain and upgrade Collins is essential to a successful transition. If ASC can’t preserve its Collins sustainment workforce, there will be a capability gap. One way to preserve ASC’s viability is to decide now that it will also be the sustainment entity for the future submarine. This will allow it to balance the workforce between Collins and the future submarine as well as to provide its current workforce with career certainty and development as part of a planned transition from one fleet to the other. It will also help to ensure sovereign sustainment of Australia’s submarine capability.
However, to provide ASC with the understanding of the future submarine design necessary to sustain and upgrade the boat throughout its service life, it would be beneficial to bring ASC into the design and build of the future submarine. One potential commercial model for this could be similar to that adopted by the government for the future frigate project, in this case with Naval Group taking on ASC’s submarine arm as a subsidiary that may revert to full government control at some point. This model is, however, not yet proven. However ASC is brought into the build, it will require careful negotiation.
Bringing ASC into the design and build of the future submarine would also allow it to apply its considerable expertise in sustaining submarines under Australian conditions with Australian industry partners to the design of the future submarine. This approach would also allow greater coordination between the upgrade and extension of the Collins and the design of the future submarine. Collins could serve as a test-bed for potential future submarine systems—provided that did not reduce Collins’s capability or availability.
Moving Collins full-cycle dockings (and then conducting future submarine dockings in Western Australia) could also address sustainment workforce risks, but a decision to do so will need to balance the short-term disruption against longer term gain.
Growing the size of the submariner trade is another key challenge, as it will be much larger than it currently is—potentially over three times as large. Two measures can help to address this. One is to extend the life of all Collins boats, as the Navy will need more boats to train more submariners. Potentially, Collins could evolve into being a dedicated training fleet as more future submarines enter service, meaning that the government wouldn’t need to invest as heavily in maintaining the Collins’ regional capability edge.
But the most important measure to grow the uniformed workforce will be to establish an east coast submarine base to provide access to Australia’s largest population centres. Without this, it’s very difficult to see how the Navy could ever crew the future submarine fleet, rendering the massive investment in the vessels nugatory.
There are no clear, stand-out options for an east coast base, and all viable locations are currently occupied. Therefore, the earlier a decision on the location is made, the more time Defence, industry and those members of the community who are affected will have to prepare. We should also not assume that it will be the last future submarines delivered that go to the east; since the point of having an east coast base is to recruit and retain the workforce, it may be necessary to gain access to that workforce sooner rather than later, by basing either some Collins or early future submarines there.
This publication is subject to copyright. Except as permitted under the Copyright Act 1968, no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission.
Enquiries should be addressed to the publishers. Notwithstanding the above, educational institutions (including schools, independent colleges, universities, and TAFEs) are granted permission to make copies of copyrighted works strictly for educational purposes without explicit permission from ASPI and free of charge.
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Australia’s strategic situation is deteriorating—is it time to revisit the Defence White Paper?
Australia’s strategic situation is deteriorating. The 2016 Defence White Paper set out six drivers that shape our security environment. None has improved since the White Paper appeared, and most have worsened significantly.
The existing rules-based global order is under threat. China simply ignores it when it chooses, for example with its de facto annexation and subsequent militarisation of the South China Sea, and is embarking on creating a new regional order that it seeks to define alone. The current leadership of the US appears unable to decide whether it wants to support the existing order, ignore it, or tear it down. Meanwhile, the relative power gap between the two continues to decrease, as China’s economy and military grows.
The development of emergent technologies such as cyber, space-based capabilities, artificial intelligence and hypersonics continues apace. We’re also seeing clear Islamic State links into terrorist attacks in Southeast Asia, some involving returned fighters. All of these developments, taken together, suggest that the ADF will be confronted with an increasingly broad spectrum of threats. The question is whether Defence can be stretched even further to cover them all, or whether it should focus on addressing particular ones.
Unfortunately, the 2016 Defence White Paper doesn’t provide clear guidance on prioritisation. It might be time for the government to revisit some of the White Paper’s assumptions, either to confirm that it does set out the right path, or, as we believe it should, make some changes to the plan.
Marcus Hellyer discusses key findings with Michael Shoebridge
Funding
With $36.4 billion in funding, Defence is heading towards 2% of GDP
Against that strategic background, the 2018–19 defence budget continues to deliver the vision set out in the White Paper. In 2018–19, the government is increasing the defence budget towards its commitment of 2% of GDP by 2020–21. Based on the Defence Portfolio Budget Statements (PBS) and GDP predictions in the budget papers, we calculate that it will fall just short, at 1.98%, but that’s essentially a $400-million rounding error. And, based on forward estimates predictions, the Defence budget will grow past 2% in 2021–22.
We should note, however, that Defence’s funding, as presented in this year’s budget, falls short of the fixed funding line presented in the White Paper by around $5 billion by the end of the forward estimates. The government essentially made two funding commitments—2% of GDP and a fixed funding line—and it’s possible it could meet one without reaching the other. Nonetheless, Defence continues to enjoy real increases to its funding.
The growth continues to be centred on Defence’s capital program. While capital investment has historically been the poor cousin alongside personnel and operating funding, the three are now roughly equivalent, and by 2020–21 capital funding could exceed the others for the first time. But it will need to, if Defence is to be able to afford the future force.
Defence has used that increase to invest heavily in remediating infrastructure. And while the shipbuilding enterprise is still in its early days, many other capital investment projects are delivering capability—Air Warfare Destroyers, P-8 maritime patrol aircraft, trucks, battlefield communications and airlifters, for example. And the Air Force’s transformation into a fifth-generation force is well underway. There is no doubt we are getting a more capable ADF.
Signs of pressure
We are starting to see the first signs of cost pressure on Defence
But, as always, there are things to be concerned about.
Full-time ADF personnel numbers are programmed to grow to 59,794 this year on the way to the White Paper target of 62,000. But actual growth has been slow, and Navy (potentially the service whose future platform growth is greatest) is going backwards. Civilian numbers fall by around 2,000 due to the Australian Signals Directorate becoming a statutory agency. Overall, however, net civilian numbers remain unchanged at the White Paper level—that is, well below where they were five years ago, potentially requiring greater reliance on expensive contractors. Funding for personnel effectively flat lines at less than 1% real increase annually over the forward estimates. That seems to be inviting future cost pressures, since ADF numbers are meant to increase, and individual personnel costs have historically increased in real terms.
Also, sustainment budgets appear to be increasing faster than predicted. Between last year’s PBS and the mid-year Additional Estimates update, the sustainment budget increased by $1.5 billion, or 16.7%. And this year’s sustainment budget is around $1 billion more than predicted last year. Some of that is likely to be due to different accounting practices that Defence has adopted, but one gets the sense that perhaps the sustainment requirements of an increasingly complex force were underestimated in the White Paper and Defence is having to adjust.
That could be one reason why Defence is underachieving against its predicted capital spend. Overall, its capital spending is increasing at a healthy rate, but it is likely to fall short of the spend predicted over the 2016–17 forward estimates by about $4 billion or so. Half of that may be due to foreign exchange adjustments, so it’s not a huge shortfall in the grand scheme of things, but probably confirms, first, that it’s always hard to ramp up investment spending quickly and, second, the sustainment increase had to come from somewhere.
Investment in ICT appears to have crashed last year, falling by 72% or $644 million between the PBS and Additional Estimates. It may be that ICT projects failed to deliver, or that sustaining current legacy ICT systems sucked funds away from investment in new acquisitions. Since there’s a complete lack of public reporting on the ICT program, it’s impossible to know what happened. The lack of transparency on ICT is particularly troubling, as the Integrated Investment Program foreshadows over $10 billion in ICT projects that are central not only to Defence’s corporate information systems, but also to its war-fighting ability.
This lack of transparency extends beyond the ICT program. While the government is claiming to be approving record numbers of projects, there’s no public record of what they are, let alone information on their scope, schedule or budget. For approved projects, there’s no reporting on progress unless they’re big enough to make the Major projects report of the Australian National Audit Office (ANAO). This year, for the first time, the PBS does not even include a list of project approvals planned for the coming year. That’s unfortunate, because capital investment projects lie at the heart of the government’s White Paper plan, so both the government and Defence should do better at transparency.
Location, location
Everybody has a view on industry policy but the key question must always be, does it make sense to do it here?
TheCost of Defence looks at two issues in more detail this year. The first is the government’s defence industry policy. A few years ago, it seemed as if everybody had an opinion on which fighter planes and submarines Australia should buy. Now the discussion has moved on to whether and what we should build in Australia. At some level, this isn’t a debate that can be resolved by data alone, as it involves issues of identity and ideology. At one end of the spectrum there are the economic rationalists who argue that there’s no net national benefit in subsidising uncompetitive industries, whether they be car manufacturing or shipbuilding. While Australia has been the world’s fifth biggest arms importer over the past decade, that has enabled us to get access to the most advanced military technologies when we need them at a price we can generally afford.
At the other end there are those who argue, whether for reasons of sovereignty, jobs, or even parochialism and prestige, that we should do as much as we can here. And in between there are those who see merit in both sides; perhaps we should be doing more to keep some of the money that we send offshore to buy arms here in Australia, but not at the 30-40% premium RAND Corporation suggested we were paying for shipbuilding, particularly if it means less capability for our servicemen and women.
The government’s industry policy includes elements of all of the above, which means that at times it appears inconsistent. Its policy documents state that, ultimately, developing Australian industry and exports is about improved capability for the ADF. Yet in practice it appears to favour building in Australia regardless of the cost premium and consequent decrease in output delivered to the ADF. Ultimately, our view is that we should support Australian defence industry when the costs and risks are understood and it makes sense to do so. However, based on the ANAO’s analysis, it doesn’t appear that Defence understands the premiums involved in local builds, so it’s hard to see how robust the business cases for local builds can be.
That said, once the government has made the initial decision to build in Australia, its choice of submarines, offshore patrol vessels, and armoured vehicles appears to have been based primarily on capability. For their part, the international primes have got the message that to be competitive they need robust Australian industry plans and partnerships with local companies and universities. Centres of excellence and cooperative research undertakings have been established, so industry seems to be meeting the government’s demand it put more skin in the game.
Innovation and R&D
Increasing funding for innovation and R&D seems like a safe bet
The innovation programs announced in the White Paper appear to be getting grant money out the door and, while it’s early days, anecdotally at least we are seeing local success stories. Since the funding involved is small compared to that spent on things like shipbuilding, it makes sense to double or even triple it in order to support the government’s broader innovation agenda, to keep up with other nations’ investments in emergent technologies, and to enhance Defence’s existing capabilities, which will have to remain in service for a long time until the future force is delivered.
In terms of exports, the goal of becoming a Top 10 defence exporter seems not only overly ambitious but also distracting. Rather than focusing on exporting platforms, there’s probably more benefit to be had by leveraging our involvement in the shipbuilding and armoured vehicle projects into greater access for Australian industry into the international primes’ supply chains for projects that they’re conducting around the world, not just here. That can achieve economic benefits here long before the mirage of submarine exports is realised.
Naval Shipbuilding
Naval Shipbuilding locks in $3.5-4 billion of cash flow, every year, forever
Which brings us to the second area that we’ve examined in more detail: the affordability of the Naval Shipbuilding Plan. There’s no getting around the fact that building modern warships is expensive. There are two numbers that perhaps warrant closer consideration than the $89 billion headline figure that’s widely quoted. The first is the $20 billion that the future frigate and future submarine projects will have spent between them before they each deliver usable capability (probably around 2028 and 2032, respectively). That’s a lot of cash to have tied up while our strategic circumstances deteriorate and our current platforms age. As ASPI has suggested previously, it’s probably worth looking at what Defence can do in the meantime in the form of cost-effective ways to enhance capability sooner.
The second number is the $3.5–4 billion in annual cash flow that we estimate the shipbuilding plan will require once it’s up and running. Granted, the capital equipment budget is growing. But shipbuilding will potentially consume around 30% of it on an ongoing basis. On the one hand, this smooths out the peaks and troughs, but on the other, since it sits at that level forever, it limits the room available for other capabilities. And since continuous local build appears to now be the government’s policy, there are likely to be other builds locked in forever (protected vehicles, armoured vehicles and so on), further shrinking the funding space for other capabilities and future flexibility.
Since the Navy is essentially undergoing a transformation that will double its tonnage, sustainment costs will also increase. Submarine and frigate sustainment (currently the largest and third largest sustainment lines in Defence) are likely to triple and double, respectively. Submarines alone could cost $2 billion a year to operate, on top of $2 billion a year to build, which together will potentially require 10% of Defence’s total budget for one capability. Granted, we are still a long way away from having all the future frigates and submarines, but at a time when western navies are shrinking due to the cost of building and operating modern warships, the fact that we are moving in the other direction raises questions about affordability.
And in order to get something close to a reasonable return on that capital investment, the Naval Shipbuilding Plan locks in a two-year delivery ‘drumbeat’ for frigates and submarines. Not only does this mean that it will be a very long time before the future fleet is delivered while our strategic environment is deteriorating, but it also limits Defence’s ability to manage cash flow by slowing things down, as that will further delay delivery and affect jobs.
There are other cost pressures. The future sustainment cost of the Joint Strike Fighter is a big unknown, but if it’s anywhere close to the jump from the classic Hornet to Super Hornet (around three times as much per aircraft), it will be hard to absorb.
In short, the megaprojects, in particular shipbuilding, have the potential to crowd out other capabilities. Historically, it’s the enablers (facilities and ICT) holding everything together that suffer. But it could be that the big projects will also distort the overall force structure. There are already signs of that, and the ANAO has noted that Defence may have to increase the future submarine project’s budget by $6.7 billion, even before the first submarine is delivered. That can only come from other areas of planned expenditure, most likely other capital investment.
Information sharing
Because these things are so big, and so important, Defence needs to get better at sharing information with the public
In the light of their centrality, both to Australia’s future military capability and to the government’s defence industry policy, there need be informed understanding and public scrutiny of the future frigate and future submarine projects—the two biggest projects in Defence’s, and potentially the nation’s, history. That discussion must be supported by real data. As a minimum, the two projects should be included in the ANAO’s Major projects report, regardless of whether they have received formal second-pass approval from government.
Because the media, the public and Defence often argue past each other when discussing the cost of military equipment, we have include a chapter (Chapter 7) that illustrates how Defence costs major acquisitions and shows why the ‘sticker’ price is very different from Defence’s total project budget. Hopefully this will contribute to better discussion around what the cost of Defence and its capabilities actually is.
So to sum up, the government is broadly meeting its commitment to get the Defence budget to 2% of GDP. But the content and timing of Defence White Paper’s investment program have not been revisited, despite changes (for the worse) in the strategic environment it was intended to address. Funding pressures are already emerging, with more to come in sustainment and personnel right at the time when a large share of the investment budget is being tied up in shipbuilding.
Informed decision making and public debate on these issues is essential to navigating them in order to keep Australia secure. To support this, the government needs to demand Defence provide greater public transparency in its planning and reporting.
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Notwithstanding the above, Educational Institutions (including Schools, Independent Colleges, Universities, and TAFEs) are granted permission to make copies of copyrighted works strictly for educational purposes without explicit permission from ASPI and free of charge.
Published in Australia by: Australian Strategic Policy Institute (ASPI) Level 2, 40 Macquarie Street Barton ACT 2600 Australia
Note on title: The figure of $99,606,202.74 represents one three-hundred-and-sixty-fifth of the consolidated Defence appropriation (including the Australian Signals Directorate) for 2018–19. This does not include funds appropriated to the Defence Housing Authority, nor those administered by Defence for military superannuation schemes and housing support services.
For chief defence scientist Tanya Monro, the concept of ‘minimum viable capability’ is critical to shifting Australia’s thinking on how to get cutting edge technologies into the hands of military personnel fast enough to give them an advantage on the battlefield.
Professor Monro believes a major mindset change is needed to develop new capabilities much more quickly. ‘Our thinking about a capability needs to be how can the war fighter use it, not in some ideal situation in 10 years when a piece of equipment or a platform is perfect, but in three months, in six months?’ That provides the clarity and the inspiration needed for the R&D community to know what they need to get after.
Last year’s defence strategic review (DSR) provided the scaffolding for a different approach to defence capability, says Monro. ‘It clearly articulates the priorities for innovation and science and technology. I think key leaders understood and knew of great examples in the past where some scientific breakthrough would mean a capability leap, but I don’t think they had a way of thinking about it systematically. That’s a significant shift.’
Monro says the DSR’s identification of innovation as one of six priorities, and that being followed up with substantial resources and a shift of intent through the creation of the Advanced Strategic Capabilities Accelerator (ASCA) is a critical development. There’s also a conceptual shift that includes an acceptance of the idea that introducing a minimum viable capability now is better than waiting 10 years until it’s perfect.
‘The shift that I believe we’re driving through the system—as a clear response to the DSR—is from trying to develop technologies that Defence says need to be developed, to solving problems that Defence decides are the highest-priority problems. And that’s a profound shift.’
The Defence, Science and Group (DSTG), which Monro heads, is key to making that work. ‘We’ve been headed down this path through our STaR Shots, but now it’s clear that we get the best out of the whole Australian system by harnessing creativity and ingenuity, and respecting industry enough to tell them what problems we’re trying to solve, creating a mechanism by which we can bring good responses into Defence solutions.
‘That’s profound because historically Defence would go out and look for technologies without providing that partnered pathway that allows industry to understand what Defence needs and develop their capabilities accordingly.’
The idea that Defence takes war fighters’ needs and comes up with an exquisitely detailed specification for industry to respond to, will not work in the fast-moving modern military environment, she says. Defence must go hand in hand with companies to help them develop what they need to do that work.
That will involve an acceptance of risk that projects may not succeed, Monro says.
‘Giving frontline personnel an asymmetrical advantage will sometimes mean working on a concept before we fully understand what it will do, how and how fast it can be developed and precisely how it will be combined with existing equipment when it’s deployed in a conflict,’ she says.
‘We also we need to harness the ingenuity of our smart, young men and women in uniform and I think that, historically, we’ve struggled with how to unlock that potential.’
‘The challenge is to do all of this before the best way to develop and use those technologies is necessarily fully understood. ‘You can have all the best scientists with the best ideas in the world working collaboratively, and until you can put them in a military context alongside those war fighters the concepts of operations and employment won’t be well developed from a war fighter perspective.’
Working closely with military personnel to Identify the key characteristics of a capability they need can provide the clarity and inspiration the research and development community, and defence manufacturers, require to create a ‘minimum viable’ version, Monro says.
‘And it provides tangibility so that if reduced warning time of a possible conflict means we have to give the government choices, we have a fighting chance of using some of the things this nation can do.‘
Monro’s a physicist and she says there’s a culture change at the science end too. ‘You don’t want your scientists beavering away until they think there’s no more to do, because then they’ll never finish.’
She was recently made a member of the US National Academy of Engineering, the first Australian woman to be recognised with that award.
Monro says budget and resource constraints are such that it can no longer be a matter of replacing like for like and introducing new. ‘We need to be a bit cleverer’.
Her goal is to change the culture of Defence’s scientists to consider what is the biggest difference each can make in all stages of the process. ‘To me, we’re not using our science enterprise well if the primary role we play is reducing risk of acquisition.’
Monro is officially the ‘owner’ of technical risk in Defence. ‘One way to deal with technical risk is to make decision makers aware of it. But you can also come up with ways of doing R&D which mitigate that risk. That can sometimes lead to significant benefits.’
She wants to focus on what needs to be done differently to get the right results quickly. ‘When I look across the whole Defence enterprise, not just the department but I include the department, they’re tackling hard problems, whether its workforce or platforms or resources. I see it as our role as scientists to create different, unexpected ways of making a better future for them. I guess I’ve seen my own mindset shift to be one of, how do we get more creative about supporting the whole enterprise so we can deal with the difficult trade-offs that are required.’
A good example is how uncrewed systems can remove men and women from the most dirty, dangerous, and difficult situations. ‘It allows us to experiment a bit more with this concept of minimum viable because you’ve not got a person inside a capability. You can take more risks than you would if you actually had people under the seas, for example.’
Planning to provide the ADF with uncrewed aerial systems was ASCA’s first major innovation challenge, says Monro.
ACSA asked Australian companies what they could contribute to a sovereign aerial drone capability—anything from a full system to relevant algorithm software or other components that would contribute to their manufacture and operation.
ADF chief, General Angus Campbell, commented in this context that the paradigm change was that in Afghanistan troops needed to look at the ground in search of improvised explosive devices, but Ukraine had demonstrated the need to watch the sky for drones.
Drones are highly relevant across all the services, Monro says. ‘To me this is a great example because they use relatively simple technology, and we got around 250 responses from Australian industry. We picked the best 11, put them in contract in December and we’re doing a sovereign drone fly-off shortly. We’ve essentially given resources to those best 11 companies to come and bring their wares and then, in a controlled environment with the war fighter, show us what they can do so that we can rapidly procure solutions.
‘To me that’s where the innovation, science, technology community comes together with the ADF to go after something really tangible where we might not know precisely every specification we would put out for procurement, but where we can together figure out what can be done now, and in the future.’
The Ghost Shark program is intended to provide the ADF with uncrewed vessels for the undersea environment. It’s a $140 million, dollar-for-dollar match of Defence and industry money, with about 40 companies in its supply chain. ‘It’s not an R&D project. It’s a prototyping program contracted to deliver three prototypes to Navy for use in exercises, says Monro.
‘DSTG folk are part of that integrated team with Navy, the SMEs and Anduril Australia. It uses, for example, sophisticated science that makes submarines quiet. This cross fertilisation of deep expertise in this next generation of defence technology is a different way of working.’
Monro says it’s about starting out with a shared understanding of the problem, having a commitment to deliver something to personnel in the short to medium term and having a partnered approach where risk in genuinely shared. ‘It’s not just about funding industry to do something, it’s about them putting skin in the game and accepting risk. And having an expectation that if you deliver and it meets a priority there’ll be an acquisition path. That’s going beyond the world of science and tech and prototyping, into reform of our acquisition system,’ she says.
‘To me, applying your best science and your best innovators, your engineers to a tangible problem that your military says is important, means you implicitly and explicitly get their buy-in to use it. You get it on exercise, you get it on trials, and you insert it.’
A key area of strength for Australia is hypersonics, with the goal of enabling craft to travel at more than five times the speed of sound. In 2022, establishment of the Eagle Farm hypersonics precinct was announced to bring together a critical mass of industry, defence science, and military personnel engaged in flight testing.
Monro says the research is vital so that Australia understands how to deal with hypersonic weapons if they are every deployed against it. But for Australia to develop the capability would also give our government additional deterrence options ‘that might discourage an adversary from ever considering that today’s the day’.
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With AUKUS and the defence strategic review, we now have some clarity on Australia’s defence capability needs, but the ‘how’ of delivery is to be determined. Defence industry is a key enabler, but Australia’s defence industry policies have met with only partial success. Individual measures, like the acquisition of a controlling stake in CEA Technologies, indicate a willingness to act with resolve, but the scale of our strategic challenge demands fundamentally new thinking on defence industry policy and on the policymaking capability itself.
The specific challenges for the Department of Defence and defence industry are well known: innovation, industry support, procurement and value for money.
In my previous article, I outlined the policy path that’s been well trodden by countries that have attained rapid technical and industrial development. I highlighted the centrality of exporting firms, and our opportunity to harness the might of Australia’s financial services sector. Here, I propose a means of doing this that specifically addresses some of the challenges.
In the absence of a new federal department, Defence should create its own investment arm with the core function of investing in and attracting private investment into defence industry, focusing on exporting firms, and with a role in policy formation.
The benefits of greater private investor participation in the defence sector were succinctly set out in the Australian Financial Review by John Kunkel and Hayley Channer. Here I add further arguments in favour of this and note the centrality of an investor’s mindset to the rapid development of industry capability.
Such investors include superannuation funds and family offices that invest directly in assets, private equity funds and venture capital funds. They control around $4 trillion in assets, a good chunk of which is directly invested in infrastructure and firms. Investors can bring much-needed expansion capital to the defence sector, and expertise in growing companies or ‘sweating’ infrastructure assets to maximise return on investment. This is an invaluable base of knowledge for Defence.
But the most profound contribution of private investors is cultural. Defence is culturally introverted—a product of its approach to information security. The economic historian Joe Studwell notes that economically introverted states tend to have economies that are ‘technology-less’ and ‘dependent on multinationals, eking out a living as contractors’. That description can apply to much of Australia’s defence industry, which culturally reflects Defence.
Rapid development requires more extroversion, and financial investors are the ultimate economic extroverts. They’re wide open to new associations and opportunities, so long as their financial-return hurdles are met. An alliance between Defence introverts and financial investor extroverts could be a powerful driver to shape and grow industry.
Given the cultural differences, making common cause won’t be easy. In Silicon Valley, the Pentagon has reined in investors’ extroverted interactions with China. Defence-oriented investors have their criticisms of the Defense Innovation Unit and of difficult Pentagon procurement processes, but there are a critical mass of defence-oriented investors and established pathways of engagement.
In Australia, there’s limited private investor activity. CPE Capital, a private equity firm, is aggregating parts of the F-35 supply chain. Venture capital firms make isolated investments in dual-use companies and technologies, such as Main Sequence (In-Q-Tel is active too, though with a narrow focus). But, given the scale of private capital in Australia and the size of the defence spend, activity levels in Australia are underweight.
The investment arm of Defence (let’s call it ‘the Defence Investor’) will invest in industry and work with Defence to shape investment cases capable of attracting co-investment from private financial investors. It will do that through direct investment in industry and by acting as a fund of funds, providing capital to investors willing to work towards strategic objectives.
The Defence Investor will address the key challenges thus:
Innovation: Direct investments alongside trusted co-investors across the capital stack in early stage and growth-stage technology companies and invest as a limited partner in venture capital funds, to co-create a pathway for the commercialisation of technology into exportable dual-use products. Use extroverted private investors as a fulcrum to translate technology into capability.
Industry support: Direct investments into and alongside private equity funds and family offices to grow and consolidate the Australian manufacturing sector, creating the ‘missing middle’ integrators between small and medium-sized enterprises and the primes. Provide cornerstone equity in initial public offerings when funds seek to exit their investments to incentivise the listing of middle-market defence businesses on the ASX. It can also hold the equity of sensitive entities marked for government ownership (such as CEA Technologies), providing them with a quasi-commercial home.
Procurement: Create a pipeline strategy along with the Advanced Strategic Capabilities Accelerator (ASCA) to mould industry capability to Defence’s needs by investing in a limited number of providers targeted for sole-source procurements.
Value for money: Structure offtake and capacity models to incentivise direct investment in the defence estate from superannuation funds and other Australian investors to smooth infrastructure outlays (subject to accounting treatment) and sweat the estate.
The Defence Investor can also offer:
Policy leadership: Provide in-house advice to Defence to craft industry policies that balance vigorous economic activity against accountability for strategic objectives (balancing the extroverted with the introverted).
Business and investment pathways: Arrange placements of public servants and Australian Defence Force personnel in venture capital and private equity firms (like the Pentagon’s Defense Ventures 12-month tours) to build capacity within Defence, build trust between financiers and Defence, and strengthen the pipeline of ex-ADF innovators.
The direct investment path is well established in other parts of government (for example, Main Sequence, Export Finance Australia and the Clean Energy Finance Corporation) and in defence policy elsewhere (such as AFWERX in the US, and in Europe NATO’s Defence Innovation Fund and France’s Definvest). All these state-backed defence investors have four features in common: independent investment decision-making powers, a clear investment thesis and strategy, clear policy objectives to inform the investment thesis and strategy, and expert personnel.
The Defence Investor will be separate from but closely allied with ASCA. While independent, it will maintain deep links with the services, and that connectivity will inform its investment decisions. Its relationship to the National Reconstruction Fund will need to be determined.
Its strategic objective will be to work with ASCA and trusted co-investors to create an Australian dual-use innovation and industry pipeline, fuelled by multiple stages of deployed capital, from seed and early-stage funding through to buy-outs and in some cases initial public offerings. It will also structure infrastructure financing transactions. Target investees will be current and prospective suppliers to the ADF but will be expected to have an export-centred business model to facilitate efficiency and scale.
The Defence Investor will be built and staffed by professional financiers. Only by hosting a selection of investors, corporate development experts and professional infrastructure investors will Defence gain something genuinely additive to its culture.
The Defence Investor will succeed only in a broader industry policy environment that’s open to widescale public investment, including an acceptance that some investments will fail, and indeed should be allowed to do so.
Defence’s bold objectives require bold solutions.
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President Joe Biden’s offer to have Australia counted as a ‘domestic’ economy under the US Defense Production Act may give a badly needed boost to the flagging economic relationship between the two countries.
The US bought only 3.3% of Australia’s merchandise exports in the year to March, its lowest share since 1934–35 at the height of the tariff war in the wake of the Great Depression. Before that, its share had not been lower since 1912.
Singapore (population 6 million) bought more Australian goods over the past year than the US (population 330 million). The US, which was our second biggest market behind Japan until 2004, now ranks seventh.
The decline of the US as a trade partner and its refusal to join regional trade groups like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership gives weight to arguments that Australia’s future lies in Asia and the need for a modus vivendi with China.
The US share of Australian imports has held up better—it remains the second biggest supplier after China—but there, too, its share has halved from 20% to 10% over the past 20 years.
Although the US remains by far the largest foreign investor in Australia, this increasingly looks like a legacy of the post-war expansion of the US multinational corporation that’s running out of steam.
US companies have pulled a net $19 billion out of Australia over the past four years, according to the Australian Bureau of Statistics. The value of all US investment in Australia has declined 16% since 2019.
This is possibly driven by the gap that has opened between US and Australian company tax rates in the wake of tax cuts under Donald Trump’s administration. Australia’s company tax rate of 30% is internationally uncompetitive when the US rate is 21%.
US investment figures, which are compiled on a different basis, also show US firms unwinding investments in Australia. They show that the level of US investment in Australia has barely changed in the past decade, rising from US$165 billion in 2012 to only US$167 billion by 2021.
The US stake remains much greater than Australia’s share of the regional economy would suggest. US companies hold 17.5% of their investment in the Asia–Pacific in Australia, though that’s down from 25% a decade ago.
Australian companies continue to invest in the US. Their holdings of $193.1 billion now exceed the US stake in Australia of $184.3 billion, according to Australian Bureau of Statistics data.
One obvious explanation for the decline in the relative importance of the US in Australia’s investment landscape is that it has no need of Australian iron ore, liquefied natural gas or coal—the big-three commodities that have driven the rapid growth of Australia’s trade with Asia, and with China in particular.
There has also been a change in the nature of the US global business. The technology giants like Amazon, Facebook, Uber and Google don’t have to be physically located in Australia in order to sell their services here.
Australia doesn’t have to enjoy a close economic relationship with its principal military ally, but it would help persuade the Australian public of the benefits of the alliance if there were greater mutual economic gains.
Although Australia’s trade with the US is relatively small, particularly from a US perspective, it shows some interesting trends that may point to the potential for growth as activist industry policy enjoys a renaissance on both sides of the Pacific.
Australia’s biggest exports to the US are gold and beef, but following that come pharmaceutical products, measuring and analysing instruments, medical instruments and aircraft parts. Each of these categories also features in Australia’s imports from the US.
Last year, Australia imported $2.4 billion in US aircraft and parts, and exported $745 million. It imported $1.8 billion in US pharmaceutical products (excluding medicines) and exported $1.2 billion to the US. There were imports of $1.3 billion in measuring instruments and exports of $784 million. Similarly, Australia imported $1.3 billion of medical instruments from the US and exported $750 million.
Each of these products involves advanced manufacturing and their trade between the US and Australia points to an important trend under globalisation in which countries trade similar goods with each other. Under classical trade theory, trade prospers from the difference between countries; hence, Australia exports resources to Japan and China and imports manufactured goods.
However, globalisation and the reduction in transport as a share of total costs have fostered trade within industries, with micro-specialisations in different niches within a single industry or even within corporate groups. The design work done for the global Ford group in Australia is an example of the latter.
The trend of reciprocal trade can be seen in the services sectors. While the US doesn’t feature in Australia’s big travel and education sectors, it is by far the biggest market for Australian business services, telecommunications and computer services, financial services and intellectual property. In business services, for example, Australia’s sales to the US were worth $3.1 billion last year, while imports of business services were $4.5 billion.
Industry policy can foster this reciprocal trade. For example, around 70 Australian companies make parts for the F-35 fighter jet. Pharmaceutical companies that benefit enormously from Australia’s Pharmaceutical Benefits Scheme have an incentive to export their products here.
There has long been a push for greater local content in defence procurement, and the government is now pursuing a $32 billion plan for the local manufacture of missiles.
The lesson of reciprocal trade is that Australia would gain by developing a specialisation in the manufacture of missile components where it could achieve economies of scale in collaboration with the major defence contractors and could build exports. Self-sufficiency is an entirely legitimate national security goal, but economics are on the side of specialisation in parts of the process and the increasing returns to scale.
The initial aim of the Biden administration in pushing for Australia to be recognised as a domestic company under the Defense Production Act is to open the way for Australian producers and processors of critical minerals to benefit from US markets and subsidies.
This is classic trade theory, leveraging Australia’s strengths in commodities which are not matched in the US. It is of considerable value to Australia if it supports the development of an industry that becomes a principal supplier to the energy transition, just as our iron ore, coal and LNG have supported industrialisation in Japan and China.
However, there’s potential for the collaboration with the US to support the further development of a wider spread of services and advanced manufacturing industries and trade.
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The reaction to the defence strategic review (DSR) has largely focused on the recommendations to re-allocate defence funding, cut Land 400 from 450 to 129 infantry fighting vehicles in favour of long-range strike capability, develop a lethal surface fleet, and put a greater focus on autonomous air capability. However, the big challenges are hidden in the numerous references to ‘whole-of government’ and ‘whole-of-nation’ collaboration and solutions. This is particularly relevant to the much-needed upgrade of bases in northern Australia and complicated by the responsibilities of the myriad north-focused Commonwealth agencies—not to mention the state, territory and local governments, companies and communities—that a have a personal stake in the north.
The DSR highlights that Australia’s forward deployment line is across our northern maritime approaches from the Cocos (Keeling) Islands to our northern bases at Learmonth, Curtin, Darwin, Tindal, Scherger and Townsville. Several of those bases are in desperate need of redevelopment and others require upgrading.
It would have been disappointing for the reviewers to learn that most of the recommendations from the 2013 defence white paper relating to the northern bases haven’t been implemented. Even then it was noted that the ‘current disposition of the defence estate reflects the realities of history and Australia’s demography, coupled with a more recent emphasis on basing to support strategic priorities in the north of Australia’. Not wanting to dwell on why those early recommendations weren’t implemented (or indeed where the funding went), the DSR concludes that the network of northern bases should be ‘urgently and comprehensively remediated’.
However, our strategic defence can’t operate as disconnected ‘islands’ within regional communities.
A reference to the impact of recent severe flooding in the north highlights that Defence needs well-maintained, resilient civil infrastructure including ports and roads to operate effectively. While restoring infrastructure quickly following weather events is an enabler to effective defence operations, restoring infrastructure in a way that reduces the impact of future weather events is more to the point. That’s important for Defence but not its role.
The more significant point to appreciate is that our strategic positioning in our region is dependent on the north being economically prosperous and resilient. Understanding that the north is part of our region and ensuring it has robust physical and social infrastructure is more important than ever.
Corralling the parties with an interest in the north is challenging enough, but the key unanswered question is how do we do this better?
Defence tends to overwhelm partners in the north and at times heavily influence outcomes including in the design of local infrastructure, but without committing openly to using it. The Darwin ship lift design is a well-discussed case in point. The impact of this approach is that design specifications are enhanced, which in turn increases development cost. In the absence of an anchor client with an overt intent to use the infrastructure, the development won’t attract capital funding.
The government has agreed to most of the recommendations in the publicly released version of the DSR, but 13 were ‘agreed in principle’ and will largely be addressed in the national defence strategy to be delivered in 2024. There’s hope the development of the strategy will articulate the way forward. Time will tell whether this is another attempt to kick the can down the road in the way the 2013 northern base upgrades fell off the agenda.
In the past, Defence has been shy about articulating its strategic intent at the local level. The result is that local investors read between the lines or guess what Defence needs. The public version of the DSR provides plenty of guidance of what is and isn’t important. The big ideas will be coming thick and fast, and they will overwhelm even a large bureaucracy like Defence.
Implementation of the majority of the DSR recommendations relies on active involvement of not only other Commonwealth agencies, but also other levels of government and the private sector. Their good will to engage with Defence for the good of the nation will again be tested and it would be unwise to dismiss or downplay the challenges others have faced in their past dealings with Defence.
So, what needs to change? Implementation needs to get personal and local.
Defence invests huge efforts in recruiting and training its people. They represent one of the highest quality workforces in Australia and this capability needs to be better leveraged. Defence executive and star ranks can’t be everywhere. The assumption they have all the answers is flawed and should be challenged. Meaningful empowerment at the local level would fast-track implementation of the recommendations and deliver much-needed change.
There’s a reason most great innovations occur in small, nimble teams and start-ups. They are less likely to happen in department-run innovation hubs, which tend to become the tail wagging the dog.
Empowering small local teams runs counter to hierarchical structures of large organisations and requires people to operate in a far more organic manner, amplifying the regional and local focus. It may even have a positive impact on retention, particularly of younger members of the military. We know relationships matter, so give people the space to make them matter.
And the risk? Minimal. Most of the time people will do what you would’ve done. Occasionally they might do something that needs adjustment. And every now and then they will do something remarkable.
The north is recognised for its strong capability in innovation and Defence would do well to connect northern entrepreneurs with local Defence personnel to fast-track implementation of the DSR recommendations. The challenges are many and a few remarkable innovations won’t go astray!
The Russian invasion of Ukraine has brought renewed focus on questions of munitions stockpiling and production capacity. Efforts to secure as manymodernanti-armour weapons from whoever can provide them have been a prominent feature of Ukrainian diplomacy, for example.
The scramble has also been on for supplies of munitions of every conceivable nature. Recent footage suggests that Ukraine is using Iranian 122-millimetre artillery ammunition, and not old stuff, but shells apparently manufactured in 2022. More strikingly, Russia was recently reported to be buying significant quantities of ammunition from North Korea.
Given the high rates of ammunition consumption being reported, there has been significant attention paid to the sustainability of this usage by both sides, as well as what it might tell other countries about the robustness of their own arrangements.
These are not new questions and, commendably, the Australian government had already decided to do something about concerns in this area before the events of this year. The ‘Guided Weapons and Explosive Ordnance Enterprise’ (known as ‘GWEO’ or the ‘GWEO Enterprise’) was announced in March 2021. It is intended to be the ‘enabling ecosystem to support Defence’s inventory of guided weapons and explosive ordnance’, with a long-term (beyond 10 years) goal that ‘Australia will have achieved increased sovereign design, development, manufacture and support of selected weapons’.
There are two parts to this issue. Quite a bit has already been written about the first—the ‘guided weapons’ component. ASPI senior analyst Marcus Hellyer’s attempt to ‘crack the missile matrix’ is perhaps the most prominent public piece of work.
In short, the GWEO Enterprise appears to remain some way off producing anything, and the two ‘strategic partners’ to the enterprise (Raytheon and Lockheed Martin) already produce most of Australia’s guided munitions (both offshore and onshore). Defence is at pains to emphasise that in the first instance increasing stockpiles, from whatever supply chains are available, is the first priority.
This initial priority for increasing stocks, not manufacturing, can creditably be seen as a tacit acknowledgement of how fraught the word ‘sovereign’ is in this area. Building anything that looks like domestically manufactured guided weapons at a relevant scale is an undeniably complex endeavour, and it is perhaps not surprising progress has been slow. This is not just true of the most exquisite missile systems.
Currently, primers for small-arms ammunition are reportedly 100% imported from overseas. They are readily available and low cost under ‘normal’ conditions, and could be stockpiled to facilitate surge manufacturing of finished munitions in a crisis. But this would not represent a start-to-finish, independent manufacturing capability, if that were taken as the meaning of ‘sovereign’.
This leads us to the second aspect and the other end of munitions spectrum: how healthy are our supply arrangements for more traditional, ‘dumb’ munitions, like artillery shells, unguided bombs and rockets and the myriad small-arms and medium-calibre ammunition?
It bears noting that the ‘EO’ part of ‘GWEO’ itself appears to have been the product of some sort of evolution, at least of public framing. The previous government initially announced a ‘Sovereign Guided Weapons Enterprise’, and Defence subsequently introduced the ‘GWEO’.
Defence is, for understandable reasons, completely mum on the question of what Australia’s existing stockpiles of any munitions type look like. You can glean snippets from select guided weapons purchases (see Appendix 1 of Hellyer’s missile report: at best we might get an ‘up to’ quantity associated with a sale), but the picture doesn’t even exist to that extent for their ‘dumb’ cousins. We can assume that many of our extant stockpiles wouldn’t last long, at least at anything approaching the consumption rates being observed in Ukraine.
Australian Munitions, a Thales subsidiary, operates two manufacturing facilities abreast of the Murray River: one in Benalla, Victoria, and the other in Mulwala, New South Wales. The latter produces explosives and other inputs—‘energetics’, in industry parlance—while the former is an ammunition factory. These facilities are ‘government-owned, commercially operated’.
With the inking of the $1.1 billion ‘Strategic Domestic Munitions Manufacturing’ contract with Thales in 2020, it was also revealed that another armament and munitions firm, NIOA, was to share the Benalla facility. NIOA is also building an artillery shell forging plant at Maryborough in Queensland, which is expected to be completed this year. The company reportedly ‘has plans, subject to government approval to produce 155mm Assegai Projectiles, 30mm ammunition for the Boxer vehicle, hand grenades, aircraft bombs and artillery fuses’. At this stage, NIOA is not delivering these munitions to Australian defence users and these plans are therefore, presumably, not part of the GWEO.
The GWEO leadership team from Defence provided an ‘industry update’ at the Land Forces 2022 Expo in Brisbane last month. The report on ‘progress to date’ reflected the emphasis on guided weapons. Only two items were noted specifically in terms of ‘dumb’ natures. One was the ‘BLU series’ of bombs, for which Thales has established a local manufacturing capability.
The second is the request for proposal for large-calibre munitions issued by Defence. Defence reported that it has received responses for 81-millimetre (mortar), 155-millimetre (artillery) and 5-inch (naval) ammunition.
What is interesting here is that Defence framed this development as a response to potential opportunities. It was not part of the original plan and remains unfunded in the GWEO portfolio. On the face of it, this is not a bad thing; however, it bears noting that this suggests that this component wasn’t something that emerged as a targeted priority.
In a second part to this piece, I’ll pose some questions about whether this EO state of play adequately reflects the potential need for these supplies by Defence, and discuss some of the barriers to realising greater ambition in this area.
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In a recent article on this forum, Peter Dean argued that a rethink of the Australian Defence Force’s land-based strike requirements is needed to ensure it won’t be outgunned both qualitatively and quantitatively in a future conflict. His proposed solution is for the Department of Defence to expand the Land 8113 project and equip the Australian Army with land-based Tomahawk missiles.
The concept underlying the argument is sound, but the proposal doesn’t go far enough.
Several issues require examination.
The first is the accepted concept of placing a potential adversary at risk early. This requires long-range precision-guided weapons. Something akin to the Tomahawk or LRASM (long-range anti-ship missile) is the answer.
The second is to put in place a believable deterrence capability. Deterrence is defined by the Oxford dictionary as ‘the action of discouraging an action or event through instilling doubt or fear of the consequences’—that is, the potential adversary needs to understand that it has actually been placed at risk. Again, something akin to the Tomahawk or LRASM is required, together with the necessary surveillance, targeting and datalink capabilities.
As outlined by Dean, the third aspect is the ability to deploy, both for operational flexibility and for protection. Something akin to a land-based, mobile Tomahawk or LRASM would be suitable.
The fourth issue is potentially the most important and concerns the risk of resupply. This is where a sole focus on the Tomahawk starts to fall over.
Given that we’re likely to be participating in the same fight as the Tomahawk supplier, it’s difficult to see how we would have suitable options for resupply once our stockpiled weapons had been fired. After all, the US will need every weapon coming off the production line for its own forces. That means the Tomahawk or LRASM can be the answer only in the short term to provide an immediate capability.
The fifth issue concerns risks and alternatives. Resupply risks at the critical time will be high, and stockpiled missiles have a shelf life measured in years, not decades. Stockpiling is not the answer. We need to design and build our own land-based long-range and hypersonic weapons here. The ADF needs weapons that don’t have to be integrated into complex platforms but can be fired ‘from the back of a truck’. It needs weapons fitted to platforms that don’t require complex maintenance regimes or highly trained personnel.
Designing and building this type of missile here will provide part of the asymmetric capabilities that Australia needs. It will contribute to the development of the believable deterrent posture that Australia needs but doesn’t have. An extra ship, an extra couple of planes and additional tanks are not going to make any real difference. The ability to manufacture and deploy large numbers of domestically designed hypersonic weapons will.
The usual retort to such a suggestion is that the design and build of guided weapons is long term, expensive and beyond the capability of the Australian defence industry to deliver. (The subtext to this argument is that it’s cheaper and easier to just buy from overseas and stockpile.)
Australia’s defence industry has proven itself time and time again as being capable of developing advanced technologies for defence purposes, but the cultural cringe within the Defence Department typically forces these local developments into the loving embrace of the global primes.
The local industry is replete with companies capable of contributing to a domestic effort to build long-range hypersonic missiles: flight vehicle and sensor design and manufacture, propellant technology, command and control systems, integration with the firing platform.
There’s no doubt that the process to develop hypersonic weapons will be long and expensive, but it’s not a question about cost and ease. It’s a question of risk, and particularly the risk of not developing this capability here, to meet our own requirements, for our own use, when and where we might need to use it. Not developing these weapons will see us expend large amounts of resources on a finite stockpile that cannot be replenished when we need it to be.
There’s a popular proverb that says: ‘The best time to plant a tree was 20 years ago. The second best time is now.’
It’s time to get cracking.
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In my last article for The Strategist, I illustrated the challenges that the defence sector faces in building the workforce required to support the government’s large planned investment in defence capability over the next decade. After recently attending a number of conferences and seminars, I can safely say that there’s now a good appreciation among senior defence sector leaders of the current, and increasing, shortage of workers across most defence industry disciplines.
There’s no silver-bullet solution to the worker shortage—and all will involve Defence making greater use of an external workforce—but some options will come easier and have bigger impacts than others. We can derive some easy wins from the experience of other sectors: how did the resources industry grow its workforce during the noughties resource boom? It didn’t fully employ its pools of experienced mining, oil and gas workers and then simply wait for new graduates to slowly build up the numbers. Instead, the industry reframed its expectations of the experience its workers needed and hired people from adjacent industries. That’s what the defence sector must now do.
Defence’s Capability Acquisition and Sustainment Group (CASG) can lead this change from the front, and it has just the tool for the job, its major service providers (MSPs).
The MSP model was created in part to help CASG access the external workforce that it needed, and at better value for money than possible through the defence support services panel or its various predecessors. One key goal was to move beyond the expensive short-term ‘body shop’ approach to outsourcing. By issuing the MSPs with large integrated work packages (IWPs) rather than requests for individual contractors, the model gave MSPs a sufficient ‘demand signal’ to encourage them to create enduring workforce capability. An IWP gives full responsibility to an MSP to deliver the complete range of engineering, logistics, commercial and project management services to a Defence project or branch, thus delivering benefits of economies of scale and certainty.
I acknowledge that concerns have been raised about the marginalisation of small- and medium-sized enterprises (SMEs) under the MSP model. I am not seeking to address any real or perceived issues in these relationships, but want to focus attention solely on where the MSPs themselves can be leveraged to increase the overall workforce.
One of the true opportunities in the IWP approach is that it allows the MSPs to grow their workforces by hiring graduates and skilled workers with non-defence experience. I assume that one of the criteria for MSP selection was the providers depth of knowledge and capability in sectors other than defence, thus allowing it to blend this non-defence capability into the delivery of each IWP.
Based on my observations of the sector, this isn’t occurring nearly as widely as the MSPs (and Defence leadership) would like. There seem to be few examples of MSPs either using staff from their non-defence businesses or using their non-defence expertise to assess and recruit skilled workers from other industries. These instances are not at the scale needed to have a real impact, but any lessons learned bear examination so they may be applied on a larger scale.
A big obstacle seems to be that it’s common for CASG managers to be highly specific in their expectations of the type of personnel that an MSP (or its subcontracted SME) must provide. This leaves the MSP with no choice but to supply workers with the usual, niche defence skillsets and experience, tightening the talent pool dramatically, while increasing competition in the market more generally. Sometimes these needs are driven by task urgency or security classification requirements, but at other times these conditions could be ameliorated with a more strategic approach to workforce planning.
An additional complication arises when CASG staff, many of whom aren’t used to assessing or managing workers with non-defence backgrounds, want to be heavily involved in the selection of MSP staff. Aside from undermining the entire intent of the MSP concept—which is to release whole packages of work to the MSP rather than simply seek individual contractors to fill vacant positions in Defence project offices—in an ultra-competitive employment market, this risks injecting terminal delays into the recruitment process for new workers.
On a brighter note, there are examples of MSPs offering, and placing, graduates on IWPs free of charge, and it would be great to see CASG taking advantage of this on a larger scale.
The ideal scenario would be that the MSP is allowed to develop and execute a long-term workforce plan that allows it to hire, train and retain whichever workers are required to meet a deliverables-based IWP. Acknowledging that this may not be possible for one reason or another, there are a few practical ways to grow the MSPs’ workforce capability.
First, managers at the CASG coalface should reframe their view on what skilled workers from other sectors can achieve if supported well by their MSP employer, and refrain from inserting themselves in the selection of MSP staff. In return, MSPs must demonstrate how they will manage any perceived risk associated with using workers who are new to defence work.
Second, as part of this risk management, CASG and the MSPs may acknowledge that there will be a training liability on both parties to get these new workers up to speed, and plan and budget accordingly. We will likely find that this expense will pale against the expense of inaction and future worker shortages.
Last, just-in-time workforce development is just not an option in the defence sector today. CASG and the MSPs must find a way of translating their significant workforce-planning efforts into real-world action, and reduce short turnaround resourcing requirements as much as possible. With their strategic view of workforce needs, MSPs should be able to develop talent pools or SME partnerships that can meet a degree of short-notice workforce requirements.
I will stress that any shortcomings illustrated here are not the case in all IWPs, and that comparable circumstances are playing out in industry as well. And that’s perhaps the even bigger challenge Australia as a nation is facing—there aren’t bottomless pools of skilled workers in non-defence sectors for the MSPs to draw upon. International border closures are exacerbating the problem. Non-citizen immigrants are largely ineligible to work in the defence sector, but their absence is leading to greater overall competition for skills in adjacent industries, which will inevitably affect the defence sector.
That means the skills shortage isn’t going away, and all players must understand that we need to do workforce development differently now. CASG is at the nexus of the defence sector skilling ecosystem. It now has the opportunity to leverage its buying power to change the way that the sector develops the skilled workforce that it needs. I firmly believe that the senior leaders of all large defence sector employers understand the nature of the workforce challenge, but it is the leaders at the coalface who must have clear-eyed awareness of the challenge, the resources to tackle it, and the courage to do something differently.
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When we think of technology and geostrategic competition, artificial intelligence and the race between China and the US to dominate these technologies and the standards that regulate them most readily come to mind.
But a breakthrough in quantum information technology could change the nature of the internet itself, completely upending the foundations of information security as well as the current parameters of geostrategic digital tech competition.
How? By being able to break the key encryption models on which public and private internet networks depend to send information securely—everything from banking transactions to highly classified intelligence reporting.
Authors Robert Clark, Stephen Bartlett, Michael Bremner, Ping Koy Lam and Timothy Ralph warn that the Australian government and its Five Eyes partners are ‘one creative algorithm away from quantum capabilities that might fundamentally undermine vital national defence and security advantages’.
The timeframe for scientific breakthroughs of this magnitude is of course very difficult to predict. The standard story is that this kind of technology is a decade away, and therefore a more distant priority than the more immediate one of the ever-increasing sophistication of AI technologies.
But as the US quantum information strategy makes clear, it’s much safer to assume that these algorithms will exist sooner than we may think, given the amount of dollars and research effort being thrown at the problem by China and the US.
This means that the time for Australia and its alliance partners to prepare for a post-quantum information world is right now.
The ASPI report identifies key areas in which action is urgently needed to help Australia secure its critical information and position itself to move to post-quantum cryptographic technologies when they emerge.
We need to start by leveraging our alliance partnership with the US to formalise a defence- and intelligence-led bilateral research effort on quantum information technology. The defence organisation has so far maintained a watching brief on quantum. But it is essential now to build capability and literacy in quantum technologies with applications to the defence mission in preparation for a post-quantum operating environment.
But Australia can’t just rely on bilateral partnerships. Boosting our own sovereign quantum capability to enable us to keep pace with advances is also critical. Defence needs to spearhead a comprehensive program, involving both software and hardware, to develop a programmable intermediate-scale quantum computing capability within the next five years.
Australia needs this capability so that it can develop quantum algorithms and testing for cybersecurity applications. It’s also a necessary stepping-stone to full-scale quantum computing, which will have a multitude of defence applications. And importantly, setting up such a capability has the added benefit of developing domestic quantum technology industries, a foundation for attracting the talent and expertise that Australia will need in this area.
As it builds its quantum infrastructure, Australia should also be building an international presence in quantum communications and establishing critical national quantum infrastructure.
Participation in the Global Quantum Communication Network through international space-based quantum network programs in coordination with our key allies will be essential.
Defence also needs to take the lead in establishing space-based quantum infrastructure here, namely, a national optical ground station network for laser and quantum-capable satellite communications.
This network should be accessible to both government and industry and is the kind of infrastructure that Australia needs to put in place so that it can participate in the global quantum internet that researchers expect will emerge in coming years.
The formation of a national quantum communications expert group will be critical in guiding work and consolidating the deep pockets of quantum expertise in Australia, as well as working with Global Quantum Communication Network programs such as the European Union’s ETSI to establish quantum accreditation and standards.
But all this won’t work without a dedicated research facility that bridges academic and security communities to better understand the problem of future threats to communications networks. Australia could usefully follow the UK lead to establish a mathematical and theoretical sciences research institute that brings together all the relevant disciplines of cyber, physics and advanced mathematics.
Also critical is setting up a defence industry supply chain for quantum research and development and technological applications that is nested in a formal cooperation framework with allies and partner nations. Australia has a lot of talent to contribute, especially in its university sector—which in some cases rivals the work being done in the US and EU.
Australian quantum initiatives of note include the development of a quantum processor based on phosphorus-doped silicon at Silicon Quantum Computing, the research partnership between Microsoft and Sydney University on cryogenic digital control systems for quantum processors, and the commercialisation of quantum encryption techniques by QuintessenceLabs, Q-CTRL and Quantum Brilliance.
These are all promising developments. But the sector needs a consolidated national policy to really develop the quantum expertise and infrastructure Australia needs for national defence, to maintain technological relevance in our relationships with allies, and to prepare our economy for the quantum future.
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There are a lot of moving parts involved in the ramp-up of the government’s naval shipbuilding enterprise. It’s hard for anybody to keep track of them all, particularly as new pieces of information are sporadically disclosed in a range of forums and sources. The inclusion of both the Attack-class submarine and Hunter-class frigate for the first time in the Australian National Audit Office’s 2019–20 major projects report, due out later this month, will help and is certainly a step in the right direction.
But a compelling case can be made for an annual report on the entire enterprise, covering not just the component projects but also their enabling elements such as infrastructure, workforce, industrial capability, funding, and so on. There are precedents for annual reports on key elements of Defence’s modernisation efforts, such as the excellent annual report on defence industry and innovation programs.
In the meantime, for those who are interested in what is our now $137-billion shipbuilding program (give or take) but don’t have the time or inclination to trawl through transcripts of Senate estimates hearings, submissions to parliamentary inquiries, Defence’s annual reports, or its freedom of information disclosure log, here are some observations on key developments over the past few months.
This first part of a two-part series looks at enterprise-level issues. In the next instalment, I’ll look at individual projects.
Shipbuilding workforce
The defence minister is now providing the Senate with twice-yearly shipbuilding ‘enterprise workforce datasets’ with predictions for the Defence and industry workforces over the coming decade. Linda Reynolds presented the second one at October’s estimates. So far, the datasets include only the direct workforce, not subcontractors or broader supply chains; the Naval Shipbuilding College is working on developing those numbers.
Not surprisingly, some changes have been made since the first dataset in February this year. The total number for the current acquisition workforce has increased from 2,477 to 3,205. That’s largely because of the inclusion of the ‘combat systems enterprise’ (470 workers), the commencement of the evolved Cape-class patrol boats’ build (290) and an increase in the offshore patrol vessels’ industry workforce from 372 to 580.
It’s always wise to take declarations about the number of jobs that will be created by defence projects with a grain of salt. The OPV project won’t sustain the 400 direct workers predicted by the government at project approval. According to the October dataset, the industry workforce will peak at 600 while the build is running in both Adelaide and Henderson in Western Australia, but it settles back to a steady state of 230 once the two Adelaide vessels are complete and only CIVMEC’s Henderson shipyard continues to build. Let’s not forget that that is a good thing—building efficiently with a highly automated shipyard that requires fewer people means lower costs to the taxpayer.
The most striking thing about the datasets is the extent to which South Australia dominates the direct industry workforce numbers. Currently for acquisition projects, South Australia has 1,640 of 2,535 industry jobs (64.7%). By 2025 that grows to 3,675 of 4,465 (82.3%) and by 2030 it reaches 4,595 of 5,185 (88.6%).
Embedded in those top-level numbers are some heroic annual increases for individual projects. The future submarine project aims to grow its Adelaide workforce from 1,020 to 1,670 (63.7%) in just two years from 2023 to 2025. That’s after the air warfare destroyer and OPV workforce in Adelaide has already fallen to zero, so there’s nobody left there to transition to building submarines.
It may be that the cause of greatest risk to the shipbuilding enterprise was the decision to build both the submarines and frigates in the same city—between them they will require 4,230 of the enterprise’s 5,185 (81.6%) direct industry workers by 2030.
The sustainment workforce is spread more evenly, which acts to some degree as a risk mitigator against the concentration of the acquisition workforce. But spreading supply chains across all of Australia’s industrial centres to draw on as large an indirect workforce as possible will need to be another.
The Naval Shipbuilding Advisory Board
In 2016 the government created the Naval Shipbuilding Advisory Board to ‘provide expert, independent advice to Government on all aspects of naval shipbuilding’. Defence says the board’s role also includes ‘identifying emerging challenges that may require further consideration by Government’.
An example of the board exercising the latter function made headlines earlier this year. The ANAO reported that in September 2018 when negotiations between Defence and Naval Group over the future submarine program’s strategic partnering agreement were bogging down, ‘the Board recommended to government that Defence examine alternatives should negotiations not succeed … The Board also commented that Defence should assess whether program risks outweighed the benefits of proceeding even if negotiations succeeded’.
The board is doing its job in examining whether Defence and its industry partners are following good project management principles, identifying high-level risks, and asking how those risks are being mitigated. That’s a good thing.
But we should be wary of expecting too much of it. Its chair told Senate estimates in October, ‘Our remit doesn’t include the detailed view of cost and schedule. We have neither structure nor staff to be able to do that.’
So it’s not delving into the details of the enterprise. It won’t tell us if the current budget for its projects are right. Nor is its role to act as a ‘red team’, questioning whether the path the government and Defence are taking is the best one, whether there are alternatives and, most importantly, whether they should get off the current path. Again, that’s reasonable. But it does raise the question of who, if anyone, is performing that red team role.
When $50 billion is really $80 billion
Under questioning from Labor’s Penny Wong at October’s estimates hearings, it became very clear that the government and Defence continued to publicly use their $50 billion out-turned cost figure for the future submarine for over two years after Defence actually estimated it to be around $80 billion out-turned. And both continued to use the $35 billion figure for the future frigate for nearly two years after Defence estimated it to be around $45 billion.
That means the government’s own estimate for what it repeatedly described as a $89-billion shipbuilding program was nearly $130 billion (including a non-controversial $4 billion or so for the OPVs).
After Defence admitted there was no need to keep using the lower figures for commercial sensitivity reasons, Wong asked what the real reason was. After a prolonged silence, Secretary Greg Moriarty said, ‘When the government chooses to announce particular phases or particular prices is a matter for government.’ Unfortunately, the government has not provided a convincing reason for why it chose to understate the cost of its shipbuilding program by around $40 billion.
With even the most vocal advocates of the future submarine program lamenting its lack of public support, the government and Defence have to do better if they want Australians to continue to back this endeavour.
The other—and potentially more worrying—$50 billion figure
ASPI has previously highlighted the scale of investment in the Attack-class and Hunter-class programs before any capability is delivered. In 2018–19, we estimated that at least $20 billion would have been spent between the two programs by the time they achieved initial operating capability, which is when the first of each class is deployable. Based on a new $50 billion figure that Defence has released, that’s looking like an underestimate.
Defence recently informed the Senate’s naval shipbuilding inquiry that ‘of the $270 billion (2019–20 MYEFO price and exchange) planned investment detailed in the 2020 Force Structure Plan over the decade 2020–30, up to $50 billion (2019–20 MYEFO price and exchange) is attributable to the Naval Shipbuilding Enterprise’ (document 21).
The force structure plan takes a very broad view of what constitutes naval shipbuilding and appears to include things such as the life-of-type extension for the Collins submarine and the frigate and destroyer upgrades—not just the new ships.
But even including this broad portfolio, it’s hard to see the enterprise reaching $20 billion over the coming decade without the future frigates and submarines. That suggests the spend in the decade on those two will be at least $30 billion. That’s before either of them achieves IOC. Put another way, under the current force structure plan the navy doesn’t take delivery of an additional warship, vertical launch cell, towed sonar array or torpedo tube for that $50 billion. That’s a massive capability risk.
It’s further evidence that Defence needs to be doing more to hedge against that risk by aggressively pursuing other approaches to deliver the kinds of capabilities that the government’s defence strategic update says are urgently needed.
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Australia has spent 40 years building its own submarines.
For subs (and ships) we do defence as industry policy. Build our own naval muscle and build our economy. Protect sovereignty and protect jobs. The capability must have Australian content.
The Covid-19 pandemic has given new meaning to the defence discussion of the need for a robust and resilient industrial base.
We don’t necessarily have sovereign industrial capability in priority areas, but we’re sure planning to get it—or regain what we’ve lost. Australia now proclaims the need to ‘have access to, or control over the skills, technology, intellectual property, financial resources or infrastructure that underpin the Priorities [for industrial capabilities]’.
So, after 40 years on the subs journey—and much longer on the ships—we’re still struggling for the sweet spot where defence need and industry policy unite.
The struggle makes for passionate politics, proving that in the phrase ‘political consensus’ keep your eye on the politics. Because the submarines are vital yet vexed, the subs consensus is a hull undergoing repeated pressure tests.
In the struggle over building the new Attack-class submarines in Australia or overseas (Customer Oz versus Industry Oz) the industry side finally triumphed. It was, though, a close-run thing.
Malcolm Turnbull took industry policy to a rich new place with the largest ever peacetime defence industry investment program. In his memoir, the former prime minister argues the case for an Australian-built submarine:
Certainly, a foreign yard with current experience in building submarines will build faster and at less cost than an Australian yard would build the first one—but stress ‘the first one’. We’ll never have a sustainable continuous shipbuilding industry unless we start building ships and do so continuously. And if we want, over the decades to come, to develop an Australian advanced manufacturing sector, there is no industry more likely to provide the ‘pull-through’ stimulus than defence, and no project more at the cutting edge than submarines—the most complex, sophisticated and lethal vessels in the fleet.
Turnbull’s minister for defence industry and then defence minister, Christopher Pyne, says the vision is ‘to remake our strategic industrial base through the Australian defence industry’.
Because it’s about defence industry—not just industry—a Liberal government adopted what Pyne calls ‘an uncharacteristically European dirigiste demonstration of government intervention in the market’.
Pyne says the continuous shipbuilding program of the naval shipbuilding plan is the most detailed long-term guide for defence industry in Australia’s history: ‘A drumbeat of new vessels at least every two years for decades is something Australia has never enjoyed before.’
The new force structure plan calls for the acquisition or upgrade of up to 23 classes of navy and army maritime vessels. Cost: $168–$183 billion. Schedule: Out to the completion of the Attack subs in the 2050s.
The Turnbull government dived into the defence industry task with what Pyne describes as a combination of the PM’s ‘enthusiasm and my overconfidence’. Pyne’s jest is more revealing than he intends on the shambles of making up industry policy as you go along and on the run.
The submarine saga is strewn with missed options and strange turns: Labor’s lost six years, the death of the car industry, Tony Abbott’s dash for a Japanese-made sub.
The Rudd and Gillard governments proclaimed the need for 12 new submarines but didn’t get going. Those were the new-subs-stasis years. Labor’s focus was on fixing the Collins class and fixing the budget.
Labor, ultimately, left the sub choice to the Abbott government. Governments can’t bind future governments, but they can make big decisions that define the landscape and set the tide. Because of its new-subs stasis, Labor made no such decision.
Abbott wanted to build the frigates and offshore patrol vessels in Australia but buy the subs from Japan. Abbott’s government was willing to do some defence industry policy (yes to ships, no to subs) but baulked at industry policy: keeping the Oz car industry was dismissed as dire, dismal demi-dirigisme.
The Abbott government centralised shipbuilding in two cities, Adelaide and Perth (sorry, Melbourne), but would do nothing more for our last two car manufacturers.
A few mad moments of macho mocking from Canberra did much to hasten the departure of Holden and Toyota. In today’s sovereign capability era, Canberra would be hugging the final two carmakers, not hissing them out the door.
In the hierarchy-of-needs chart for defence industry, submarines and planes sit near the top of the triangle, supported by a broad array of complex manufacturing abilities (science and skills, investment and research). Losing cars from the hierarchy kicked out much that an advanced industrial economy needs to make its own ships and subs.
Australia will pump hundreds of billions into building and sustaining sovereign industrial capacity for defence, but in 2014 we wouldn’t stump up $150–$250 million to keep car manufacturers till 2022. Instead, an industrial extinction event.
A lot of jobs gone. A lot of capability lost.
The decisive ‘Yes’ of today’s defence industry policy contrasts with the derisive ‘No’ to industry policy just a few years back.
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Little has changed in the defence funding picture since last year. This year’s budget continues to follow the trajectory of solid real annual increases set out in the 2016 Defence White Paper. The consolidated defence budget (that is, the budget for the Department of Defence and the Australian Signals Directorate) reaches $38.7 billion in 2019–20. Real growth is only 1.3%—the smallest increase under the Coalition government—and the budget has actually decreased slightly as a percentage of GDP (from 1.94% to 1.93%) because GDP has grown faster than the defence budget.
