The Prime Minister and I [Defense Minister Stephen Smith] last week announced the commissioning of a new Defence White Paper to be delivered in the first half of 2013 that will consider the implications of Australia’s strategic and fiscal environment.
In that context, the Defence Budget released today has been developed following a comprehensive review of the Department’s budget to identify contributions Defence could make across the Forward Estimates to support the Government’s broader fiscal strategy.
This review has resulted in a Defence contribution to the Government’s fiscal strategy of $5,454 million across the Forward Estimates and will see Defence contribute $971 million in 2012-13.
This contribution will have no adverse impact on operations in Afghanistan, East Timor or the Solomon Islands. The provision of equipment to Defence personnel on operations will not be adversely affected and there will be no adverse impact on the number of military personnel in the Australian Defence Force (ADF).
The reprioritisation of Defence expenditure has been designed to have minimum impact on the delivery of core Defence capabilities. A number of lower-priority capability projects will be deferred with a small number cancelled where they have been superseded by alternative capabilities. Other capability and facility programs will be subject to re-scoping. A range of administrative and minor capital equipment savings will also be made.
The decisions taken to determine Defence’s contribution to the Budget bottom line have all been carefully designed to protect our servicemen and women and our Defence operations, and to minimise the impact on core capabilities.
The key savings measures to make this contribution across the Forward Estimates include:
- Projects which have already been approved by Government: savings of $1.3 billion by rescheduling, re-scoping or cancelling a small number of projects, including a two year delay to the acquisition of 12 Joint Strike Fighters following delays to the project in the United States ($900 million).
- Projects which have not been approved by Government: savings of $1.7 billion by cancelling a small number of projects and rescheduling and re-scoping others in the Defence Capability Plan, including cancelling the self-propelled howitzer and proceeding with additional towed artillery ($220 million) and deferring later stages of the Joint Strike Fighter project ($700 million for follow-on purchases of Joint Strike Fighters in addition to the 14 already approved).
- Major Capital Facilities Program: $1.2 billion by deferring lower-priority elements of the major capital facilities program, while maintaining funding for critical upgrades and enhancements.
- Reduction in Administrative Costs: $438 million from reductions in travel, outsourcing and consumable items.
- Reduction of 1,000 Australian Public Service personnel: $360 million from a further reduction in the civilian workforce, which is in addition to the reduction of 1,000 to the civilian workforce in the 2011-12 Budget. Care will be taken in this program of reductions to not reduce standards of service in priority areas of Defence including support to operations.
- Early retirement of the C-130H aircraft: $250 million from the early retirement of the C-130H aircraft, which is being retired early in order to minimise costs associated with maintaining and operating the ageing fleet. Current activities undertaken by the C130H aircraft fleet will be redistributed across the remaining Air Force air mobility fleet, including C-130Js, C-17s and the replacement for the Caribou aircraft.
- Cessation of the Navy and Army Gap Year: $91 million from closure of the Navy and Army Gap Year programs.
- Extended trial of the ADF Family Health Program: $50 million by deferring full rollout of the ADF Family Health Program, due to low take up rates for the program.
- Workforce policy changes: $46 million including reductions to travel and posting arrangements in line with the Strategic Reform Program.
- Minor Capital Projects: $45 million from reduced expenditure in 2012-13 only on Navy, Army and Air Force minor capital equipment programs.
In addition to this contribution to the Government’s return to surplus, decisions have also been taken to address changes that have occurred in the Department’s resource position over the last year which include a range of new cost pressures across the portfolio, including the following priority areas for investment:
- $700 million additional investment in Collins Class submarine sustainment
- $550 million for information technology remediation activities across Defence
- $400 million for improved housing for Australian Defence Force personnel
- $330 million for relocation of Defence units from Moorebank to Holsworthy to allow development of the Intermodal Transport Hub
- $270 million additional funding for Navy fleet sustainment
- $220 million for investment in maintenance and upgrade of the Defence estate
- $160 million for Fringe Benefit Tax liabilities
- $150 million for enhanced garrison support services
- $70 million for further investment in international engagement under the Defence Cooperation Program.
To manage these internal cost pressures, Defence has reallocated and reprioritised $2.9 billion. The majority of the $2.9 billion was reallocated from savings in the Defence Capability Plan and the Approved Major Capital Investment Program (AMCIP), with further savings, predominately in 2012-13, from across the general Departmental operating budget.
These savings from across the general Departmental operating budget include:
- Navy reprioritising its operating activities and reviewing all non-operational activities including Navy’s international program.
- Army reducing the use of M113AS4 vehicles and M1A1 Abrams tanks. Some of these vehicles will be placed in temporary storage and Army will continue to review these fleets to ensure a viable mechanised capability is maintained.
These budget initiatives build on the efficiencies and savings gained through the Strategic Reform Program including in the areas of capability development, procurement and acquisition and the strengthening of personal and institutional accountability.
This reform will be further considered during the development of the 2013 Defence White Paper to ensure that Defence spending, in light of the Force Posture Review, a revised Defence Capability Plan and the savings already identified, is calibrated against an up to date assessment of our circumstances both in the short and longer term.