Page 72 - Australian Defence Magazine Nov 2020

72 BUDGET OVERVIEW
NOVEMBER 2020 | WWW.AUSTRALIANDEFENCE.COM.AU
THERE’S A LOT OF MONEY THERE, BUT WE’RE NOT SPENDING IT WELL
Recently in Part 1 of this year’s The Cost of Defence, I noted that over the coming decade Australian defence industry will have a very large elephant to eat.
MARCUS HELLYER | CANBERRA
THE overall defence budget increases 87.4 per cent out to 2029- 30. Meanwhile the acquisition budget’s share of that increases from around 30 per cent to 40 per cent. And on top of that, the government has been open in stating its goal of increasing Australian industry’s share of the acquisition budget.
What do those three elements look like when we stack them on top of each other? Last year Defence’s Capabil- ity Acquisition and Sustainment Group (CASG) spent one- third of its acquisition budget locally. That’s about $2.6 bil- lion. Even to stay at one-third, that spend will need to grow to $7.2 billion. Modestly increasing that share to 40 per cent means local acquisition spending will need to hit $8.7 billion. And a jump to 50 per cent will push the local spend to nearly $11 billion.
That’s in addition to local sustainment spending that will hit $15 billion even if it stays at the current two-thirds of total sustainment spending.
Those are two very large elephants, making a total of $25 billion in local defence spending annually. That’s good news for Australian industry, and if we get the right stuff, it’s very good news for Australian military capability.
But here’s the bad news. Getting there is going to be very difficult. And we don’t have a decade to get ready. The chal- lenge starts now. Despite the publication of the govern- ment’s Defence Industry Policy Statement (DIPS) in early 2016 and the establishment of a range of programs to boost Australian defence industry, its share of CASG’s acquisition spend has hovered stubbornly around one-third of the total.
Moreover, Defence’s acquisition spending has only grown by about five per cent per year since the White Paper, and in real terms it’s closer to three per cent. It’s not clear whether that slow growth has been driven by limits on demand (i.e. competition for funds from personnel and sustainment re- quirements reduced the amount of funding available for ac- quisition) or limits on supply (i.e. industry just couldn’t pro- duce more, regardless of how much money was available).
Either way, industry is somehow going to have to go from ab- sorbing five per cent growth per year to 27 per cent in 2020-21. Those are the acquisition numbers in Defence’s portfolio bud- get statements. And that’s followed in subsequent years by 17.7 per cent, 11.6 per cent and 9.8 per cent. Defence industry is not about to run off a cliff; it’s about to run into the base of one.
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