Page 46 - Australian Defence Magazine June 2022

46 BUDGET 2022
FUTURE DEFENCE BUDGET
JUNE 2022 | WWW.AUSTRALIANDEFENCE.COM.AU
NATO, but there’s nothing carved in stone that says invest- ing two per cent in defence will preserve your security. It one thing for Belgium to spend two per cent, but it is in a military alliance with six of the world’s ten largest GDPs — and the war in Ukraine has shown the limits of Russia’s military power, Belgium’s sole threat.
FURTHER PRESSURES
Australia is in a very different situation. ‘Minilateral’ ar- rangements such as the Quad have value, but they are not military alliances. We have only one powerful ally, the US. It still has the largest economy and strongest military in the world, but events are showing that even its resources are stretched. It’s already spending around 3.5 per cent of GDP on defence and the US defence budget
LEFT: One of the two vehicles competing for Army’s Land 400 Phase 3 program is expected to be down-selected in the second half of this year
RIGHT: Defence is replacing Army’s 22 Tiger Armed Reconnaissance Helicopters with 29 AH-64E Apache Guardian attack helicopters from 2025
much as the Anzacs. Future armoured vehicles could cost $1 million each to sustain, making the future armoured fleet cost more than De- fence’s current most expensive capability, the Collins submarine.
So, there is already pressure on the de- fence budget before we consider SSNs. And the windfall freed up in the short term by the cancellation of the Attack-class has already been spent. Between new Apache, Black Hawk and Seahawk Romeo helicopters and bring-
ing forward the purchase of missiles, it’s all gone. When the government came looking for funds for REDSPICE, there was nothing left, meaning Defence had to offer up the SkyGuardian armed UAV program. Regardless of how big it is, the defence budget is always full; if you want to put something new in, it either requires new money or you drop something that was already in there. SSNs are a very big new thing to put in.
INFLATION IMPACT
Another reason why the current funding line may not be enough is that just like Australian families’ budgets, the de- fence budget is being eaten away by inflation. The White Paper funding line was developed back in the happy times
is tapped out. And Americans are tired of underwriting the security of countries that spend much less.
So, the US is looking to its friends and allies to do more and it will help those who help themselves. Ultimately that’s what AUKUS is about and what was pre- viously inconceivable is now available, such as SSNs.
“IT’S NO SECRET THAT SMALL BUSINESSES, SUCH AS THOSE THAT MAKE UP MUCH OF OUR DEFENCE INDUSTRY, HAVE GREAT DIFFICULTY ABSORBING ABRUPT SWINGS IN CASH FLOW”
when 2.0 - 2.5 per cent annual inflation appeared to be the natural state of things. Covid-19 has put an end to that, at least for now. Currently inflation is running at 5.1 per cent. The Reserve Bank has sug- gested it could get to 6.0 per cent.
That will inevitably erode Defence’s buying power. Across 2021-22 and 2022- 23, it will lose $2 billion in real terms. Based on the inflation predictions in the 2022-23 budget papers, by the end of the forward estimates in 2025-26 the
But they will come at great financial
cost. They will certainly cost more than
the now-cancelled Attack-class conventional submarines. How much more is anyone’s guess at the moment since we don’t yet fully understand the overhead of operating a nuclear capability.
And meeting that cost could be a problem. While it’s hard to speak definitively from outside Defence, the DSU’s fund- ing line is already unlikely to cover its capability shopping list.
That’s not just because of the huge cost of replacing age- ing crewed platforms with exquisitely expensive new ver- sions of the same (such as the $45.6 billion Hunter-class frigate), but because those new platforms are going cost much more to sustain. The Hunter will be at least twice as
defence budget will be 3.7 per cent less in real terms. That might not sound like much, but it represents a cumulative loss of buying power of around $6.8 billion over the forward estimates and $15.2 billion over the decade.
The budget papers optimistically predict inflation return- ing quickly to pre-COVID levels, but they don’t have a great track record. An alternative scenario in which inflation of five per cent becomes the new normal results in a 20 per cent reduction in real terms by the end of the decade and a cumulative reduction of $54 billion. Whatever profile infla- tion follows, it’s likely that the government will need to top up Defence’s budget just to maintain its buying power.
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