The Federal Government is due to hand down a second budget this year, a unique move designed to allow the recently elected Albanese Government the ability to reprioritise spending in line with its election commitments and implement a new agenda for this term (the 47th) of Parliament.
With an extensive range of Defence clients and projects, Elysium monitors government direction to ensure projects align. Here, consultant Lisa Downs takes a look at what might come out of this Government’s first Budget in almost a decade, for the Defence portfolio.
Pre-election, then Labor Opposition stated it had identified $11.5 billion in savings from thirteen specific “savings measures”. We could interpret this as likely program and project cuts, although it expects to redirect these funds and spend a total of $18.9 billion to implement its first term agenda. Labor’s election commitments totalled an additional $7.4 billion to the Budget bottom line, with pre-election announcements in childcare, aged care, education, and training with fee-free TAFE, and growing the alternative energy sector to deliver cleaner, cheaper energy.
Expect an update to the previously declared Commonwealth debts, which were projected to be nearing a trillion dollars under the Coalition Government, and with growing interest payments on that debt, expect a budget deficit potentially higher than the previously expected 2022-23 of $78 billion.
There is likely to be an ideological battle waging amongst decision makers over the budget benefits of offshore asset production (particularly with the new AUKUS partnership) and domestic self-sufficiency to not only support the local economy to recover from the COVID Pandemic, but also to combat any future market and supply chain disruptions of the magnitude we’ve recently witnessed.
In response to election campaign criticisms that Defence spending would fall under a Labor Government, Mr Albanese made public statements confirming he would not let Defence spending fall below the government’s current floor of two per cent of gross domestic product (GDP). In fact, Mr Albanese argued that the Labor's support for the new nuclear-powered submarines would result in an increase in military spending under Labor, although he did not nominate a specific figure.
"Let me be clear: Labor will ensure that Defence has the resources it needs to defend Australia and deter potential aggressors,"
Mr Albanese stated.
Mr Albanese also made additional national security commitments in the areas of smarter cybersecurity, climate security and self-reliance for Defence supply chains, including commodities such as fuel, with Labor keen to see a sustainable Australian-made liquid fuel, with the support of the AUKUS partnership.
We can expect this budget or the next (May 2023) to confirm whether the Government will indeed beef up existing Defence capabilities, as Mr Albanese canvassed pre-election, stating that the Government could potentially arm “Australia's existing Collins Class submarines with Tomahawk missiles, upgrading weapons on offshore patrol vessels or even build more of the Hobart Class Air Warfare Destroyers”.
Defence Minister Richard Marles has stated, however, that whilst the funding envelope (of two per cent of GDP) is confirmed, the Government would need to examine whether the Integrated Investment Plan (IIP) was “fit for purpose,” indicating that few programs should be considered safe.
DEFENCE STRATEGIC REVIEW
The commitment to deliver a Defence Force Posture Review has now become a deeper, broader piece of work called the Defence Strategic Review, announced by the Government on 3 August 2022, to be led by retired Air Chief Marshal Sir Angus Houston, a former Chief of the Australian Defence Force (ADF), and former Defence minister Stephen Smith.
The Review team has been asked to “examine force structure, force posture and preparedness, and investment prioritisation, to ensure Defence has the right capabilities to meet our growing strategic needs.” With a return date of February 2023, it is expected that the outcomes of this Review will assist Labor in preparing its May 2023 Budget, and prioritisation of Defence projects and spending – many of which are “overbudget and delayed,” according to the Prime Minister.
What is clear is that the government will be looking to prioritise spending on capabilities that can be delivered within the next few years, and those which can best protect Australia and partner nations, such as missiles.
Terms of Reference for the Defence Strategic Review have now been released, and interested stakeholders can make submissions anytime from now until Sunday 30 October via firstname.lastname@example.org. Contact us at Elysium EPL for assistance with your submission via elysiumepl.com.au
DEFENCE TECHONOLOGY RESEARCH AGENCY
We can also expect an announcement on the promised Defence technology research agency, although it is unlikely a significant amount of capital will be committed at this early stage - more likely an amount to put together a business case plan. Akin to the US Defense Advanced Research Projects Agency (DARPA), the Advanced Strategic Research Agency (ASRA) is to fund “pivotal research in breakthrough technologies for national security” within the Department of Defence, although it remains unclear how this will differ to Defence’s existing research and developing arm, the Defence Science and Technology (DST) group.
INDIAN SECURITY PARTNERSHIP
Keep an eye out for commitments regarding clean energy in partnership with India, following a speech by Minister Marles in India during June 2022. In this speech he stated that “as nations contend with growing energy demand, climate change and unstable supply chains, India and Australia’s collaboration has the potential to engender security solutions for the security challenges we all face.” The Minister cited an opportunity to cooperate on “ultra-low-cost solar and clean hydrogen, offering affordable and reliable access to energy for all,” in a likely attempt to progress the energy security element of the Government's election commitments.
The Minister proceeded to emphasise the importance of an Indian-Australian alliance back home and stated in an interview at the time that “for India and Australia, China is our biggest security anxiety.”
Also expect some funding delivered to the Department of Veterans Affairs – not necessarily to deliver additional benefits for Veterans, but to better process the 60,000 outstanding claims currently within the Department. Veterans pre-election spokesperson Brendan O’Connor stated at the National Press Club in May, “We’ve already made a commitment insofar as DVA is concerned to rededicate $250 million to renovate that department”.
The Prime Minister and Treasurer Jim Chalmers will be looking to secure their credentials as economic managers to shore up their election narrative in this space. A cornerstone of the Government’s re-election campaign will be delivering on its own agenda and supporter issues, as well as cauterising any elements the opposition might use to attack, such as a cut to Defence spending.
As a result, whilst the overall Defence funding envelope is unlikely to dip, and may in fact increase slightly, there will be a new focus on immediate deliverables, as well as pressure on projects to increase pace of delivery. Some programs will likely be delayed or axed entirely to make way for the Government’s revised agenda and new priorities, and this will inevitably result in some new projects being stood up with expediency.
The real focus for Defence projects will be a push for timely delivery of projects with tangible consequence to national security over the next five years, given the escalating tensions across the Asia Pacific region.
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