May 10, 2007

Australia : Defence's first battleground is the budget

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Big-ticket items are not threatening future defence spending, writes Paul Monk.

ON MARCH 29 Hugh White wrote on this page that the Howard Government has made a series of spending decisions that will have a damaging effect on the defence budget and thus on balance in our force structure within a decade.

Now that the federal budget is out, it may be an opportune moment to reflect on this claim. The issue is an intrinsically important one and White is said to be favoured to take over as secretary of defence from Nick Warner should Labor win the election at the end of the year.

Let's begin by getting clear exactly what White wrote. Astonished, as were many people, by the sudden decision of the Government to buy 24 F-18F Super Hornets, at a cost of $6 billion, White claimed that this was "bad enough in isolation", but that its "true seriousness … only appears when it is seen as the latest in a series of bad decisions". Among these decisions, he names the one to buy new tanks, the decision to buy C17 Globemaster transport aircraft and the decision to raise two new infantry battalions.

In addition, he wrote, the cost of the proposed air warfare destroyers is ballooning, as are the operating costs of new equipment already in the inventory. Overall, he argued, we are set for a "chillingly probable scenario" within five years: an economic slowdown, leading to a budgetary contraction and a crisis in defence spending, all compelling a decision to cancel the planned purchase of 100 Joint Strike Fighters.

This would be disastrous, he said, because it would leave us "stuck with an outdated air force that cannot compete in the Asia of 2020".

Confident of his ground, White wagged his finger at cabinet. "How much of all this do ministers understand?" he asked. "Sadly, they have probably not been formally advised of the depth of the funding hole they have created, but they must know anyway. Even if they have not done the arithmetic themselves, it has been publicly spelt out with crystal clarity by Dr Mark Thomson of the Australian Strategic Policy Institute."

The "arithmetic" and its source are the bedrock of his lecture to the ministers of state and these have a "crystal clarity". Game and set to Labor's candidate secretary of defence?

There's just one small problem with the case. What Thomson of the Australian Strategic Policy Institute

spelled out with crystal clarity was precisely the opposite of what White claims. I discussed the matter with him in April. In a detailed and actually quite fascinating study, he told me, he had begun by assuming that an economic slowdown — especially a recession — would lead to a contraction in defence spending.

What he learned was that the available historical data indicate the contrary: during recessions over the past 30 years, the Australian government has not reduced defence spending, but has increased it. In his words, "a recession would probably make it easier for the government to spend on defence, rather than harder".

Thomson's judgement is that, even were there an economic slowdown within the next five years, the defence budget would not be affected in the way White asserts. Nor is the longer term, with its projected demographic and economic challenges, any more troubling.

He concluded, looking at the long term: "Australia is a rich country with solid economic prospects. We can afford to spend more on defence if we decide to do so. Sustaining a defence burden of about 2 per cent of GDP (and for that matter even substantially higher) depends on one thing and one thing only: our commitment to do so."

In short, Hugh White has it wrong, on both the arithmetic and the opinion of the authoritative source to which he referred. There is simply no sound basis for his assertion that the Government's defence spending decisions will leave us facing invidious choices within five years and force the abandonment of the Joint Strike Fighter purchase.

As for his two subsidiary points: that the Super Hornet decision was a poor one and that a number of other decisions have been equally poor, several observations are in order. The Super Hornet decision does call for explanation and it has not been forthcoming in any convincing form to date. It would appear that $6 billion could readily have been saved in this case.

But White was not content with that reasonable observation. He had to assert that almost the whole suite of new acquisitions approved by the Government since 2001 had been misconceived. The case for or against each of them, one might have thought, should be made carefully with due regard to the upgrading of the Defence Force in a climate of strategic uncertainties.

Instead, the former deputy secretary of defence for strategy and chief author of the 2000 White Paper lumped all of them together as a collectively poor set of decisions, on budgetary grounds — and got his economic fundamentals completely wrong. He seems to need a lesson in economics every bit as much as the ministers at whom he directed his patronising remarks.
What he learned was that the available historical data indicate the contrary: during recessions over the past 30 years, the Australian government has not reduced defence spending, but has increased it. In his words, "a recession would probably make it easier for the government to spend on defence, rather than harder".

Thomson's judgement is that, even were there an economic slowdown within the next five years, the defence budget would not be affected in the way White asserts. Nor is the longer term, with its projected demographic and economic challenges, any more troubling.

He concluded, looking at the long term: "Australia is a rich country with solid economic prospects. We can afford to spend more on defence if we decide to do so. Sustaining a defence burden of about 2 per cent of GDP (and for that matter even substantially higher) depends on one thing and one thing only: our commitment to do so."

In short, Hugh White has it wrong, on both the arithmetic and the opinion of the authoritative source to which he referred. There is simply no sound basis for his assertion that the Government's defence spending decisions will leave us facing invidious choices within five years and force the abandonment of the Joint Strike Fighter purchase.

As for his two subsidiary points: that the Super Hornet decision was a poor one and that a number of other decisions have been equally poor, several observations are in order. The Super Hornet decision does call for explanation and it has not been forthcoming in any convincing form to date. It would appear that $6 billion could readily have been saved in this case.

But White was not content with that reasonable observation. He had to assert that almost the whole suite of new acquisitions approved by the Government since 2001 had been misconceived. The case for or against each of them, one might have thought, should be made carefully with due regard to the upgrading of the Defence Force in a climate of strategic uncertainties.

Instead, the former deputy secretary of defence for strategy and chief author of the 2000 White Paper lumped all of them together as a collectively poor set of decisions, on budgetary grounds — and got his economic fundamentals completely wrong. He seems to need a lesson in economics every bit as much as the ministers at whom he directed his patronising remarks.

Dr Paul Monk is managing director of Austhink Consulting.

Source :http://www.theage.com.au/ news/opinion/ defences- first- battleground-is-the-budget/2007/ 05/10/ 1178390464535.html#

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