This is the fourth ASPI policy report dealing with defence spending published in the past twelve months. To some, this might seem an inordinate focus on mere dollars at a time when war and terrorism fill the pages of our newspapers. But an informed defence policy debate cannot ignore the financial consequences of the options being considered. Now, more than ever, it’s important that every defence dollar is spent to best effect.

This report, Your Defence Dollar, is a summary version of the The Cost of Defence that came out two weeks after the Federal Budget. Last year’s summary, entitled...

This year, after two years in the limelight, defence stepped back to something more like its traditional place on Budget night. In both 2002 and 2003, Peter Costello’s Budget speech began with defence and security, and he spoke about them at length before turning to the economy and other issues. In 2002, he spent over a third of his speech on defence and security; in 2003, they took up something closer to a quarter. This year, the Treasurer mentioned them only in passing until around the middle of his speech. Sandwiched between retirement savings and health care, they received together...

Defence is a complex beast, not just because it’s a vast entity with more than 90,000 employees spread from one end of the continent to the other, but because it’s organised, funded and commanded through three largely separate arrangements. This chapter takes on the daunting task of describing these three frameworks and how they work in concert.

The Defence budget is set out according to a framework of ‘outcomes’ and ‘outputs’. This framework was introduced by the government in 1999, and is applied to all Australian Government agencies. It works like this:

Outcomes are the results or benefits that the...

In the arcane world of Commonwealth finances, several different figures are given for the size of the Defence budget, with each measuring different things. The one that’s most useful is that for Total Departmental Funding given in the Defence budget papers. It represents the funds available to Defence to deliver the six departmental outcomes and maintain the ongoing program of investment in new equipment and facilities. It’s also the figure commonly used to measure movements in Defence’s funding and is therefore the one to focus on. For 2004–05, it is $16.3 billion dollars. This is an increase of $725...

An essential component of Defence spending is the investment made in new equipment, facilities and upgrades that allows the ADF to maintain credible military capabilities while other nations continue to modernise their forces. Table 7 shows Defence’s planned Capital Investment Program. The table does not include the provision of around $325 million per annum held in reserve for foreign exchange exposure in the final three years.

There are three components to the Capital Investment Program.

Major capital equipment projects are worth more than $20 million each and mostly involve the purchase of military equipment. They range from small projects to...

In recent years, Defence has pursued a range of initiatives to improve the development, care, recruitment and retention of personnel. Most of these initiatives began in 2001—02, when $500 million over five years was allocated to deal with high-priority personnel matters. In this year’s Budget, a further $654 million was allocated to personnel spending.

In this chapter, we look at the raw numbers and cost of the Defence workforce. This is an unashamedly limited view of the complexities of Defence personnel, but one that is appropriate for a budgetary report. The good news is that it looks like the...

Last year, we said that the ten-year program of capital investment that underpinned the White Paper—the Defence Capability Plan (DCP)—was unaffordable, undeliverable and uncertain. By this we meant that:

increases in the estimated cost of future projects made the original program of investment in the DCP unaffordable within the allocated funds

the ambitious pace of new investment envisaged by the original DCP was undeliverable by Defence and industry

the government’s priorities were uncertain following the 2003 Defence Update statement, which described a changed strategic environment without saying what this meant for the ADF’s force structure.

Our bold assessment...

The 2003 ASPI policy report Sinews of War charted the recent history of financial management in Defence, including the turbulent years of 2000 and 2001 when several factors conspired to cause nothing less than a serious breakdown in fiscal discipline and budgeting within Defence.

Things have improved a lot since then. And following last year’s Defence Procurement Review headed by Malcolm Kinnaird, some big changes are also under way in how Defence invests in new military equipment.

In this chapter, we look at how Defence management is changing. On balance, the picture is encouraging, although we do think more could...