Derek Woolner is a Visiting Fellow at the Strategic and Defence Studies Centre, ANU. He was Director of the Foreign Affairs and Defence Group in the Commonwealth Parliament's research service till 2002.

My earlier posts in this series were about the nature of the financial difficulties faced by the Australian Defence Organisation over the last three decades of the 20th century. Now, after a decade when this experience seemed irrelevant, Defence again faces a period of reduced budgets.

This time the challenge is different. It follows a sustained period where defence funding increased in real terms, supporting growing personnel numbers, approval of capability developments and sustainment of expensive overseas deployments.

What did not happen was provision of the capital equipment to enable the enhanced capability. When given the money, Defence couldn't spend it.

The 2000 White Paper was to provide the financial framework to sustain ADF capabilities. Yet by February 2004 the second edition of the Defence Capability Plan showed that acquisition projects had fallen behind by an average of 2.7 years; remarkable for a process itself no older. Hence the 2004-05 budget reprogrammed $2.2 billion allocated to capital equipment to years beyond 2008.

The process continued and a total of $4.4 billion worth of acquisition spending had been reprogrammed by the time of the 2009 White Paper. After 2010-11, a further $1.1 billion of capital appropriations remained unspent. This time it was returned to revenue, in turn forcing a rescheduling of $3.3 billion to later years.

Of the $5.5 billion cut from the 2012-13 budget and the three Forward Estimates years, some $4.2 billion or 77% was achieved by deferring capital projects to some unspecified date in the future. $1.6 billion came from following the Americans and delaying for two years acquisition decisions on the project to replace the RAAF's F/A-18 Hornet aircraft with the F-35.

It is the accretion of overruns in the acquisition of capital projects, not financial parsimony by the Government, that has destroyed the capability development objectives of the 2009 White Paper, labeled as Force 2030.

We now know that the accumulated obligation to deliver these projects by that date has reached $200 billion (see p.10). For all these deferred projects to now be delivered, expenditure on major capital equipment after 2016-17 would have to be sustained at over $13 billion a year. This is almost four times the 2012-13 appropriation and almost 2.5 times the highest level of expenditure achieved for major capital investment of $5.15 billion in 2009-10.

Clearly, the objectives of Force 2030 will not be achieved, regardless of any amount of additional funding. The 2013 White Paper will have to rewrite force capability objectives for the ADF in the knowledge that current planning is untenable.

Yet, because the reductions in the 2012-13 budget have been achieved on deferred capital expenditure, the Government has to date avoided pain over its policy settings. It has been able to pledge that ADF personnel numbers will not be cut and that support for operational deployments will be sustained. Blatant incongruities will be settled by the 2013 White Paper.

Nonetheless, ADF military capabilities do need attention. The F-35 project may be problematic but the bulk of the RAAF's tactical fighter force will require replacement from 2020. Recently, the Government sought cost and scheduling options on 24 additional F/A-18 Super Hornets. So it's probable that the 2013 White Paper will approve building Australia's future tactical air combat capability around the more predictable option of an aircraft already in service and abandon plans for any immediate acquisition of the F-35.

Of course, when acquisition projects are no longer deferred they will have to be funded. Given the fiscal circumstances of the Commonwealth, for some time such finance will have to be diverted from elsewhere within Defence appropriations. So the Government is pursuing an efficiency program. Unfortunately, the Strategic Reform Program seems as likely to fail as those at the end of the 20th century (see p.141). Significantly, areas of activity which were supposed to contribute to SRP objectives have been among those to receive a reallocation of $2.9 billion from other areas of Defence.

It seems inevitable that savings will be drawn from the concluding of Australia's 13 years of overseas operational deployments.

These deployments have changed the distribution of funding within the Defence budget. Before the Timor deployment, the ADF's target strength was 50,000 personnel. That number will soon reach 59,000. Of the 2012-13 reductions, only a little over $300 million was due to cutting personnel strength (and this was a decision to not employ an additional 1000 civilians). It seems likely that the 2013 White Paper will approve real reductions in personnel strength.

The costs associated with Australia's operational deployments was quickly discovered to greatly exceed expectations. $2.6 billion was required to develop a force that could sustain the Timor deployment and this figure was eventually absorbed within the 2000 White Paper financial base. Demands on equipment in operations greatly exceeded predictions. In 2004-05 most of the money no longer spent on reprogrammed acquisition was used to provide $2 billion for enhanced logistics to support the ADF's new tempo of operations.

The 2013 White Paper team can be expected to disaggregate some elements of this supplemental capacity and divert the funds to other areas of Defence once the Afghanistan deployment is completed.

Prediction is always dangerous, especially within the comparatively short time to the release of the 2013 White Paper. Nonetheless, Defence has little room to manoeuvre and it would not be surprising if the financial framework that emerged promoted capital acquisition with superior risk and schedule management, funded in part by reductions in ADF personnel numbers and spending on force sustainment.

Photo by Flickr user createordie.