Why Our Defence Forces Face Terminal Decline

The word appalling has been diminished by overuse, but its dictionary meaning, to dismay or to terrify, is appropriate to describe the state of Australian defence policy making and delivery from 2007 to 2012. Defence policy making by the Rudd and Gillard Labor governments should truly dismay all Australians, and its consequences for the Australian Defence Force (ADF) are terrifying.

The process is broken, the strategic thinking is confused, the denial of the world and regional situation is dangerous, the management of our allies and others has been confusing, the leadership team is dislocated, the delivery of anything except the most simple capability or those purchased directly from the USA is bumbling, the constant policy disruption is grossly wasteful, and the explanations to the Australian people about ADF capability and risk are duplicitous. The result is a defence force in terminal decline and a people blissfully unaware. Australia is operating in a strategy-free environment. Even more than tanks and ships and planes, Australia needs a strategy and a government that can deliver it.

Poor defence policy and delivery are not unusual for Australia. At the time of the 2000 Defence White Paper, it was estimated that the value of modernisation equipment that had been publicly promised to the ADF in successive White Papers since 1976 and not delivered was in the order of $200 billion. ADF leadership knew that to remedy such a serious problem required years of sustained spending. To the credit of the Howard government, it recognised the true state of the ADF and started remedial action. But the mismanagement since 2007 has meant that many of the gains made in the Howard years have been lost, or soon will be.

The Rudd government started well in 2007. It promised to continue the Howard government policies of long-term defence investment, especially the 3 per cent real per year guaranteed increase. It took a long time to produce a White Paper on defence but when it appeared, it contained not much new. It was mainly a continuation of Howard government programs with the addition of more submarines to be built in Australia.

The Rudd Defence White Paper 2009 was welcomed by the public because it was comfortingly robust. Elements of it were criticised by the commentariat over numbers and types of equipment and by those who doubted Prime Minister Rudd’s election promises to fund it. As soon as the applause from the public subsided, the Rudd government removed much of the investment funding, thus neutering their own policy.

The first two Rudd defence ministers were good people who, as usual, knew little of the main business of defence. The first, Joel Fitzgibbon, resigned from cabinet over issues relating to family business dealings. The second, John Faulkner, stepped down after only a year. The third and current incumbent, Stephen Smith, had more general experience to prepare him for defence and therefore greater potential, but he has been not just ineffective, but has damaged his portfolio.

In commercial terms, this “CEO-equivalent” of Australian Defence, the Minister for Defence, does not seem to like the ADF, does not seem to trust it, apparently does not want to be CEO, has no strategic long-term vision, is certainly not prepared to pay for defence, shows no public interest in its ultimate operational effectiveness, does not know how to measure efficiency or effectiveness, is risk-averse in a portfolio that is all about risk, believes that accountability starts one step down from himself while irrationally attacking the ADF’s reputation, and consistently tells political half-truths to the company’s shareholders, the Australian people. If Australian defence was a business entity with this kind of leadership, would you buy shares?

The result of failed defence policy and delivery over the Rudd–Gillard period is that the ADF is being pushed into a state where its capabilities are at, or will soon be at, a state from which they will not be able to be revived in any reasonable period of time—a situation of terminal decline. Funds will not even be saved in the medium to long term by these disastrous actions because deferred capabilities will ultimately cost more. Although it is not immediately apparent to the voting public, it has certainly been noticed by our major ally, the United States.

The Rudd–Gillard governments have taken very large amounts of investment out of defence since 2009, but their illogical rhetorical line is that there is no impact on the security of this nation. In the last budget, they removed $5.4 billion over four years, but since the 2009 White Paper they had also previously removed $12 billion, most of it from investment in modern equipment. Some commentators say that up to $24 billion has been removed.

Mark Thompson, a defence economist at the Australian Strategic Policy Institute (ASPI), says:

If you were running this as a business, you wouldn’t run capital spending down as a short-term measure, but governments have allowed the modernisation of their military assets to decay when they haven’t seen strategic imperatives and fiscal priorities have loomed large.

Defence is such an esoteric area that it is difficult to demonstrate the effects of this reduction in investment funding in understandable terms. It is true that this is the lowest level of defence funding as a percentage of GDP since just before the Second World War. It is also true that the magnitude of the reduction is greater than any time since just after the Korean War. But that means little to the voting public. The fact that there seems to be no short-term political downside to removing funds from defence has been blatantly exploited by the Rudd–Gillard governments to an extent not previously seen in recent Australian policy history.

This underfunding is occurring when no strategist or commentator, national or international, is of the opinion that the strategic environment that Australia faces in our region or world-wide, now or in the next decade or so, is anything but at historically high levels of uncertainty.

In fact the contrary is true. The USA is deeply worried. US officials continually stress that emerging Asian powers such as China have benefited greatly from a rules-based system, and it is hoped that this continues. However, double-digit rates of building China’s armed forces applied over the last fifteen years, a legitimate right for any power as long as there is transparency, increases the capability of this emerging power, and this must be taken into account when assessing the strategic environment. China’s rhetoric would indicate that China does not think of itself as a status quo power but as a revisionist power, and its recent actions in the South China Sea have not been rules-based, transparent or consistent.

Most Australian commentators acknowledge that the possibility of conflict in the Indo-Pacific region is high, with China at the centre of most scenarios. Professor Hugh White writes of a “clear and significant danger” of catastrophic conflict between China and the USA. Michael Wesley, then Executive Director of the Lowy Institute, declared that there was a rapidly growing threat of conflict involving China, its neighbours and the USA in the South China Sea. Professor Alan Dupont points out that of five historical examples of a minor power overtaking a hegemon, conflict between them resulted on four occasions. The only exception was the USA overtaking Great Britain as the dominant world power. To balance this, Professor Paul Dibb points out the “aggressive posture” of China, but acknowledges that there are many factors which work against the outbreak of hostilities.

According to a CSIS study, even China’s official figures show defence spending has quadrupled in the past decade. China is spending $90 billion a year on defence, or 40 per cent of the total defence spending from the five biggest arms spenders in Asia (China, India, Japan, South Korea and Taiwan). The Stockholm Institute says the real total could be as much as $140 billion a year.

This may not be an arms race, but unlike the defence budgets in many other regions, Asian defence spending continues to be on the rise, in stark contrast to Europe and the USA, where defence budgets have been declining. It is easy to see why the Lowy Institute’s Rory Medcalf has dubbed Australia “the odd man out” in the region for cutting defence spending

The Rudd–Gillard governments have managed the defence and security aspects of the USA and China relationships in a most confusing manner, mixing internal political rhetoric with external relationship policy. Prime Minister Rudd, in a private conversation with the US Secretary of State, described himself as a “brutal realist” on China, indicating that he wanted to promote a positive relationship with China while maintaining strong military capabilities in case things go wrong—a sensible shaping and hedging strategy. But at the very same time, he was plundering his own defence policy by quietly removing vast amounts of modernisation investment from the ADF. This was missed by the Australian public and illogically excused as “financial sanity” by many in Australia’s defence think-tanks and universities. But notwithstanding the polite, diplomatic rhetoric coming out of Washington, it was not missed by the USA.

Prime Minister Gillard and Defence Minister Smith have publicly embraced a strong pro-USA policy at the same time as they have continued to diminish Australia’s military power. This is of such a magnitude, and follows on cumulatively from the Rudd cuts, that it has brought open comment by US officials and commentators. The Labor government’s support for the so-called US “pivot” towards the Pacific, and for talk of a form of temporary basing rights in Australia for US forces, seems aimed primarily at the domestic audience. Prime Minister Gillard seems to be reassuring the Australian public that regardless of what her government might be doing to the ADF, the USA is always there to backstop Australia’s defence. This is a desperate strategy of hope stemming from failed, short-term policies, and portrays Australia as the worst kind of ally.

The USA should be our closest ally as the nation which best shares our values, our geography, our history and many of our interests, but our sovereignty demands that we bring to the table a level of military capability that matches our economic power. In an alliance, Australia should be an effective partner, not a freeloader. The USA has many allies in the world who are freeloaders and it would be a strategic failure for Australia to put itself in that class, yet the Rudd–Gillard governments have put us well on the way to doing exactly that. If Australia had military capability of a credible level, on those occasions when US interests do not match ours, then Australia could make independent policy. That is the basis of sovereignty.

There is no inevitability about conflict with China, or any immediate threat to Australia from China. Over-reaction in relation to China would be as damaging as under-reaction. Australia should work to shape the emergence of China so that it emerges peacefully. But although the Gillard government talks about shaping, it has missed the complementary part of any mature strategic policy: prudent and sensible hedging against the failure of the shaping policy. A credible military is an essential part of both the shaping and hedging parts of Australia’s security and defence policy. The current uncertain strategic environment makes it much more important that Australia get both shaping and hedging right.

In the past the tyranny of distance worked to Australia’s security advantage, and conflict has only touched our shores on one occasion. But the world has changed in two ways, and those changes are not being accommodated by the Labor government.

The first change is that it was easier in the past to manage our own security poorly because of the dominant power of the USA. That is no longer the case. We have freeloaded on US investment in their own security for many years and the price has been regular involvement in small wars distant from our shores. The USA will not be overtaken by China in the next few years but US power is declining relative to China and already this is manifesting itself in more robust policies in our neighbourhood.

The second change is that with the growing economic power of the Indo-Pacific region, Australia no longer lives in a backwater far from the centres of potential conflict. Although Australia is not yet a frontline state, our prosperity depends on stability in areas that stretch from Europe, through the Middle East and particularly the Gulf, across the Indian Ocean, through the straits in the Indonesian archipelago and up through the South China Sea to China and North Asia, and finally across the Pacific to the continental USA.

Conflict almost anywhere in the world must be of concern to Australia because of its impact on our prosperity. Any strategy for Australia based on arbitrary lines drawn comfortingly close to this continent while ignoring the rest of the world, represents the worst of wishful thinking.

Having an effective military does not mean that any government must always take military action. The Gillard government, by its mismanagement of defence, removes the option to use military force where it is in our interests to do so. It removes that option from itself, and also from future Australian governments in increasingly unpredictable circumstances. In both the first and second Gulf Wars, governments who wanted to use military force in the interests of Australia and in support of our allies, were astonished by the lack of military capability that the ADF could offer.

The situation that most illustrates this lack of operational understanding is the on-going deferral of the Air Warfare Destroyers (AWD) announced by Stephen Smith in September 2012. All big projects face deferrals, and most are more expensive than initially thought. But in once again deferring the AWD, the Labor government did not even mention the operational impact of the deferral, saying it was acceptable because it meant that defence industry expenditure could be spread over a longer period, and could be tailored nicely into the submarine project at some stage in the future. This view was challenged by the defence industry but even if true, it should not be the main explanation for deferral. The impact on Australia of not having the AWDs has increased the risk to Australia, as the AWDs are the centrepiece of joint capability, and only with the AWDs can there be meaning in having fighters, submarines, amphibious ships and troops.

This government claims to be focused (albeit ineffectively) on possible future threats in the Indo-Pacific, but it must also be remembered that the current world conflict has not yet been won. Conflict between extremist Islam on the one hand, and the liberal West and the mainstream Islamic world on the other, is still unresolved. This is not assisted by the confused and ineffective policies that the USA and its allies have applied in Afghanistan, and to a lesser degree in Iraq. The outcome in Afghanistan is still to play out, but to be judged competent in defence issues, any government must not only be able to prepare for conflict by building an effective military, but must be able to use those forces effectively. Australia’s support to its critical ally in Afghanistan has been confused at best, and only time will tell if the level of support that this government has been prepared to provide to the USA in Iraq and Afghanistan at a time of great US need, will ultimately work against Australia’s strategic interests.

At a time when the threat to Australian values, interests and prosperity from multiple sources is higher than we have seen for decades, and when a direct threat to Australia is at least possible in the medium to long term, the Gillard government is embracing policies for short-term political gain which are contra-indicated by the state of the world and the region. Regardless of financial problems, this is not the time to be hacking into the defence force.

If thoughtful and open government policy had been implemented through a credible strategy, then regardless of the size of the defence budget, Australia would be more secure. At least then Australian voters could understand the strategic risk being taken in their name and could hold the government responsible.

If there was good policy and good strategy matched by adequate resources and effective implementation over time, conducted openly with democratic explanation, then the government could truly discharge its oft-stated mantra that “there is no greater responsibility for a national government than the defence of its people and their interests”. This quote from the first page of the Defence White Paper 2009 stands to condemn the Rudd–Gillard governments’ subsequent policy and strategy failures.

Policy and strategy can only be as good as the government that makes them, and the Rudd–Gillard governments have shown little ability to make good policy in many areas for which they have responsibility. But it is the nature of defence that failures are not as immediately obvious as they are in areas such as border control, climate change or education facilities. The results, however, are no less real for being less visible to voters. The Rudd–Gillard governments have exploited this in one of the worst cases of “short-termism”.

This analysis does not focus particularly on Australia’s ability to participate in small wars such as Iraq or Afghanistan, commonly referred to as “Wars of Choice”. Such wars are always conducted from the forces that exist at the time the need arises, and although there is a certain level of adaptation in every conflict, Australia is in a luxurious strategic situation because, despite the rhetoric, Australian military forces do not have to win. They just have to participate.

These small wars are not what drives most defence investment. Compared with the kind of military operation that is the major subject of defence policy—the creation of a force capable of sophisticated joint warfighting to defend Australia and its vital interests—Australia’s operations in Iraq and Afghanistan are small, simple and cheap conflicts indeed. It is folly to think that because Australian troops performed well in recent small wars, the ADF is capable of successful prosecution of what is sometimes called “high-end warfighting”. That runs the risk of believing our own myths and legends, and is delusional in the extreme.

This assessment of defence policy making and delivery focuses primarily on preparation for Wars of Necessity, the kind of conflicts for which most of the ADF exists and for which most defence investment is made. These are wars where critical Australian interests are at stake, where Australia must become committed rather than just participate, and where Australia must actually win.

If we think that small conflicts such as East Timor, Iraq or Afghanistan are complex, dangerous and costly, Wars of Necessity are orders of magnitude more difficult, more dangerous and more expensive. The consequences of the failure of Australian forces in a conflict such as Afghanistan are often tragic for individuals and could be strategically embarrassing for Australia. But the consequences of failure in Wars of Necessity are vastly higher in terms of lives lost, cost, and the compromise of sovereign national interests or even, in the extreme, national survival. That is why we build the ADF, and that is what is failing.

To be considered effective, the words in a defence policy must align with the words in a military strategy. The 2009 Defence White Paper was a classic case of the policy not matching the materiel funding plan necessary to give effect to the policy. That might have been bad enough, and some slack should have been cut to any government during the global financial crisis, but Prime Minister Gillard’s continuation of this dislocated policy in the 2012–13 budget did not even try to justify the reduction in defence capability on strategic grounds but just removed the investment funds, and promised a future white paper policy.

The key output of the military is its ability to fight, but the Rudd–Gillard governments have concentrated entirely on inputs, not on outputs. There is no statement of the ability of the ADF to conduct the kind of military operations in which the people of Australia assume that the ADF is competent. Such a statement is called in military terms a “Concept of Operations” and addresses how a defence force might fight, as distinct from the essentially meaningless numbering of the tanks, ships and planes that the ADF has.

How can the minister make decisions about an appropriate level of defence funding, or decide between choices of equipment, if he has no comprehension of how each will be used? How can the voters of Australia decide how effectively Labor governments are exercising their duty to defend Australia if there is no public expression of what the ADF must be able to do to meet the demands of this uncertain future?

The current minister expends all the efforts of defence leaderships on considering only inputs to defence, that is, the number of tanks, planes and ships, rather than on the output of whether the ADF can fight and win. This is because inputs in the form of failed defence projects are more visible to the voting public than whether the ADF can fight or not, so this is where the political risk lies. This approach is irresponsible and has severely distorted any attempt to stress accountability, or to balance the efficiency of the ADF and the Department of Defence with effectiveness.

Because he has no knowledge of the business of defence and does not trust defence leadership, Stephen Smith continually reverts to a series of outside inquiries, most of which have served at great expense only to prove the obvious. Most inquiries have made no noticeable impact except to increase the administrative churn, which has dramatically slowed routine decision making. Although we may not know for some time whether the departure of the Secretary of the Department of Defence, Duncan Lewis, was at the direction of the minister, all evidence would indicate that he left because he saw no reason to stay, that most of the work being done in the department was nugatory, that the leadership team was dysfunctional and that the funds allocated by Labor to the ADF would produce an ADF that was, in his own words, “inadequate” to meet the demands of the strategic environment. As a soldier and public servant, Duncan Lewis understood the impact of Labor’s policies on the defence force, and he obviously did not like it.

If Australia has good policy in defence implemented through an appropriately resourced strategy, then the result is credibility in strategic affairs. If your defence capability is credible, then it is an effective deterrent; conflict is less likely and strategic risk is lessened. The Rudd–Gillard governments have been prepared to accept an increase in the strategic risk to Australia, in order to lessen their own political risk. In this, there must be a moral question.

Since Federation, participants in defence policy discussions have generally fallen into two camps: those that focus primarily on Australia’s continental geography as the determinant of defence policy, referred to as “Defence of Australia” advocates; and those that focus on Australia’s interests in a wider world, popularly referred to as “Expeditionary Operations” advocates.

In general terms, and at a more pronounced level since 1986, a focus on Australia’s wider interests in terms of preparing for or conducting operations outside the Australian continent has been a Coalition tradition, while so-called Defence of Australia has been a Labor tradition. Contrarily, the balance of popular strategic theory has focused on continental defence while the actual practice of strategy has been entirely expeditionary. In wars and in crises, Australian governments have conducted military operations primarily as offshore or expeditionary operations, while in periods of no threat, the theoretical strategic position has been continental. Predictably, the Gillard government has been true to its Labor roots, under-invested in defence, ignored the strategic environment and justified its short-termism with espousals of continental defence on the cheap.

Nothing better explains the failure of defence policy to produce real results than this debate, because each side of the continental–expeditionary divide is essentially nugatory. If a defence of continental Australia policy was seriously matched by a strategy that was effectively implemented, rather than as a duplicitous means of under-investing in defence, then the force that was produced to defend the continent would be more than adequate to conduct any expeditionary operation that any government wanted to conduct. The defence cuts now being implemented are surrounded by a patina of intellectual justification that revolves around the traditional Labor position of continental defence. This government maintains, against all evidence, that an undefined continental defence can be conducted at a much lower cost, which just happens to match the cuts implemented in the 2012–13 budget, and likely future cuts.

All policy areas like to think that they are unique and so deserve special financial treatment. The unique feature in policy terms that defence has is that it is a public good. Unlike health, education or welfare, a dollar lost to defence by decreased government spending is lost entirely, whereas a dollar lost to social programs is often entirely or partially replaced by private spending. The impact of reduced government spending on defence is often far greater than the same level of spending reduction in social programs.

This means that governments have a greater obligation in relation to funding defence out of government revenues, and a greater responsibility for avoiding short-term policies, than they do for social programs. This is an obligation that the Rudd–Gillard governments have dramatically failed.

The Gillard government in particular has also exploited the inability of most voters to understand defence. Australian society has not been exposed to war in recent history, and few Australians have military experience, so a voter’s ability to judge the actions that a government takes and to hold them accountable is limited. The removal of funding from its own defence policy, plus a reliance on contrived secrecy which serves only to hide government embarrassment and not national secrets, indicates a deeply cynical approach to defence which should not be rewarded.

To make matters worse, one of the main segments of the community that can make any kind of professional judgment on the efficacy of government defence policy and its delivery, the members of the ADF and the defence bureaucracy, are prohibited by the minister from voicing their opinion publicly. The two people who are best credentialled to make such professional judgments, the Chief of the Defence Force and the Secretary of the Department, give their advice to the minister only in secret. So the real experts’ views (as distinct from a plethora of commentators and so-called strategists) on the nature of the strategic environment and the threat that it poses to Australia, and the nature of the armed forces that Australia should have to protect itself, are never known to the Australian people. When policy is released publicly, it has already gone through the government’s political filter, and the only explanation is the government’s political explanation. Because voters never know what the real experts thought was needed for defence, but only see what the government thinks it can afford, voters cannot make a judgment as to the appropriateness of the risk being taken in their name. All of these factors have been brought into play since 2007.

There is a popular view put out most commonly by supporters of the Rudd–Gillard governments that defence is too expensive for Australia. Prime Minister Gillard has been prepared to let that view run in order to justify the disassembly of the Howard government’s defence legacy.

Many people point out that Australia, as the thirteenth-largest defence spender in the world, can afford to reduce its defence expenditure. But Australia does not get anything like the thirteenth-largest defence capability in the world from such defence expenditure, so the comparison is meaningless. This is because Australia distorts its expenditure by paying relatively large amounts for manpower, compared with potential rivals or allies, with only marginal gain due to manpower quality, and because it often pays a premium of up to 40 per cent to produce defence materiel in Australia, again for little long-term gain.

It is not that Australia cannot afford to defend itself, but that the Gillard government has made a decision not to invest in defence. The Australian Strategic Policy Institute makes an interesting observation in the July 2012 paper “Crying Poor? The Affordability of Defence Expenditure” by Mark Thomson here: 

Conventional wisdom holds that Australia faces daunting fiscal pressures in the decades ahead due to its aging population and the rising cost of health care and other social services. The general argument appears in the 2003, 2007 and 2010 Intergenerational Reports (IGR) produced by the Treasury and its potential implications for defence spending were outlined by the then Treasury Secretary in 2005. However, it’s argued below that IGR-style fiscal analyses are a poor basis—even on their own terms—for constraining defence spending. More importantly, it’s further argued that any analysis that focuses primarily on fiscal matters must, by its very nature, fail to address the more important question of making efficient use of taxpayer dollars …

Australia is and will remain a prosperous country. The absolute affordability of defence expenditure at the levels proposed by even the most hawkish advocates is not an issue. But prosperity is not an excuse for profligacy, each and every dollar allocated to defence should be justified on the basis of providing superior benefit to the available alternatives.

To start with, Treasury’s modelling is based on the arbitrary assumption that federal tax revenues will remain a fixed percentage of GDP. The reality is that Australia’s tax-to-GDP ratio including all levels of government (which is what matters economically) of 27.1% is low by international standards … In fact, in 1965 Australia’s tax-to-GDP ratio was just below 21% but it has risen roughly in tandem with the growth of our economy since then. It would not be an economic catastrophe if taxes were to rise, especially if we adopted reforms that made our tax system more efficient.

… on Treasury’s own projections, Australians will be able to enjoy an expanded combination of private consumption, social services and public goods in the years ahead. In terms of per-capita GDP … the result is a 79% increase from around $60,000 in 2009 to over $107,000 in 2049 (measured in 2009–10 dollars). Far from worrying about going broke, we should be thinking about how to best take advantage of our growing prosperity—perhaps even by bolstering our security—even if it means paying a little extra tax.

In expenditure terms, it is good to get some feel of how much defence is enough, so that the magnitude of the failure of the Rudd–Gillard governments can be appreciated. It is imperfect to measure defence effectiveness in terms of percentage of GDP spent on defence, but it is convenient to do so, remembering that the only true measure of defence effectiveness is the ability of the ADF to fight and win.

We were able to see what close to 2 per cent of GDP could produce in terms of capability, because that was what came out of the Howard years, but it was overturned by Labor before it could overcome decades of neglect. We can see what can be produced with 1.8 per cent of GDP, because that is the marginal defence force and defence industry that we have now. We are about to see what 1.6 per cent of GDP produces, because that is the level of defence funding that the government has now approved and that, as it bites, will produces a defence force in terminal decline. We are also likely to see what 1.4 per cent of GDP produces, which is what the future holds for the ADF according to the budget papers. At a sustained level of 1.4 per cent funding, the ADF will be fixed in its terminal decline, and even if resources were suddenly found, it would require years if not decades to restore real military capability. Finally, we can see, by looking across the Tasman, the military impotence that is created by 1 per cent of GDP, the current level of defence expenditure in New Zealand.

The magic number that produces usable military capability for Australia in the strategic environment today is about 2 per cent of GDP. But that amount needs to be spent over years or even decades. What 2 per cent of GDP produces is described by ASPI as a “medium level hedging strategy for the ADF”. This means that it produces an ADF that looks like Force 2030 (the force that came out of the 2009 Defence White Paper) and that can conduct a level of sophisticated joint warfighting operations appropriate to a nation such as Australia. It is a level of defence investment where most systems that exist in the ADF actually work, where they could be taken up to their highest (and most expensive) level of operational capability in a reasonable period of time (for most in about six months), which serves as a basis for expansion if the strategic environment goes seriously bad, and gives government real options for the use of military force. However, 2 per cent does not defend Australia or its interests against a major Asian power. To spend less than 2 per cent in this strategic environment—and the government is proposing that significantly less than 2 per cent be spent—would undermine Australia’s strategic credibility in our region, and therefore undermine the security of our region.

A 2 per cent spend on defence after a few years would give Australia confidence that it possessed a force capable of reinforcing the integrated system of strategic deterrence that inhibits early resort to force by any regional player. Spending 2 per cent would enable us to abandon the current strategy of hoping that nothing bad will happen.

If the strategic situation became even less predictable then, for example, another 0.5 per cent of GDP might be needed. Once you have been at 2 per cent for several years, expansion in the worst case to higher level of expenditure is made much easier. To go from Labor’s 1.5 per cent to a force that needed 3 per cent of GDP in a reasonable period of time would be almost impossible, regardless of the availability of funding. The Labor governments seems not to have learnt from the old saying: “In peacetime you have lots of time and no money, in wartime you have lots of money and no time.” Defence expenditure is all about risk, but 1.5 per cent of GDP spent on defence is not a mature assessment of risk, it is irresponsibility.

Levels of expenditure around 2 per cent are appropriate when Australia does not face a direct threat, but if we were faced with what ASPI calls a “combative Asia”, exhibiting a tendency towards conflict, Australia may find that it has to spend as much as 3 or 4 per cent of GDP. This is high by recent Australian standards, but would be acceptable to the Australian people because the reason behind the increase would be obvious to every Australian. In fact, it would be the people who would notice the impact of potential conflict on their prosperity, and would demand action by any government. When this occurs, if the ADF has been starved of funds for years, it will not be able to expand in any reasonable period of time, and government will not have options.

Overcoming the disastrous situation created by the Rudd and Gillard governments in relation to defence is simple: honestly and openly align policy and strategy with the real demands of the strategic environment that Australia faces in our region and throughout the world, and when funds are available, sustain the implementation of a strategy over time, openly expressing risk to the Australian people. This is an approach that puts the Coalition on the moral high ground in defence issues, for the simple reason that the current state of the ADF or defence in general can only be blamed on the Rudd–Gillard governments, as the Howard government recognised the problem and took steps to remedy it.

Accepting that the Australian political and financial situation that normally faces an incoming Coalition government after a period of profligate Labor government is one that will restrict an immediate start to re-funding the ADF, the principles that lie behind an incoming government’s approach to defence should be as follows.

Establish prosperity and stability first. A prosperous and stable society based on a strong economy is the bedrock of Australian defence and security, and that should be the initial focus of an incoming government.

Make no more cuts. Further damage to military capacity should be prevented by maintaining defence funding at least at current levels.

Internal rebalancing. An internal rebalancing of the defence budget in the short term between manpower, operations and investment should be permitted.

Assess strategic environment. A realistic and public assessment of the strategic environment that faces Australia should be conducted to establish what is demanded of the ADF.

Match strategic environment with ADF structure. Match the strategic environment with appropriate ADF structure, initially subject only to very general financial guidance. The basis of the structure should be output-oriented, that is, what the ADF must be able to do operationally. Defence inputs (numbers of planes, tanks and ships) should stem logically and demonstrably from that.

Embrace democratic defence policy. Knowing what is needed, government decides what it can afford to fund. This must be done democratically, in a way in which the public can judge the magnitude of the inevitable risk that all governments must take on defence. This requires that the expert advice offered to government by the Chief of the Defence Force and the Secretary of the Defence Department on what they consider to be the strategic need and the structure that matches that need, be offered to government publicly, in the manner of an institutionalised “Charter of Defence Honesty”. Public processes and accountability in defence should in almost every case be more important than “secrecy”, and classification should never be used to avoid political embarrassment.

Balance efficiency and effectiveness. By concentrating on defence outputs, thus establishing effectiveness, and opening up the process in a democratic manner, accountability for all concerned for defence can honestly and fairly be established, and efficiency in defence will follow.

Embrace consistent and sustained funding. When funding becomes available, avoid financial waste and the adverse impact on defence capability by embracing a long-term, consistent and sustained defence funding model.

Major General (retd) Jim Molan, AO DSC, served for forty years in the ADF. For “distinguished command and leadership in action” in Iraq, Major General Molan was awarded the Distinguished Service Cross by the Australian government and the Legion of Merit by the United States government. In August 2008, HarperCollins published his book Running the War in Iraq. This article is based on his chapter from a book to be published this month by Connor Court, State of the Nation: Aspects of Australian Public Policy.

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