Questions as Australia's Latest Defense Figures Unveiled

As it prepared to unveil its latest budget on May 12, the center-right Coalition government under the stewardship of Prime Minister Tony Abbott faced considerable pressure. A slowing economy and depreciating currency served to drag down public confidence in the country's direction. The majority political opposition had become emboldened by the broad backlash to the government's initial budget (for fiscal year 2014-2015). A cabinet reshuffle saw the Coalition's first defense minister removed, and Tony Abbott himself later survived a no confidence vote within his own party.

In addition, the Abbott government opted to funnel an extra AUD9.9 billion (about $8 billion) into the four-year Forward Estimates period (2015-2016 through 2018-2019), bringing that total up to AUD132.6 billion (AUD33.15 billion per annum). 

Yet despite the apparently happy news, there remain plenty of questions ahead for Australia's defense establishment.

The first concerns jobs – both within the Defense Department and in local industry. Under the 2015-2016 budget plan, the number of Australian Public Service (APS) jobs will be cut by 1,050 – this follows over 2,000 civilian jobs axed previously.

Meanwhile, nearly two years into its administration, the Abbott government has yet to release its long-promised Defense White Paper that will lay out a strategic vision for Australia's future defense approach. So instead of an updated defense industrial policy outlining how vital strategic sectors are to be protected, there is a growing concern that the nation's naval shipyards have entered the allegorical "Valley of Death." Under this scenario, a lack of firm naval orders on the books results in a gap between one project and the next, resulting in the loss of crucial know-how and work skills. 

A second question relates to long-term, sustainable funding. While the stated goal of the Abbott government has been to bring Australian defense spending up to the aforementioned 2-percent-of-GDP benchmark within a 10-year period, the Forward Estimates projection for 2016-2017 indicates a drop both in actual funding (down to AUD31.1 billion) and as a percentage of national wealth (0.1 percent reduction). This downturn, however small, will come as Australia confronts a future unlike the recent past, where a prolonged resource boom and high commodity prices resulted in a treasury coffer bursting with revenues.

Despite the year-on-year increase accounted for in the 2015-2016 defense earmark, much of the differential from the previous year's allocation reflects an upward adjustment in the operations portion of the budget – necessary to underwrite overseas missions in Iraq, Afghanistan and the Gulf region – as well as compensation for the depreciation in purchasing power of the Australian dollar on the global currency exchange. In other words, the "increase" is largely neutral in purchasing power terms. This means there is no real-term boost to the capability maintenance or equipment acquisition elements of the budgetary baseline.

With major acquisition programs looming, including the Future Frigate Program (Sea 5000 project), the replacement of the Royal Australian Navy's existing Collins-class submarines (Sea 1000 project), and future additional orders of F-35 Lightning II combat aircraft, the Abbott government will need to ensure military equipment investment remains ring-fenced going forward as it seeks to bring improved capability to the Australian Defense Force.

Making this task more difficult is the uncertainty hanging over Australia's economic horizon – as well as the Abbott government's promise to push the Commonwealth budget back into surplus by the 2019-2020 fiscal year. How this will happen while China – Australia's leading trade partner – endures its own economic slowdown and Australia's own revenue growth is crippled by weak commodity prices remains to be seen.

But for now, the Abbott government would probably prefer to leave aside devising a forward path to attaining its desired defense spending threshold equivalent to 2 percent of GDP until after the next federal election, and settle for simply having the Senate pass its current budget proposal.

Daniel Darling is an international military markets analyst at Forecast International Inc., an aerospace and defense market research company located in Newtown, Connecticut. A graduate of Kansas State University, Dan covers the Europe and Asia-Pacific Rim military markets for Forecast, and formerly was responsible for the Middle East as well. He has been quoted or his work cited in: Arabian Business, Defense News, The Financial Times, Flight International, The National, The New York Times, Bloomberg, National Defense Magazine and Small Wars Journal, among others.