Did we just spend $1 trillion dollars to buy Malcolm Turnbull a job?

July 26, 2016 Kaye Lee Politics 53

When the Coalition released their Defence white paper in February this year, they recommitted to Tony Abbott’s arbitrary goal of raising defence spending to 2% of GDP by 2023 and outlined a very large defence materiel spend over the next two decades.

This became very important in Turnbull’s election campaign as it was the only thing he could point to when asked for specifics to back up his Jobson Grothe slogan. Promises were made, particularly in South Australia where the Xenophon team posed a real threat, and Turnbull assured us we were investing in a whole new defence industry for Australia.

But at what cost?

Mark Thomson, senior analyst at the Australian Strategic Policy Institute and widely regarded as the country’s leading independent defence budget expert, has calculated that the increase will push total defence spending to more than $1 trillion over the next 20 years, accounting for inflation.

“They’ve committed an awful lot of money out there. Even if they wanted to renege on the 2 per cent, they’re probably going to come bloody close to it anyway,” Dr Thomson said.

Those promises included new planes, an upgrade to the Army’s Steyr rifle, new offshore combatant vessels, new frigates, a new grenade launcher, a replacement armoured vehicle fleet and initial work on the new fleet of 12 submarines.

“The [submarine] design work is going to cost a pretty penny,” Dr Thomson said. “You add to that the Joint Strike Fighter, the P-8 [surveillance aircraft], there’s a very sizeable investment budget out there that is going to help them … ramp up towards the 2 per cent.”

Based on last year’s budget, it would take an average of 4.5 per cent growth a year to 2023 to reach the 2% target. However, the target has many critics, including Dr Thomson, who says it is an arbitrary way to project defence spending. Former chief of army David Morrison also expressed doubt about its usefulness before he retired.

“Picking an arbitrary number like 2 per cent of GDP will almost certainly not give us the optimum allocation for preparing Australia for the raft of economic and strategic risks ahead,” Thomson said, suggesting it would delay a return to surplus.

On Monday, the Productivity Commission released its annual trade and assistance review which quantifies the level of assistance governments give to Australian industry. It was highly critical of the big defence spend.

“Paying more for local builds, without sufficient strategic defence and spillover benefits to offset the additional cost, diverts productive resources (labour, capital and land) away from relatively more efficient (less assisted) uses,” the report says.

“It can also create a permanent expectation of more such high-cost work, as the recent heavily promoted ‘valley of death’ in naval ship building exemplifies. Such distortion detracts from Australia’s capacity to maximise economic and social wellbeing from the community’s resources.

“The recent decision to build the new submarines locally at a reported 30% cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs.”

The commission says close attention to future evaluation of the effectiveness and efficiency of the revised defence industry support program is “paramount”.

Today, Australia has 58,000 personnel in its defence force and that will grow to 63,000. There are also 18,000 public servants looking at threats, guiding policy and planning for security.

When the experts are telling you that this huge spend is unproductive, one has to wonder.