CHAIR —We now move to the consideration of particulars of proposed additional expenditure for the Department of Defence. I again welcome Senator Herron, representing the Minister for Defence, and officers of the Department of Defence. The committee has before it a list of topics nominated by senators for consideration at supplementary hearings. The committee will consider the topics nominated in the portfolio overview and major corporate issues and then consider nominated groups in numerical sequence. We will conclude the Defence portfolio by considering a topic in the Defence Housing Authority. Minister, do you wish to make any comments?

Senator Herron —No, thank you.

CHAIR —We move on to the overview of major corporate issues. I call Senator Faulkner.

Senator FAULKNER —I thank the committee for its cooperation. I might just explain to the witnesses that because of pressures in other committees I am going to ask some questions in a range of areas in general questions. I hope I am not going to delay the committee too long and I hope, having concluded, that you will not have the misfortune of seeing me again today. We will do our level best, but I am a little dependent on a phone call that might come in, Mr Chairman.

CHAIR —Okay. Fire away.

Senator FAULKNER —Minister, I did flag with the secretariat that I wanted to ask a few questions about the Federation Guard. I did note the minister's media release about the formation of the Federation Guard and I am aware of its role in relation to welcoming the INTERFET representatives and some of the other functions that it has been involved in. The reason I have reserved this area is in relation to the Federation Guard's role with the centenary of Federation. General Abigail, I think this should be directed to you, if the minister is happy with that.

Senator Herron —Yes.

Senator FAULKNER —Briefly, was the actual initiative to establish the Federation Guard an initiative of the Minister for Defence? I do not know whether it was a government initiative, an ADF initiative or an Army initiative. I would appreciate it if that could be explained.

Major Gen. Abigail —Australia's Federation Guard is actually a Defence initiative. The notion of having a dedicated ceremonial guard based in Canberra or Sydney has been around for many years. Previously, though, when it has been looked at as an option, it was found to be not cost effective to devote service personnel to ceremonial activities, in the days when we had considerable numbers of full-time service personnel based in Sydney and also here in Canberra. Over the last decade or so, as we have gone through processes of rationalisation, civilianisation and the move of the Defence Force, and particularly the Army, to the north in terms of the full-time component, we found that the costs of moving personnel to Canberra to undertake ceremonial activities was becoming prohibitive. In a management audit board report of early 1999, that was identified as costing us at that particular stage about $1.4 million a year in additional costs to move people from the north, including from Darwin and Townsville, to come south. That really was the genesis of the idea this time round of creating a specialist dedicated guard.

Additionally, we are confronting a period of heightened requirement as the Sydney Olympics and the centenary of Federation are appearing on our screens. It was decided in Defence that the best way of approaching this particular heightened requirement was to form a tri-service ceremonial guard that could be based in either Sydney or Canberra—and ultimately the choice was made that Canberra is the best place—to meet a range of ceremonial activities, including providing support to the Sydney Olympics, and particularly the welcoming of dignitaries, and to fulfil a role throughout the centenary of Federation celebrations throughout 2001. The guard has at this stage a life of two years and its continued requirement will be the subject of review during 2001, with the final decision expected to be made by the end of 2001.

Senator FAULKNER —Thanks for that. That is helpful to the committee. Is the guard going to relocate to Sydney during the period of the lead-up to the Olympics and the period of the Olympics? Does that make any sense?

Major Gen. Abigail —The guard will be fairly mobile, and I do not have all the detail with respect to that. During the Olympics, for example, its primary function will be welcoming and farewelling ceremonies for foreign heads of government, et cetera. Most will probably occur in Sydney; some could occur in Canberra. They will be where the requirement lies. Whether they are going to permanently or temporarily relocate, I am not sure.

Senator FAULKNER —You might take that on notice. I am just interested in what the arrangements might be. Thank you for that information. It is helpful. Where did the name `Federation Guard' come from?

Major Gen. Abigail —I believe it came from Defence. It was a proposal that it be called `Australia's Federation Guard' which linked it to the centenary of Federation activities.

Senator FAULKNER —I am just interested in the background on the name, if any could be provided. Specifically, I am interested in the role of the Federation Guard with the centenary of Federation. Could you focus on that and provide the committee with any details of the guard's involvement in the centenary celebrations, please?

Major Gen. Abigail —At this stage I cannot give you the sort of detail which I suspect you are looking for because the program for the centenary of Federation is still very much being developed. Defence is working in close consultation with the national committee, looking at that set of activities, and the task schedule which we have identified for the Federation Guard at this stage does not extend very far into 2001. Key national events will quite clearly involve the Federation Guard—1 January, 26 January.

Senator FAULKNER —And 9 and 10 May in Melbourne, and so forth.

Major Gen. Abigail —Yes. They are the types of events.

Senator FAULKNER —I appreciate that. I would not expect you necessarily to be across all the details of what might happen in 2001. Let me narrow this down a little to the Australia Week celebrations in London. What role might the Federation Guard have there?

Major Gen. Abigail —That is occurring this year.

Senator FAULKNER —Yes.

Major Gen. Abigail —The Defence Force has been invited by the British Ministry of Defence to provide guards to undertake ceremonial tasks pretty much replicating what was undertaken in 1988 at Buckingham Palace, St James's Palace and the Tower of London. At the moment, we are engaged with the minister on precisely what that commitment will entail and what the numbers will be and, as I say, that is an ongoing staff activity.

Senator FAULKNER —Can you say whether the Federation Guard or some part of the Federation Guard will be going to London for Australia Week?

Major Gen. Abigail —Depending of course on the government's decision with respect to this, the proposal is that it would be the Federation Guard that would go to London.

Senator FAULKNER —The whole guard?

Major Gen. Abigail —It is the issue of how much of the guard needs to go and do the job that is being—

Senator FAULKNER —It is 150 strong, is it not?

Major Gen. Abigail —It is 159 strong, including a command element. There is also the possibility of a band going with it as well.

Senator FAULKNER —Would the costs be borne by the ADF for this?

Major Gen. Abigail —That is the planning assumption we are working on.

Senator FAULKNER —Have you a preliminary, expected budget for the cost of the Federation Guard and band accompanying the Prime Minister to London?

Major Gen. Abigail —This task is actually separate from the Prime Minister's visit. It was a separate invitation raised by the Ministry of Defence to the ADF. We have some indicative costs with respect to the different options that are being examined. I do not have them with me today. We could pursue that on notice, if you wish.

Senator FAULKNER —Yes, I certainly would be interested. You may not be aware of this specifically, General, but Mr Corey or others might be: is the ADF involved in any IDCs in relation to the preparations for the Australia Week celebrations in London?

Mr Corey —I am not aware of that. I would have to follow that up. I have been in this job for about a month and it has not come across my screen, but that is not to say it is not happening.

Senator FAULKNER —I do not know whether you have seen it yet, Mr Corey, but I placed a question on notice to the Minister for Defence about any involvement that Defence has in the Australia Week celebrations. We hear about the Federation Guard and band. But, apart from the possible deployment of the guard and the band—I have a general understanding of where that is up to from General Abigail—are you aware of any other Defence involvement in Australia Week?

Mr Corey —I am not.

Senator FAULKNER —Does that mean there is none?

Mr Corey —We could take it on notice and find out, but nobody is jumping up to suggest that there is something.

Rear Adm. Ritchie —I am representing the Vice Chief of the Defence Force. Our advice is that Defence is not represented on any IDCs concerning Australia Week at this stage, but we will check that on notice.

Senator FAULKNER —Thank you. I hear from General Abigail about the role of the Federation Guard and an ADF band. What band are we talking about, by the way?

Major Gen. Abigail —The band of the Royal Military College Duntroon.

Senator FAULKNER —What I am interested in understanding is, apart from the Federation Guard and the RMC Duntroon band, is there any other Defence involvement in Australia Week? I am not talking about the centenary of Federation generally. I am just trying to focus on the centenary week celebrations in London.

Mr Corey —I am not aware of any, but we will take it on notice and come back to you.

Senator FAULKNER —General, I wondered how quickly you might be able to respond to the committee about what the possible options and costs of those options might be. Could I ask you to provide that as soon as you are able to. I think we would appreciate that. I do not think it is a matter I want to follow up today but, if I could flag it with you, perhaps we might follow this up at the budget estimates.

Major Gen. Abigail —Yes.

CHAIR —Senator Faulkner, we have put down 18 May as the time that answers must be back.

Senator FAULKNER —Certainly. I appreciate that the budget estimates are just on the back of these estimates. You will be relieved to know that the opposition has taken an initiative to see if we can amend the standing orders to perhaps see the end of this supplementary additional estimates round.

CHAIR —You will be surprised to know the government is also supporting that.

Senator FAULKNER —I am surprised to hear that because the government normally seems to be so far off the ball on these sorts of things.

Senator PAYNE —We could change our minds, Senator Faulkner.

Senator FAULKNER —It does not worry me; you are the government. The budget estimates hearings are just round the corner so we can follow it through there.

Senator Herron —I think Senator Faulkner has a very legitimate point because it ties up the bureaucracy in unnecessary work.

Senator FAULKNER —I am aware of the implications. If there were accountability implications, Senator Herron, we would take a different view but I think that as this is evolving it is proving to be not as useful an exercise as otherwise might have been the case, but anyway that is a matter for another time. I will flag with you, General, that I will follow that through at the budget estimates if I can. If you or your officers could be prepared to answer some questions about that involvement—and, Mr Corey, any other involvements in the Australia Week or other Centenary of Federation activities—that would be appreciated. Mr Chairman, I will move to another issue that I wish to raise. First of all, I would like to establish whether the Defence Chief Executive Instructions are still in place. It used to be a very important manual for the ADF and Defence and I assume it still is.

Mr Corey —You are not talking about the financial instructions?

Senator FAULKNER —Yes, I am.

Mr Corey —That relate to all departments, not just to Defence?

Senator FAULKNER —No, I am talking about the Defence Chief Executive Instructions of which there was finance volume 2 first edition 1995, and then finance volume 2 second edition 1998 that was sponsored by the First Assistant Secretary, Resources and Financial Programs. I think this is possibly best directed to Dr Williams.

Mr Corey —I think you are probably right. I was just trying to clarify what you were actually saying.

Dr Williams —Yes, Senator, we do still have that instruction.

Senator FAULKNER —I want to understand this. This provides overarching governance for Defence. Is that right? What is its status in Defence?

Dr Williams —It provides a series of guidelines with corporate governance at one level on some of the detailed financial management aspects of the organisation and it flows from government policies and acts of parliament, et cetera.

Senator FAULKNER —I had last seen a copy of this provided under the signature of Mr Lewincamp, who of course was your predecessor. Has that been changed since the copy I had, which was dated December 1997?

Dr Williams —I could not say. It is a process of regular update obviously as things shift. We would have to take that on notice. If you wanted, we could give you the dates of successive updates. If you wanted an updated copy, we could certainly provide that.

Senator FAULKNER —I do not necessarily want an updated copy because it would require a forklift truck to get it over here—like so many Defence documents I might say—so I would not want to put you to that trouble. While I ask some other questions, could you check telephonically whether there has been any change to the document issued in January 1998 at part 6 at the heading `Procedural rules—inadmissible expenditure'? This is at paragraph 311. I wonder if you could let me know if there has been any change to that paragraph.

Dr Williams —Could you clarify that? So it is `Procedural rules—inadmissible expenditure'?

Senator FAULKNER —Issued in January 1998 and marked down the bottom is `632'. This is in part 6 of the chief executive instructions at `Inadmissible expenditure' in paragraph 311. You just might check that while I ask some other questions. I would appreciate that, thank you very much, Dr Williams.

Dr Williams —Okay.

Senator FAULKNER —Could I just ask briefly about what is happening over at Russell with the arrangements to provide the Minister for Defence with an office? I read in the Canberra Times yesterday that I was pretty close to the mark. Every now and again you kick a goal at the estimates committee. I was pretty close to the mark about Mr Tonkin's office.

Senator HOGG —He is not there.

Senator FAULKNER —When you get something right you may as well reinforce it.

Senator QUIRKE —He has moved about three miles.

Senator FAULKNER —He has moved about three miles but his office has gone west completely. This was, of course, in the context of the establishment in Russell of an office for the Minister for Defence. I wonder, Mr Corey, if you could tell us where we are up to in relation to the new arrangements.

Mr Corey —As I informed the committee at the last hearing, that proposal was being progressed. That has occurred. The minister is actually in his office in Russell building 1 today.

Senator FAULKNER —He actually moved in today, did he?

Mr Corey —He actually moved in today. I am acting in the job that Rob Tonkin was in and I moved to Russell building 4 yesterday.

Senator FAULKNER —So he is in building 1 and you are in building 4?

Mr Corey —That is right.

Senator FAULKNER —And he has moved in today?

Mr Corey —He has moved in today.

Senator FAULKNER —Have any staff moved over there with him?

Mr Corey —His staff are there with him today.

Senator FAULKNER —So the whole minister's operation has been moved out of Parliament House to Russell?

Mr Corey —No.

Senator FAULKNER —I see, not the whole operation. So how many staff has he got with him?

Mr Corey —I have not been there this morning.

Senator FAULKNER —What sort of facilities has he got?

Mr Corey —He has facilities with room for him and two staff.

Senator FAULKNER —So he is colocated with the CDF and the secretary?

Mr Corey —He is adjacent to the secretary's office and the CDF is colocated with the secretary.

Senator FAULKNER —I see. What sort of facilities has the minister got over there in the new office that he has just moved into?

Mr Corey —He has the same facilities that were there when I was there.

Senator FAULKNER —There have been no refurbishments?

Mr Corey —There has been no refurbishment.

Senator FAULKNER —He is in precisely the same office?

Mr Corey —He is in precisely the same office.

Senator FAULKNER —It has the same furniture?

Mr Corey —It has the same furniture and the same computers.

Senator FAULKNER —I see. What about the plans for the refurbishment? Where are they up to?

Mr Corey —The plans for the refurbishment?

Senator FAULKNER —Yes.

Mr Corey —There are no plans to refurbish the office. He is taking over the office as is.

Senator FAULKNER —I see. When was the office last refurbished?

Mr Corey —When it was built. It is a relatively new office.

Senator FAULKNER —When was it built?

Mr Corey —Two years ago.

Senator QUIRKE —What about the architects that you blokes employed that you told us about in February this year to consult with the minister and yourself and others?

Mr Corey —In February I advised the committee that we were looking at options for the minister. In doing that, we had architects looking at possible options. They developed some sketch plans of two other options which, in the event, we did not proceed with.

Senator FAULKNER —What were the costs of the architect?

Mr Corey —I would have to take that on notice, Senator, but they would have been minimal at the time because, as I said, all they provided were sketches.

Senator FAULKNER —This is a saving that can be attributed to the good investigative work of this particular estimates committee, I would suggest.

Mr Corey —I cannot comment on that.

Senator FAULKNER —No, but I can, you see.

Senator Herron —Self-delusion often occurs in Senate estimates committees.

Senator FAULKNER —You would know.

Senator QUIRKE —So what you are telling us is that the plans for the refurbishment are on hold—or are they finished?

Mr Corey —They are finished. There were no plans for refurbishment. We were looking at alternative places where the minister's office might be created in Russell.

Senator QUIRKE —I just want to get this straight. The minister is in your former office or is he in Mr Tonkin's former office?

Mr Corey —I occupied Mr Tonkin's former office. I moved out, and the minister moved in. So it is the same office.

Senator QUIRKE —That was what we said in February, that we heard Mr Tonkin was moving to make way for the minister. So it proved to be correct, did it not?

Mr Corey —You could make that assumption.

Senator FAULKNER —Whose offices have the ministerial support staff got? Or is Mr Moore jammed into your old office, Mr Corey, with a couple of other desks stuck up the back for the ministerial staff?

Mr Corey —The suite that was provided for the Deputy Secretary Resources and Management had space for two support staff outside the office. So the space that the minister is now occupying is the space the Dep. Sec. RM plus his two support staff were in.

Senator FAULKNER —Are the staff in separate offices, or is it just part of an SES level suite?

Mr Corey —Part of a normal suite.

Senator FAULKNER —You tell me what a normal suite is like. I have not actually been to that building. Because I have not been invited, I suppose.

CHAIR —I am sure you would be welcome, Senator Faulkner.

Mr Corey —I will take that on notice. Perhaps I can get you an invitation.

Senator FAULKNER —I probably would be welcome, for a short visit, or a very short visit.

Mr Corey —The standard suite for deputy secretary level officers in Defence in the new office complex is a small waiting area, room for two support staff, the office for the deputy secretary, and an ensuite.

Senator FAULKNER —Given that the minister is now occupying the office at Russell, has this meant any other administrative changes in terms of arrangements at Russell that the committee might be interested in, or is it just business as usual?

Mr Corey —No, it is just business as usual.

Senator FAULKNER —But what about the number of visitors and meetings and so forth the Minister for Defence would have? Has he got room there to have a meeting, for example?

Mr Corey —Within Russell building 1 there is a number of conference rooms. There is a meeting room that sits between the secretary and the Chief of the Defence Force. There are two conference rooms on each floor. So there is any number of conference rooms we could make available for the minister's use.

Senator FAULKNER —We knew that the minister wanted to have an entertaining area. What sort of arrangements have you made for the minister's entertainment at Russell?

Mr Corey —The minister was interested in a reception area where he might—

Senator FAULKNER —That is what I said: an entertaining area.

Mr Corey —have meetings as well as entertain overseas visitors.

Senator FAULKNER —Yes. Big emphasis on the entertaining, I reckon, but anyway.

CHAIR —Senator Faulkner, perhaps you could let Mr Corey complete his answer before you chop him off halfway between.

Mr Corey —We looked at a number of options, and they were part of what the architects took on board. We have now suggested to the minister, and he has yet to make a decision on it, that there is an officer's mess within the second building in Russell on the ground floor—

Senator FAULKNER —He is going to hijack that too?

Mr Corey —We have suggested that for the frequency of the occasions when the minister may need to utilise facilities within Russell for these purposes the mess would probably make an ideal location.

Senator FAULKNER —What does the mess committee think?

Mr Corey —The mess committee do not have any problem with that.

Senator FAULKNER —I suppose it is a bit hard for them, is it not, given that it is the minister.

Mr Corey —I am not going to comment on that. But that is the option that is now being considered. The minister will actually inspect those facilities—

Senator FAULKNER —Who will bear the costs of that?

Mr Corey —There will be no costs associated with that.

Senator FAULKNER —Why not?

Mr Corey —The mess exists.

Senator FAULKNER —Yes, but who bears of the costs of the mess now?

Mr Corey —The members.

Senator FAULKNER —Yes. So who will bear the costs of the minister using the mess?

Mr Corey —Let us understand the mess is something that was built as part of the Russell complex. The financial arrangements associated with using it for purposes other than the mess have not been determined yet. But if somebody uses it now for a dinner or whatever those costs are met by the person or the group that is having that dinner. So the additional costs associated with that are picked up by whomever is arranging the dinner. I would assume that the same arrangements would apply with the minister. But no decision has been made on that yet. There has not been an instance where we have had to make that decision as yet.

Senator FAULKNER —Has the mess committee made a formal decision that it is okay?

Mr Corey —That it is okay for him to use it?

Senator FAULKNER —Yes.

Mr Corey —The mess committee is aware of it. Whether they have formally sat on it, I do not know. I am not on the committee. But I could take that on notice.

Senator FAULKNER —You see, when I asked you before what sort of administrative arrangements might have been made to assist with the minister's new accommodation, you said there were not any. That sounds to me like it is a bit of a change to the standard operating procedure over there, don't you reckon?

Mr Corey —I would not have thought so.

Senator FAULKNER —That is the sort of thing I am interested in. What else can you tell me?

Mr Corey —As I said, the decision has not been made on the reception arrangements that the minister may utilise. The mess is the option we are looking at. I thought you meant how the organisation works, that sort of arrangement. I thought you were talking about an administrative arrangement.

Senator FAULKNER —I am talking about administrative arrangements and any other arrangements that might affect the smooth running of Russell or the way that the place has worked to date. That is quite an impact.

Mr Corey —I and my staff have moved to Russell 4 and that will have no impact on us whatsoever, apart from the fact that we have moved. We will operate there the same way as we did out of R1.

Senator FAULKNER —But now we have just heard that the minister is going to entertain international visitors at the mess at Russell. What else is he going to do?

Mr Corey —I said that the option of using the mess was being looked at and if a decision is made on that we will report back to this committee and let you know what the outcome is.

Senator FAULKNER —Has the minister indicated how much time he is going to spend in the building?

Mr Corey —Not to me, Senator.

Senator FAULKNER —Or to anyone?

Mr Corey —I am not aware of that.

Senator FAULKNER —He just comes and goes on a whim. When you see the minister wandering up the corridor, does it have an impact on the people around the place—`I was not expecting to see you in today, nice to see you'?

Mr Corey —I am not sure that I can answer that.

Senator FAULKNER —You obviously do not know much about it.

Mr Corey —I would think that normal protocols would be followed and the department would be aware when the minister is visiting and when he is not visiting.

Senator FAULKNER —I am sorry, I missed that.

Mr Corey —Under the normal protocols that exist, I am sure the minister and his staff would let the department know when he would be in the building.

Senator FAULKNER —How is that going to work under normal protocols? How are those arrangements going to be worked out between the minister's office and Russell?

Mr Corey —Without knowing the detailed working of the minister's office, I suggest he would have diaries, the same as most people with a busy lifestyle, and those diaries would be available to people like the secretary and the Chief of the Defence Force so they know where the minister is and what he is doing.

Senator FAULKNER —I would be very surprised if that were the case. Could you take on notice if the minister's diaries are made available to the CDF and the Secretary to the Department of Defence?

Mr Corey —The things that impact upon—

Senator FAULKNER —No, I just ask you take it on notice.

Mr Corey —Yes, I can take it on notice.

Senator FAULKNER —I could take your word for it, but I would be a bit surprised if that were the case. Regardless of that, I am interested to know how Defence is aware of the location of the minister. It is important. Obviously where he might be is of great significance, I would have thought.

Mr Corey —Senator, every week I see the movements of where the minister is going to be. I do not see it in fine-grain detail, but I am sure there are people within the organisation who know where the minister is at least most of the time.

Senator FAULKNER —So there would be forward planning as to when the minister might front up to Russell?

Mr Corey —I would be very surprised if there were not.

Senator FAULKNER —Does the minister require a pass to get into Russell?

Mr Corey —I do not know. Somebody here might be able to answer that for me. It is difficult. I guess someone would have to sign him in if he does not have a pass because you have to slide it down a strip that reads the pass and lets you in.

Senator FAULKNER —That is why I am asking.

Mr Corey —I do not know. Does anybody know whether the minister has a pass? Senator, we can take that on notice.

Senator FAULKNER —Did he manage to get there this morning?

Mr Corey —He managed to get there. Visitors get there all of the time. We meet them and sign them in.

Senator FAULKNER —Yes, but they get a pass, don't they?

Mr Corey —They get issued with a visitor's pass, yes.

Senator FAULKNER —I want to know whether the minister has a pass.

Mr Corey —I would be surprised if he has not because we have a whole lot of industry people who have passes. It is not just people who work in Russell who have passes. There is a range of passes available to all sorts of people. I will take that on notice if you are particularly interested, Senator.

Senator FAULKNER —I am interested. Would you do a security check on a minister before a pass was issued?

Mr Corey —We do not do a security check on a whole range of visitors who come in, Senator.

Senator FAULKNER —But what about a permanent pass? Let us say a member of the minister's staff—would they have passes to get into the building?

Mr Corey —Yes, they do, Senator.

Senator FAULKNER —Would you do a security check on ministers' staff members?

Mr Corey —I imagine we do. I do not have anybody here who can tell me, but I imagine we do. There is a preliminary screening done on anybody before they get a pass. There is a level of clearance performed depending upon access and a range of matters like that. I imagine there would be, but I can follow that up for you. I would be very surprised if there were not some sort of screening done.

Senator FAULKNER —These are quite important issues, it seems to me. Traditionally, the correspondence and document flow has been between Russell and the minister's office in Parliament House. Is that now going to be just a matter of someone taking a briefcase down the corridor, or is the key focus point for ministerial briefs, correspondence and other documentation for the eyes of the minister still going to be provided to Parliament House by defence courier?

Mr Corey —I would assume, for most practical purposes, the normal arrangements will apply—that mail will go through the parliamentary ministerial organisation within the department and the normal recording and transfer process will be to the minister's office in parliament.

Senator FAULKNER —So any material that the minister was working on would have to be brought from Parliament House on a daily basis. Is that the way it would work?

Mr Corey —I am not aware of how often the minister is going to be in Russell, whether he is going to work there on a permanent basis or on a casual basis. I am not aware of that detail.

Senator FAULKNER —Is there a computer on the minister's desk at Russell?

Mr Corey —In the office that he is now occupying there are two computers.

Senator FAULKNER —Are there any direct links into those services that we spoke about previously provided by a range of financial organisations?

Mr Corey —The minister would not have access to the computer at the moment.

Senator FAULKNER —Why not?

Mr Corey —He has not got a password yet.

Senator FAULKNER —Very wise, Mr Corey! If I were you that is just the way I would keep it. We might revisit the minister at the office the next time the estimates meet.

Mr Corey —I will look forward to that, Senator!

Senator HOGG —Regarding the mess arrangements, what are the costs recovered by the mess where there is a private arrangement? Are they just the catering costs or are they labour costs as well? You can take that on notice.

Mr Corey —I do not think we need to take it on notice. All of these messes are now on a contract basis. My understanding is that all costs, including labour and other costs, would be recovered.

Mr Sharp —The costs of private functions in messes are met by the private host and those costs are essentially the direct cost—that is, the food and whatever goes with the occasion, the hire of the facility which, as I mentioned last time, is a standard $50 across the country, and the cost of labour.

Senator HOGG —Will that cost go up with the GST?

Mr Sharp —Yes.

Senator HOGG —When you say `the cost of labour', what labour?

Mr Sharp —There are probably two types of labour involved. One impact of the Defence Reform Program has been that many of the messes that were previously staffed by Navy, Army and Air Force staff are now staffed by contractors, in which case a private function will need to pay the full cost of that contract labour.

Previously, for some functions where staff was provided from the services, volunteers were called for and a notional payment was made to the service members in negotiation between the host of the function and the service members. As I think I said a couple of sessions ago, $20 an hour is one negotiated figure that has been mooted.

Senator HOGG —Is there any written documentation which confirms the notional arrangements?

Mr Sharp —No.

Senator HOGG —Is the money that is paid under those circumstances taxable?

Mr Sharp —I will take that on notice.

Senator HOGG —I would be interested if you could pursue that for me. The other thing that I have raised previously is corkage. Are you going to charge corkage, in commercial terms, where people bring their own?

Mr Sharp —I think we had some discussion on this last time—

Senator HOGG —We did have some discussion. I am just waiting for you to come into the real world.

Mr Sharp —and we had differing views on whether it was typical of all restaurants to charge corkage. I am not aware of a policy by messes to charge corkage for private functions.

Senator HOGG —Where people supply their own wine?

Mr Sharp —I am not aware.

Mr Corey —If I might add to that, it would be unusual if they did, because if they are paying the cost of the labour and everything else, the mess or the staff are not in a position to make a profit, which is why they charge a corkage fee in restaurants. So I would doubt it.

Senator HOGG —All right.

Dr Williams —I have a response to Senator Faulkner's question. The paragraph 311 to which you referred has not been changed from the January 1998 date that you referred to. So it remains as it was.

Senator FAULKNER —Okay, thanks for that. Mr Sharp, arising out of the estimates of 2 December last year, you were asked a question by Senator Hogg, which was:

... are there rules for the use of Defence facilities such as this—

This was in the context of the birthday party at Victoria Barracks—

by the minister or ministers for private functions and, if so, where can those rules be found?

You answered:

I do not think there are rules as such. The minister made a request.

I am interested in the words `the minister made a request' and that you do not think there are rules as such. Do you stand by that evidence that you gave on 2 December?

Mr Sharp —I recall the issue was about a private function. I do not think there are rules about a minister and a private function. There are rules about ministers and official hospitality, but that was not the question we were discussing at the time. In relation to the former, the rules on official hospitality are that ministers are not to be accommodated in using a mess. But I do not think we have any rules in terms of private functions. I think I said at the last hearing that normal practice on private functions would probably be: they would be allowed for anybody with some association with Defence.

Senator FAULKNER —I just wanted to know what the rules are. What are the rules and where do I find the rules?

Mr Sharp —The chief executive instructions set out the rules on official hospitality. They are fairly prescriptive. You have alluded to them in relation to paragraph 311. There is one type of function that can be held in a mess where the mess is used to provide hospitality to persons outside Defence for the purposes of furthering the business of Defence. There are clear instructions on that. The second type of function that you will find in an officers or, indeed, a sergeants mess is an official mess function. These functions are part of the service life of Navy, Army and Air Force. They are part of the exigencies of the service, whereby service people, by the nature of the service, in effect carry their professional and social life with them from place to place, unlike people in the community, who generally have their social and professional lives in their community. For those functions, guidance is set out essentially by service chiefs to various degrees on the number of functions that can be held and the sorts of purposes that they are for. The third category of functions are private functions, and there is mention of those in the CEI. I think you have that in front of you.

Senator FAULKNER —I do not have the whole document, because it is huge. As I mentioned before, you would need a forklift truck to bring it into the room. But I do have some of it.

Mr Sharp —The rules on private functions are as I have described previously. Persons may request the use of the mess and they are to meet all the direct costs, as I indicated in answer to Senator Hogg.

Senator FAULKNER —This question might be better directed to Admiral Ritchie who is here representing the VCDF. On Wednesday, 9 February—Hansard page 39—I asked:

At what stage of the process is that decided?

That, I interpolate here, is whether it is an official function or not. So I asked:

At what stage of the process is that decided? In other words, is it before or after the event? You say CDF determined that. You would not want the CDF spending all this time determining what is an official function and what is a private function. Is it normally the role of CDF?

Air Marshal Riding responded:

In this case, the minister requested the function be held.

I do not think there is any argument about that. That is correct, is it not, Mr Sharp?

Mr Sharp —Correct.

Senator FAULKNER —Air Marshal Riding continued:

Indeed, the request from the minister was that the event should be subject to full cost recovery. The CDF decided, in agreeing to the use of Victoria Barracks, that he would declare it an official function for the purposes that I just outlined.

On the same page of the estimates, Air Marshal Riding said:

In this instance, CDF determined that the event should be an official function. He saw the dinner as an opportunity to foster Defence's reputation for excellence to the highest levels of government and to showcase one of Australia's finest heritage buildings, Victoria Barracks. On that basis, he determined it was appropriate for Defence to declare it an official function, and it proceeded on that basis.

That is the evidence that we have before us. I am just looking at this question of what is an official function and what is a private function, and what are the rules in each of those cases. You provided us with some evidence on that a little earlier, Mr Sharp. It would be valuable for the record if we could be clear on the rules that apply to a private function and the rules that apply to an official function. I suspect, as we have canvassed this issue over a range of estimates committees, we have never really focused in on those definitional issues and I think that might be useful for the record.

Mr Sharp —The official hospitality rules are set out in the CEI. I will mention one or two of them. From CEI part 6, chapter 3, `Official hospitality and working meals', it is clear that the rules are that official functions are provided to persons outside of Defence for the promotion of Defence business.

Senator FAULKNER —Could you point to the paragraph? This is in the Chief Executive's Instructions?

Mr Sharp —Paragraph 303 says that official hospitality is the provision to non-Commonwealth parties who are able to facilitate the conduct of public business either by advice or because of their vocational or business interests or by their presence at official ceremonies. This includes the reciprocation of hospitality and so on.

Senator FAULKNER —In those cases, expenditure or costs can be borne by Defence?

Mr Sharp —Correct.

Senator FAULKNER —I understand that. Could you tell us what private functions are and what the status is in terms of the bearing of costs?

Mr Sharp —A person may seek approval to use a Commonwealth defence facility, say a mess, for the purposes of a private function—which by definition is private, that is, something for themselves—and they are required to meet all direct costs associated with that function, direct costs being the costs of the food, beverages, flowers, the hire of the building and the cost of labour. As I have indicated, in relation to the cost of labour for service personnel there has been a convention that service men and women are asked if they would wish to participate in the private function and, if so, a gratuity is usually negotiated with them.

Senator FAULKNER —Yes. In the case of these private functions, costs are not borne by Defence?

Mr Sharp —No.

Senator FAULKNER —I understand. I think it is useful to have that explanation on the record. And then, of course, you have detail of inadmissible expenditure under the Defence Chief Executive Instructions?

Mr Sharp —Yes.

Senator FAULKNER —That is types of expenditure not to be charged to official hospitality, which includes 311(b), `Entertainment arranged by or on behalf of or hosted by a minister'.

Mr Sharp —As I have indicated, yes.

Mr Sharp —The minister's initiative was to seek to hold a private function at the Victoria Barracks mess.

Senator FAULKNER —That is right. The minister made a request. You told us that and Air Marshal Riding has told us that. But somehow something that is defined in the Defence Chief Executive Instructions as inadmissible as official hospitality appears to have been redefined as something different. I am afraid that this requires a leap of consciousness that I think needs rather more thorough explanation to the committee. This cannot be charged to official hospitality because this is, under the Defence Chief Executive Instructions, inadmissible expenditure, yet the taxpayers—Defence—have footed the bill.

Mr Sharp —In my view, this was predominantly a private function. The bulk of the costs of the activity were met by the guests of the function. CDF saw this as an opportunity to meet the sorts of objectives, that is, the promotion of Defence with an important group of people, and he decided to provide the service staff, whose additional costs were the travel costs, to support the function.

Senator FAULKNER —But that is not right, Mr Sharp. The majority of the costs were borne by Defence, weren't they? There was a correction to an answer given on 2 December—we appreciate your correction—which came under your signature on 5 January. Mr Moore and his entourage met the costs of $2,045.13—I think that is correct, isn't it?

Mr Sharp —Correct.

Senator FAULKNER —Defence met the majority of the costs at $5,069.05.

Mr Sharp —The additional costs, however, were only the travel of the two members from Canberra to Sydney.

Senator FAULKNER —But it is inadmissible, Mr Sharp. You cannot do it. Under your own instructions, it is inadmissible expenditure; it cannot be done.

Dr Williams —Perhaps I can clarify the situation. Perhaps I could illustrate it by identifying three rather than two areas of expenditure. First of all, with respect to official hospitality, as stated in the CEI, that applies only to functions which involve non-Commonwealth persons and it is meant to deal specifically with hosting industry representatives, foreign people, et cetera. So it really is not appropriate and not related to this particular issue. Secondly, it was a private function, to which Mr Sharp has identified the rules. The third area—

Senator FAULKNER —It is not private; it has been redefined by the CDF as official.

CHAIR —Senator Faulkner, let Dr Williams finish.

Dr Williams —The third area would be, for example, if Defence decided that it wished to have a working lunch for some particular reason. That could be funded as a separate activity. So there is a judgment about whether a function is totally private and only in the interests of the particular individuals or whether it has some benefit, bearing or interest in Defence. That is quite separate from official hospitality, which is purely related to hosting non-Commonwealth persons.

Senator FAULKNER —Dr Williams, go back to page 67 of this committee's deliberations on 2 December 1999. Senator Hogg asked this question:

Was Defence compensated for the use of personnel?

Mr Sharp said:

No, the function had the support of CDF, who deemed it an official function.

Are you now saying that it is a private function?

Dr Williams —What I am saying is that I think there could be confusion between an official function, as was intended in the answer, and official hospitality. Official hospitality relates to specifically non-Commonwealth members.

Senator FAULKNER —Please, Dr Williams, let us deal with the realities of the situation. Doesn't section 311 of the procedural rules outline inadmissible expenditure and make categorically and definitively clear, which we now know for the first time, that entertainment arranged by or on behalf of or hosted by a minister is inadmissible expenditure—full stop, end of story, open and shut case? When are Mr Howard and Mr Moore going to pay the money back to the Australian taxpayers?

Senator Herron —Mr Chairman, Senator Faulkner is not in the Senate. We are here to answer questions. I will not have him haranguing witnesses in the way he does.

Senator FAULKNER —That is a question to you, Senator Herron.

Senator Herron —I can put up with it as a question, but I do not see why witnesses should have to do it here. I would ask him to ask questions.

Senator FAULKNER —Given that we now know definitively, having been told twice again today, that this birthday bash for John Howard at Victoria Barracks was made at the request of Minister Moore—we now know that because it has been told in evidence before this committee previously, it has been reiterated at the committee hearing today and I have no doubt that the evidence that the officers have given is totally correct, that it was at Minister Moore's request—and we now know that that is inadmissible expenditure under the Defence Chief Executive Instructions because section 311(b) says quite clearly `entertainment arranged by or on behalf of or hosted by the minister is inadmissible', and because we know that Mr Moore and his cohorts fronted up with $2,045.13 but Defence, the Commonwealth and the taxpayer paid for the rest of the birthday bash, which was $5,069.05, my question to you, Minister, is: will you ask Mr Howard and Mr Moore to pay back the money they owe the taxpayers?

Senator Herron —Mr Chairman, it is definitive only in the mind of Senator Faulkner. My understanding of Dr Williams's evidence is that there are three categories. If Senator Faulkner would listen to the answer, then he would be aware that it is not as definitive as he thinks it is.

Senator FAULKNER —It is inadmissible. Entertainment arranged on or behalf of or hosted by a minister is inadmissible expenditure under the guidelines. It is open and shut; it is as clear as day.

Senator Herron —Mr Chairman, I am not here to debate and nor is the committee here to debate.

CHAIR —I am not going to have a debate in the committee as to who is right and who is wrong and who has a definitive opinion or has made their own mind up over this matter. If you want to continue the debate, you can continue it in the chamber but not in the estimates. I do not want the issue debated.

Senator FAULKNER —Of course, Mr Chairman, it is also true that the same Chief Executive Instructions demand that government policy requires that, as a general rule, full costs be recovered for the provision of goods or services, except in certain specified circumstances. If Senator Herron will not give the commitment he should give for this money to be refunded forthwith, I would ask him to take on notice and ask Mr Howard, the Prime Minister, and Mr Moore, the Minister for Defence, to pay back the money this birthday bash cost. If he will not give that commitment now, which I think he should do—

Senator Herron —I certainly will not give that commitment. If Senator Faulkner wishes to pursue that, he should put it on notice.

Senator FAULKNER —You take it on notice, then. Tell him to pay the money back.

CHAIR —Order!

Senator Herron —Dr Williams has explained that it is not as definitive as Senator Faulkner would like to make it appear, and that answer is already on the record.

Senator FAULKNER —Are you taking on notice to ask Mr Moore and Mr Howard to pay it back?

Senator Herron —Senator Faulkner can ask what he likes; that is the purpose of this committee.

Senator FAULKNER —Yes, but are you taking it on notice?

Senator Herron —No, I certainly am not. It is a political frolic of yours.

Senator FAULKNER —So you are not going to ask him to pay it?

Senator Herron —No, I am certainly not going to ask the Prime Minister.

Senator FAULKNER —You just invited me to put it on notice and now you are not even willing to take the question on notice. Make up your mind!

CHAIR —Order! Senator Faulkner you know as well as anybody else, or you should, that you can put any question you like on notice. If you choose to do so, do it. Do not enter into a debate with the minister or anybody else over decisions that you feel strongly about.

Senator FAULKNER —Can I now understand, Mr Chairman, in relation to the way Minister Moore runs his own office—and, Mr Corey, you might be able to help me with this—that there are certain delegations to allow staff to be responsible for a range of ministerial decisions, certain staff who are delegated to undertake certain decisions on behalf of the minister; in other words, ministerial staff who are delegated in certain areas of responsibility to make ministerial decisions?

Mr Corey —I am not aware of that. The only delegations from the minister that I am aware of are those that apply to the bureaucracy as such, and they are quite clear ministerial delegations. I am not aware of the arrangements that apply within the minister's private office.

Senator FAULKNER —Someone from the department would be aware because, of course, this would go to the document flow between the department and the minister's office. Surely someone is aware of whether signatures coming back on departmental briefs and the like, when it is not the minister but a member of his staff signing such documentation, have the full and unfettered authority of the minister. Someone should be able to answer that, Mr Corey, with respect. That really ought to warrant an answer at this estimates committee hearing today.

Mr Corey —I am sure we can find out the answer to that. We need to be quite clear about what you are actually asking the question on. As you are aware, there is a range of correspondence that goes between departments and ministers, and some require the minister's signature and some require just a note.

Senator FAULKNER —Yes, I do appreciate that, but I am not asking about that. I am asking about other ministerial level decisions that might be delegated in certain areas to certain areas in relation to the minister's responsibilities and that may have been delegated to members of the minister's staff. I am not talking about financial delegations in the department or the ADF or anything else. This goes only to the operations of the minister's office in that sense. I am not talking about pro forma ministerial correspondence. In my view, given the workload the minister would have, it is perfectly reasonable that members of his staff might sign that sort of correspondence on behalf of their minister. Is that clear?

Mr Corey —I am not quite clear as to what is left.

Senator FAULKNER —What is left are other decisions that would ordinarily be made by the minister but which, in certain areas, may have been delegated to members of the minister's staff. That is what I am asking about.

Mr Corey —That relate to the running of the department and to the business of Defence?

Senator FAULKNER —I do not know what they necessarily relate to. But the next question is: if there are such delegations, I would like to know what they are. They are the questions I would like to ask, Mr Corey.

Mr Corey —With respect, Senator, the only position I would be able to answer on would be about the things that affect the business of Defence. If it is something beyond that, it applies to the minister's office and it really is—

Senator FAULKNER —I am not asking about matters that otherwise intrude. I would not have a clue what the minister's staff are doing in terms of his other activities. I would like to know, but I do not and I am not interested in asking about them here. I am asking about the business of Defence, yes.

Mr Corey —I can take that on notice.

Senator FAULKNER —Thank you. And if there are such delegations, could you please provide to the committee details of what they are?

Mr Corey —It will be subject to the minister's clearance, obviously. The arrangements between him and his staff are really a matter between the minister—

Senator FAULKNER —If such delegations exist, Mr Corey, they also obviously have a relevance within the department itself and the ADF, don't they?

Mr Corey —That is what I am trying to understand. You are talking about matters that the minister has delegated to his staff, that he has conveyed to the department and that say, `If this comes back cleared by my staff, it's okay on my behalf.' Is that the sort of thing you are talking about?

Senator FAULKNER —Exactly.

Mr Corey —Okay, I will take that on notice.

Senator FAULKNER —I am asking if there are any such delegations or arrangements. The second part of my question is: if there are, could the detail of such delegations be provided for the benefit of the committee?

Mr Corey —I will take it on notice.

Senator FAULKNER —Thank you. Finally, I have a couple of general questions that might be more Air Force specific. I wonder to what extent the Air Force might be making assets available to other government departments on occasions. I am not talking about mercy flights, evacuations and similar emergencies. To what extent is that a standard operating procedure?

Air Marshal McCormack —I am not sure I understood the question.

Senator FAULKNER —Does the Air Force make its assets available to other government departments on occasions?

Air Marshal McCormack —Are you talking about aircraft or assets as in land?

Senator FAULKNER —Let us look at aircraft, because that is a good example.

Air Marshal McCormack —The answer is no. As far as I know, we fly our own aircraft. They may be tasked to do other things under DACC and for assistance to the civil community.

Senator FAULKNER —All right. I will leave that there. I might revisit that a bit later in the afternoon, but thank you, Air Marshal, I appreciate it.

CHAIR —Do you have any further questions?

Senator FAULKNER —Possibly later in the day, but apart from that I have nothing.

CHAIR —Okay. We will continue with questions on the portfolio overview and major corporate issues.

Senator HOGG —Could I go back to the issue of Victoria Barracks just for one moment. When Mr Sharp was answering me before, he spoke about nominal payments that are made to any defence personnel at those functions. Are you able to tell me what the nominal payments were that were made to Defence staff at the Victoria Barracks function?

Mr Sharp —No, I am not aware, Senator Hogg.

Senator HOGG —Could you take that on notice and find out for us, please.

Mr Sharp —Certainly.

Senator HOGG —Was the money paid through the mess or was it paid directly to the individuals? Was it paid in cash? What I am interested in is: was it a cash in the hand payment?

Mr Sharp —I will take on notice whether payments were made and, if so, in what way.

Senator HOGG —Thank you.

CHAIR —Have you got any more questions?

Senator HOGG —Yes, I have got a couple of questions.

CHAIR —I thought you probably did.

Senator HOGG —I want to go back to the last time we were together, on 9 February. We spent a fair deal of time traversing the state of play within Defence. I must say that I was quite surprised, in the wake of subsequent statements made on 17 February, that the Defence personnel at the table were really quite shy on that day. The secretary, in his speech on 17 February, said:

The current state of Defence's financial situation against the Forward Estimates might best be described as parlous.

That was on 17 February, eight days after we had a lengthy session here where the people sitting at this table on various occasions throughout the day in no way alluded to that whatsoever. So what conclusion am I to draw from that? Either the people at the table did not know, which I find a little bit hard to believe, or—and this is the only other conclusion—they were trying to conceal that fact from this committee, in which case it is a very serious matter indeed. If one goes further on in the speech one will find that the secretary said:

The state of Defence's financial situation may well come as a shock to you, just as it has to the Minister and the Government.

So what were we doing at the estimates? What conclusion is the right conclusion for me to draw: that the people sitting before this estimates committee either did not know the facts, were not aware of the facts, or the facts were only known exclusively to a limited number of people, or the committee was being deceived in some way? Who can answer that?

Mr Corey —I will start. I think initially you are probably taking the secretary's speech a little out of context. It was a much broader speech than that. I am not sure of the exact words, but he did make a statement about Defence being in a parlous state. To answer your specific question, without addressing the secretary's address as such, we were discussing 1999-2000 additional estimates, and we were discussing the detail of that. The secretary in subsequent speeches has further developed the theme he was talking about, which suggests that Defence has got a long-term problem in a financial sense. The government, Defence and the organisation generally are aware of that impending problem. I think that you are probably focusing too much on a couple of words in a much broader speech.

Senator HOGG —With the greatest of respect, Mr Corey, I think what the secretary to the department has said is quite clear. Let me just read it again. I think you should get a copy of the text. It might help you.

Mr Corey —I have read it.

Senator HOGG —He said:

The current state of Defence's financial situation against the Forward Estimates might best be described as parlous.

Mr Corey —Yes, but could I just add, Senator—

Senator HOGG —He then goes on:

I don't make that statement lightly - considerable pain will be required to get us back on track. The plain fact is that Defence has not been able to match the ends it is trying to achieve with the means that it has been given to do so.

If you want me to quote more of this speech, I can.

Mr Corey —Can I just come back to the start of it, to your first quotation. He talked about the forward estimates.

Senator HOGG —That is correct.

Mr Corey —He was not talking about the subject matter we were dealing with at the—

Senator HOGG —We were dealing with forward estimates as well at that—

Mr Corey —We were dealing with 1999-2000—

Senator HOGG —We were dealing with the additional estimates statements, and I asked questions about the forward estimates as well. If you want me to go through in detail—

Mr Corey —But can I just—

CHAIR —Order! Can we have one question and one answer, not interjecting in the middle.

Senator HOGG —Mr Corey, if you want me to go through the speech in detail you will find that he does make reference to previous spending patterns of the department as well. So it is not just the forward estimates; it is the whole state of the department's finances. It would be trivial to say that I was a little disappointed in the position that was adopted by the officers at the table when not more than eight days later we have the secretary to the department coming out with those very statements. What is the truth?

Mr Corey —I will just reiterate what I said. The question that Allan Hawke was referring to was the forward estimates, and we are talking about forward estimates in a longer-term view. The questions and answers that were provided by officials at the Senate hearing were related to the 1999-2000 additional estimates and, from where I sit, all of those questions were answered truthfully.

Senator HOGG —I do not necessarily accept what you are saying, because you go on and in the secretary's speech he goes back over what has happened in the past five years. Then he comes to the conclusion that it comes as a surprise to the minister and to the government. He should have included the Senate estimates committee as well. It came as a complete surprise to the committee. What other surprises are hiding? What surprises have you got in store for us? What surprises don't we know about? If you do know about them, why aren't we being told at these hearings?

Mr Corey —I think we have been dealing with estimates without looking at projections of forward demands on defence. I do not think there is anybody within the government who is interested in defence who is not aware of the impending problem that defence faces in a budgeting context. But that is still some way off.

Senator HOGG —That still does not answer my question. My question is: these estimates are put on such that the parliament—it is not just the opposition—of Australia can apprise itself of the state of various departments. And there is none bigger than defence—none with a bigger spending budget than defence. Of course, we have officers at the table who want to keep us like mushrooms. I do not appreciate being treated like a mushroom. Some people try to do so. Let me take you to another quote. We can go to quote after quote. Under the heading `Performance in the budget' Dr Hawke says:

Financial performance is reported in financial statements. The Auditor General and his senior staff have left me in no doubt that Defence's financial statements are at risk of being qualified next year in relation to the valuation of Defence assets. This tends to focus the mind a bit!

Mr Corey —The qualification, or the possibility of qualification, of defence financial statements had nothing to do with the budget, the budget estimates or the additional estimates. It had to do with accrual budgeting and how we value our assets. We are working our way through that, as are other departments. Accrual accounting is not something that has been with us for a long time.

Senator HOGG —I understand—

Mr Corey —That is the qualification in the financial accounts that they are talking about.

CHAIR —Please let people complete their answers before you go on, otherwise we will have a free-for-all.

Mr Corey —If there is something that the senator wishes to challenge us on that question and our answers in relations to the evidence we gave at the additional estimates hearing, he should be asking those questions. To try and tie a presentation that the secretary gave to the press club into that context is probably not irrelevant but it is not what we answered questions on in the context of the Senate legislative committee hearing.

Senator HOGG —Mr Corey, with the greatest of respect to you—and I have now known you over a fair period—I find that answer quite out of character. I find that the answer is quite unacceptable.

CHAIR —Senator Hogg, you are not here to debate an answer. You are debating the issue. You can ask questions and Mr Corey can answer them.

Senator HOGG —I am coming to the question, Chair. Can I therefore ask why we were not apprised of these facts when people came before this committee on 9 February? Why did we have to wait until eight days after to get the message from the secretary of the department?

Dr Williams —I would reiterate that the questions that were put and the answers that were given related to the additional estimates. Part of that was the issue of $380 million shifting from investments. So there was discussion of the challenge that created. The other point I would make in relation to Mr Corey's comment is that the sorts of problems that all departments, and particularly defence, face with respect to accrual accounting and the impact that will have on their financial statements are clearly on the record in the JCPAA. There has been considerable discussion of that.

The other point I would make is that there has also been quite extensive coverage in a range of fora, including Senate committees in the past, on the block obsolescence issue that defence faces and the challenge it faces. I think that really encapsulates the sorts of things that Allan Hawke was referring to. It is largely on the record, including in the past, in this place.

Senator HOGG —You are still missing my point, Dr Williams, because I did raise at the last estimates where the pressures were in the budget in accordance with the additional estimates with the budget that had been brought down for this financial year. So I was not referring specifically to necessarily the forward ones. I was referring to what was then the here and now. What I am saying is that I am surprised that, having raised that issue at the estimates, we did not have a more candid answer out of the officers at the table than we got. I am not asking for anything more than that, other than that we should have had more candid answers. My question is: why didn't we get more candid answers? We can sit here over a period of time and have long trawling exercises if that is the election of officers of the department. My record on this committee would show that I have been pretty fair in the way this issue has been treated over a long period of time and for me not to express some amount of disappointment at the way the officers performed at that estimates, as I now see it, would be a concern indeed.

Dr Williams —If I could respond to that: I obviously take a different view. There was, from my recollection, discussion of and information in the PAES related to, for example, some of the major investment programs that might have to be delayed as a result of the 380 million. There was certainly, and I recall from my own evidence, some discussion of that. So there was, from my recollection, quite considerable discussion of those pressures. We did get on to the issue of the balance between investment and current operating costs, so my recollection was that there was a reasonably in-depth discussion of those issues as they related to the AEs.

Senator HOGG —I will stop there, Mr Chairman. I know that Senator Faulkner wants to come back to an issue before he has to move to somewhere else, so I will hand over to Senator Faulkner for a moment.

Senator FAULKNER —I appreciate that. I thank Senator Hogg for interrupting his questioning. I want to come back to the issue of the Victoria Barracks function. I have been provoked by Senator Herron.

CHAIR —We will see if we can get through the questions without provocation on either side, Senator Faulkner.

Senator FAULKNER —I hope we can. Defence provided, in answer to Senator Hogg's question previously on notice, the attendees at this function. I want to know whether anyone from the ADF was invited to the function. I think that is not the case, judging by the answer to the question on notice, but I want to be clear about that.

Mr Sharp —Not that I am aware of.

Senator FAULKNER —Would that mean that the only attendees from Defence at the function would have been the staff involved in the hospitality?

Mr Sharp —If you do not include the minister, yes.

Senator FAULKNER —No, I am not including the minister in that sense.

Mr Sharp —Yes.

Senator FAULKNER —Thank you, I see. So there was no music provided at the function?

Mr Sharp —Not that I am aware of, but there may have been.

Senator FAULKNER —But, if there were an ADF band, for example?

Mr Sharp —No, no band.

Senator FAULKNER —So no band, thank you. You are absolutely certain that four ADF musicians were not present?

Mr Sharp —No band that I am aware of, but I will take it on notice if you wish.

Senator FAULKNER —Not a full band? What about part of a band?

Mr Sharp —I do not know. I will take it on notice.

Senator QUIRKE —What about a quartet?

Mr Sharp —I will take it on notice.

Senator FAULKNER —You do not know if ADF personnel who are also musicians played Happy Birthday to the Prime Minister?

Mr Sharp —This is the first time it has come up. I am not aware. I will take it on notice.

Senator FAULKNER —Are you aware of any efforts by the minister's staff to request certain accoutrements for the party from 3RAR at Victoria Barracks and whether anything was provided?

Mr Sharp —Yes, arrangements were made within units in the Sydney area for the loan of some silver for the table.

Senator FAULKNER —Which units were they?

Mr Sharp —I would need to take that on notice.

Senator FAULKNER —What was wrong with the mess silver?

Mr Sharp —Once again, I will take that on notice.

Senator FAULKNER —But there would be plenty. I actually have been to the mess at Victoria Barracks. It is a great mess. When I was there, I must admit, there appeared to be plenty of silver. I am just amazed that you would have to—

Senator Herron —They probably borrowed it for the occasion that you were there.

Senator FAULKNER —I do not know that that was right. It was a veterans' function. I think it was all provided in-house, actually, Senator Herron. That is my recollection. Who actually organised the silver? Do you know where this came from?

Mr Sharp —The first time this came up, I indicated that the advice I had was that it was the units in the Sydney area. I am not aware of which units, but I can find out.

Senator FAULKNER —Can you also find out what was provided?

Mr Sharp —Yes, certainly.

Senator FAULKNER —Was there any refusal from any of the messes in the Sydney area to provide certain items for use at the party?

Mr Sharp —The only item that I am aware of that, shall we say, was negotiated was the Victoria Barracks officers mess cellar. That was not made available for the party.

Senator FAULKNER —Whose decision was that?

Mr Sharp —That was a decision of the commander, no doubt advised by the president of the mess committee.

Senator FAULKNER —But you are not aware of any other refusal of items for the party from any other mess—officers or sergeants or anywhere.

Mr Sharp —I am not aware.

Senator FAULKNER —The minister's staff were not included on the official list that was provided. Were any of them there?

Mr Sharp —I am aware that the minister's staff were involved in organising the function. I will take on notice whether any of them were actually at the dinner. The guest list that I saw did not include them at the dinner.

Senator FAULKNER —Is that a guest list of invitees as opposed to those who attended?

Mr Sharp —My recollection is that they are attendees, which I provided in answer to a previous question.

Senator FAULKNER —But weren't the minister's staff present at the barracks at the time that this function was on?

Mr Sharp —As I said, I believe that they were there and involved in the organisation and preparation of the function. Some of them may have been at the barracks at the time.

Senator FAULKNER —I am not just talking about the dinner. They may not have been in the mess proper, but they may have been at the barracks in some other place. I would appreciate knowing that and whether any others might have been there at the same time. Was there any attempt for the mess to provide a host—a member of the mess—for the dinner?

Mr Sharp —I would have to take that on notice. I do not know. It was a private function. The minister was hosting it. I do not know what thought was given to another host.

Senator FAULKNER —I would appreciate your taking that on notice and providing information as to whether anyone from the mess attempted to act as a host. Would that change the status of the function, if you had a host from the mess itself?

Mr Sharp —I do now recollect that the president of the mess committee did come down to ensure that everything was all right prior to the dinner. Having another host would not, in my view, have changed the nature of the function, which was essentially a private one.

Senator FAULKNER —Could you explain the role of the president of the mess committee?

Mr Sharp —He is responsible for the running of the mess—

Senator FAULKNER —I understand that role. I meant at the function.

Mr Sharp —I recollect that when I asked this question that he did ensure that everything was in order for the dinner and did appear prior to the dinner.

Senator FAULKNER —What do you mean by `he did appear'?

Mr Sharp —He came down to the mess to make sure that everything was in order.

Senator FAULKNER —What—expecting to be part of the dinner?

Mr Sharp —No, certainly not.

Senator FAULKNER —So he was made welcome?

Mr Sharp —I would think so.

Senator FAULKNER —I was not asking what you would think. I wondered whether you could tell us whether he was made welcome or not.

Mr Sharp —The president of the mess committee has access to the mess. I think he has a responsibility if there is a function in the mess to ensure that everything is in order. It is normal courtesy.

Senator FAULKNER —The food and wine costs were $2,045.13 and they were to be fully reimbursed. Have they been reimbursed yet?

Mr Sharp —Yes.

Senator FAULKNER —Do you know who reimbursed those costs?

Mr Sharp —I believe the minister or the minister's office. I believe the guests paid the minister, who reimbursed the total.

Senator FAULKNER —Could you provide a precise answer as to who reimbursed those costs of the function, the only costs that were reimbursed, the $2,045.13, and when? Would you mind taking that on notice, please?

Mr Sharp —Yes.

Senator FAULKNER —I think your Corporate Support actually fronted up with the $5,069.05 for the rest of it. Is that correct?

Mr Sharp —The labour costs. Two of the members were from the CDF's staff and their costs are held in terms of the estimates against his budget. The other service members are under DCS and are attributed to the Corporate Support group.

Senator FAULKNER —So I can be absolutely assured that no costs were borne by the mess itself?

Mr Sharp —None that I can think of. Do you have something in mind?

Senator FAULKNER —No. I accept that you would be aware of that if that were the case. I want to be assured by you; that is all. I would not want the mess or Victoria Barracks staff to be out of pocket in any way for the Prime Minister's birthday party. That is what I want to be assured of. Can you assure me that that is the case, that the mess itself or members of the mess are not footing the bill? That is the reason for my asking the question.

Mr Sharp —Well, the costs borne by the guests have been listed. That includes the hire of the mess. I am unable to think of any other costs which are not covered in that group that might have fallen on the mess.

Senator FAULKNER —You talked previously about the likelihood of a precedent for the minister using Defence facilities for a similar purpose to this; you were asked: have Defence facilities been used for private functions by defence ministers in the past? You answered that no occasions had been identified. Has there been any identification of such occasions since that time?

Mr Sharp —No.

Senator FAULKNER —So Minister Moore is the first minister to use this rort to ingratiate himself with the Prime Minister? That is a question to you, Senator Herron.

Mr Sharp —At the hearing at which this was raised, I believe we were advised that we need not go into too much research on this. We have not researched every minister since Federation. What I can say is we have been unable to identify a precedent.

Senator FAULKNER —So it would be fair to say then—Senator Herron would you agree?—that Minister Moore's is the only recorded instance of a defence minister using a rort like this.

Senator Herron —I do not agree that it is a rort, but he apparently is the only recorded minister to have used this facility, as I understand it.

Senator FAULKNER —Did Mr Sharp, the former minister for transport, attend this birthday bash, do we know?

Mr Sharp —I understood the guest list had been provided.

Senator FAULKNER —Yes. I am just asking whether someone has been left off.

Senator HOGG —Were you there, Mr Sharp?

Senator FAULKNER —We are going to get to this Mr Sharp in a moment. I am just talking about the former minister for transport at the moment.

Mr Sharp —Regrettably, not. I am just looking for the guest list. Do you have it, Senator?

Senator FAULKNER —He is not on the guest list that has been provided. I am just checking the accuracy of it.

Mr Sharp —I can only go on the guest list provided.

Senator FAULKNER —I am not suggesting you get a special invitation because he shares the same surname as you, Mr Sharp. But anyway you have assured us that you were not there, either. In providing answers to these questions, you have had to seek information from others?

Mr Sharp —Correct.

CHAIR —Senator Schacht has requested a chance to make a brief statement in his position as shadow minister for veterans' affairs.

Senator SCHACHT —I think this estimates committee, which covers Foreign Affairs, Defence, Trade and Veterans' Affairs, would wish to acknowledge today the sad passing of Sir William Keys this morning. Those of us who have known him in a number of capacities would want to pass on to his widow and family our very sincere condolences, and recognise that he was a very great Australian who played a significant role in the defence area, in veterans' affairs, in human rights and in many other areas of activity in the community. It was in one sense pleasing that Sir William was still with us only two weeks ago to be able to attend the dedication of the Korean War Memorial on Anzac Parade, despite his very serious illness, and to be there with the many hundreds of veterans he served with in Korea, as well as to be able to attend those other functions. I think it is appropriate that that be placed on the record for this estimates committee. I am sure that next week, when the parliament resumes, many of us will have an opportunity at other parliamentary forums to place on the record our appreciation of his service.

Senator Herron —I would like to join in that tribute of Senator Schacht's and express my appreciation of Sir William's contribution, and offer my condolences and those of the government to his family and his widow.

CHAIR —Thank you, Minister. We will now move back to the portfolio overview.

Senator HOGG —I will move back to the subject we were talking about before Senator Faulkner came back before lunch. Are the officers at the table able to apprise the committee of the current state of Defence's finances, given the statement of the secretary of 17 February? Is there some way in which they could be described as healthy or unhealthy, good, bad, indifferent, parlous—whatever phrases you might like? Given that statement, can you provide us with a broad overall assessment of the state of finances for now, and then I will ask you about the forward period?

Mr Corey —It is a little difficult to look forward without looking backward in a Defence context for the state of our financial affairs. As you probably will be aware, under the previous government and under this government, Defence has been under considerable pressure since the late 1980s, with pressures on major reinvestment and increased demands for personnel costs and fluctuating demands on readiness. Over that time, we have conducted things like the Force Structure Review and the Defence Logistics Redevelopment Project. We have gone into wholesale outsourcing of support services. We had the Defence Reform Program, which the parliament was well and truly aware of and which we have discussed in this forum on many occasions. All of these were aimed at taking pressure off the investment demands and some of the growing personnel demands by `pruning the tail'.

In that period, we have redeployed a billion to a billion and a half dollars from the support areas to capability areas. Nothing has changed in that context except that, over that period, we have been basically held to the no-growth program and, in more recent times, we are getting closer towards areas of block of obsolescence in many of our major weapons systems, and personnel costs are increasing because we have more personnel in the combat areas than in the support areas—and those pressures are continuing to build.

As an organisation, we continually strive for efficiencies. We presently have a review going on between the Department of Finance and Administration and the Department of Defence to look at where further savings might be made. A white paper is being produced later this year to provide a review of the strategic situation Defence is in, with a view to better informing the government on the options and the decisions it may have to take in the future. They will probably not all come to fruition in this budget that is coming up. Without forecasting what is going to be in it, this budget will to a large extent hold the line, with major decisions on the future of the defence force structure and for our spending and demands to be made later this year.

That is the broad context of where we are at. In relation to the ongoing budget, we are managing the present budget within the funds available to us. There are some pressures on the investment categories as to whether we can contain expenditure within the level of funds that are available to us. We have a rollover provision that we may have to use if we cannot contain it within the present budget limits, but that is within the framework that we are operating in.

In summary, the present budget situation is manageable and we are managing it, as we have done over the previous years. The forward estimates picture is less certain and there are some major decisions that will be required both within the department and by the government and the Australian community more generally.

Senator HOGG —You referred then to pressures. Can you identify what those pressures are? That was a question I asked at the last estimates on 9 February.

Mr Corey —The pressures are not any different from what they have been. I am not sure what you were told on 9 February, but I would be surprised if it was any different from what I am going to tell you in that the capital investment program has been running at some 25 to 30 per cent of Defence outlays now for some considerable time. The real cost of manpower is increasing at about four per cent per annum. We get supplemented something like half of that through the estimates process, so it is making increasing demands on the Defence budget. The strategic circumstances we find ourselves in are less certain than they were and there have been decisions to increase the level of readiness and preparedness to the Australian Defence Force which, again, are making increased demands. Timor is a one-off issue which has been covered separately. Those are the main pressures.

Senator HOGG —Just on what you described as your `manpower' costs, are they occurring as a result of the DRP and the shift from the blunt end to the sharp end, with greater skills being required of those people at the sharp end and, therefore, those people becoming more expensive?

Mr Corey —I probably should call on my personnel expert to provide the answer to that but, in a general sense, no. It is the increasing real cost of manpower generally over and above what we get supplemented for. Putting them into combat forces creates a greater demand on operating costs rather than manpower costs because there is a whole range of things they do there that consume other defence items that they do not consume when they are in a support area.

Senator HOGG —In the statement made by Dr Hawke he referred to considerable pain—I think I quoted that this morning—being required to get Defence back on track. What is the sort of pain that Defence is looking at?

Mr Corey —You would probably have to ask the secretary exactly what he meant in the context of his presentation. The sort of pain we will go through within the organisation involves whether we can sustain the type of force structure we have had over the last 10 to 15 years, whether we have to pay off significant capabilities and whether we have to change the way we do business. They are the sorts of pains I think he was talking about, and they will be painful not just for Defence but for the broader community as well.

Senator HOGG —I understand that the budget is coming up next week. I am not asking you to go into that, but can you tell us whether the pain is a matter of the budget priorities or a matter of the white paper priorities?

Mr Corey —It will be more a matter of the white paper than the budget. We have been adjusting priorities within Defence to cope with the budget restrictions that we face. It will be more pain in the context of longer term decisions.

Senator HOGG —You mentioned, in your earlier answer to my question, that there was a DOFA review taking place within the department. Is that correct?

Mr Corey —There have been a number of reviews. Finance officials have been in the department since the Expenditure Review Committee in 1999.

Senator HOGG —Are they there now? That is what I am trying to establish.

Mr Corey —Let me go a little further. They conducted a review and made a report to the Expenditure Review Committee earlier this year. As a result of that, the Minister for Defence and Minister for Finance and Administration have agreed to a joint review of the way we do business in a financial sense, some of the further options that may be available for savings and some of the ways we do business.

Senator HOGG —Who is actually conducting that review? How many officers are there? At what level are they?

Dr Williams —At the moment we have a mixture including four people seconded to Defence from the Department of Finance and Administration, ranging more or less up to about the assistant director level. We also have a number of staff—the number fluctuates a little bit—say, another eight from my own division, management and reporting division, and from the capability staff.

Senator HOGG —I will just stop you there. That means that, in toto, there are 12 people on this review process.

Dr Williams —There are about a dozen people that we have allocated more or less full time, including the four from Finance.

Senator HOGG —What are the options that they are reviewing?

Dr Williams —They are reviewing a number of things. One is looking at the general Defence funding arrangements, the global budget, alternatives to that that might link into the output accrual structures better. They are also looking at a range of purchaser-provider models, the possibility of considering that in some areas of the support parts of Defence. They are looking at possible savings measures that could flow from various initiatives. We have independent activities looking at the Defence Estate and the property areas, et cetera. So there is a fairly broad range of items being addressed.

Senator HOGG —Are there any outside consultants on that review panel?

Dr Williams —Not part of that team, no.

Senator HOGG —Who are the review panel reporting to and when?

Dr Williams —The intention would be ultimately to the Secretary to the Department of Defence and also the Secretary to the Department of Finance and Administration. Obviously, there are levels within Defence—me, a representative from Finance and another division head from Defence form an informal steering group to oversee the work.

Senator HOGG —When will that report take place?

Dr Williams —At this stage, we are looking to have the work done largely by about June. It is a fairly short time frame.

Senator HOGG —And without going into the budget that will be presented, is there an expectation that this will impact on the budget?

Dr Williams —Obviously the timing would not fit with the budget.

Senator HOGG —That is right.

Dr Williams —The budget has largely been considered and locked down at this stage. It probably looks more to the following year to the sorts of measures but clearly, if things prove worth while, they would be things that we would be doing during the year.

Senator HOGG —The point that I am trying to establish, Dr Williams, is that when we come to read the budget papers next Tuesday we will not have this hanging over our heads thinking, `How does this impact? Will it really change the nature of the budget that is being presented next Tuesday?'

Dr Williams —The only way that I would see a change in the short term would be if we identified relatively easy efficiency measures beyond what we are doing in DRP and clearly we would be picking those up. If they were things that would allow some money to be freed up in budget year 2000-01, then presumably we would reflect that with a shift to the capability end and that would be reflected, I would assume, in the AEs. For the most part, I would think that we are looking at something which would be put in place for the following year, 2001-02, by and large.

Senator HOGG —Is there any relationship between this review committee and what is taking place under the DRP? Are the two groups working together?

Dr Williams —Yes. The people who look after the DRP within Defence are also engaged in this activity and you clearly cannot look at a lot of this without considering the DRP—the boundaries are not that clear. So we are looking at the DRP as part of all of this.

Senator HOGG —If I can quote the secretary once again, he said, `We do seem to have more reviews than Gone with the Wind and Defence has been a lucrative hunting ground for consultants.' I know consultants are not involved, but how many more reviews are we going to have in Defence before we have the problem straightened out?

Dr Williams —I am not sure that you would ever get to a steady state. I think it is part of continuous improvement where, as things change, you continually monitor. One would hope that you zero in and that the scale of the benefits and the efficiencies reduce, but I do not think it would ever end as such.

Senator HOGG —I understand that, but I also believe that this was part of the DRP process, which was taking such a critical look at Defence and its processes. Is this not a duplication of the process in some way? And is there not a potential within Defence that people would become fatigued by the number of reviews?

Dr Williams —One can speculate on that. The process here is certainly not duplicating the DRP. It is much broader. I would argue also that the current output accrual budgeting arrangements have been put in place since the DRP and part of what we are doing, in looking at the global budget for example, is to see whether in light of the current accrual output arrangements we can have a better arrangement for appropriating Defence funding and a better means of providing visibility of our performance against outputs. So I do not think it is simply a duplication of DRP, but clearly, in looking at opportunities for efficiencies, there will be areas of overlap, as I said, with the DRP initiatives.

Mr Corey —The DRP was created three years ago. Lots of things have happened, including Timor. So there are a lot of circumstances that are changing. I would suggest that within the next 12 months we will be looking to wind up DRP as it is and amalgamating the residue of it, probably in the outcome of these reviews.

Senator HOGG —I am glad you raised that, Mr Corey, because that was another issue I was going to raise under the DRP. I have sought confirmation as to what the forward estimates might be in terms of the DRP savings and DRP reinvestment.

Mr Corey —It was provided to you in a question on notice, wasn't it?

Senator HOGG —I think I have seen the answer on that. I know I asked it, anyway. So there is now a termination date looming for the DRP as such, in your view?

Mr Corey —We are considering whether the DRP in its existing format has any further value to us. We can do the accounting exercise and see where we are because we have had to change some of the assumptions it underlined.

Senator HOGG —I accept that, but that is the first time that has been said to this committee. This is why I am curious about the comment.

Mr Corey —Probably the first time it has been said is because we are only just looking seriously at it.

Senator HOGG —You have come to the conclusion—that is good. How long will those seconded from the Department of Finance and Administration remain with Defence?

Dr Williams —The intention would be through to the completion of this review and that is probably until the end of June.

Senator HOGG —And beyond the review?

Dr Williams —There is no intention of that at this stage, no. I think they would be looking to return to DOFA at that time.

Senator HOGG —Returning to the secretary's statement of 17 February, he mentioned that one of the greatest problems was that in the last few years there had been a dramatic increase in Defence new investment commitment from around $1.4 billion in 1996-97 to $2.3 billion this year or from 160 projects to 240. Why were approvals for projects allowed to increase beyond what is affordable for Defence, or is that not the case? If it is not the case, why is it not the case?

Dr Williams —Perhaps I can clarify. The number of projects obviously depends to some extent on the scale of them. Going through a period some years ago where we had a few large projects—the Anzac ships, the submarines and F18s—obviously a large part of the money was taken up with a few projects. I guess in recent times there has been a shift to a larger number of medium to smaller projects. So the number itself does not necessarily reflect the overall amount of money out there. The approvals were all made in light of the funds that were available. It certainly was not expending beyond what we had available in future guidance, but the key issue I suppose would be that over the last 12 months there has been a view that we needed to put more emphasis on the readiness of the force. That has proved to be a wise move, one would argue, in the light of Timor. So we have been looking to put more funds into the current force, the readiness, and that has come in the short term, as you saw in the last AEs document, at the expense of investment. That is why now the investment is under some pressure.

Senator HOGG —On the increasing number of projects and the increasing cost—and I accept your argument—was the former minister, Minister McLachlan, and is the current minister aware that there was a growth in both the number of projects and in the total cost of these projects from that 1996-97 period through until currently?

Dr Williams —All the major project approvals go through cabinet, obviously with the full knowledge of the minister. So yes, they would be aware of all the decisions as they are taken.

Senator HOGG —Specifically in respect of Dr Hawke's speech, was the minister aware of the content prior to the delivery of that speech?

Dr Williams —I could not answer that. I have no idea.

Mr Corey —I am not aware of whether or not he was.

Senator HOGG —Is there some way we could find out. Could you take that on notice?

Mr Corey —We could do that, yes, unless there is somebody here who already knows.

Senator HOGG —You can take it on notice, Mr Corey. I trust you.

Mr Corey —I just thought we might be able to answer it quickly, Senator.

Senator HOGG —You are always very cooperative.

Dr Williams —My understanding is that he was aware, but we would need to check that again.

Senator HOGG —Did you say no, Mr Corey?

Mr Corey —No, I am saying that the CDF, as far as I am aware, was aware of the content of Dr Hawke's speech. I would be very surprised if he was not, but we can take it on notice.

Senator HOGG —Perhaps you can confirm that for me one way or the other. To move on to the general Defence budget, is it correct that without any significant policy adjustments and a static budget, that is, a budget maintained in real terms, the ADF will not be able in the future to perform all the roles that it currently performs?

Mr Corey —Yes, that is a fact. That is a fact every time we make a decision. We always have to adjust here. With a non-growth budget or a budget only in real terms, as I explained to you earlier, some of the pressures of increased readiness and maintained manpower costs mean that we have to adjust the force structure continually, and that is part of the function that the Defence organisation undertakes every year.

Senator HOGG —So where are the priorities for adjustment?

Mr Corey —Priorities will be considered more broadly in the context of the white paper and reflecting what the strategic circumstances are perceived to be now.

Senator HOGG —When can we expect the white paper? I know it was supposed to be mid-year, but I think the timing has now slipped.

Dr Williams —I understood that we are talking of more to the latter part of the year.

Mr Corey —There will be a public discussion paper that will be produced this month, and we can ask that question of Hugh White or Allan Behm. They may be able to give you the detail of that.

Senator HOGG —I was curious in the context of the answers that you are giving me.

Dr Williams —I do not think that we would expect the final white paper before October or at a later time this year, but we can check that.

Senator HOGG —Essentially, what you are saying to me, Mr Corey, is that unless there are increases in real terms then you are going to have to adjust your priorities within Defence over time as things stand. Is that correct?

Mr Corey —That is correct. They are decisions that are made by the minister and the government on a continuing basis. There are minor adjustments, but we are suggesting that there will need to be more significant adjustments in the near future.

Senator HOGG —If there are going to be adjustments, will the adjustments be based on the fact that there is a real tension between technology and personnel numbers, equipment versus personnel numbers? Where will the struggle be?

Mr Corey —The struggle will be determining in the first instance what sort of force structure we perceive we need for the next 20-odd years, how that relates to the force structure we have now and how it relates to the forward planning we have in place. Then the judgments will be made on that. That is what the white paper will inform us, the community and the government, of.

Senator HOGG —Does it then follow that the white paper will address issues such as where the appropriate balance lies between investing in technology or capital equipment and the personnel numbers?

Mr Corey —It would probably not be that specific.

Mr Behm —You will not be surprised to hear me say that it is actually rather more complicated than that.

Senator HOGG —I am never surprised. Can you give us the plain English version?

Mr Behm —I will try to. The white paper will certainly deal with those balances, but I think it is fair to say that the critical balance is probably not between technology/equipment and personnel; it is more between technology/equipment and preparedness, that is, your ability to use that equipment. These days we tend more to factor the personnel costs into the overall consideration of what an equipment type will cost. The big issue is how ready you keep it. The adjustments that we have already seen over the last year—that is, the bringing of 1 Brigade to a different state of preparedness—is where a lot of the money goes. So it is a very complex thing where you are balancing things that are entirely different, not simply against an equipment versus personnel vector.

Senator HOGG —Seeing Defence has such a large budget and there are complexities there, how are you going to make transparent to the likes of this committee—it is not the old three-card trick or the thimble and pea trick or whatever it might be—that there genuinely are complexities there and that the government of the day, whoever they might be, are getting value for money for their defence dollars, because that is something that is always of concern? How are you going to guarantee that people are not left with the feeling that the argument of complexities leaves them out of the debate altogether?

Mr Behm —The process at the moment envisages the discussion paper as a way of opening up the issues and a very large scale consultation with the broader community just to ensure that people do understand what the issues are and for us to be able to get the benefit of people's comments and advice. Then the process continues to the delivery of the white paper. The white paper will be a white paper for the government and it would then be for the government to determine how it is going to carry that further forward in terms of the question that you have just asked.

Mr Corey —On the question of value for money, as I mentioned earlier, the cost saving and efficiency measures that have been adopted over the last decade are ongoing and they have allowed considerable redeployment of funds from support to capability. The joint Finance-Defence review will give some more visibility to other areas of potential savings and other more efficient ways you may do business, which will give more assurance to the community and the government that they are getting value for money from Defence and that we are as efficient as we can possibly be.

Senator HOGG —At the end of the day, that is the concern amongst the public at large when they see so much money being spent in the defence area and so many other areas trying to clamour for sections of the budget as well. They obviously want to see that the Defence dollars are being spent as wisely and as judiciously as reasonably can be expected, but at the same time delivering a defence force that has reasonable capability and reasonable operational capacity to be reckoned with either on our own shores or offshore. Has the department undertaken any resource assessment review or produced any documentation outlining what the major budgetary and financial issues are for the department for the next few years?

Dr Williams —The department has a fairly ongoing program of looking at the budget for the five-year period and out to 20 years. We do a series of internal reports that try to estimate where we think we are heading. Generally, what comes out of those—and it reflects what Mr Corey said—is that the cost of doing Defence business goes up at probably two or three per cent real per annum, if you look at the wages and the increased costs for capital equipment. So really the choice is threefold. What we have been doing in recent years is looking at efficiency measures, so that through efficiencies we essentially maintain capability and provide the funds that we need for that growth. The other option is obviously to make a judgment as to whether or not the current size of the force is appropriate, and you can decide to go up or down and fund it accordingly. I guess there it is either more money to maintain capability or reduce capability without real growth. But, again, to reiterate Mr Corey's comments, the efficiency measures—notably DRP in recent times—has brought us the time, if you like, and has given us the growth that we have been able to put into the combat force.

Senator HOGG —Whilst I commend some of the efficiency moves that have been undertaken by Defence that I have seen in my brief time with this committee, one of the problems with efficiency savings is that people become all `efficiencied out'. I just wonder where some of these efficiencies lie in the end—that they do not become inefficiencies that we create. Are you reviewing that to make sure that, whilst efficiency is good, you are not taking it to the extreme whereby the efficiencies are in effect going to be long-term inefficiencies?

Dr Williams —Certainly, the review process I referred to jointly with DOFA is not doing what I call salami slicing, which I think can have some of the problems you raise. If you merely cut in arbitrary ways, then you can cut efficient areas and put on intolerable workloads. What we are trying to do in this current review is to target areas where we can achieve efficiencies genuinely, ways of doing business better that do not lead to the sorts of problems you allude to.

Senator HOGG —Thank you, Dr Williams. Can I come back to the question I did ask: has the department undertaken any resource assessment review or produced any documentation outlining what the major budgetary and financial issues are for the department for the next few years? Do you have any documentation that you can make available to this committee to assist it?

Dr Williams —We have classified documents that look at our FYDP projects, and that obviously is linked into the government's decisions on budget, et cetera. We also have longer term resource assessment reports.

Senator HOGG —I am not talking about classified material—I understand the nature of that—but material which is not necessarily classified which may give this committee some understanding and appreciation of what you are actually doing.

Dr Williams —The material we have is classified because it deals with capability and costs, et cetera. A recent speech by Dr Hawke addressed some of the issues that we have addressed and the outlook. There was also the parliamentary paper produced recently which produced a perception of that.

Senator HOGG —Can it be said loosely then that there is a resource assessment review process internally and that it does have a classified status?

Dr Williams —Yes.

Senator HOGG —Are you able to tell us broadly the major findings of that review?

Dr Williams —Yes. In broad terms, it shows that there is an ongoing trend. As I said, there is a growth in the cost of doing defence business; so if one wanted to maintain the current state of capability in relative terms you would need what is a fairly regular growth in the cost of the defence budget. As I said, you can offset that with short-term measures in terms of efficiencies. The other thing it shows is that we do have what is sometimes referred to as block obsolescence, which reflects largely that the fighter replacement project, for example, is a significant large project. Whenever it occurs, it will cause a fairly significant blip in our future investment. So we really have two factors. One is a continual rise in costs, which is well documented, and, secondly, probably around the 2015 or 2020 time frame a peak in expenditure particularly because of the fighter but because of other projects that we would need to consider at that time. That really is the gist.

Senator HOGG —If there is a resource assessment review undertaken internally, how often is that undertaken, who undertakes the review and whom do they report to?

Dr Williams —The work at the FYDP level is done within my own division. That looks out just three years—the forward estimates. The longer term is done by the Management and Reporting Division. I am trying to think of the timing. I think there have been a couple of iterations of the report. It was initiated probably two or three years ago, from memory. Prior to that there was somewhat more ad hoc work done. There was a document produced called `The Resource Assessment Report', which had a 20-year horizon. I think there has been at least one update of that.

Senator HOGG —Is that a public document?

Dr Williams —No, that is a classified document.

Senator HOGG —Are there any sanitised versions that are available?

Dr Williams —Not really.

Senator HOGG —That is all right.

Mr Smith —We produced the first version of the resource assessment report—it is a classified document—around the middle of last year. We would be hoping to update that on an annual basis. It is presented to the highest levels of the organisation. A copy was forwarded to the minister at the time, and so on. So it is considered at the highest levels of the organisation and we are going through the process of updating some of the data in that at the moment. Hopefully later this year we will have an updated version out. We are doing a lot of that work in consultation with the people working on the white paper.

Senator HOGG —I might be going off at a tangent here, so correct me, but last estimates we heard about DIAC. Does this feed into DIAC in any way?

Mr Smith —No.

Senator HOGG —I was just curious. Defence officials, including the secretary, are using $100 billion as the nominal amount for block obsolescence. Do we know on what basis this figure has been arrived at?

Mr Smith —The numbers that were used in the secretary's speech to the Press Club were drawn from the resource assessment report that we did last year, and they look at continuing current plans in a sense of no change in our current policy or plans. It simply takes the current projected phase out of existing equipment and some provision for replacement of them within those time frames and carries those costs forward.

Senator HOGG —In terms of block obsolescence, though, we are looking at two quite specific dates, as I understand: 2007 and 2015—2007 being the date by which the decisions need to be made and 2015 being the date by which the obsolescence will take place in the broad sense. Is that correct?

Mr Smith —The period is about right. Some decisions probably have to be made before then in terms of equipment becoming obsolete in that period.

Rear Adm. Ritchie —The dates that you are talking about are to do with Air 6000, which is the major problem, which is the replacement of the FA18 and the F111. It is envisaged that the decision process has to be arrived at by about 2007, and you need to have the first part of the capability around 2013-15.

Senator HOGG —I do understand that other block obsolescences that will take place need to be moved forward, so I am glad you clarified that for me. Do you have a comprehensive list of the equipment, when it will become obsolete and when the decisions need to be made by?

Rear Adm. Ritchie —Yes. We could produce a list which said, `These force element groups will become obsolete. That is the end of their life, and we need to make decisions beforehand.'

Senator HOGG —Can you give us some idea of the lead time that you need?

Rear Adm. Ritchie —I could give you some of those now. For example, we almost need to be making the decision about the air-to-air refuelling capability represented by the B707 in the next year or two. If it is not extended, that capability will be gone in about five years time.

Senator HOGG —So that is 2005?

Rear Adm. Ritchie —Yes. We have talked about the FA18 and the F111. They are out in that second decade. The six FFG frigates will pay off between 2013 and 2020, so you will need to come back about seven years from that if you intend to replace them.

Senator HOGG —So that is 2006?

Rear Adm. Ritchie —They are the major ones. You would be aware that the Caribou aircraft, the light transport aircraft, needs to be replaced. The C130H needs to be either replaced or refurbished in about eight years from now. They are the major drivers in the capability sense.

Senator HOGG —Could you give me a list of those and others which might come on stream—just one comprehensive list.

Mr Corey —We probably need to caveat that. As Rear Admiral Ritchie said, that assumes that we are going to replace them all.

Senator HOGG —I accept that. I understand the caveat there.

Rear Adm. Ritchie —The whole question of block obsolescence reaches that sort of figure only if your intention is to replace each of those capabilities with the sort of capability that you already have. If you can find a better way of doing it, it might be cheaper.

Senator HOGG —What type of budget or financial decisions are awaiting completion of the defence white paper before they are made?

Dr Williams —As has been said before, the purpose of the white paper is to look at issues such as the balance between current capability and future capability—investment in technology and equipment and the like. Looking at our forward projections, as I said, we have real growth in the cost of running Defence if we want to maintain current capabilities. Putting aside efficiency measures, the choice, therefore, would be to increase the Defence budget or to retain or reduce the Defence budget, identifying those capabilities that we thought were not necessary for Australia's needs. What we would be looking for in the white paper would be guidance that indicated the priority of different capabilities, what the balance ought to be, what the readiness ought to be and, flowing from that, a judgment about whether that would mean additional funding or operating within current funding levels. It is broad guidance of that nature which we would be looking to come out of the white paper, to be reflected in subsequent budgets.

Senator QUIRKE —I would like to go back to a couple of issues. When you say `block obsolescence', is that the appropriate word? Is it more likely that we will no longer be able to have any reasonable, serviceable life out of the weapons platforms you are talking about? Is that what we are really saying? As I understand it, they are not going to be obsolescent in terms of capabilities in the foreseeable future.

Rear Adm. Ritchie —It essentially means that they have reached the end of their useful service. It is not value for money to upgrade them any further or to try to upgrade the weapons systems.

Senator QUIRKE —How is the Navy in terms of block obsolescence? I understand that the decision on the replacement for the destroyers is something we can talk about further down the track. That decision has now excluded the Kidd class; the government has decided that that is not going to proceed. The FFGs are the next group of major ships that come up for that. I think you said a minute ago that they would be paid off between 2013 and 2020. That would represent, say, 30 years of serviceable life for these?

Rear Adm. Ritchie —A little bit more. The progressive upgrade program for the FFGs extends their lives by five years, so they will be about 35 years old when they go.

Senator QUIRKE —We have not yet got them operating as we would want, but what is your expectation on the submarines?

Rear Adm. Ritchie —You should get 30 years from a submarine.

Senator QUIRKE —Only 30 years?

Rear Adm. Ritchie —As a rule of thumb, you get about 30 years for most ships. You can extend that, as we will do with the FFG, but you would rarely get more than five or six more years. That being said, The Midway, an aircraft carrier which was in the Gulf War, was launched during the Second World War.

Senator QUIRKE —But, as I understand it, that type of ship is much more heavily plated.

Rear Adm. Ritchie —Much bigger.

Senator QUIRKE —Yes. So we would be looking at the submarine replacement in 2020 plus?

Rear Adm. Ritchie —Yes, 2020 plus. That is a fair enough assessment

Senator QUIRKE —Quite often we concentrate on the Air Force in these sorts of things; we do not concentrate as much on the Army and the Navy. With the Army weapons platforms, unless I am wrong, I think the battle tank is 35 or maybe even approaching 40 years old. What is the estimate of when a decision has to be made on whether or not we are going to have a new tank?

Rear Adm. Ritchie —Off the top of my head I cannot tell you that, but I have an expert here in an Army uniform, Brigadier Wallace.

Brig. Wallace —We are anticipating at this stage that if we upgrade the current Leopard we could take it out to about 2020.

Senator QUIRKE —And that would make it about 50 or 55 years old?

Brig. Wallace —Yes, that is right. That would make it around that sort of age.

Senator QUIRKE —It is amazingly good service, isn't it?

Brig. Wallace —It has a very good vehicle train. The actual base of the vehicle is good. What we would have to upgrade would be the turret, essentially.

Senator QUIRKE —So, in essence, it was a very good decision all those years ago?

Brig. Wallace —It is a very good tank for what it is.

Senator QUIRKE —While we are on this, what about some of the other Army weapons systems? I will be as quick as I can on this topic. Are we contemplating replacement of the RBS 70 and the Rapier, and, if so, by what time?

Brig. Wallace —We are looking at an upgrade of the Rapier at the moment, which will take it out to about the 2007-2010 period. A few factors will come into play there, including the availability of missiles. The RBS 70 will go a bit longer than that—certainly out to 2010.

Senator QUIRKE —I was also going to ask about simulators for these weapon platforms. A couple of years ago I asked if there was a plan to bring them online in the near future and it was indicated that that decision would be made in the next year or two. I just wondered if that had happened, or is that tied up with the Rapier 2000.

Brig. Wallace —I will have to take that question on notice, but certainly at the moment there are simulators for the Rapier being put in place at Woodside in the unit itself. Both of these particular weapon systems come with an integral simulation set, which allows personnel to practise firing without actually firing live ammunition.

Senator QUIRKE —Last time we talked about the white book. I am pretty sure that $380 million had been taken out of the white book to meet expenses during this particular year. I wonder if we could have some further detail on that—I see that Dr Williams is all ready to go on that question, or possibly some other officer might be able to answer that—to give us a better breakdown on that $380 million.

Dr Williams —Could I just clarify: are you looking at the impact on the white book—the breakdown from that perspective?

Senator QUIRKE —Yes.

Dr Williams —I will defer to Mr Watters on that question.

Mr Watters —We did discuss the reduction of $380 million that had occurred in the white book at the last committee hearings. Most of the impact of that was in this budget year. That has mainly been redirected to operating costs and personnel costs.

Senator QUIRKE —That is interesting because last time we asked this question—we were finding out about the white book—and we found out how much money had been taken out of it for ongoing expenses—we were told that East Timor and ongoing personnel expenses during this year were responsible for the $380 million being taken out of the white book. East Timor did not get a mention a second ago, Mr Watters.

Dr Williams —Could I perhaps answer that. East Timor as such was not one of the factors in the $380 million. The East Timor money has been fully supplemented by government. However, the $380 million did include some funds that were set aside for increased readiness of 1 Brigade and for associated support aspects of the other services. If you like, it was a broader issue to prepare the forces for a higher state of readiness. The actual Timor deployment has been fully funded through an additional appropriation.

Senator QUIRKE —I think that is a different answer from the one I got the last time, but I am not quibbling about that. What I am interested in now is how much of that $380 million went to personnel. You could actually argue, I think, that increasing the state of readiness from 180 days to 28 days—or whatever it was—of the 1st Brigade probably was a Timor related expense, but we will let that one go. Can you tell me how much of the money was used for personnel?

Dr Williams —There are obviously a number of swings and roundabouts and the 380 figure was one of the areas that was reduced. Some money was also taken off the green book—in the facilities area—and there were various other adjustments that I referred to last time.

Senator QUIRKE —It is the white book that we are interested in.

Dr Williams —As I was going to say, we do not track the particular dollars. I am just trying to say that the figure of 380 was one of the measures. But I can give you the figure for the increase in the employees' expenses, a significant part of which obviously would come from that 380 figure. What we have, and it is reflected in the document, is an increase of about $358 million in employee expenses.

Senator QUIRKE —So are you telling me that $358 million of that $380 million went into employee expenses?

Dr Williams —As I said, there was more than the $380 million. Some money was from the green book, so there was a bit more taken out. The amount actually added to employees was $358 million. So the majority or a large part of the $380 million would have in effect contributed to employees' expenses.

Senator QUIRKE —Isn't it normally the case that employee related expenses involve supplementation?

Dr Williams —The large reason here was that at the time the budget was put together a year ago there was still some uncertainty about the priority that ought to be given to the readiness of the force—decisions still had to be taken—and about the appropriate level of the ADF and whether the 50,000 figure was the right figure to retain. Because of the uncertainty, a budget was put together on the assumption that we would make some savings in the personnel area by reducing numbers and that we would be able to retain the investment program. Fairly early in the budget year it became apparent—given the need for high readiness, the need to boost the 1 Brigade, et cetera—that we could not achieve the savings that we would have liked in personnel. So essentially what we are really doing in additional estimates is reflecting what is perhaps the inevitable position of the budget. In other words, the choice was to cut investment or personnel costs. We took the assumption initially we would try to do it in personnel. Events, particularly the 1 Brigade readiness, did not allow that to occur, so at AEs we had to shift and to take the money largely from investment.

Senator QUIRKE —Has this ever happened before?

Dr Williams —It is not uncommon to have fairly significant shifts at AEs times. This is probably larger than has been the case in recent years. There are shifts. I would say that this was probably an unusual case. It was largely because of the circumstances: the increased readiness that the government directed during the year, which required us to fill out the personnel numbers in 1 Brigade and to backfill in some of the other areas from where personnel were taken. So the option of cutting personnel numbers to keep the budget in check was not possible this year as a result.

Senator QUIRKE —I just want to tie this down. What we have here is that future investment, as determined by the white book, was raided for a recurrent expenditure problem this year. You say it was a large occurrence but not an unusual one. When before has the white book been raided for the day-to-day expenditures within the Defence Force?

Dr Williams —It is not uncommon to find adjustments made to the white book. If, for example, it looks like certain projects may not proceed as quickly as planned and it appears that it could be an underspend, that funding will be reallocated at AEs. I will defer to Mr Watters to give an explanation.

Mr Watters —There have been adjustments in previous years but moving in the other direction. This is a rather larger adjustment than usual, but it is not unusual to see adjustments between the investment program and other parts of the portfolio in the course of the year.

Senator QUIRKE —I just want to be certain of what I am being told here. I am being told that there are adjustments in the white book all the time—sometimes up, sometimes down. Sometimes weapon systems, which are on the forward plans, are no longer required or a decision that has been made has altered or sometimes deferment of certain systems is made—that I understand. What I am asking is: has the white book ever been raided before for day-to-day personnel recurrent expenditure?

Dr Williams —To my knowledge, in recent years, we have not had a situation where we have taken the magnitude of money that was taken this year and put into the employees' area. The reason that it occurred this year was because of a very clear decision to put emphasis on the current readiness of the force and to maintain personnel numbers. So the particular situation this year was unusual: it was larger and fairly clearly directed at a choice between future investment and current readiness.

Senator QUIRKE —I understand all that. You talk about large and small. It has been put to me that the white book has never before been raided for the day-to-day recurrent expenditures that we are talking about.

Dr Williams —I am not aware in recent years of a shift as large as this.

Mr Corey —Maybe I can just buy into that.

Senator QUIRKE —Please do buy into it.

Mr Corey —It is not a question of being raided in that sense. This year was unusual in that the raiding that you are talking about took place during the course of the financial year. Normally adjustments between investment, operating costs and manpower occur before the budget is settled.

Senator HOGG —Are you telling me that it is raided at other times?

Mr Corey —It is not raided. Judgments on relevant priority for expenditures in the various categories within Defence occur every year. There are adjustments between the white book, the pink book and the green book and between operating costs and personnel costs. This year, because the decision was taken to increase the readiness of the brigade during the year, funds were taken from other programs by adjusting their priorities—slowing things down; there might have been slippages—and applied to increase readiness. And it is very unusual. Minor adjustments may happen to soak up underspends and to do a whole lot of things during a year, but a raid or an adjustment of this magnitude during a year is rare.

Senator QUIRKE —Mr Corey, `very unusual' is probably as far as I am going to get.

Mr Corey —I am not aware of it happening before.

Mr Watters —In the previous financial year, 1998-99, a quantum of money was handed back from the white book to the portfolio because a number of projects did not get to contract in the time frame we envisaged. I think that was in the order of $100 to $150 million. That was program slippage.

Mr Corey —This was a deliberate adjustment during the year of that magnitude and, in my time in Defence, I cannot remember that sort of adjustment being made during the year. There may well have been something.

Dr Williams —If I could just set it in context and pick up Mr Corey's point, if you look over the longer term, going back a couple of decades, for example, the investment program probably had around 10 per cent of the total Defence budget. At that time, personnel numbers were fairly large. There has been a fairly concerted effort over a long time which has pushed it up not quite but close to 30 per cent. So there is a long-term shift. There are significant shifts over time as part of our ongoing process but, yes, this late it was a fairly significant shift at short notice.

Senator QUIRKE —What is the current total value of projects in the white book?

Mr Watters —The current value of total approved project costs is, I believe, about $20 billion.

Senator QUIRKE —Over what sort of time frame?

Mr Watters —Some of those go out 10 to 15 years. The longest projects go about 15 years.

Senator QUIRKE —I think Dr Williams or Mr Corey said that out of our budget we are providing around 30 per cent in terms of future investment. I presume that is going into expenditures for the white book.

Mr Corey —And the facilities program. It is in other areas. There is capital investment other than the white book.

Mr Watters —The total estimated cost of approved projects in the white book is $46 billion.

Senator QUIRKE —$46 billion?

Mr Watters —Yes, for 200 projects.

Senator QUIRKE —Over the next 10 years?

Mr Watters —Over 10 to 15 years—until those projects are completed, yes.

Senator QUIRKE —And that would not take in the paying off of the FFGs and some of the other ships, one would presume.

Mr Watters —Of that $46 billion, there is $20 billion left to be spent. So we have spent $26 billion thus far, which leaves a balance of $20 billion to be spent.

Senator QUIRKE —You have spent $26 billion of that money?

Mr Watters —Yes.

Rear Adm. Ritchie —You are correct, Senator, it does not take into account any unapproved projects, which would be the replacement of FFGs, Air 6000, the ones that I mentioned earlier.

Senator QUIRKE —What is the estimated additional value of projects to be added to the white book during the next 12 months?

Mr Watters —That is coming up in this budget, Senator. One of the strategies being pursued to bring the portfolio situation back into balance is to reduce that level of forward commitment by cutting down the number of new approvals.

Senator QUIRKE —By the sound of answers given to Senator Hogg before, you expect the white book—the $20 billion that has not been spent and the $46 billion which has been agreed to—to almost double over the next six or seven years.

Dr Williams —If we could clarify, basically in a steady state—and it always fluctuates, but let us assume a steady state—if you are talking of the order of $2.5 to $2.6 billion per annum being spent on major investment, you have a series of projects approved, but it is not in a uniform manner. As an example, if you approved a submarine project for $5 or $6 billion, that occurs as a one-off and obviously gives you an abnormally high year. So there are peaks and troughs always through time, but the intention would be that, long term, you would expect to have the average number of approvals more or less matching that expenditure in the white book, which is $2.5 to $2.6 billion per annum.

Senator QUIRKE —It is probably uniform over a 10-year period rather than a year to year period.

Dr Williams —Given the average of 10 years for projects—some of the big ones can be even longer—you probably need to look in that time frame before you would start to get a reasonably smooth sort of pattern. But if I take the case of the late 1980s where we had submarines and Anzac ships, that obviously meant a huge increase in our commitment and then there was a period of fairly low approvals for a few years to get back to a steady state.

Senator QUIRKE —What is the story with the white paper and new acquisitions? Are new acquisitions on hold until the white paper is delivered, argued and agreed to?

Dr Williams —The intention certainly would be to avoid making unnecessary commitments ahead of the white paper. Clearly, that is going to be a key document in defining what our needs are. Given we have a fairly high level of commitment in the white book at the moment, we are probably not looking at a period where we need to dramatically increase commitment through new approvals. So there would be a desire not to approve more than we need to ahead of the white paper, which is not that far off.

Senator QUIRKE —Will the white paper affect anything that is in the white book as it is now?

Dr Williams —I anticipate that the white paper will guide the future of the white book and other parts of the portfolio budget.

Senator QUIRKE —So it is not only necessarily future acquisitions on which no decision has been made yet but ones which have already been agreed to several years ago or more?

Mr Corey —The difficulty with things that you are at contract with is that there is not much scope to change many of those projects. Once you are signed up and you are in a shipbuilding program or you have contracted to buy aircraft, you really do not have too much room to manoeuvre. So a lot of those are locked in, in a sense.

Senator QUIRKE —Thanks very much, Chairman.

Senator HOGG —Still in overview: on the Defence Reform Program, Dr Williams, could I just flag that I have received in the past a very good analysis of what is happening with the reinvestment and the personnel changes under the DRP. To save me coming along to budget estimates and asking you to produce that or spending countless hours that night doing it, could you provide me with that prior to the estimates process?

Dr Williams —Yes, I can certainly pass that on to the relevant area of Defence and we can arrange to get you a brief.

Senator HOGG —I see some nods in the background. I think they know the exact pieces of paper that I am referring to so I would welcome that. Just briefly on the Defence Reform Program, have there been any significant changes to the DRP savings or reinvestment figures since the last hearing of this committee?

Mr Corey —No, Senator, there have not.

Senator HOGG —With regard to reinvestment, I would like to have clarified whether the projected DRP savings as a total are actually or nominally allocated for reinvestment in specific programs or specific projects?

Cdre Lemon —I have taken over from DG SMART who used to look after DRP. The savings are allocated by portfolio to specific group activities and categories of reinvestment and the guidance trail is transferred at the time the savings are made.

Senator HOGG —Is that a specific program or a specific project or?

Cdre Lemon —It is allocated to a specific area such as amphibious warfare, and within that it is broken up.

Senator HOGG —Thanks very much for that. At the last hearing it was indicated that the DRP Strategic Management and Reporting Team had been undertaking a comprehensive review of the DRP and would be reporting to the government on the outcomes of that review in the near future. Has the review been completed yet and, if so, when was it completed? If it has not been completed, when will it be completed by?

Cdre Lemon —The DG SMART team did complete the quality assurance review at the group level. It has been finalised with eight of the groups. We are currently continuing that finalisation so that it is an agreed group report. We then have to take that and compare across the groups to find holes and double accounting in the groups and we hope to be reporting by the end of May.

Senator HOGG —The end of May. Who will that report go to at the end of May?

Cdre Lemon —In the first instance it will go to the Defence executive—the secretary and CDF.

Senator HOGG —Then I presume it will go to the minister.

Cdre Lemon —It will then go to the minister.

Senator HOGG —When can we expect it to be a public document?

Cdre Lemon —The individual QA reports probably will not be public documents but the top report will be a public document.

Senator HOGG —If I can just use my own terminology here, I recall having this discussion—I think it was with Mr Tonkin on the previous occasion—and I formed the view that this was more or less an audit process of the DRP and I became very interested and very excited. Not too much excites me, but this did. I became very excited by it and I was looking forward to when we might actually see the results if it is an audit process as such. Is that a correct way to interpret the process?

Cdre Lemon —It probably lacks the independence you would expect of an audit. It is an assurance process so that we can actually agree with the groups what savings have been made, what initiatives have actually been achieved and whether the savings have been real. The secretary has been interpreted as saying that he would rule a line through DRP. He said he would rule a line under DRP in an accounting sense so that we have an exact measure of what savings have been made and what initiatives have been ruled off and carry forward the unachieved ones, which is why it is an agreement process in some cases with the groups.

Senator HOGG —My interest in this is that people have been projecting the savings that will be made out of DRP now over a number of years. They have been pointing directly to where those savings will be reinvested. What I am looking for now is some assurance that the savings that people projected and the reinvestment that people said was going to be made has been made. Will we be able to read that directly out of this review process that you have undertaken?

Mr Corey —We will make sure that we get something to you that enables you to make that judgment for yourself. We will get the results of this review process in a format to you—

Senator HOGG —In easily readable, non-jargonised terms.

Mr Corey —Yes, in easily readable, non-jargonised terminology.

Senator HOGG —That will be a first for Defence, so I look forward to it. What would be your expectation of that being available to members of the committee? When should we reasonably expect to see that?

Mr Corey —Probably not until after the budget estimates. Probably some time in June or July, I would have thought.

Senator HOGG —The reason I am asking is that it would obviously be a useful document to have for the supplementary estimates.

Mr Corey —It should be well and truly available before the supplementary estimates hearings.

Senator HOGG —If I understand what Senator Faulkner said this morning, there will be no additional estimates. It would be necessary, if we could, to have it for the supplementary estimates.

ACTING CHAIR (Senator Payne) —I think you have just wished us through three sets of estimates, Senator Hogg.

Senator HOGG —I am very good at that. It is a very nice thing. Will your report make any recommendations as to the DRP itself—without flagging those directly today?

Cdre Lemon —Having read through all of the group submissions, there are recommendations in each of the submissions and they basically relate to how we should conduct savings programs, establish benchmarks and account for them. I think it would simply make recommendations in that respect. A considerable problem in actually doing the QA reports is agreeing what constitutes a saving and how things were accounted for.

Senator HOGG —Mr Corey mentioned earlier that there was going to be a cut-off in the DRP and it would probably end up in some other form. Part of the DRP process was that there were always mature savings to be made but they were not allocated to an out year. Nonetheless, they were savings that were to be realised at some time. What will happen to those unrealised mature savings under the DRP if it is drawn to a conclusion? Will there be some way in which we will see a transition process where the matured or unrecognised savings which are believed to be there will be manifested in some other program?

Cdre Lemon —The secretary forecast a movement towards continuous improvement. The way that he would see DRP continuing is ruling a line under the process that has been going on, identifying the outstanding savings and then taking those forward to any other initiatives that are added in. The aim would be to carry continuous improvement with, if you like, an accounting line established at each year and carry forward, not continuing to refer to a benchmark which was established in 1996 and about an organisation which has changed. The aim would be to make our improvement program more current and more easily assessable.

Senator HOGG —Thanks very much. If I can now move on and ask a number of questions related to the defence financial statements and Auditor-General's reports. In his due diligence speech, the secretary indicated that the Auditor-General had indicated that the department's financial statements were at risk of being qualified this year. Is that correct?

Dr Williams —The discussions last year in looking at our 1998-99 financial statements led to a number of category A findings—areas basically in relation to asset management that needed attention. We have recently had an interim audit report as a result of a hard close we did of our financial systems at the end of February. Again, that has identified some further things. They are largely areas that we have picked up in terms of monthly reporting, banking, Treasury—things we are now doing this year for the first time. So they have identified a number of areas where we need to give particular attention. At the moment I think the view from the auditors is that they are not predicting we would be qualified, but obviously we need to take action on the areas they have identified.

Essentially, it relates to picking up the asset management issue. For example, one of the things they have identified concerns the process for valuing assets. They have suggested as one measure that we ought to componentise assets. For example, with an F111, rather than having a single value and a single life to calculate depreciation, you would assess the weapons system, the platform and various parts. The argument there is that that would give a slightly better assessment of the value. So there are things of that nature that they identified as category A findings. We are addressing that and looking at the feasibility of doing all of that.

Senator HOGG —What else are you doing to address the Auditor-General's concerns?

Dr Williams —There are also matters in relation to our inventory. Our financial systems still in many respects flow from the cash era, and we are updating them. Project ROMAN and project PMKEYS, for example, are replacing older systems. But to some extent in some of our inventory areas we still do not have a basis as good as we would like for valuing inventory, et cetera. As you will appreciate, in the past we had large amounts of inventory and we were not required to assess costs. It is a fairly significant task in picking up the backlog and going back to some of this old inventory. As a result of doing that process, one of the values of accrual accounting is that it has identified areas of stock that we now judge to be obsolete. So we then have the further action of dealing with that. That is another matter they have asked us to attend to. We need to turn over that obsolete stock.

Senator HOGG —What actions are you taking to turn over the obsolete stock?

Dr Williams —It is an area probably better addressed in Support Command who are dealing with it primarily. But the first part is the identification. The second part then is to do an assessment of the cost of turning it over. You have to make a judgment as to what sort of value it might have and what the cost would be of turning it over. In some instances, some items that may appear to be obsolete and are defined as such turn out not to be so—if a decision is taken to retain an asset, for example—so it is a somewhat fluid process.

Senator HOGG —That is as far as I want to pursue that. In respect of the secretary's statement that the Auditor-General said that your financial statements were at risk of being qualified, has the Auditor-General or anyone from the Auditor-General's office indicated this previously to the department?

Dr Williams —Every year when the audit is done, they will identify a series of findings or areas for attention and rate them as category A, B or C. Back in the cash environment, it was not unusual to have large numbers of those sorts of findings and that would direct Defence action to address the matters.

Senator HOGG —I understand that, but it seemed to me that the indication from the secretary was that your financial statements were at risk of being qualified this year, which I do not think has happened before.

Dr Williams —I have a feeling that before my time there was an occasion where they were, but don't quote me on that.

Senator HOGG —That is why I am talking about more recent times.

Dr Williams —The real issue is that this year we have moved to accrual budgeting for the first time, so we are really in an entirely different world. Whereas in the past our statements were reported in accrual terms but flowed from a cash budget—it was, if you like, pseudo-accrual reporting—we are now fully fledged in accrual budgeting and accrual reporting. On the issue of having systems that can provide the necessary information, for example, in a personnel system we have to keep track of not only the cash payments but also the accrual expenditure items for long service leave, superannuation and that kind of thing. It is a much more complex process. What Allan was referring to is the fact that we are still introducing the systems that we need in order to be able to do the reporting to the level we would like. While we are introducing the systems, we are going through an interim period where there is a fair bit of effort being made in order to ensure that whatever manual adjustments we need to make satisfy the Auditor's needs in terms of materiality.

Senator HOGG —Thank you. There have been numerous reports done by the ANAO over the last few months on many aspects of the Defence organisation. With regard to the reports on the retention of military personnel, Army individual readiness notice, Defence Estate project delivery and management of major equipment, acquisition projects and so on, does Defence agree with all the findings and recommendations of those audit reports? What are the major areas of disagreement?

Mr Corey —You would probably have to address those individually.

Senator HOGG —In the interests of saving time, can you take that on notice?

Mr Corey —In lots of cases, we agree with the recommendations of the audit reports. In other cases, we will qualify our agreement. We would have to go through each of those recommendations and probably list them for you. There are a number of recommendations.

Senator HOGG —We are just trying to get the broad thrust. I can help you out. I am going to come back and diligently go through a number of these audit reports during the budget session because I think they are of such importance.

Dr Williams —There would normally be a Defence response against each of the recommendations in the report.

Senator HOGG —With the greatest of respect to you, Dr Williams, I have seen those. Some of those responses are sometimes just ways of pushing off the audit department. Are you actively pursuing the implementation of the recommendations that are made by the Audit Office in respect of audit reports?

Mr Corey —We will be in a position to answer those questions for you on each of the reports at the budget estimates.

Senator HOGG —All right. I will save my questions until then. In respect of the East Timor operations, can you update the committee on any changes in the cost of the East Timor operation for this financial year and for the out years compared with the data provided in the additional estimates statement?

Dr Williams —At this stage, the figures for the future years are obviously subject to budget consideration, will be revealed at the budget and could be dealt with at the next hearing. With respect to the current year, you will recall that we had a figure of $860 million, including capital use charge, that was covered in the appropriation. At this stage, our view is that we will not require the full amount this year and we anticipate handing some back to government. The exact amount will obviously become clearer over the next few weeks or so as we get towards the end of the year, but I anticipate it would be a reduction of the order of $100 million or more on that figure of $860 million.

Senator HOGG —One hundred million?

Dr Williams —That is probably the amount. Largely, it reflects things like an inability to move some of the investment projects as quickly as we would have planned so that some of the expenditure we hope to get this year might roll over, for example. It would be picked up and adjusted in future years, as well.

Senator HOGG —What are the chances of you getting to keep that $100 million? I am going off the top of my head here: I think the difference between what the government committed themselves to in the next financial year for East Timor and what you actually need is about $100 million.

Dr Williams —This is subject to confirmation in the budget, but we expect to be fully supplemented for the cost of Timor next year. We do not expect to have to bear any shortfall.

Senator HOGG —I thought there was a gap of about $106 million.

Dr Williams —No. We expect to be fully funded for that.

Senator HOGG —That is all right.

Dr Williams —With respect to this year and any hand back, though, the understanding was that it was a special appropriation and that the money would go back to the government—that it would not be absorbed within the general Defence budget.

Senator HOGG —No. I always understood that. Is there any further information with regard to the funding Australia will get from the United Nations?

Dr Williams —The sort of return we would get might be in the order of a third. It would be a relatively small proportion—important, but small. There is usually somewhat of a phase delay between the expenditure and when the money is recouped, given the processes that have to be gone through. It is still a fairly significant cost to Australia. That money would go back and would reduce the effective cost to government.

Senator HOGG —Do we know how much and when?

Dr Williams —Not precisely. Again, we will have some estimates for that in the budget.

Senator HOGG —Do we know when?

Dr Williams —As of the transition to UNTAET from the previous INTERFET, we are entitled to be refunded. So we would anticipate money coming through. I cannot give you an answer in terms of the timing, but the budget would give us estimates of what we think is likely. The other point I would make is that, with respect to the INTERFET, there is also a UN trust fund set up, which was to fund some countries who are not self-funding. In some instances, we have provided some funding to support their activities, and we would expect to recoup some of that. So it is not the cost to Australia of our own involvement but the money we have funded to assist other countries. That would come through the trust fund that has been set up under INTERFET.

Senator HOGG —Thank you. Further, in regard to East Timor, what is the total number of Australian troops currently serving as part of the UN force in East Timor?

Rear Adm. Ritchie —Fifteen hundred troops and a logistic support force of 400.

Senator HOGG —What are the Australian units that make up the contingent?

Rear Adm. Ritchie —I would have to call for advice for that.

Air Cdre Clarke —The current units are primarily a battalion group. It has just changed over from 5/7 RAR to 6 RAR. The other major force element is a 400-man logistic support unit, which is based upon 10 BASB, but it is also a joint unit. It has elements of Navy and Air Force people in it. There are other sub-units at minor levels. There is a 150-man logistics unit in the battalion group itself. We have military observers and people in the UNTAET headquarters, both in Dili and across the western sector headquarters.

Senator HOGG —Will there be a change in numbers over the next 12 months?

Air Cdre Clarke —The 400-man logistic support unit has a 30 June withdrawal date. We established that unit to assist in the transition from INTERFET to UNTAET. The time given was for the United Nations to put in place its own support arrangements, and so we would anticipate them being out by 30 June. We have already withdrawn some elements ourselves. For example, our medical evacuation helicopters were withdrawn on the 23rd of last month, while the UN got their own contract in place. So a range of those sorts of changes are happening before the end of the year.

Senator HOGG —What is the rotational period now?

Air Cdre Clarke —Six months is what we are looking at for most force elements. There are some minor elements which are at shorter rotation rates.

Senator HOGG —And there are no foreseeable major changes to our commitment over the next 12-month period?

Air Cdre Clarke —UNTAET itself is looking at changing the shape of the total commitment. You will recall that the mandate requires 8,900 or so. We understand that the UN is looking at a smaller force in the order of 5,000 to 6,000, but we anticipate that the reductions will occur probably on the eastern end of the island where the security situation is a lot more stable. We will look at our own force structure in the next mid-year period aiming to make a decision before the end of this calendar year on what the subsequent rotations to perhaps early 2001 might look like.

Senator HOGG —Thanks very much. Next I want to ask something about GST costs which I asked on the last occasion. With regard to the costs of the introduction of the GST for the department, has it been established what the ongoing costs are likely to be for the department? For example, are there extra administrative costs and financial costs for personnel required to implement it?

Dr Williams —At this stage, no. We do not anticipate that there should be any particular costs, in that we have always maintained a small tax cell in my current division which would provide general advice on tax matters. Our current estimates are that, once the GST is implemented, we would anticipate the effort falling back pretty much to the level of staffing we had in the past. In terms of our systems, once we have introduced it, there is no significant workload. The information is put in, so we have not estimated any real net cost. It is essentially just a transition issue.

Senator HOGG —I did not necessarily like your choice of words there when you referred to a tax cell. How many are in the tax cell?

Dr Williams —Only about two or three people, a small subsection really of the section. It is a little early to say but our current projections are that we would anticipate no larger group being needed from our central group. Our financial systems would be upgraded, so it would be a fairly automatic matter for the appropriate information to be fed in. As I say, it is a different set of reporting mechanisms. It is just part of the general financial reporting that we do.

Senator HOGG —How will it directly impact on your day-to-day operations?

Dr Williams —Once we have got things set up, it should not have a particular effect. We have to produce the business statement at the end of the year which will record the information, but we would hope that that would be, if not a fully automated system, pretty much coming off our financial systems. Again, there is an interim transition because our financial systems—ROMAN, for example—are being introduced. Once ROMAN is fully implemented and we can get rid of our older systems, I do not think there should be a particular burden on us.

Senator HOGG —So you will actually have to pay the GST and you will get that refunded? How?

Dr Williams —The arrangements will be that we will put in a regular statement, as I understand it, and then we will be reimbursed. There is still some debate at the margins as to how that would work most efficiently and getting the timing aspects sorted out.

Senator HOGG —When you say you will be refunded, refunded by whom and when?

Dr Williams —Basically from Treasury, from Tax. The money goes in and we get it back essentially.

Senator HOGG —Just let me get this clear in my mind: let us say that you buy something and you pay $1 million GST. You will get that $1 million refunded?

Dr Williams —Yes.

Senator HOGG —What will be the lead time from when you pay it until you get it refunded?

Dr Williams —We are still refining that issue. I would imagine that with any sort of process there could be a delay of some weeks or a month or so. I am not really sure. That again can be offset in a sense by the rate at which government passes over the appropriations, as we are getting regular top-ups into our banking and Treasury area anyway. Some of those issues are still to be finally resolved.

Senator HOGG —In terms of some of your larger purchases where it might apply, it could be a significant amount of money, couldn't it?

Dr Williams —If we dropped significantly into arrears and we did not have some compensation in the rate at which we were being passed the appropriation from government for our general funding, then it would become a more significant issue. Those are the matters that we need to sort out and we are doing that at the moment. It is not a particularly complex process. It is really a matter of just defining the arrangement.

Senator HOGG —When will those processes be sorted out?

Dr Williams —The target is to have all of the GST aspects done by 1 July. We want to be up and running at that time. Post that time, there would still be, as our ROMAN system comes fully on line, some hand over and staff training as we get rid of the old systems fully. Basically, we would hope to be up and running from the start of the next financial year.

Senator HOGG —You will pay the GST and you will get a refund. Apart from that, are there any benefits in it for you and what are they?

Dr Williams —The removal of wholesale sales tax will lead to some cost reductions to government as a whole, obviously.

Senator HOGG —So you have paid sales tax?

Dr Williams —We have not paid sales tax directly, no. We have been exempt from that. There is obviously embedded sales tax in contracts, et cetera that cannot be defined. It is, if you like, the flow-on effects. So there would be a cost reduction.

Senator HOGG —Are you able to quantify those benefits?

Dr Williams —There is some work going on and that would be factored into any adjustment to the Defence budget. If the costs reduced then that would be factored into the size of the Defence budget.

Senator HOGG —Who is doing the work?

Dr Williams —The Department of Finance and Administration are doing it centrally and we have been working with them through our tax implementation team to define what the amounts should be.

Senator HOGG —Are you looking over DOFA's shoulder as they do it?

Dr Williams —We always try to.

Senator HOGG —I would more than try to. I would be a little bit concerned. So they are working out the implementation benefits or negatives that will impact upon your organisation?

Dr Williams —The intention would be that the net effect on the Defence budget of the tax changes would be zero. That is the goal. So from the GST point of view, any cost Defence bears, subject to the normal input tax arrangements and all the rest of it, would be fully supplemented at the end of the scheme. We expect the likely outcome for reimbursement to be monthly in arrears. As I say, that is still to be refined and finalised. Similarly, with WST it is more difficult because we are exempt from paying directly, but there are the third flow-on effects. You can only assess that through modelling. We have been doing some modelling with Finance to estimate what the savings would be. That would be an adjustment to the Defence budget.

Senator HOGG —Is someone independent of Finance and you assuring you that the modelling is correct?

Dr Williams —We have certainly gone through the modelling ourselves. We have not pulled any third party in. It is basically between—

Senator HOGG —No-one independent of you and Finance?

Dr Williams —No. We have some consultants on our team. There has been no specific independent review, if you like.

Senator HOGG —Are those consultants extra to the two or three people in the tax cell?

Dr Williams —That is the long-term figure. The tax cell is larger at the moment and the answer to the question that was on notice gives some of the details. We are employing some people with specialist skills to assist us with the tax implementation.

Senator HOGG —You say there should be no change to the Defence budget. I cannot believe—

Dr Williams —No real change to the Defence budget. In other words, the intention would be—

Senator HOGG —Does that mean that there could be some losses to the Defence budget under the GST?

Dr Williams —If we were to save more from WST, for example, then that amount would be taken off the Defence budget, but it would not be a real effect. It would be money that we have been paying essentially at the moment and that we would not have to pay in the future.

Senator HOGG —At the end of day, how do you know that you are not going to lose in real dollar terms given that you have a model that obviously you have put trust in?

Dr Williams —The model we have applied is from the Department of Finance and Administration.

Senator HOGG —I am sorry.

ACTING CHAIR —So sceptical, Senator Hogg. So cynical at such an early age. That is terrible.

Senator HOGG —One does become cynical about those people.

ACTING CHAIR —They speak very highly of you, Senator Hogg.

Senator Herron —That explanation fortunately cannot be recorded in Hansard.

Senator HOGG —I understand that. They cannot record grunts. I wish they could. I am looking for some assurance that that money is not going to disappear out of the bottom line of Defence's budget as a result of the changes that are taking place.

Dr Williams —At this stage we do not have any particular data. Over time, one could assess the real impact perhaps through adjustments to the indices so we could retrospectively compare the model with the reality. But initially you really have to rely on modelling to do the forward projections.

Senator HOGG —We could be able to make retrospective claims. Are they allowing you to do that—

Dr Williams —That issue has not been addressed, to my knowledge.

Senator HOGG —if you find that the model has failed and there has been a net cut in real terms to the Defence budget?

Dr Williams —I would hope that we would have an opportunity to do that but, to my knowledge, it has not been specifically addressed, no.

Senator HOGG —Can I take it that that is one issue that you might now address?

Dr Williams —Certainly we have a continuing dialogue with Finance on a range of issues and, if we felt that we had missed out, we would certainly debate the issue with them, yes.

Senator HOGG —I do not think you need dialogue, with the greatest of respect; I think you need a bit of four-by-two. But, anyway, that is another thing.

ACTING CHAIR —Is that a Queensland thing, Senator Hogg?

Senator HOGG —No, I am just trying to assist Dr Williams in his onerous task.

Senator QUIRKE —Senator Hogg, the defence forces do not use four-by-two any more. That is not planned obsolescence.

Senator HOGG —I will now move on to a question that arose in the last Senate estimates, the additional estimates. Senator Brownhill raised it in respect of the costs of preparation in appearing before estimates committees. The department came back with a gross figure of $462,000. Can you give us some detail as to how that $462,000 figure was arrived at, what number of staff it covered? We always have a large group of people here enjoying tea and coffee next door. How many of them were involved in the numbers?

Mr Harper —The figure was constructed by approaching each of the participating groups. Clearly, it was an estimate that involved retrospective viewing of processes that had gone on before in terms of preparing for the hearing, attending the hearing and responding to questions placed on notice. I do not have in front of me anywhere the numbers of staff.

Senator HOGG —Could you give me some reasonably detailed explanation—you can take this on notice—as to how that $462,000 figure was arrived at? Could you also tell me: were all the people who were in attendance at the estimates necessarily required? Were some of them superfluous to need? Whilst we see a mass of faces from this side, we see a very limited number of faces ever greet the table. So it would be helpful if we could get some idea of whether those costs involve just everyone who turns up. Further, is there a view as to what the $462,000 is against? Is it against estimates? Is it against supplementary estimates? Is it the totality of the estimates process, or is it just for one estimates, as such? Do you have a view as to what the figure applies to?

Mr Harper —Yes, I can give you some information. The $462,000 can be broken down into roughly $289,000 to prepare for the hearing and $110,000 to attend the hearing. You asked in your question whether all the attendees were required. We would have costed the people whom we judged needed to be in attendance to reasonably meet the committee's expectations. Clearly some of those people who attend in the event are not required to answer questions because we do not have a comprehensive foreknowledge of what the committee is going to ask. So it represents an amount of $289,000 to prepare, $110,000 to attend and $63,000 to respond to questions on notice. That was in respect of the hearing of 9 February.

Senator HOGG —So are you telling me that is for one hearing?

Mr Harper —Yes.

Senator HOGG —What did people spend $289,000 on in preparing for the hearing?

Mr Harper —That would vary across the Defence organisation. People trying to equip themselves to be in a position to answer the questions of committee senators involves having a brief in front of them—just as I have one that gives some breakdown of that figure, for example.

Senator HOGG —But surely some of that would be material that was prepared in respect of the compilation of the budget itself or the additional estimates document itself. Surely this is not starting from the ground up?

Mr Harper —That is correct in many cases.

Senator HOGG —It would seem to me that that necessarily would not reflect the true costs because the true costs of estimates would be absorbing the costs that were associated with the compilation of the budget or the additional estimates.

Mr Harper —From memory, the question that Senator Brownhill asked—

Senator HOGG —No, I understand the question he asked. I am just asking you this now. Could you look at that for me? It would seem to me that, in preparing for the budget itself, the department would put together a number of briefs, which would be the explanations that would be used to substantiate the questions that are asked from this side of the table. There is some double counting there; that is what I am saying.

Mr Harper —It certainly is the case, particularly with hearings later in the financial year where circumstances have changed and much of the effort may be describing how things have changed from what we had first envisaged at the time the budget was put together. But we can have a look and, as best we can, try to come up with some response to your question, Senator.

Senator HOGG —Do you have a figure in the actual budget itself that reflects the costs of estimates and other processes? There are just not appearances before this committee; there are appearances by Defence before the Public Works Committee, before the Joint Committee of Parliamentary Accounts and Audit and so on. Do you have an estimate of those costs?

Mr Harper —I do not think we would have an explicit statement across the department of all of those activities, although it would probably be implicit in the budget of individual areas that might reasonably expect to occasionally interact with the parliament and its committees.

Senator HOGG —Do you also have an estimate of what it costs for officers of the defence department to interact with the likes of representatives from the Australian National Audit Office? That must undoubtedly consume time of officers of the department. There are a number of ANAO reports that have been tabled in recent times in respect of the department. Do you have an assessment of those costs?

Mr Harper —I would be very surprised if we did, Senator.

Senator HOGG —If you can supply me, without it being an enormous task and without putting the department to great expense, with some idea of your costs in those general areas that I have just described—take it on notice—I would appreciate it. This is obviously something that I will pursue at the budget estimates, if I can, subject to what answers you can give.

Mr Harper —Yes.

Senator HOGG —But I do not want you or members of your staff to spend copious numbers of hours on it.

Senator HOGG —If I can move on to the appointment of the CDF, VCDF and service chiefs, the minister made an announcement yesterday on the appointment of the CDF, the VCDF and the service chiefs. Are you able to tell the committee when the minister first agreed to those appointments?

Rear Adm. Ritchie —I would not have that information and I doubt that anybody in the room has it.

Senator HOGG —Could you take that on notice and answer that for me, please?

Rear Adm. Ritchie —Yes, we will take it on notice.

Senator HOGG —Do we know if the minister requested a list of possible candidates for those positions from the department at all?

Rear Adm. Ritchie —The normal arrangement is that the minister certainly seeks the views of the department on possible contenders for those appointments. I think he seeks the views of the secretary and the CDF on possible contenders for those other appointments.

Senator HOGG —So the secretary and the CDF, you say, would have been consulted?

Rear Adm. Ritchie —In the case of the positions of the service chiefs, I would think so, but I cannot confirm that. I am not privy to what the minister did.

Senator HOGG —Would you take steps to see if you can confirm that for me—just what internal processes did take place between the secretary and/or the CDF and the minister's office in relation to the appointment of the CDF, the VCDF and the service chiefs, if any?

Mr Corey —We actually do not know when the minister approved them, but we know that the instrument of appointment was signed by the Governor-General on 27 April.

Senator HOGG —So the instrument of appointment was signed on 27 April.

Rear Adm. Ritchie —Do you wish to pursue the matter earlier than that?

Senator HOGG —Yes, if you can, please. Do we know whether the positions were positions made purely by the minister or were they cabinet appointments?

Rear Adm. Ritchie —It is my understanding that they are cabinet appointments.

Dr Williams —It is essentially a cabinet final decision to appoint.

Senator HOGG —So cabinet makes the appointment, or are they recommendations of the minister? Do we know that?

Dr Williams —No.

Senator HOGG —Do we know whether the Department of the PM&C or the Prime Minister or any other form of his office provided any advice to the minister on the appointments?

Rear Adm. Ritchie —We do not know that.

Senator HOGG —Do we know why the Chief of Air Force was only reappointed through to next year?

Rear Adm. Ritchie —I think he is too old, but we could ask him.

Senator HOGG —I think I was very kind in the way I phrased that. Here am I trying to keep someone in a job.

Air Marshal McCormack —The date given on my instrument is 29 August 2001. That is the day before my 60th birthday, which is the oldest you can be in this job.

Senator HOGG —So you are running into the big 60 problem?

Air Marshal McCormack —That is right.

Senator HOGG —If I can refer back to the PM&C, can you make inquiries as to whether PM&C or the Prime Minister's office as such was involved in any way with the—

Rear Adm. Ritchie —Yes.

Mr Corey —I do not think they will provide that advice. I am not sure that it is something we should be seeking; I think it is something you probably should seek from the Prime Minister's department.

Senator HOGG —If we have to seek it, all right, but I am asking you if you can. If you cannot, you cannot.

Mr Corey —We could probably ask, but I am not sure we would get an answer.

Senator HOGG —Mr Corey, I know you are a very persuasive person.

Senator Herron —The normal procedure is that a minister proposes appointments and they get discussed at cabinet—

Senator HOGG —I understand that. I am just trying to find out whether PM&C or someone in the Prime Minister's department was involved. Last but not least I have a couple of questions on consultants and contractors. Could you explain to the committee what is the difference between a `consultant' and a `professional service provider'? We ran into this difficulty in the last additional estimates. We are a little bit confused as to the definitional difference between a `consultant' and a `professional service provider'. Can someone cast some light on that for us?

Dr Williams —My understanding—maybe someone can give a better answer—was that a professional service provider was essentially someone who comes on to provide an extra set of hands to do a particular task, if I can put it simply.

Senator HOGG —So they are a consultant by another name?

Dr Williams —A consultant is normally someone with particular specialist expertise that you are getting to do a review or whatever.

Senator HOGG —I thank you very much for that, Dr Williams, but you have now confused me more than ever.

Mr Harper —I am not sure that I can unconfuse you.

Senator HOGG —Give us a go. I am sure you can try me. What is the difference?

Mr Harper —I was merely going to observe that I understand there is a standard definition that is used across the public sector. We could probably undertake to retrieve it and pass it to the committee.

Senator HOGG —If you use a standard definition of those people across the public sector, I would appreciate that. Can you tell me whether Defence has any guidelines in deciding how to categorise a professional service provider as opposed to a consultant? What makes you decide that one person wears hat A and the other person wears hat B?

Mr Harper —I could probably respond in the context of our response to the earlier one which I took on notice, but I would imagine that we would be applying the guidelines to the employment circumstances of the people we have assisting us to do our work.

Senator HOGG —I appreciate the fact that you are struggling as much as I am in trying to understand your response—that is not a criticism because it is very confusing—so I wait with great delight the answer that you will provide. Can you further provide the committee with the list for the last financial year of the PSPs that were used by the department for non-DRP functions—that is, functions that have not been outsourced as part of the DRP? You will obviously need to take that on notice.

Mr Harper —I do not have that detail at the moment. I have been bailed out somewhat from my earlier response and in front of me I have documents which suggest that a `professional service provider' is an external specialist engaged to exercise professional/technical skills in the delivery of a service whereas a `consultant' is a person who is engaged to conduct an investigation, review or evaluation but not implementation of policies, proposals or activities with a requirement to provide information and advice on the development or refinement of defence processes or to assist defence management in decision making.

Senator HOGG —I hope no-one has to look up these definitions before they apply them, do they?

Mr Harper —I imagine that, in the context of drawing a line between the consultants and the PSPs, our people are doing that.

Senator HOGG —How do they draw the line simply?

Rear Adm. Ritchie —What he is saying is one provides advice and the other actually does work for us.

Mr Harper —It probably is a quasi legal definition in trying to draw a line, much along the lines of that simple statement.

Senator HOGG —So it is as simple as that.

Mr Harper —Yes.

Senator HOGG —In addressing my further question, if you could then address that for me in those terms, in your answer to my question W5 from the last hearing you indicated that the department would be in a position to provide the details of the consultants for the first half of this financial year at this hearing. Do you have that information?

Mr Harper —Our figure for the first six months of this financial year is $9.6 million spent on consultants.

Senator HOGG —How many consultants does that cover, broadly?

Mr Harper —I do not have that figure with me. We would need to take that on notice.

Senator HOGG —Can you take that on notice and give me a list of who they are? If it is something that is readily accessible give it to me by all means.

Mr Harper —I think there may be information of that nature produced annually in the annual report.

Senator HOGG —There is, but I am just wondering whether you can give it to me for the first six months. You will take that on notice?

Mr Harper —Yes.

Mr Corey —Can I read a couple of answers into the proceedings?

CHAIR —Certainly.

Mr Corey —There was a question about the minister's security clearance and passes. The minister has no defence security clearance. A photo identification is at all posts, all police posts, and entries to buildings. Ministerial staff have passes and do have security clearances.

The other question related to whether ministers' diaries are made available to the secretary and CDF. The ministers' weekly schedules are made available to both the secretary and the CDF. These schedules include all details of the ministers' appointments in relation to their ministerial responsibilities.