CHAIR --The committee will consider particulars of proposed expenditure for the Department of Defence and then the Department of Veterans' Affairs. The committee will first put questions of a general nature and then will proceed to questions for the rest of the particulars of proposed expenditure on a subprogram basis, beginning with subprogram 1.1. I remind colleagues that the Finance and Public Administration Legislation Committee has been tasked by the Senate to inquire into, and report on, the format of the portfolio budget statements. As we go through the documents, you may wish to put on the Hansard record your thoughts on the PBSs: where they are clear and helpful or where they are confusing and hard to follow.

Senator Eggleston has placed some questions on notice. Minister, do you wish to make an opening statement?

Senator Newman --No, Madam Chairman, but Vice Admiral Barrie does.

Vice Adm. Barrie --I would like to open proceedings by making a statement about the defence reform program and its relevance to the matters under consideration by the committee. The 1997-98 defence portfolio budget statements provide the first detailed presentation of the implications of the defence reform program, in terms of our organisational structure and the allocation of resources. The defence reform program is the largest and most fundamental set of reforms for the defence organisation and related processes since the creation of one Department of Defence in the mid-1970s. The key features of the reform program are summarised at pages 8 to 12 of the portfolio budget statements.

In the time available between the announcement of the defence reform program on 11 April and the presentation of the budget on 13 May, it has not been possible to provide a detailed linkage between the resources allocated in 1996-97 under the existing defence program structure and the resource allocation proposed under the new program structure. Priority attention was given to the development of the 1997-98 budget allocations and the related performance targets for each of the new defence programs, and these are presented at section 2 of the document, from pages 41 through to 124. Further details of proposed expenditures and receipts by programs are provided at pages 130 through to 157. For this year, variations by appropriations between forecast outcomes for 1996-97 and the budget estimates for 1997-98 are provided at portfolio level from pages 24 through to 32.

As a result of further detailed work on the cost, scope and implementation of each of the detailed initiatives covered by the defence reform program, it is anticipated that substantial adjustments to resource allocations between programs will be reflected in the 1997-98 additional estimates. By way of summarising our perspective on the forthcoming year, we see it as a year of transition towards the final shape of the defence organisation by 1998-99.

CHAIR --Thank you. Are there questions of a general nature?

Senator SCHACHT --The minister, on 11 April, issued a statement announcing the defence reform program. Can you explain whether the defence reform program is a separate document from the efficiency program led by Mr McIntosh? Is there a separate document on the reform program?

Vice Adm. Barrie --I can answer that question. The defence efficiency review reports are the plank on which the defence reform program is to be built. The defence reform program has as its objective seeking the utmost efficiency from the organisation whilst maintaining effectiveness. At the same time, I had to recognise that, if we were to have a dynamic process, then there could not be any expectation that simply achieving the results of the defence efficiency review would be enough. Thus it was that the name was changed from the publication of the reports, the defence efficiency review, and there was the embarkation on what we call the defence reform program.

Senator SCHACHT --So the efficiency review has now become the defence reform program.

Vice Adm. Barrie --I would characterise it another way, Madam Chair: I would say that it forms the basis on which to start the defence reform program.

Senator SCHACHT --Is there any document available that explains the expanded reform program based on the efficiency review?

Vice Adm. Barrie --My answer to that would be that the portfolio budget statement presented for 1997-98 forms the public statement of the defence reform program at this time.

Senator SCHACHT --So pages 8, 9, 10, 11, 12, 13, 14 and half of 15--is that the description?

Vice Adm. Barrie --That is correct.

Senator SCHACHT --I must say that it is a pretty skimpy outline of the reform program based on an efficiency review program which came to at least two volumes, running into hundreds of recommendations. We now get a reform program outlined in the portfolio budget statements running to no more than about seven pages.

Mr Tonkin --As the vice-admiral was outlining, the defence reform program is the instrument to give effect to all the material that is in the defence efficiency review. In other words, it takes the review recommendations which were addressed by government. The government endorsed the reform program set out in the defence efficiency review. The defence reform program now brings that forward. The documentation you see at pages 8 to 12 is the summary of the broad intent of that.

Senator SCHACHT --You say it is 8 to 12, do you?

Mr Tonkin --Pages 8 to 12.

Senator SCHACHT --I see. Is Restructuring the Australian Army on page 12 part of the reform program or not?

Mr Tonkin --It is part of the wider reform programs being undertaken in Defence but, not to have any confusion, it is a separate exercise from the Defence reform program per se. We are moving ahead on a range of fronts. The restructuring of the army commenced before the Defence efficiency review. There are other aspects in this book. If you look through the descriptions of the strategies to be followed by each of the 14 new programs--at pages 41 to 124--you will see strategies being set out in summary form of how we are going to move forward initially on our reform program. It is a progressive exercise. That is why it has been expressed this way.

Senator SCHACHT --I want to get this clear now. The document, Restructuring the Australian Army, came out in February 1997 under the signature of Ian McLachlan, the Minister for Defence. Is that document the basis of what is on page 12 about restructuring the Australian army?

Mr Tonkin --Yes.

Senator SCHACHT --This is different from the efficiency review or the general reform program?

Mr Tonkin --It is a major additional aspect of our ongoing reform program, the same way that the commercial support program on the next page is; and so on.

Senator SCHACHT --The audit reports of the National Audit Office make a number of recommendations that deal also with efficiency. With respect to audit reports 1996-97, Nos 27, 15, 34 and 17--in no particular order--are their recommendations where appropriate also in the reform program; are they being taken up as part of the reform program, the efficiency review or the restructuring the army process; or have they been dropped in the bin?

Mr Tonkin --All the actions in response to the audit reports will be addressed as we progressively improve our organisation, which is the purpose of having the audit activities undertaken. They will be incorporated and built into this process. The Defence reform program, as defined and set out on pages eight to 12, is that program of initiatives which give effect to realising the efficiency gains identified and announced by the minister on 11 April. All of that redirection of resources from support is to cover our capabilities. The measures you see on pages eight to 12 are those measures to give effect to those outcomes.

Senator SCHACHT --While we are on about various reports, is the report which came out in November 1996 and which is mentioned on page 14, Women in the Australian Defence Force--page 14 has four dot points for further work to be done--part of the reform program, the efficiency review, the restructuring the army process or something else?

Mr Tonkin --The implementation of the recommendations which flow from that study will be reflected in the changed personnel management practices which will form part of the way in which we manage personnel in the Defence Force into the future. To that extent, they form part of the reform program. That report was not directed towards that particular objective.

We are not going to set up our organisation with separate elements of it addressing these separate things. We want an integrated organisation which focuses on all these things in parallel. We want it as integrated as possible. We are not having one part of the organisation saying, `Let us look at women in the ADF,' and another part saying, `Let us look at the Defence reform program.'Clearly, the personnel executive of the Defence organisation will address the women in the ADF report.

Senator SCHACHT --Page 15 relates to the review of the ADF housing and accommodation policies which commenced in July 1995. Its recommendations are being considered within the Defence organisation. Are they part of the Defence review program, the reform program or are they separate?

Mr Tonkin --In large measure, the recommendation will be additional. As the Defence efficiency review was being conducted, it was not conducted in a vacuum. The various teams that looked at issues within that process took account of all the measures, all the reviews and all the issues that were current at the time.

They sought as far as they could to integrate those reviews into the one structure. So, to some extent, it will be part of the reform program. If it goes further than that, then it will be picked up additional to that.

Senator SCHACHT --When do we get some idea, from these various reports, of what will be picked up in the reform program and what will not be?

Mr Tonkin --Pages 8 to 12 give a summary of what will be picked up in the defence reform program.

Senator SCHACHT --But on page 15, under the heading `ADF Housing and Accommodation Review', there is one paragraph and you have suggested there that, where appropriate, things will be picked up, but you give no idea of what they are.

Mr Tonkin --The policies that arise from that review will require administrative action to develop the mechanisms to put them in place. It will require, in some areas, investment strategies. Those things will occur progressively. It is not possible at this point to spell those all out.

Senator SCHACHT --That is the point I am getting at. When will they be spelt out? What is the timetable for, say, the review of ADF housing and accommodation? When will we get spelt out what is being adopted, what is being changed, or is it just going to fall off the table?

Senator Newman --I understand that we will get the specific detail of that in program 8, or at least that is the opportunity to ask the detailed questions. This is an overview.

Senator SCHACHT --This is the overview. I just want to try and get the structure in our minds of how this is being handled and what is on the table, what is off the table and what is normally going to happen anyway. It is not clear from these documents what the comprehensive view is of these various reports.

Vice Adm. Barrie --What I would say is that the defence reform program is the implementation process coming out of the defence efficiency review reports for the organisation and management of the defence function. The issues which are picked up under defence assistance to the civil community, women in the ADF, personnel policy strategic review and the housing accommodation review and the outcomes of those have all got to be picked up as part of the implementation process by the various heads of organisation over the next year or so.

Senator SCHACHT --That can mean anything, Vice Admiral, with all due respect. Can I put this to the minister, because I think it rests with the minister? Although the efficiency review has been made public--I think in November last year--as I understand it it has yet to be tabled in the parliament. Is there any proposal by the Defence Minister to table the report in the parliament so that there can be a genuine parliamentary debate about the report and its recommendations?

Senator Newman --I understand that it is only about eight weeks since it was released.

Senator SCHACHT --Can we get an idea of when it will be tabled in the parliament?

Senator Newman --I will take advice on that. I cannot give you an answer directly, but I will try and get some advice.

Senator SCHACHT --But don't you think, Minister, that it is a reasonable proposition that something that is talking about restructuring the defence forces, that costs thousands of people their jobs and that reports to make savings of up to $1 billion per annum is something that ought to be tabled and debated in the parliament?

Senator Newman --I thought you might have also mentioned that it is designed to better protect the whole of the rest of the population, while you were canvassing what it was about.

Senator SCHACHT --Of course. But why does it take--

Senator Newman --I would be very happy, as I have said already, to get some advice on that and get back to you during the course of the estimates. I cannot do it this minute.

Senator SCHACHT --During the course of today?

Senator Newman --Yes.

Senator SCHACHT --Thank you very much. That would be very useful.

Senator Newman --I said that once before.

Senator SCHACHT --Has the report on restructuring of the Australian Army been tabled in the parliament--the report that came out in February 1997? It may have been.

Major Gen. Hartley --The answer is no, Senator, it has not been.

Senator SCHACHT --Is there any plan for the minister to table it in parliament?

Major Gen. Hartley --I am not aware of one.

Senator SCHACHT --Can you take that on notice too during the afternoon, Minister, to get an answer as to whether the minister is willing to table the restructuring of the Australian Army report which he put out in February 1997?

Senator Newman --I will see what can be done for you.

Senator SCHACHT --It is not a matter of seeing what can be done--if we can just get an answer, yes or no.

Senator MARGETTS --I am always interested in such things as the tabling of these kinds of reports. I wonder whether or not industry gets access to them, whether these reports are circulated to elements of defence industry, and at what stage any of these reports, like restructuring of Army, are circulated to industry? Is it before or after they are tabled in the parliament?

Vice Adm. Barrie --I can speak for the defence efficiency review reports which were widely released on 11 April following the ministerial statement.

Senator MARGETTS --So they have been released to industry.

Vice Adm. Barrie --They have been widely released to the public, as I am aware.

Senator MARGETTS --But have not been tabled.

Senator SCHACHT --Has the review of ADF housing and accommodation policies, mentioned on page 15 of your document, been formally completed?

Air Vice Marshal Cox --The process of reviewing the housing has been an ongoing one, as you have noted. It responds to and picks up some recommendations made by the National Audit Office. A review has been completed. The chiefs of staff have considered a report on the matter and it is now to go to the minister.

Senator SCHACHT --Did the chiefs recommend to the minister that it ought to be tabled in the parliament?

Air Vice Marshal Cox --No, I do not believe so. I think this particular report needs to be kept in context. It is an ordinary working report which would normally be completed by the department and the headquarters of the Australian Defence Force in the furtherance of the policy on accommodation and housing.

Senator SCHACHT --I can appreciate that in normal circumstances but Mr Tonkin said a little while ago that a number of those recommendations will be considered in the overall reform program. What documents can the parliament deal with that are going to be relevant to the reform program? You cannot say that we are going to have a reform program and only table half the documents. It will be a bit like standing in quicksand: we will never know exactly what we are dealing with. You might, but I do not think the parliament will. You do not know whether the chiefs have recommended that it be tabled or whether they are just leaving it to the minister to decide that?

Air Vice Marshal Cox --I suspect it would be the latter, and that would be the normal process.

Senator SCHACHT --Page 14 refers to the report titled Women in the Australian Defence Force. Will any of those recommendations be dealt with as part of the reform program?

Air Vice Marshal Cox --I can understand the position you are in--

Senator SCHACHT --I wish you could! We are in opposition and--

Air Vice Marshal Cox --The reports that have been encapsulated in this document are ongoing reports which have been the ordinary business of the department and the headquarters of the Australian Defence Force. Our attention to equal opportunity and sexual harassment, and issues of that kind, are longstanding and well-known. Indeed, we had a report done by a Dr Clare Burton. That report you instanced--Women in the Australian Defence Force--is the result of her deliberations and it has been widely released. In fact, at the last hearings I had copies which I circulated quite freely. There was a companion document to that which was done by a major in the ADF.

Flowing from those reports, the ADF has made a decision that it will further those recommendations by putting in place organisational arrangements within the department to pick up the issues. They are ongoing issues which have been taking place in personnel for some time but, in the context of this particular document, they do give the ADF a better way of doing business.

Senator SCHACHT --Whether you accept all of the recommendations or reject them all or whatever, are they having some influence on the reform program?

Air Vice Marshal Cox --Yes, they will have an impact on the way the Australian Defence Force does its business.

Senator SCHACHT --In that case, can you tell me whether the report by Clare Burton, Women in the Australian Defence Force, and the companion report Sexual harassment in the Australian Defence Force, by Major Kathryn Quinn, have been tabled in the parliament?

Air Vice Marshal Cox --I do not recall but I think they have been released under a ministerial release.

Senator SCHACHT --In view of the indication that it has been released in one form or another, even if it might be tenuous--I hope it is not because I think the recommendations are very useful for the reform program--wouldn't it be appropriate for these documents to also be tabled in the parliament?

Air Vice Marshal Cox --It is a question for the minister.

Senator SCHACHT --Minister, during the afternoon, can we check with Mr McLachlan whether he intends to table those two reports as well?

Senator Newman --I am advised that the last couple of reports that you have just mentioned have already been published. Have you got a copy?

Senator SCHACHT --Yes, I have got copies. I got one out of the library and one from Senator West. But what I am after is the list of reports.

Senator Newman --We will certainly add that to the list and ask the minister.

Senator SCHACHT --What documents have been issued within Defence that set out the defence review program?

Vice Adm. Barrie --The major document that has been issued is the portfolio budget statement. There have been some directions given to individual office holders about what is required of them and at the moment we are involved in the planning process for them.

Senator SCHACHT --Are you telling me that what has been circulated in Defence--the defence reform program--which came out at the end of last year is the equivalent of four pages from the portfolio budget statements?.

Vice Adm. Barrie --The defence reform program was issued on 11 April this year and it was used as a basis for the establishment of the portfolio budget statement.

Senator SCHACHT --So the defence reform program is attached to the 11 April statement by the minister?

Vice Adm. Barrie --Yes.

Senator SCHACHT --The minister's statement goes for two and a half pages, then there is an addendum to the report of the defence efficiency review which is called the secretariat papers. Was this published when the full report was tabled?

Vice Adm. Barrie --There are two components in the full report. One is the report of the senior review panel, which is the thin book. The thick book is the report of the secretariat and the addendum.

Senator SCHACHT --So is this addendum part of the original document?

Vice Adm. Barrie --Yes, correct.

Senator SCHACHT --Right. So, after several months, this is all that has been circulated to the defence forces of Australia to give them an idea of what they are supposed to be doing?

Vice Adm. Barrie --No, that is not correct. That is the basis on which the defence reform program has been started. The process of going through and planning the changes to the organisation and the workplace implementations are in full flight as we speak. There have been numerous communications by signal and other means to tell people in the ADF what is going on. At the moment, our plans will take at least another year to implement.

Senator SCHACHT --Page 2 of the minister's statement of 11 April says that the changes will be in place from 1 July 1997. Can you outline the specific changes, rather than this general description--some of this material is very general--that will be in place by 1 July?

Mr Tonkin --On 1 July this year, the 14 programs which you see summarised in this document will be established. The heads of those programs will be in place and will have at least developed the first view of their implementation plans. As you read through the defence efficiency review report, or the outline of the defence reform program, you will see that the changes envisaged are quite comprehensive and go across many areas. We expect that the process will be a progressive and ongoing one.

Some changes can occur more quickly than others. Those changes requiring systems enhancement in advance clearly require the systems to be developed first. Others, because they are more organisational in nature, can change more quickly. So on 1 July we will have a structure in place. The people running it will be in place, and the initial implementation--

Senator SCHACHT --Just slow down. Again, what will be in place?

Mr Tonkin --The high level structure will be in place, the officers charged with running that high level structure will be in place,--

Senator SCHACHT --The officers will be in place?

Mr Tonkin --Yes, they are in place now. Their initial implementation plans are to be completed by 30 June. The officers charged with those areas are at the moment, and have been for the last month or so, developing those concepts, and looking at the organisations and process which need to be established or changed. They are looking at the next level of organisational structures so that those will largely be in place by that period. From 1 July, each of those programs, and some of them are very large organisations in their own right, will commence implementation of the report findings and that will be progressive.

That is what happens on 1 July. It is not something that is announced on 11 April and complete and in place on 1 July. What was announced on 11 April was primarily a series of concepts and principles and a set of targets derived from the work of the defence efficiency review.

Senator SCHACHT --From the efficiency review, under `Structure', which recommendations will be in place by 1 July?

Mr Tonkin --In terms of `Structure',--

Senator SCHACHT --The first thing you mentioned--

Mr Tonkin --The defence efficiency review recommended the establishment of 12 programs. That has now been modified in the defence reform program to establish 14 programs and they will be in place, but the funding--

Senator SCHACHT --When was it announced that the 12 would become 14?

Mr Tonkin --It was announced in this document.

Senator SCHACHT --Which document?

Mr Tonkin --It is on the bottom of page 10 and the top of page 11 in the summary of the defence reform program.

Senator SCHACHT --Did that come out of the 11 April announcement?

Mr Tonkin --This is the implementation of that--

Senator SCHACHT --The program structure--

Mr Tonkin --The action response to that particular recommendation is summarised on pages 10 and 11 and reflected in the whole nature and construction of these portfolio budget statements.

Senator SCHACHT --Just for my general information, Mr Tonkin, what were the two extra programs that were added under program structure that differed from the efficiency review?

Mr Tonkin --The efficiency review recommended an administration program as one of the 12 programs proposed. Instead, we have established a corporate information program, a corporate support program and a finance and Inspector-General program. They are the three programs established and broadly they cover the area of activity envisaged by the administration program.

Senator SCHACHT --Why did you go to three different corporate structures?

Mr Tonkin --The are a few reasons. The aim of the 14 program structure is to make very clear and explicit the cost of each of the enabling activities in our organisation which are directed towards the support of the combat and defence capability aspects. If you look at the 14 program structure, the first five programs are our capability and the headquarters to give effect to that. The other programs support, in one way or another, those activities.

It was felt that if you had a very large administrative program you ran a significant risk that the program would be so large in scale that it would focus inwards on its own affairs rather than be targeted towards a client focus or supporting other people. We wanted to say, `What is the actual cost of each of these fairly discrete aspects of administrative support?'. In that way it would be visible for the first time. We could then target the realisation of efficiencies, effectively, and we could construct those programs so they would operate in a way which contributes to the output of the organisation rather than be focused inwards.

Senator SCHACHT --How many existing assistant secretaries, first assistant secretaries or deputy secretaries, or colonels or brigadiers, have had their jobs protected by having three separate corporate structures?

Mr Tonkin --None.

Senator SCHACHT --So by splitting it up into three, you did not reduce the number of people who had to be made redundant?

Mr Tonkin --No, we did not. In fact, the whole point of having these programs is to target much more effectively the realisation of these efficient gains. You will see over time, as this program goes on, that we will--

Senator SCHACHT --Mr Tonkin, I thought that the efficiency review was all about putting stuff up the pointy end of the ship or the pointy end of the plane or the pointy end of the tank. It seems to me the only area Defence has adjusted the efficiency review is back down at corporate level.

Mr Tonkin --Perhaps it is the difference between the superficial examination of the move from eight to 14 and an actual examination of what happens in the management and realisation of those actual--

Senator SCHACHT --So Dr McIntosh was superficial in this area, was he?

Mr Tonkin --No. I am suggesting that simply saying you are going from eight to 14 is being rather superficial.

Senator SCHACHT --Oh, sorry--I am being superficial? Goodness me, I am cut to the quick! So when Dr McIntosh's recommendation for one corporate unit is being broken into three different corporate areas, you are telling me that there is not an increase in demand for a number of assistant secretaries or first assistant secretaries?

Mr Tonkin --No, there is not; there is a reduction in the number of assistant secretaries in the organisational profile.

Senator SCHACHT --Wouldn't there have been more if you had it all in one organisation?

Mr Tonkin --Not particularly, no. You have to distinguish between how you put the functions of our organisation into programs or into heaps, if you like, and focus more particularly on how you make each of those functions or groups of activities more efficient. It is not so much the number of programs, but how each of those programs can be made to perform. Our judgment is that constructing it in the way that we have is the best way to make those programs perform in support of the combat end. That is the purpose of the review process and that is how we will achieve it.

Senator SCHACHT --On page 10 you have a subheading `Corporate Management and Support'. This is the rationale for going to 14 programs, is it? The description there in five dot points, in particular about the different structure for corporate management--

Mr Tonkin --It is a description of those areas that come under--

Senator SCHACHT --But it does not actually point out in this document, does it, that this is actually different from what Dr McIntosh's review recommended?

Mr Tonkin --No, because this document is saying that these are the key features of the defence reform program.

Senator SCHACHT --One good advantage of the estimates is that we have actually found out that this is your excuse for changing the review. It might be a very justifiable excuse, but a member of the public or anybody else would not automatically have got from reading this that you have changed the review recommendations.

Mr Tonkin --I might check this, but I think you will find that this was part of the detail which was actually announced on 11 April.

Senator SCHACHT --This was actually in the statement of the minister over three pages? Are you are telling me that--

Mr Tonkin --And there was an attachment in the minister's press release. I think you will find that attached to the minister's press release was a summary which is--

Senator SCHACHT --This is what the secretariat--

Mr Tonkin --No. In the minister's press release on the announcement of 11 April there was an attachment which set out the features of the defence reform program. There was no variation, to my knowledge, between what was set out on that day and what is contained at pages 8 to 12.

Senator SCHACHT --We may have missed it, Mr Tonkin, and that may be our fault. I would appreciate it if you would send me the further material.

Senator Newman --An efficient opposition would have the minister's press release always hot off the press.

Senator WEST --Trust the minister's press release--just don't panic about that.

Senator Newman --There you are. See, Senator, you have been too long in government, you do not understand.

Senator SCHACHT --I would be interested if you could send us that further information. Unlike Senator Newman, I do not claim perfection.

Senator Newman --You keep practising. You just stay in opposition a bit longer.

Senator SCHACHT --I never claim perfection.

Senator WEST --There is only one bloke who did that and he ended up on a cross for it.

Senator SCHACHT --I would appreciate any further information. In the efficiency review, in the thin document, there are 18 findings and 52 recommendations. In the thicker document, the secretariat papers, by my calculation there are 239 recommendations. Can you tell me which recommendations are going to be operating by 1 July--first of all, of those in the thin document? It is not clear from the minister's statement of 11 April, I can tell you.

Mr Tonkin --The first clarification point is that the reform program which was endorsed by government is the recommendation set out in what Senator Schacht has described as the thin document--the report of the senior review panel.

Senator SCHACHT --The report of the defence efficiency review--the thin document; I do not know how else to describe it.

Mr Tonkin --That is the program which has been endorsed by government. That is the program which will be implemented as the defence reform program. The recommendations in the secretariat papers, which is the thick document, are informatory; they are not binding recommendations.

Senator SCHACHT --There is a non-core promise?

Mr Tonkin --You will find that there are words to that effect at the front of the thick document. So they do not form part of the defence reform program necessarily. In many instances they will--

Senator HOGG --How will we find out? This is a real guessing game for us. I have been listening to you now for quite a while. There are 70 findings.

Mr Tonkin --These are the recommendations.

Senator HOGG --The findings and recommendations here--

CHAIR --Order! Senator Hogg, the officer is answering the questions.

Mr Tonkin --The recommendations in the thin report are the recommendations which form the basis of the defence reform program.

Senator SCHACHT --Can you just stop there. Has the government accepted each of the 18 findings and 52 recommendations? Have they endorsed all of them in the thin document?

Mr Tonkin --The words that were used were `The government has endorsed the reform program set out in the review.' The defence organisation is required to report to the Minister for Defence on how we do that. The minister is requiring us to report to the minister on how we are going to go forward with respect to each of those 18 findings and 52 recommendations. So you can take it that that is the outline against which we are reporting.

Senator SCHACHT --Is there a cabinet decision endorsing and accepting the 18 findings and 52 recommendations in what I call the thin report?

Mr Tonkin --The government's decision was to endorse the reform program as set out there.

Senator SCHACHT --You have said that five times. I want to know whether the actual recommendations have been endorsed. If you go through these recommendations individually, some of them are very significant changes to the defence organisation of Australia. I want to start going through them and finding out which ones you have discarded and which ones you have accepted, particularly by 1 July.

Senator HOGG --Following on from Senator Schacht's question, I want to know--

CHAIR --Senator Hogg, perhaps if we deal with one question at a time.

Senator HOGG --No, I think it is integral to it. Does a finding have the same force as a recommendation? That is also important to us.

Mr Tonkin --Firstly, I will deal with Senator Schacht's question. The government's decision, by my recollection, did not address each recommendation; it addressed the document as whole.

Senator SCHACHT --This is a new form of public administration that I have not come across before, I suspect.

Senator Newman --He did not trust you.

Senator SCHACHT --No. Whenever I observed before, the government had a report; in the end a document was made available publicly in the parliament saying, `We've accepted recommendations 1-15; we've objected to recommendation 16,' et cetera. It seems to be odd that you are not doing that at the moment; it seems to be a moveable feast.

Senator Newman --I have already said, Senator, that I will get advice from the minister responsible and get back to you. If you want something to be added to it as to what his intentions are, I do not know whether he is prepared to give us that answer today, but I will certainly seek it. It is not fair to pillory the officials for what might or might not be the minister's intention, because it is up to him. That report has only been received in the last few weeks.

Senator HOGG --At page 8 in the PBS it says:

The DRP is a comprehensive blueprint for change to deliver . . .

We have no blueprint whatsoever. It might be comprehensive, but we are left to piece the jigsaw together. Let me say, quite frankly--

Senator Newman --That is what happens to oppositions, Senator: they do not always get to see the documentation. I point out from the past 13 years that that has been my experience quite a lot.

Senator HOGG --It is a pretty poor way to manage the portfolio.

Senator Newman --Yes it was, but we had that situation for years.

CHAIR --Order! Senator Schacht and Senator Hogg, the minister has indicated that she will seek advice on the questions you have asked the officer on this particular topic during the course of the estimates committees, and we would expect an answer on those topics. Therefore, I think we should move on to further general questions.

Senator WEST --We are not in a position to know if those 70 recommendations have been accepted or not. How the devil are the Defence Force and the Department of Defence in a position to know what precisely has been accepted and rejected for them to actually implement?

Senator SCHACHT --It seems to be a very reasonable management question.

Senator HOGG --And also the standing of the other 230 recommendations.

Senator Newman --Madam Chairman, I would suggest to the senators that in fact it is the responsibility of the Minister for Defence to receive a report and decide whether to act upon it of his own volition or whether to take it to cabinet and get confirmation from his colleagues, and then to determine in what order recommendations are to implemented in his management of his department. That is not necessarily an issue for the concurrence or otherwise of the Senate estimates committee, but I have said over and over again that, if there is anything useful that I can get during the break to help the committee, I would be happy to do so.

Senator SCHACHT --Can you send a message out now?

Senator Newman --Would you like to put all your questions on notice and we will check them all out?

Senator SCHACHT --No, I do not want to put them all on notice, but that is what you would like.

Senator Newman --I thought you might find it convenient, too, instead of just going over and over old ground.

Senator SCHACHT --No. It is your own PBS document that you put to the estimates that talks about a blueprint and gives a considerable amount of detail, but not to the level that responds to what is in the various efficiency reviews. I would have thought that, with something like 150 people present, surely somebody would have said to the minister, if he did not think of it himself, `Minister, there is a fair chance that in the estimates committee some manic senator from South Australia or somewhere else may ask a simple question on which of these recommendations have been adopted and which have not. This is a major issue that you have put on the agenda for the estimates committee itself.

CHAIR --The minister has offered to find out the answer to your questions and, until we receive that answer, I do not know that we can profitably pursue this.

Senator Newman --I have just had some assistance, Madam Chairman, from Mr Tonkin. He points out that the minister's press release of 11 April did say that the efficiency review's 70 findings and recommendations will be used as benchmarks to measure reform progress. It went to say that he expects that there may be some marginal changes from the review recommendations as the defence reform program progresses. It is an evolving matter and it is finetuned as it goes along to be most effective. I do not know that that necessarily needs senators to tick off on every step of the way. The information you are given here is substantial, and you have had the details of the recommendations and the minister's press release to say that he is going ahead with it.

Senator SCHACHT --This ought to be a chapter of Kafka. This is just going around and around. I will send this off to one of those blokes who write Yes, Minister. You are really a caricature here, Minister, I have got to say. As soon as we ask a question specifically, you say that you cannot answer it until you speak to the minister.

CHAIR --Is that a comment or a question?

Senator SCHACHT --It is both.

Senator Newman --I recognise your frustration. It is the frustration of opposition, as I said before. It is time--

Senator HOGG --That is not a very valid reason.

Senator Newman --No; it is an understanding--and a sympathetic understanding, at that.

CHAIR --Order!

Senator Newman --You can work to get into government again.

CHAIR --Order! Senator Margetts, did you have a question?

Senator SCHACHT --I was going to ask the Minister this: the defence efficiency review's 70 findings and recommendations will be used as benchmarks to measure reform progress. Who is deciding in Defence what the benchmarks are?

Senator Newman --I understand that the minister will be determining that.

Senator SCHACHT --What advice has he been given to decide what the benchmarks are?

Mr Tonkin --Madam Chair, the defence organisation is required to report to the minister monthly on progress against each of the 18 findings and 52 recommendations as expressed in the defence efficiency review. Those reports to the minister will address, as necessary, any variation which we would propose as to how those recommendations might be expressed or implemented. As the minister's press release said, there may be some changes to wording or emphasis, and that is a matter for us to communicate with our minister, which is the normal course of implementation of any policy proposal.

Senator SCHACHT --I'll put it around this way to make it a bit easier for you. This is not your problem; this is the minister's problem. Of the 18 findings and 52 recommendations, which ones already have been accepted as a benchmark unchanged, with no marginal change? If you like, we will go through them one by one. I am happy to do that and tick them off, saying this one has been accepted as a benchmark and this one has not.

Mr Tonkin --I think the answer is that until we report initially to the minister, we cannot conclusively say.

Senator SCHACHT --You have reported to the minister.

Mr Tonkin --Our first report to the minister is imminent.

Senator SCHACHT --It has to be imminent because by 1 July you said you would have something implemented.

Mr Tonkin --Yes. Fourteen months for the first report will be effectively at the end of May. That report has been drafted. It has yet to be considered.

Senator SCHACHT --It was drafted in May?

Mr Tonkin --At the end of May.

Senator SCHACHT --At the end of May. That is to be the June report?

Mr Tonkin --The status of implementation and progress as at the end of May. You get to the end of May and you analyse where you have got to and then you write the report.

Senator SCHACHT --Tell me which ones of these 18 findings and 52 recommendations have been accepted as a benchmark in the May report that is now before the minister?

Mr Tonkin --All the findings and recommendations are benchmarks against which we are addressing--

Senator SCHACHT --Which ones have you not accepted as benchmarks?

Mr Tonkin --If all have been accepted, it follows that none have not been accepted as a benchmark.

Senator SCHACHT --Why does the minister then say in his press statement that there may be some marginal changes?

Mr Tonkin --You can have a benchmark from which you can have a marginal change.

Senator SCHACHT --But that means that the benchmark is changed.

Mr Tonkin --Once we have reported to the minister, then I expect that if the minister will have varied the benchmark on that particular item, if there are any, he will then say, `Henceforth, in respect of that particular issue, my benchmark is different.' That is a matter for us to report--

Senator SCHACHT --In the report to parliament, have you recommended any marginal changes on any of the 18 findings and 52 recommendations?

Mr Tonkin --I think that is a matter that first we ought to be reporting to our minister.

Senator SCHACHT --I am not asking you to give me each particular one.

Mr Tonkin --That is the subject of correspondence between ourselves and our minister.

Senator SCHACHT --So the report is now before the minister?

Mr Tonkin --No. It will be with the minister shortly. That advice is advice which is going to go to our minister.

Senator SCHACHT --You cannot give any indication whether you have made marginal changes to any of the all-up 70 benchmarks?

Senator Newman --That is a matter of advice to the minister. I do not think that is a matter for you to inquire into. You would not have liked that when you were a minister.

Senator SCHACHT --When I was a minister, I would not have handled it this way.

Senator Newman --You were never appointed to be Minister for Defence that I know of. You could not quite make it.

Senator SCHACHT --That is true. You did not make it either, I notice, Minister.

Senator Newman --No, but I get to spend four times as much, though. Sad, isn't it?

Senator SCHACHT --That is what worries me even further! Will the minister make available a further statement publicising which one of the efficiency recommendations have been marginally changed?

Senator Newman --I have now had some advice from the minister during the course of the estimates and I am told that, when he was announcing the defence efficiency review in parliament in October last year, he said:

I have asked that the completed report of the Defence Efficiency Review is handed to me on 10 March 1997. I will report to the parliament after that time and the Defence Efficiency Review documents will be tabled at that time.

Senator MARGETTS --They will be?

Senator Newman --They will be afterwards. In fact, I believe it will be in the spring sittings because of the availability of time in the House of Representatives.

Senator SCHACHT --What? There is nothing stopping him reporting. It takes 30 seconds to table a report in the Senate.

Senator Newman --It must be different for the House of Representatives.

Senator WEST --We will wait until August?

Senator SCHACHT --You had better put an efficiency review right through the minister's office.

Senator Newman --The House of Representatives perhaps?

Senator WEST --You control that.

Senator SCHACHT --You control that and it will take you two seconds.

Senator Newman --You asked for an answer; I have given you an answer from the minister's office.

CHAIR --Questions not comments.

Senator SCHACHT --Some of this is extraordinary, I have got to say. I cannot contain my agitation at some of this. The response now will not be available to the parliament until the spring session?

Senator Newman --He will handle those matters that you are discussing. They will be all put on the table at that time as well. He will be reporting to the parliament on the issues that you are now asking officials about and about which it is premature to ask them in many cases.

Senator SCHACHT --It is not premature to ask them at any time.

Senator Newman --You can ask them, but do not expect them to give you an answer.

Senator SCHACHT --But as some of this will be implemented by 1 July, will that be made public or will that be a secret document?

Senator Newman --You have already got information in the overview here as to what is happening. You have had answers from Mr Tonkin about the structure that will be in place on 1 July. As for colouring in the detail, you will be getting that from the minister later.

Senator SCHACHT --I would have thought it is not unreasonable to ask, if the Defence Department is going to be informed on or by 1 July, which of these benchmarks will be adopted or adopted with marginal change. Will that be made public for the rest of us and to the parliament, or is it even going to be made widely public within the defence forces? I would have thought a lot of officers would be rather interested to find out what is going to happen to them.

Vice Adm. Barrie --When I read through this performance statement in program 14, for example, I find an objective, a description, strategies for 1997-98, performance measures for 1997-98 and a performance forecast. Although that is our best effort at this stage and we admit that there will be some transition changes as we go through, it was our first best cut of the defence reform program in order to put these statements forward by early May.

Senator SCHACHT --What we are after is which performance indicators will be operating by 1 July? It is a public statement that they will be operating. That is all we want to know. I would have thought most of Defence would want to know too. What is in the PBS is so general, it does not give an indication of which of those 70 findings and recommendations will be operating by 1 July. Which have been amended by benchmarking? All we want to know is which ones and what is the purpose of it? I am not blaming you. This is clearly a policy decision where the minister is really not doing his job properly.

Mr Tonkin --As Vice Admiral Barrie has said, the effect of the implementation of the 18 findings and 52 recommendations are spelt out. Those which will be operating for the 1997-98 financial year are set out in all the portfolio bills, the program strategies, which are in this document. In other words, they are there in terms of how the reform program will affect the way in which our organisation operates. They are reflected in the deliverables--that is, the objectives which are set out in each program reflect the implementation saying what each of these areas will do. They have been addressed in that way.

Senator SCHACHT --I cannot find anywhere in these four or five pages the simple answer to what is going to be operating by 1 July out of the efficiency review recommendations? And now the minister has said, we will be lucky to find it by August.

Senator Newman --I did not say that.

Senator SCHACHT --That is the first time the parliament may be formally informed.

Senator Newman --I said there is some colouring in for the benefit of the parliament; some of the fine detail will be available when the minister makes that tabling speech.

Senator SCHACHT --I trust the minister is not running the defence department with a crayon and a colouring in book to find out what the detail is. I do not think this is an unreasonable question and, in view of the unsatisfactory answers, I want to raise a number of the specific questions that are in the thin book with its 18 findings and 52 recommendations. I am sure some of my other colleagues too would like to ask some of these questions.

Senator Newman --If these relate to specific programs, I think you should wait until the specific program comes up in the running sheet. These are no longer general questions.

Senator SCHACHT --I have to say we are dealing with the officers at the table who have strongly indicated to me that pages eight to 12 deal with the defence efficiency review.

Senator Newman --It is the `overview' of the defence efficiency review.

Senator SCHACHT --Now that we cannot get satisfactory answers, I would like to try some of these questions and get some flavour--or, as the minister at the table would say, the `colouring in'--of the thought processes behind Defence in a number of these areas.

Senator Newman --Madam Chair, surely that relates to the detail that you just spoke about.

CHAIR --Yes; it does. Senator Schacht, those specific questions will have to wait until they come up in the running sheet dealing with the specific program that they are in.

Senator MARGETTS --I think that what we are referring to is the defence reform program, which is summarised on page 8. Basically, we are talking about the directions. It is not about what guns are being paid for here and there; it is about the directions of Defence. There is nowhere else in the program that these general questions of direction fit in.

CHAIR --This section is for general questions. The minister has already indicated that specific questions should be asked in the specific programs.

Senator SCHACHT --Madam Chair, I just point out an example at random. Finding No. 9 on E2 at the back of the thin document, the efficiency review, says that the three service chiefs are `pre-eminently the best advisers on their single service capabilities and possible contributions to contingencies' and that, accordingly, `their role in the strategic structure needs to be enhanced'. When each of the services turns up, we can ask a few questions about what they think of that; but, as a general issue of the overview, I would like to know why their role within the strategic structure `needs to be enhanced' and how you are going about doing that. What is the background to this view? That really deals with the overview of Defence. It is not a specific matter of how many pieces of cutlery are in the defence canteen or something: it is really about the operation of Defence itself.

Senator HOGG --Before you respond, there is one question which I asked earlier and which did not get answered, and that was this: what is the difference in the defence efficiency review between a finding and a recommendation? Is there any difference at all, and what weight is given to it?

Mr Tonkin --My readings of the findings were essentially observations, whereas the recommendations are actions to be undertaken or things to be implemented. We are addressing them all as though they are broadly similar. If you read through the findings and the recommendations, in quite a number of cases you will see that the complete set of findings and recommendations link one to another: a finding is reflected later on in a recommendation. We are going to address each of those in the same way.

Senator SCHACHT --Thank you for that. We can take it that, in a general way, what I read out about the strategic structure needing to be enhanced and the role of the service chiefs is a finding--finding 9--but you are treating it as a recommendation to look at ways in which they can have the role enhanced. Is that right?

Vice Adm. Barrie --That is right. That finding is linked to recommendation 5, for example.

Senator SCHACHT --Recommendation R5?

Vice Adm. Barrie --Yes.

Senator SCHACHT --It says that co-location and integration of staff should be progressed, including the creation of a single authority joint policy staff at the strategic level within the defence organisation. That leads to a very broad issue: what is the future role of the service chiefs? Is this the first step to abolish their role and get rid of the positions? I could read that as saying that the independence of the chiefs of staff for the three services is being wound down and that they are losing their independence. That may be an excellent idea, but I would like to know if that is something that this government is committed to in policy terms.

CHAIR --Before you answer that question, Vice Admiral Barrie, I consider that that question could be equally well asked under subprogram 1.1, Strategic policy and plans, or under subprogram 1.6, Strategic Command. I see no reason why questions on specific recommendations should be asked in this section for general questions. If you have questions like that, I expect that you would hold them until later on.

Senator SCHACHT --They are not labelled for any particular program. I would have thought, going on experience from other estimates committees--it has been five years since I have been at this one--that subprogram 1.1 and this overview really overlap, backwards and forwards. If you try to be pedantic about it, you will end up wasting more time than by allowing some latitude for ranging backwards and forwards.

Vice Adm. Barrie --I think I should answer that question, because it is an important issue of the defence reform program. The government has emphasised continually the importance of the role of the single service chiefs. The only point I would comment on in what you asked me was whether they have an independent view. The question is, independent of what? Certainly, as far as the minister and the government are concerned, each service chief is tasked to be able to give independent advice to them, as necessary. Nonetheless, a great deal of action has to be taken to integrate the role and the functioning of the service chiefs into the strategic level organisation as a whole. But at no point has it ever been thought that we would not have three single services doing what three single services do best.

Senator SCHACHT --What is it that they do best?

Vice Adm. Barrie --It is the combat capability of the ADF, which the single services do best and for which we have a reputation second to none.

Senator SCHACHT --But that is the preparation of the combat efficiency.

Vice Adm. Barrie --It is the professional standards and the efficiency of combat forces, which the single services exist to do.

Senator WEST --Will the chiefs each have a major responsibility in training? How can they do that when training is going single service to a fair degree?

Vice Adm. Barrie --The notion of efficiency whilst maintaining effectiveness is that we do not have to own things in order to deliver the outcomes from them; it is the provision of goods and services. But each single-service chief will be responsible for the professional standards of the fighting service.

Senator WEST --But a lot of the training will be single service.

Vice Adm. Barrie --Yes, it will. Some will be single service, some will be joint.

Senator WEST --A lot of it will be joint trained. How is the chain of command actually going to go when you have a purple person responsible for training, but then you have the white, blue and green heads as well?

Vice Adm. Barrie --I think there would be two issues bound up in that. One is that, where there is best efficiency and no diminution in professionalism attached to having one school that does something on behalf of three services and that makes sense, we would do it. On the other hand, there would be no point in having some of our single-service training delivered by anything other than the single service. The issue in a joint training sense would simply be to maintain the policy.

Senator HOGG --What about in a conflict? What would be the role of these people?

Vice Adm. Barrie --Delivering combat forces for the front end of the Australian Defence Force.

Senator SCHACHT --They would deliver the combat forces but, as far as the running of the operation goes, that will all be done through the ADF and they will not have a role in that?

Vice Adm. Barrie --They will have a role in that: advice and command functions. But force generation and force sustainability will still be principally a single-service matter.

Senator WEST --So they will just get the fodder up to HQ Australian theatre, and let them do what they want with it?

Vice Adm. Barrie --They will provide operationally ready forces, available for combat operations.

Senator WEST --They will have no input as to what sort of operation they will be used in?

Vice Adm. Barrie --Yes, they will. As single-service chiefs, they will be principal advisers on service matters to the CDF and to government.

Senator SCHACHT --And if the advice is ignored, bad luck for them.

Vice Adm. Barrie --They are still the principal advisers.

Senator WEST --Where does the commander of HQ theatre come into this?

Vice-Adm. Barrie --Commander Australian Theatre will command operations. The Chief of the Defence Force commands the ADF.

Senator WEST --How are the chiefs going to relate to theatre operations in a time of conflict?

Vice Adm. Barrie --In Headquarters Australian Theatre, there are three component commanders who represent their single services. They are very much part of COMAST's organisation and they also exercise command of their single service assets. They have responsibilities to their single service chiefs.

Senator WEST --What level are they?

Vice Adm. Barrie --Two-star level.

Senator SCHACHT --I think these are important questions in the overview. I understand this may not be a part of the core promises approach. This may be dispensable. In the thicker document in 3.7, on page 51, it says that the current ministerial directives to the three service chiefs should be rescinded and that any directive to the service chiefs should be issued by the CDF to whom and through whom to the minister they are accountable. Do the service chiefs agree with this new arrangement that they are now directly accountable to the minister only through the CDF?

Vice Adm. Barrie --I cannot speak for the service chiefs. What I can say is the new directives have been issued and I have not heard anyone say that they are not able to deliver.

Senator SCHACHT --Before the minister's statement on 11 April, was there no discussion by the service chiefs on whether they accepted this recommendation that they should no longer receive the direct ministerial directive which gives them direct consultation and direct access to the minister?

Vice Adm. Barrie --There was a great deal of discussion about a whole of range of aspects concerning the defence efficiency review and, of course, the role and the status of the single service chiefs was amongst those things. But, nonetheless, the government has maintained its commitment to the role and functioning of single service chiefs and the maintenance of the values and ethos of the single services.

Senator SCHACHT --In the thin report, it says that directives to the Secretary to the Department of Defence, the CDF and the service chiefs should be along the lines of the drafts of appendix B to the report and directives to the service chiefs should be issued by the CDF. That, as it is in the thin report, is part of the 70 that have been accepted by the minister?

Mr Tonkin --Yes.

Senator SCHACHT --Before it was accepted by the minister, was there no complaint from the service chiefs about this significant change to their role and responsibilities?

Vice Adm. Barrie --There was a great deal of discussion about the roles and status of the single service chiefs in the lead-up to the defence efficiency review.

Senator SCHACHT --Are you telling me that they all rolled over and said, `This is a wonderful idea that we lose our direct consultation to the minister'?

Vice Adm. Barrie --I cannot comment on that.

Senator Newman --My understanding is, Senator--and I stand to be corrected--that the CDF is required, in giving advice to the minister, to notify the minister if any of the service chiefs is not supportive of the advice that has been given, giving the minister an opportunity to call for the service chief to ask for further advice.

Senator SCHACHT --But that is one of the arrangements? It has got to go through the CDF?

Senator Newman --Yes, it has to go through the CDF, but the CDF has to advise the minister if there is not total agreement with his advice.

Senator SCHACHT --And that is now going to be written into the administrative arrangements? That is in the ministerial directive that this recommendation says, in 3.7, `The current ministerial directives to the three services should be rescinded'? When that has been rescinded in the new arrangement, will it be outlined clearly that the service chief can lodge a complaint via the CDF through to the minister that they disagree with the CDF?

Senator Newman --But the minister must be notified.

Senator SCHACHT --The minister must be notified? I want to confirm that that is actually in the administrative arrangements.

Senator Newman --I cannot answer that question.

Senator SCHACHT --Can someone tell me that? Mr Tonkin?

Vice Adm. Barrie --I can tell you that new directives have been issued to the service chiefs. I do not have a copy of them here and will have to get back.

Senator SCHACHT --Can you take that--

Mr Tonkin --Can I just make one expansion point, Madam Chair. These changed directive and responsibility arrangements do not inhibit the access of the chiefs of service or any other senior defence manager from talking to the minister. It is not as if there are any bars on contact or direct contact. The question is how the formal responsibility lines flow. The recommendation to the defence efficiency review was that they should flow to the CDF and to the secretary, and through them to everybody else.

Senator SCHACHT --If there is no change in the informal arrangements, why change the formal ones?

Mr Tonkin --I believe the review report's aim, now endorsed by the government, was to make unambiguously clear the command responsibilities of the Chief of the Defence Force.

Senator SCHACHT --What was the problem before, if it has to be now made unambiguously clear what the change of command was? You were saying before that it was ambiguous. Did this create a problem for the CDF, the minister or the service chiefs?

Mr Tonkin --I think you will find that the changes which are now in place reflect the evolution of the organisation. The single directives issued in the past stem from the reorganisation of Defence in the mid-1970s. The command arrangement of the Defence Force have evolved since that time.

Senator WEST --Is this an evolution or a revolution, this latest lot?

CHAIR --I don't think that requires a comment.

Senator SCHACHT --I must say, one has never accused the Australian Defence Force as being revolutionary, so I suspect this is not a revolutionary step, either. But I suspect for the service chiefs it is quite a kick in the head.

CHAIR --Next question, Senator.

Senator SCHACHT --When we get to the individual services coming before us, Minister--although we do not actually have the service chief, only the deputy service chief turns up--we will put questions to them. Will they be able to freely explain on behalf of their bosses what their view was about having these new administrative changes imposed upon them, or will they have to toe the line that everything is hunky dory and unanimous; consensus reigns supreme?

Senator Newman --I think simply you are asking for the advice that has gone between the officials of the department and their minister; and you know that is not open to discussion.

Senator SCHACHT --This is a reasonably significant issue that has been around for a long time. This efficiency review has made a significant recommendation which now, because it is in the thin document, appears to be basically accepted by the government. This is a significant change in role and function of the service chiefs. I think it is reasonably useful in the public debate to know that this is the new role. I also want to ask: does any of the change to the role of the service chief require legislative changes to the Defence Act?

Mr Tonkin --I believe that it does not require changes.

Senator SCHACHT --It does?

Mr Tonkin --Does not.

Senator SCHACHT --Does not! So these administrative arrangements can be done by ministerial decree. There are no regulations that have to be tabled in the parliament?

Mr Tonkin --We will check that.

Senator SCHACHT --You might want to take this on notice, Mr Tonkin: do any of the recommendations of the efficiency review, the further defence reform program and all the adjuncts to it that we have tried to work out today, require legislative changes to the Defence Act or ancillary acts?

Vice Adm. Barrie --I think that is a question we would have to take on notice.

Senator SCHACHT --Has it been considered yet?

Mr Tonkin --The answer I believe is that there could well be some changes required to legislation. One of the recommendations addressed is the question of the Chief of the Defence Force as the employer of the Defence Force. This may well require changes to acts or regulations.

Senator WEST --Sorry, the Chief of the Defence Force--

Vice Adm. Barrie --The Chief of the Defence Force as the employer of the Defence Force. At present the employer of the Defence Force is the Minister for Industrial Relations; he performs the role of the employer.

Senator WEST --What are the implications of that?

Mr Tonkin --We will have to look at the way in which wage-fixing is addressed.

Senator SCHACHT --Which way?

Mr Tonkin --The way in which the cases that go forward for remuneration are addressed. That is a good example of how the Defence reform program is an evolutionary process. These concepts are there: how it is going to be given effect has to be addressed.

Senator SCHACHT --I have to say, Mr Tonkin, that this review has been around for a while now, for several months, and it has been released for at least two or three months--

Senator Newman --No, two months maximum.

Senator SCHACHT --Two months maximum. I have to say even two months maximum--

Senator Newman --It was April 11.

Senator SCHACHT --I would have thought it possible that the department would have turned up here with at least one thing clear for the estimates committee of whether--yes or no--legislation was required to deal with the recommendations. This is the parliament and we still do not know that answer, so you will have to take it on notice, I presume?

CHAIR --I understand that that point has been made.

Senator MARGETTS --There must be somebody within Defence whose role it is to check whether or not legislation is required. There were dot points that came out on budget night about what things on budget did require legislative changes. Surely there is somebody in this room who has been responsible--

Senator Newman --There is. Mr Brown has come to the table.

Mr Brown --In answer to the question, yes, the issue of whether legislative change is required to implement the defence reform program was considered and no legislative change is required, except possibly in relation to some provisions that deal with delegations.

The administration of personnel matters in the ADF has traditionally been on single-service lines, so that, for example, in the Defence Act there are powers vested in the Chief of the General Staff and there is power for the Chief of General Staff to delegate those powers to officers of the army. With personnel matters being handled in the personnel executive on a triservice basis, it is likely that we will need to amend some of those delegation provisions so that powers can be delegated to officers of any arm of the Defence Force.

In relation to the major matters that have been under discussion here this afternoon, in particular the major structural changes, there is no requirement for amendment to legislation.

Senator SCHACHT --What about Mr Tonkin's suggestion that, on the industrial employment issue, that might require a legislative change?

Mr Brown --There are two dimensions to that. One is that the administration of the relevant provisions of the Defence Act--that is part IIIA, which contains the conditions of service determining powers for the ADF--will move from the Department of Industrial Relations to the Department of Defence. That will be done by amendment to the Administrative Arrangements Order, and that does not require legislation.

Senator SCHACHT --Is it a regulation that is disallowable?

Mr Brown --The Administrative Arrangements Order?

Senator SCHACHT --Yes.

Mr Brown --No, it is an executive instrument.

Senator SCHACHT --You mentioned that there might be some changes to the delegation powers. Is that a disallowable instrument?

Mr Brown --The delegation provisions that are in the act will require amendments to the act, which will be done by an ordinary bill. Where there are changes to delegation provisions in regulations, they will be done by regulation amendments, which would be statutory rules subject to disallowance.

Senator SCHACHT --To go back one step, what were the ones that you said would require changes to legislation? You just mentioned possible changes to legislation.

Mr Brown --I was talking about delegations. Those are the only areas directly arising out of the defence reform program. Air Vice Marshal Cox has brought to my notice that there will need to be some changes to section 58H of the Defence Act as part of the changes to the employer function--section 58H is the provision in the Defence Act which empowers the Defence Force Remuneration Tribunal to determine conditions of service--

Senator SCHACHT --That is an amendment to the act if that recommendation is accepted?

Mr Brown --That is if the change in employer responsibility is brought into force, yes.

Senator SCHACHT --Has that employer relationship change been accepted by the government? Is that in the 70 recommendations--the core--or is it in the thick one of recommendations which are not core?

Mr Tonkin --It is in the thin one.

Senator SCHACHT --We take that as a core promise then.

CHAIR --Senator, before you go on, I point out that Vice Admiral Barrie is to leave at 3.30 p.m., as I understand it, and that therefore these general questions are to be addressed to him as the senior person present. If you want to continue asking general questions, I think it would be agreeable to let Senator Margetts put some questions, as you have had a very good run.

Senator SCHACHT --I accept that I have had a very good run, but I just wondered if Vice Admiral Barrie will be replaced by someone else?

Vice Adm. Barrie --Air Vice Marshal Rogers will take my place.

Senator MARGETTS --Coming out from the answers that were given earlier about some of those reports, how many reports have been published since the new government? What were the dates of publication? Which of those reports have been tabled and when? It would be useful for us to get a general picture of what reports have been published and what has happened to them.

Vice Adm. Barrie --I would have to take that on notice.

Senator MARGETTS --I expected that. That would be useful. Coming back to the defence reform program, why is Defence embarking on a major reform program before a strategic review is carried out by the government? Couldn't that be seen to be putting the cart before the horse?

Vice Adm. Barrie --There is a strategic review under way at present. The efficiency that we need to obtain from the Defence organisation is a process that we needed to go through anyway, regardless of the outcome of the strategic review. There is no question that the allocations for defence have been under some pressure. There is also evidence to show that we need to do more with less. Whichever way you wanted to look at that, we really had no option but to go through the defence efficiency review leading to the reform program.

This is the most significant change to the Defence organisation since the mid-1970s. It is, if you like, over 20 years due. What the strategic review might do for us in the longer term is to tell us some of the things that we could do once we have realised those efficiencies.

Senator MARGETTS --I understand what you are saying, however, I also understand that there are some times when cutting from a particular area is not actually efficient. Such efficiencies are often euphemisms for cuts. Shouldn't that come after the point where it has been decided what is important to achieve? Some things will require more resources and some things will require less. If you have, in the meantime, made efficiency cuts in certain areas and later on you find that, as a result of the strategic review, the areas you have cut are areas that are considered to be more important than they were before, isn't that therefore a waste of time of the original strategy?

Vice Adm. Barrie --We are very conscious of that potential. The defence reform program will take us 15 months to really put in place in terms of having a 90 per cent answer. I would expect that by then we will be in a much better position to know what those priorities will look like as a result of the work we do under the strategic review.

Senator MARGETTS --What are the strategic threats that form the basis of the major reform program?

Mr White --Like all aspects of Australia's defence policy, the defence reform program is not based on any particular set of threats, but on judgments about our broad strategic environment and what is required in our strategic policy and in the ADF, in particular, to meet the demands of that environment and to manage it as best we can.

Senator MARGETTS --I ask this because there has been a lot of talk about concentrating on the `pointy end'. What if it was to be found that the major strategic threats are not ones that can be solved by pointy end spending? Are you not putting eggs into a basket that might be found to be not the one you should not be putting them into?

Mr White --The broad task of the defence organisation as a whole is to provide military capability. Military capability is, of course, only one element of the government's wider security policy. There will always be a lot of resources, imagination and energy put into addressing security in the broad, but the defence organisation will be looked to, primarily, to provide armed forces. It may well be, with the process under way in the defence organisation, the strategic review and the white paper being prepared on foreign and trade policy for the Minister for Foreign Affairs and Trade, that the issues of the relationship between military and non-military aspects of security policy will be carefully looked at.

Whatever the answers are, there are two things which are clear. The first is that the government will continue to see a role for armed force in Australia's wider security policy. The second is that it will want that armed force delivered as cheaply as possible. The purpose of the defence reform program is to ensure that whatever force structure the government pursues, and whatever role armed force has in its wider security policy, it will deliver those elements as cost effectively as possible.

Senator MARGETTS --What if that concept of security means that the areas where you are directing your spending makes Australia less secure rather than more secure? That is not cheap, is it?

Mr White --We are very conscious of, in developing force structures for the ADF, and successive governments have paid a lot of attention to, ensuring that the way in which the ADF is developed contributes to and does not undermine security in the region. That is one of the reasons why successive governments placed a high priority on transparency in our defence policy and posture.

Senator MARGETTS --We are not getting a lot of transparency today. Policy of transparency to whom?

Mr White --The policy of transparency both domestically and internationally. We have an unusually transparent defence posture overall and that is something we will continue to pursue. But the decisions about how the force is developed, which will take into account the impact our force structure has on wider regional security, can be made separate from the decisions as to how you deliver that force as economically as possible.

The defence reform program is about how you support armed forces. The decisions about the structure of forces we will be delivering will be made in the context of the strategic review. So the possibility that a strategic review, and the wider consideration of security policy through the foreign affairs white paper, will produce some alternative overall security policy structures and suggest changes in our force structure is fully consistent with the process we have under way through the defence reform program.

Senator MARGETTS --Let us turn to page 21 of the summary of defence estimates. Why was defence spending quarantined from cuts when such areas as Aboriginal education and higher education continue to be slashed?

Mr White --As a broad proposition, I could just say that that is a reflection of the view that the government has consistently taken of what is required to ensure Australia's security.

Senator Newman --And it was also an election commitment--which we publicised very strongly--that in our view defence needed protection after some years of reduction of its budget.

Senator MARGETTS --In the absence of a security review to find out what Australia's security threats are, isn't the defence budget funding potentially myths at the expense of social goals?

Senator Newman --Myths?

Senator MARGETTS --If we have not done a review of what Australia's current threats are, what are we basing this on?

Senator Newman --If we have not done a review of Australia's what?

Senator MARGETTS --Security threats.

Senator Newman --The previous one was done in 1993, and that is just four years ago. There is a new review in process at the moment. We have people like Mr White working on strategic assessments as part of their daily bread and butter. The government continues to be well advised. What more can you ask, Senator?

Senator SCHACHT --Probably a lot.

Senator Newman --In terms of strategic advice, I think the government is served by the same specialist who served the previous government. I do not believe that you can say that they are badly advising government.

Senator MARGETTS --Are you still taking the same threats that were from the previous published documents?

Senator Newman --We are waiting, as you know, for a strategic review which is under way at the moment. But one works in a continuum here so you are relying on previous assessments and changes to your national circumstances as time goes by as well.

Senator MARGETTS --Interesting.

Senator HOGG --Could I interpose there. As I understand it, Army 21 was predicated on a certain perceived threat. Have we moved on since then to a different perception of the threat or are we talking about the same threat?

Mr White --I do not want to appear to be bandying with words but they are important in this business. Army 21 was not predicated on a particular threat any more than any other element of Australian defence policy. Army 21, and the restructuring of the army which has been undertaken by this government, has been developed to take account of the very substantial task of defending Australia's territory which has been a core part of defence policy of successive governments. It does not relate to any threats in the area.

Senator MARGETTS --What is the variation in the 1996-97 expenditure? What was the real and total increase in the defence budget in 1997-98?

Mr Lewincamp --The table on pages 19 and 20 gives you the variation between 1996-97 and 1997-98. If you look on page 20, `Total defence function outlay', about two-thirds of the way down, there is the total for 1996-97 and the total for 1997-98. Those two columns through those two pages, and the variations between them, give you the reasons for the difference.

Senator MARGETTS --I have got down a variation of $457.63 million--

Mr Lewincamp --Are you on table 2?

Senator MARGETTS --Page 21. What is that?

Mr Lewincamp --That is the total defence portfolio outlays variation. We usually talk about the total defence function, which is the figure at the bottom of that same table, $401 million.

Senator MARGETTS --What does that variation represent, that $457 million?

Mr Lewincamp --What is it made up of?

Senator MARGETTS --What does it represent?

Mr Lewincamp --The table I just referred you to on the preceding two pages gives you an explanation of the difference between the figures.

Senator MARGETTS --Moving to page 25, what is the $190,000, non-recurrent costs, for Nomad aircraft to Indonesia?

Mr Lewincamp --There are two sets of costs associated with preparing the Nomad for sale to Indonesia. There is a cost reflected there of $190,000. There was also a cost of $810,000 which is in the equipment and stores appropriation on page 28. That was offset by receipts of $2 million that we obtained from the sale which gave us a net profit from the sale of $1 million.

Senator MARGETTS --Have they all gone?

Mr Lewincamp --Not yet.

Senator MARGETTS --What is the $190,000 for non-recurrent costs?

Mr Lewincamp --In detail?

Senator MARGETTS --Yes. If it is very detailed, I could take it on notice but if it is accessible I would be happy to hear it.

Mr Lewincamp --There was a set of costs associated with making the planes airworthy for sale. The $190,000 was the administrative expenses for doing so. The $810,000 was for the equipment and stores required--

Senator MARGETTS --Was that $190,000 for administrative expenses for making the planes airworthy?

Mr Lewincamp --Yes.

Senator MARGETTS --How many Nomads were there?

Mr Lewincamp --Twenty. On page 28, under equipment and stores, you will find another figure for Nomad aircraft of $810,000. That was the equipment component of making them airworthy for sale.

Senator MARGETTS --So we have administrative and equipment and no labour component?

Mr Lewincamp --I would have to ask air force for advice about the make-up of that figure.

Senator MARGETTS --Did the Nomad aircraft sale go through the SIDCDE process for equipment sales to Indonesia?

Mr Lewincamp --I will have to take that on notice.

Senator MARGETTS --Is there nobody here who knows whether it went through the SIDCDE process?

Mr Hermann --Yes, it did go through the SIDCDE process.

Senator MARGETTS --And did they assess it for human rights consequences of the sale?

Mr Hermann --They are part of the SIDCDE consideration in all defence exports and so it would have been considered in this aspect.

Senator MARGETTS --What is the official use of Nomad aircraft by Indonesia?

Major Gen. Hartley --I understand they will be largely used for maritime surveillance.

Senator MARGETTS --Can the government rule out the Nomad aircraft being used in a repression in East Timor or against West Papuans or in any internal Indonesian dissent?

Mr White --As my colleague has said, human rights issues are an important part of the consideration of all Defence export approvals through the SIDCDE process. It is no part of that process to rule things out, but to make a judgment on the balance overall of the range of issues involved. Of course, Australia's views on human rights and the use of armed forces, both domestically and internationally, are very well known, including to Indonesia.

Senator MARGETTS --If the government cannot rule out the use of these aircraft in human rights abuses, and given the defence guidelines covering defence exports, why is the government proceeding with these exports?

Mr White --As I say, it is no part of the government's policy to rule things out. The aim is to strike a balance between a range of interests. Prospects of human rights violations are taken very seriously and are a significant part of all considerations. There is no presumption in the policy that under certain circumstances anything could be ruled out or ruled in. What you do is strike a balance of the different factors involved.

Senator MARGETTS --Where did this decision come from?

Mr White --Could you expand on the question?

Senator MARGETTS --The decision in relation to the sale, where did it come from?

Mr White --I think it was made through the usual SIDCDE processes.

Senator MARGETTS --The SIDCDE process is about assessing the sale, but who made the decision to sell the Nomad aircraft to Indonesia?

Mr White --It was a ministerial decision.

Senator MARGETTS --How does that kind of decision-making process start or proceed?

Mr White --I am sorry; I do not quite understand the question.

Senator MARGETTS --Was it something that comes from defence attaches? Is it something that comes--

Mr White --I do not know.

Senator MARGETTS --You have mentioned that there is $810,000 for equipment. We have heard that there is $190,000 factored in for administration--just to get the aircraft airworthy. So we still do not know--and you will get back to me--whether there has been any labour component factored into these costs. I do not know what your mechanics are like, but I would think if I was to go in and get even $800 worth of parts in my car, the labour component would be considerably greater than that.

Vice Adm. Barrie --Senator, I have got a bit more information. I think that cost might well include the detailed requirement for the disposal project, including four Nomad qualified tradesmen, a test pilot, a ferry pilot and a liaison officer.

Senator MARGETTS --So the pilot wages and so on are there.

Vice Adm. Barrie --I expect that would all be factored into the cost of making the aircraft airworthy.

Senator MARGETTS --So the $810,000 is not just equipment that has gone into the aircraft to fix them up, but they come with--

Vice Adm. Barrie --It is some of that and it is some of the requirement to get the aircraft in a flying condition. It was an airworthiness charge across the board, so there was some equipment that needed to go back into the aircraft and there was also that requirement.

Senator MARGETTS --Who did Australia get the Nomads from in the first place?

Vice Adm. Barrie --They are Australian indigenous aircraft.

Senator MARGETTS --Therefore, there are current companies supplying the parts and whatever from Australia, in part of that package?

Vice Adm. Barrie --Certainly the spares package would have been Australian sourced. Whether there are actually companies currently providing those spares, I would not know.

Senator MARGETTS --Could more detailed information about what preparation was required on the Nomads be provided to the committee?

Mr Lewincamp --We will have to take that on notice.

Senator MARGETTS --That will be fine. You might not be surprised that I have a question on page 31 in relation to Tandem Thrust--Senator Hogg obviously is not surprised. Can I just confirm that the government; that is, taxpayers, have paid $25 million in fuel for the US military for the visiting warships.

Mr Lewincamp --No, Senator. There are two figures in here. One is the payment that we made for the fuel and the second is the receipt that we received. Might I remind you that both of these are figures for non-recurrence in 1997-98 of the costs actually incurred in 1996-97. So the figure there is the non-recurrence of the receipt. Can I refer you back two pages to page 28, about halfway down the page; exactly the same figure is in there as the non-recurrence of the expense incurred. So they are completely offsetting figures; no net cost to Australia.

Senator MARGETTS --No net costs for fuel?

Mr Lewincamp --For fuel purchased for visiting navies.

Senator MARGETTS --Was there any subsidy of the US military by the Australian government for Tandem Thrust?

Mr Lewincamp --Not that I am aware of.

Senator MARGETTS --What would have been the maximum level of compensation if there had been substantial damage to the Great Barrier Reef?

Vice-Adm. Barrie --I do not think it is possible to provide an answer to that question.

Senator MARGETTS --I think this is set down by law about the compensation levels.

Mr Brown --I think any question to do with compensation in the context of these exercises requires a fact specific situation before any sort of answer can be given. In terms of damage to the Barrier Reef; I really do not see how that could be the subject of a compensation claim because of the nature of the damage and the nature of the property that was subject to the damage. However, if there had been, say, something in the nature of an oil spill and as a result costs were incurred in clearing up the oil spill, then those sorts of costs could be considered in the context of the arrangements that we have in place with the United States for dealing with claims.

Senator MARGETTS --There are percentage agreements between countries in relation to such issues, are there not?

Mr Brown --If you are talking about the formulas that are in the status of forces agreements, yes, they deal with the allocation of costs as between the two participating governments in two circumstances. One is where there is damage to the property of one government which is not Defence Force property. In that case there is a formula which allocates the responsibility for the claim. The other circumstance in which the formula applies is where there are claims by third parties, that is to say parties which are neither government. That typically would be members of the public or possibly companies, businesses, or even state governments or authorities.

Senator MARGETTS --So damage to the reef would be considered non-Defence Force property if that happened.

Mr Brown --Certainly, the Defence Force is not the owner of the Barrier Reef.

Senator MARGETTS --No.

Senator SCHACHT --Minister, returning again to this issue of whether the service chiefs agreed to the changes in the efficiency review about what can only be described as their reduced role--and looking at all the recommendations--is it true that the service chiefs were so concerned about some of these recommendations that they sought and were granted a meeting with the Prime Minister, prior to the cabinet decision about the efficiency review?

Senator Newman --I have no way of answering that. I am sorry I cannot help you.

Vice Adm. Barrie --I can answer that, Senator. There are two points. Firstly, we do not talk about a reduced role for the service chiefs as part of the defence reform program--we talk about an enhanced role for the service chiefs. Secondly, it is not true that the service chiefs sought an interview with the Prime Minister.

Senator SCHACHT --Did they have a meeting with the Prime Minister?

Vice Adm. Barrie --They did, at the Prime Minister's request, as I remember.

Senator SCHACHT --They complained about their enhanced role then, did they?

Vice Adm. Barrie --The service chiefs put a range of views to the Prime Minister about the defence efficiency review.

Senator SCHACHT --I presume there are representatives here of the various service chiefs and deputy service chiefs. When they get their chance before the estimates committee, I give them fair warning that I will go through these questions with them. I would think it only reasonable that they explain the concerns of the service chiefs on this matter. Do we know why the Prime Minister sought the views of the service chiefs at a meeting? Did he hear on the grapevine that they were concerned about having an enhanced role?

Vice Adm. Barrie --That would have to be a question for the Prime Minister himself but, to return to my opening remarks, given that this is the most substantial change in the defence organisation in over 20 years, it would certainly seem to me highly likely that a Prime Minister of this country would want to be assured that we were embarking upon something that was very sensible.

Senator SCHACHT --Aren't you in a position, or do you refuse, to give any indication of whether the service chiefs complained about their enhanced role as proposed by the efficiency review?

Senator Newman --I do not think that is a question for Vice Admiral Barrie to answer--he was not a service chief. If they are giving advice to the Prime Minister, it is a private matter.

Senator SCHACHT --I thought you would say that, Minister. As it was widely reported at the time, obviously somebody was concerned to make sure that it was known publicly that the service chiefs had a meeting with the Prime Minister--and whoever called the meeting is irrelevant. Obviously, the Prime Minister had heard some rumours that everything was not hunky-dory on this issue amongst the service chiefs at Russell.

Senator Newman --Madam Chair, that is speculation by the Senator. I do not think it takes us anywhere.

Senator SCHACHT --All right. I want to return to the thin document, Mr Tonkin. I suspect that we are going to be here for a long time going backwards and forwards to the overview in this document. Under capability development, which is under F12 and R14 to R18, recommendation R16 says:

The Concepts and Capabilities Committee, the Force Structure Policy and Programming Committee and the Defence Source Definition Committee should be disbanded and replaced with competent staff work and ad hoc meetings if necessary.

Who was on those various committees that are now being disbanded? Has it been accepted by the minister that those three committees will be disbanded?

Mr Tonkin --The recommendation forms part of the report which has been accepted by government. The mechanism whereby we give effect to the roles of those former committees is something for the department to advise the minister on. We can provide you with a list of the members of those committees. I believe it is available in a public document--defence reference book No. 4 or No. 2, from memory--but we will provide the committee with membership information.

Senator SCHACHT --I may have misheard: did you say that you are still to advise the minister on whether or not these three committees should be abolished?

Mr Tonkin --I said that this was one of the recommendations in the report that forms part of the reform program. Our job now is to take that recommendation and give effect to its implementation.

Senator SCHACHT --I would take that as being that those three committees will be abolished under the reform process.

Mr Tonkin --That is what is recommended.

Senator SCHACHT --Did any of the members of those three committees put forward a view that they should not be abolished?

Vice Adm. Barrie --Speaking to the creation of the defence capability committee, I have not heard a view that says that those committees should not have been abolished.

Senator SCHACHT --You have heard a view that they should not be abolished?

Vice Adm. Barrie --I have not heard a view that they should not have been abolished.

Senator SCHACHT --Did anybody on those committees put that view? You have not heard?

Vice Adm. Barrie --If they put a submission into the defence efficiency review, I do not know about it.

Mr White --I could take that a bit further, if I may. We speak as the respective chairmen of the former committees which have been abolished.

Senator SCHACHT --Did you get a guernsey on the next one?

Mr White --As it happens, yes.

Senator SCHACHT --I thought so.

Senator MARGETTS --The more things change the more they stay the same.

Mr White --I hope that that does not detract from the credibility of the amplification of Admiral Barrie's answer that I am about to give.

Senator SCHACHT --It may mar its effectiveness, Mr White.

Mr White --The way in which those committees worked and the way in which the processes that they were responsible for could be better managed was something that was very strongly discussed throughout both Admiral Barrie's organisation and mine. The conclusions that the DER came up with and that are being implemented in the DRP very much reflect the sorts of thoughts that people within the organisation had about a better way of doing business.

Sitting suspended from 3.31 p.m. to 3.48 p.m.

CHAIR --The committee will resume. I want to announce that the staff cafeteria is the only eating place available in Parliament House today and we will break between 6 p.m. and 7 p.m. for dinner. I understand Mr Tonkin has a statement to make.

Senator SCHACHT --He is clarifying some remarks.

Mr Tonkin --Not clarifying, Senator. The Senator did ask a question before to which I said we would seek advice as to whether we could set out which of the recommendations and findings of the defence efficiency review would not be implemented. There are three of those recommendations.

Senator SCHACHT --In the thin report?

Mr Tonkin --In the thin report.

Senator SCHACHT --Which ones?

Mr Tonkin --Recommendations 19--

Senator SCHACHT --Is that F or R?

Mr Tonkin --R for recommendation 19, recommendation 32 and recommendation 45.

Senator SCHACHT --Very useful, that R19. I was going to get to that one.

CHAIR --I am glad we have saved some time in that case, Senator.

Air Vice Marshal Rogers --Madam Chair, may I make a statement, please?

CHAIR --Yes.

Air Vice Marshal Rogers --I am the 12th man, standing in for VCDF who has left. There are a couple of issues I would like to clear up if possible in relation to the directions from the minister for the implementation of the recommendations in the thin document relating to the defence efficiency report. The minister wrote a minute on 8 April prior to the release of the embargo on the thick and the thin documents on 11 April giving implementation to the defence reform program. I have copies of that particular minute here signed by Ian McLachlan. I would like to table that along with two other documents if the chair would agree.

CHAIR --Yes.

Air Vice Marshal Rogers --One is the directive from the Minister for Defence to the Chief of the Defence Force and the other one is a directive from the Chief of the Defence Force to the Chief of the Air Force which is an example of the directives to the service chiefs.

Senator SCHACHT --This carries out the recommendations of the review and the change?

Air Vice Marshal Rogers --Yes, it does, Senator. I would like to also point out one of the reasons why the directives were changed from the minister to the service chiefs. As I understand it, the previous government changed the Defence Act in 1986 to give impact to the effect that the service chiefs were to be responsible through the Chief of the Defence Force to the minister. I suggest that the administrative function had never changed or caught up with the need for the CDF to issue directives rather than the minister. The defence efficiency report noted this anomaly for the unity of command and made a recommendation which has been implemented that the Chief of the Defence Force should issue the directives to the respective service chiefs of staff and that has been done.

Senator SCHACHT --And this, as Vice Admiral Barrie said, is enhancing the role of the service chiefs?

Air Vice Marshal Rogers --Yes, it is, Senator. The responsibilities of the service chiefs have changed in that they are accountable and responsible to the Chief of the Defence Force for three things: the first is corporate policy information, the second is command of their service and the third is management of designated joint functions.

Senator SCHACHT --That is an enhancement? Previously they had fewer functions to perform?

Air Vice Marshal Rogers --Prior to the changes suggested by the DER, the service chiefs were involved but not to the extent envisaged by the DER. They will indeed have an enhanced role in the development of policy, in the development of the capabilities required for the Defence Force and in the overall management of the defence headquarters.

Senator SCHACHT --That is an involvement, but it is not responsibility, is it?

Air Vice Marshal Rogers --I refer you, Senator, to the diagram in the thin document which gives an outline of the organisation of the new defence headquarters which will be in place on 1 July. You will find that, in that grey box, the three service chiefs are involved in that organisation.

Senator SCHACHT --I take it looking at the diagram that they are absolutely boxed in going nowhere. They look like prison bars to myself.

Air Vice Marshal Rogers --Senator, you are entitled to your opinion. What I would suggest is there was a lot of conjecture before the break about the roles of the service chiefs being, as you put it somewhat cynically, `enhanced'. I think they are.

Senator SCHACHT --How dare you suggest I am cynical!

Air Vice Marshal Rogers --Senator, I am very direct perhaps. I make no apology for that.

Senator SCHACHT --This is unusual. You people are usually so polite.

Senator Newman --It might be helpful to the committee if Senator Schacht took the time now to read the material. I am only trying to help you.

Senator SCHACHT --I will read the material. With this table or proposed functional structure, following down from CN, CA and CAF, the black line goes down to COMAST and COMSPT. Those two organisations go up and report to them. There are plenty of other areas all around here that they have no responsibility for.

Air Vice Marshal Rogers --You will find, as I have pointed out, that the grey box is the new defence headquarters, which replaces the old--

Senator SCHACHT --But they are very boxed in, aren't they?

Air Vice Marshal Rogers --No, they are part of the defence headquarters. Prior to that, the service chiefs were not part of headquarters ADF, they were outside that box. Their contributions were from people standing outside the organisation. That was one of the reasons that DER, and all of the submissions that were put to it, explained very carefully that the service chiefs needed an enhanced role in the development of defence policy, of all other policies, of capability development, everything, so that they could, as the prime advisers to the CDF on their particular service matters, put their views very succinctly and very clearly in the right forums.

Senator SCHACHT --So they are in the grey box which is CDF headquarters, is that right?

Air Vice Marshal Rogers --Yes, annex D.

Senator SCHACHT --The only thing I can see for the service chiefs, where the black line goes down to some area that they take responsibility for, is COMAST and COMSPT. What is COMAST and COMSPT?

Air Vice Marshal Rogers --I would point out that that particular box shows a proposed functional structure. There have been some developments and changes to that because of the roles of the service chiefs in commanding their services.

Senator SCHACHT --So this diagram is no longer relevant?

Air Vice Marshal Rogers --That is right.

Senator SCHACHT --Which one were you talking about?

Mr Lewincamp --The diagram does not comprehensively cover the defence organisation because the significant omissions from that box are the three services.

Senator SCHACHT --Why did you quote it to me?

Mr Lewincamp --We can hardly be responsible for the McIntosh efficiency review in court.

Senator SCHACHT --Air Vice Marshal Rogers, which one were you quoting from? Are we now on the thick document?

Mr Lewincamp --There should be added to the bottom of that, to make it comprehensive, the three service organisations--the navy, the army and the air force--with lines going to the chiefs in the middle of that box.

Senator SCHACHT --I take it as said that although the black lines do not go down to the army, air force and navy, they would. The only black line on the diagram for those service chiefs goes down to COMAST and COMSPT.

Air Vice Marshal Rogers --It would clarify the situation if you would look at page 69 of the other document--the thick one. That was the chart to which I was referring about the box. My apologies for that, I misled you. The term COMAST is Commander Australian Theatre and COMSPT is Commander Support. If you have a look at that box on page 69, which you have in front of you now, you will see that the three service chiefs in fact command their own services by the thick lines going straight down, which is reflected in their directives.

You will notice a line which goes off to COMAST and COMSPT and off to the left and then down to those two particular boxes. That reflects part of the new CDF command arrangements, which were announced at the beginning of last year. That puts in place the effect for operations, which you were talking about earlier, in that the service chiefs command their services in peace and they provide, as Admiral Barrie said, the operational forces for Commander Australian Support in operations and exercises.

Senator SCHACHT --When you come up from COMAST and COMSPT, going up that black line, and before you get back to CN, CA and CAF, there is a left-hand turn of the black line. It goes straight off to CDF and ADF command. Can you tell me how much diversion occurs in this command black line before it gets to the service chiefs?

Air Vice Marshal Rogers --I would not like to put a factor of 10 per cent or 15 per cent. That line suggests that there is consultation with all three service chiefs and CDF.

Senator SCHACHT --That is the top line.

Air Vice Marshal Rogers --In effect, it reflects also the command line for operations. If the government decided to mount an operation somewhere in our region to support some particular cause, that command line for operations would go from CDF directly down to COMAST and COMSPT. COMAST would provide those operational forces which, in peacetime, are controlled and commanded by the three service chiefs by that black line down there. You can see that there are two lines out of the service chiefs--one goes to the Army, Navy and Air Force and that other goes to COMAST. In fact, in peacetime, the chiefs command those particular forces down the bottom and COMAST acts as the operational commander. In fact, he plays a role in the command of those forces in peacetime, in assisting and developing the readiness of those forces should they be called up.

Senator SCHACHT --Is the commander of COMAST, Army, Air Force or Navy?

Air Vice Marshal Rogers --He is currently an Army officer. He is a Major-General Connolly. He is based in Sydney and he is a two-star officer.

Senator SCHACHT --Does he report equally to each of the service chiefs?

Air Vice Marshal Rogers --He reports to CDF as the Commander Australian Theatre. He also has responsibilities to the three service chiefs in respect of their forces whilst they are under his command.

Senator SCHACHT --That is quadruplicate.

Air Vice Marshal Rogers --No, not necessarily. What we are trying to look at within defence headquarters is a matrix organisation reflecting a principle that CDF has often reflected that you do not need to own the forces to control or command them.

Senator SCHACHT --It seems to me that the way in which this is developing is that in another few years another document will turn up and CN, CA and CAF will not appear at all.

Air Vice Marshal Rogers --I reject that in toto. The government has said, and the minister has made it quite clear, that the roles of the single services have not changed nor will they.

Senator Newman --Senator, please do not take this amiss, but this is something which you could well have a committee briefing on or an individual briefing on, if you like, rather than take up estimates' time. We would be happy to provide it for you.

Senator SCHACHT --I want it on the record.

Senator Newman --It is on the record in the sense that you have your diagrams. It is really more an explanation of the command and control arrangements.

Senator SCHACHT --It is only since we started the estimates committee hearing today that, after some questions, we suddenly have some information tabled--which we have not seen yet--which will be quite useful. If we had not had this estimates hearing, none of that would have been tabled. We have finally got from Mr Tonkin, which we have not got back to yet, the three recommendations in the thin book that the government has not accepted, and they are significant recommendations. If we had not had the estimates committee, this would have just gone on blithely as though nothing had occurred and we would never have got the information.

Senator Newman --I am not complaining about your right to ask questions. It was simply that you were getting a briefing at this stage and maybe that could be done at another time.

Senator SCHACHT --This is a significant change to the role of the service chiefs. I am not going to belabour it but I think the answers that Air Vice Marshal Rogers have given have been quite useful. It has also made the point that the three service chiefs are boxed in but, I think, for the wrong reason.

CHAIR --We are now 2 1/2 hours into estimates and we are still on general questions. I have allowed the questions on the defence efficiency review because it is part of the overview and it is a totally new structure for the defence forces. But, at some stage, and I hope it is advancing on us quickly, we will have to move on to specific programs.

Senator SCHACHT --If I can just ask Air Vice Marshal Rogers about this diagram, I presume there is a mistake because the Vice CDF--the VCDF--has no line going anywhere. Should his line report up to the CDF? It is the same with the Deputy Secretary, Strategy and Intelligence, Mr White--he looks like he is in wonderful isolation, reporting to nobody. It is an oversight, is it, in the diagram?

Air Vice Marshal Rogers --It does not actually reflect what the responsibilities are in those cases, because the VCDF reports to the Chief of the Defence Force and the Deputy Secretary, Strategy and Intelligence, reports to the Secretary. What we are developing within the defence reform program and the new defence headquarters is an integrated program. Rather than having two separates, as we had before--one, the forces executive, and the other, strategy and intelligence--we have combined those two.

Both the Deputy Secretary, Strategy and Intelligence, and the VCDF are the co-heads of that program, with the six divisions you see down the bottom, called Strategic Policy and Plans; International Policy; Capability Review and Resource Analysis, the name of which has been changed; Force Capability, which is just Capability Development; Strategic Logistics; and Operations Information has been changed to Strategic Command. So they will have underneath them the command of the defence headquarters--

Senator SCHACHT --Operations Information becomes what--Strategic Command?

Air Vice Marshal Rogers --Yes.

Senator SCHACHT --That is another change to the--

Air Vice Marshal Rogers --Yes. Bear in mind, as I said, that the papers that are being presented here are not a blueprint, they are a guide.

Senator SCHACHT --We accept that. But we would just like the information to be made available to us. When we started today, it was very unclear what was going to be made available to us. Now it is starting to emerge, slowly but usefully.

Air Vice Marshal Rogers --As Senator Newman pointed out, it has been nearly 7 1/2 weeks since that was handed down, and I can ensure you that these documents were embargoed. I did not see them before the minister was making the announcement on 11 April either. We have had seven weeks not only to try and get together the estimates to bring forward to you today, but to put the organisation for the future--the skeleton of which we will introduce on 1 July--and also the new processes in their skeletal form which will reflect the defence headquarters processes in the next 12 months. As Vice Admiral Barrie said, we are looking forward to the next 12 months being a period of transition in which we can develop, we can subtract and we can add, and then, by 1 July 1998, we can have a mature and proven system in place.

Senator SCHACHT --I thank you for that and I wish you well. You are going to need it, obviously, because of the way that this has been handled by the government. I would like to turn to E4 in the thin document--Capability Development. Just before the afternoon tea break we were talking about R16, which abolishes three committees and replaces them by the Defence Capability Committee. The recommendation is that the Defence Capability Committee consist of three people. Is that correct?

Air Vice Marshal Rogers --Yes. To answer your question before the break, the CCC, or the Capability and Concepts Committee, has been disbanded. The Force Structure Programming and Policy Committee has been disbanded. The new Defence Capability Committee has been formed and has met on two occasions. There was a statement in the DER that the Defence Source Definition Committee would also be abolished. In name, it probably will be, but the functions of that particular committee, which are to decide on what pieces of equipment are actually bought, more rightly fall within the aegis of the Deputy Secretary, Acquisition, Mr Garry Jones. I understand that he, VCDF and the Deputy Secretary, Strategy and Intelligence, have made the decision that that particular province of the old DSDC will be his and will not involve those two.

There are three members of the DCC--you are correct. They are VCDF; the Deputy Secretary, Strategy and Intelligence, Mr White; and Mr Jones. They will also invite, when a particular subject is up for their discussion, the individual service chiefs. For example, if they are looking at a capability involving the army, the chief of the army will be invited. The chief of defence science may also be invited. They will look at the major projects--the guide given in the DER was above $100 million. They have met and have said that they would rather look at the broad capability structures, such as army mobility or air defence, and there will be what I guess you could call a junior committee, called the capability forum, to look after the other projects.

Senator SCHACHT --On the previous three committees, somewhere in there were the service chiefs represented by right?

Air Vice Marshal Rogers --That is correct. On the CCC, as it was referred to, the deputy service chiefs were involved. Also, the deputy service chiefs were invited along to the Force Structure Programming and Policy Committee when there was something within their portfolio.

Senator SCHACHT --But they were represented, by right, on those committees?

Air Vice Marshal Rogers --They were members of the CCC, yes. They were invited members of the FSPPC.

Senator SCHACHT --Now, with their new enhanced role, they are off altogether. Is this a way to enhance their role--to knock them off three committees, to abolish their committees?

Air Vice Marshal Rogers --Madam Chair, if I may--

Senator SCHACHT --That is an extraordinary description of enhancement.

CHAIR --Senator Schacht, the officer is attempting to answer the question.

Air Vice Marshal Rogers --The committees, before, were headed by a three-star officer. The CCC was headed by a vice chief. The FSPPC was headed by Mr Hugh White, Deputy Secretary, S&I.

Senator SCHACHT --He survived.

Air Vice Marshal Rogers --All the other members were two-star officers--either the deputy service chiefs, the heads of materiel or the first assistant secretaries of the various divisions around the department. The decision in the DER was that those decisions made at that level should be taken at a higher level, and to overcome what had developed in the processes within the department whereby great committees of 15 to 20 people were consuming a lot of staff and preparation time--we needed to do that process better and quicker but maintain the rigour of the process--the recommendation of the DER was to move to a three-man committee and augment it wherever possible with the service chiefs, not their deputies.

Senator SCHACHT --Air Vice Marshal Rogers, that may all be very rational, but do not tell me that that is enhancing the role of the service chiefs. That is what was said to me before the afternoon tea break, that the restructuring of all of this has actually enhanced their role. They have been knocked off the committee they were on that had some effective say--

Senator Newman --They were not on it.

Senator SCHACHT --The committee has been abolished. We all know that that is the tactic you use--rather than knocking them off individually you abolish the committee.

Senator Newman --I think you could go back to the Manfred Cross report on defence's management to Beazley years ago. The criticism of the defence committee system--

Senator SCHACHT --There may be very good reasons for this, Minister, but I am just saying, do not tell me that this is enhancing the role of the service chiefs.

Senator Newman --It does not enhance anybody's role to have hardening of the arteries through a massive committee structure which Defence has suffered from.

CHAIR --I think Mr Tonkin may have a comment here.

Mr Tonkin --The enhancement of the role of the chiefs will come about. I refer Senator Schacht to recommendation R17--two down from the one he is discussing--which says:

The Defence Management Committee should ratify significant decisions made by the Defence Capability Committee.

The chiefs of service are members of that committee. The rationale for that recommendation is precisely to empower the chiefs of service and others to take the higher level strategic judgments. Under the previous arrangements, the FSPPC committee, there was not the same degree of visibility for the chiefs of service, acting collectively, to make those sorts of strategic judgments. That involvement in strategic level decision making is one of the aspects meant by enhancing the role of the chiefs.

Senator SCHACHT --I see. Who else is on the Defence Management Committee?

Mr Tonkin --The Defence Management Committee is chaired by the Secretary to the Department of Defence. It has the Chief of the Defence Force, Vice Chief of the Defence Force, the three chiefs of service, the deputy secretaries and the Chief Defence Scientist.

Senator SCHACHT --I can count. The service chiefs get outvoted on that committee, don't they?

Mr Tonkin --Having sat on that committee for some time and observed it for a longer period of time, I can never recall a vote having been taken.

Senator SCHACHT --No, it is a bit like the old politburo in the Soviet Union--consensus always went round and they all stood and clapped at the end on a general decision. We know how that works. With all due respect, Defence systems are no different from politics elsewhere.

Senator HOGG --What are the significant decisions that they will take part in?

Mr Tonkin --They will look at the large-scale projects, which is a matter of judgment as to dollars or the strategic significance of the projects. They will look at the overall investment program, what we call the `pink' book and the `green' book. The pink book is the capital equipment program and the green book is the capital facilities program. They are outputs of the capability committee which would be addressed by the Defence Management Committee. What we are striving to achieve in establishing a smaller Defence Capability Committee is to reduce the need for voluminous paperwork, documentation, lots of people turning up to sit around committee rooms for hours, et cetera.

Senator SCHACHT --If the Defence Management Committee rejects a recommendation from the Defence Capability Committee, does the Defence Capability Committee or its members individually still have the right to put their proposition to the minister?

Mr Tonkin --I would think not, in that case. However, going back to an answer to a previous question, if there is any significant disagreement on policy issues within the Defence management structure on an issue going to the minister, it is the obligation, responsibility and established practice by the secretary or the CDF to make it clear to the minister that there are differences of view and what those views are. The minister is entitled to fully formed and balanced advice on the issues before him. That is a key and core responsibility of the department and the Defence Force.

Senator SCHACHT --So it will be noted in the cabinet submission, or in the advice to the minister, that maybe the service chiefs did not agree, or one or two of them did not agree, but, nevertheless, the recommendation from the CDF will probably proceed.

Senator Newman --It gives the minister an opportunity, as due warning, that he may need further advice. I think that is a very useful tool for a minister.

Senator SCHACHT --Can I move on now to the recommendations that we are now being informed have not been accepted in the thin report. Recommendation 19 says:

The Defence Acquisition Organisation should be retitled as the Defence Acquisition Executive and its head as the CDA.

If it is only a title change, why was it rejected, or has the role of the CDA in there got some new impetus or some different structural arrangement and that is why it was rejected?

Mr Tonkin --The view that has been taken is that we want the Defence acquisition process to be clearly embedded in the overall organisation rather than standing to one side. Without interpolating too much, the recommendation that it become an executive largely mirrors the arrangements that apply in the United Kingdom where it is a more separate process. The Defence acquisition process, and it is reflected by having the head of the Defence Acquisition Organisation as part of the Defence Capability Committee, needs to be tightly embedded into the force development process and the management of the department. It was felt, therefore, that the existing organisational title was to be preferred.

In terms of the designation of the head of that organisation as the Chief of Defence, Acquisition, it was very much the CDF's preference that the title `Chief of'--apart from the longstanding Chief of Defence Science title--be reserved for military appointments. Where appointments can be either/or or supporting joint functions you will see reference to the `heads of' various programs, and where they are civilian areas the title is Deputy Secretary or First Assistant Secretary. So, essentially, it is almost a housekeeping thing to keep the nomenclature consistent.

Senator SCHACHT --So the person who the review recommended to be head of the organisation has been rejected?

Mr Tonkin --No, the person who was Deputy Secretary, Acquisition, Garry Jones, will be Deputy Secretary Acquisition, Garry Jones, and he will run the Defence Acquisition Organisation in the future as he does now.

Senator SCHACHT --Who is the CDA?

Mr Tonkin --There will not be a CDA because that is the equivalent of the Deputy Secretary, Acquisition.

Senator SCHACHT --By rejecting that recommendation, does it mean that recommendation R20 which talks about the reduction in staffing still stand?

Mr Tonkin --Yes. All the change to recommendation 19 was to change the descriptor, it does not change the import or the functional nature of any of the other recommendations relating to the acquisition organisation.

Senator HOGG --Whilst we are on that one, is reducing the military component from 30 per cent to 10 per cent, in any way going to jeopardise the program?

Dr Pearce --That recommendation is one that will have to be grappled with over time. It will be done in a managed way so that the reduction in military personnel will be compensated, within the broad boundaries of the personnel parameters, by increased civilianisation. We will certainly be managing that in a way that the projects are not damaged in continuing to operate.

Senator HOGG --Do not the military people have the experience in the field to know what bells and whistles will work out there as opposed to maybe a civilian? How is the reduction, therefore, going to be compensated by these civilians when, really, you are replacing experienced people who have the knowledge with people who maybe do not have the experience?

Dr Pearce --There is certainly a range of skills and knowledge that are required in managing a defence major capital equipment project. It will be important, as we manage this reduction, that in those areas where key operational expertise is required we do, indeed, have military people there. I think the review came to the conclusion, though, that there were a range of other project management skills that can be handled by civilians with appropriate background and training, that do not require the additional costs of military personnel who could be better placed in the combat and operational areas. It will be something we have to manage carefully.

Senator HOGG --How is the magical figure of 10 per cent arrived at, as opposed to 30 per cent?

Dr Pearce --I am not privy to all the background discussions within the defence efficiency review program. I think it probably came from having a look at what other organisations in other parts of the world have managed to do. I think the UK is probably aiming to drop to 10 per cent and so that would have been some experience that was noticed. Certainly there are a range of different acquisition organisations in other defence organisations around the world where the balance of civilian to military differs quite widely. The key thing here is to try to strike an optimum between those operational experiences and knowledge that must feed in, along with other types of skills that are required to manage a capital equipment project successfully.

Senator Newman --Can I intervene here because it has long been the practice in defence, of course, for people who were in uniform to become civilians and then work for the Department of Defence. It would be expected that there would be a number of those people who would be very well equipped to work in the acquisitions area.

Senator HOGG --I understand that, Minister, but that is--

Senator Newman --I am just adding to the answer.

Senator HOGG --I accept that, but that is not stated here. I accept what you say that it is managed, but it looks as if the military are being squeezed out. I am just wondering whether there has been any reaction from the military personnel in reading a statement as bland as that.

Dr Pearce --I am unaware of any adverse reaction, other than a concern that it is managed properly. As the minister has pointed out, quite a number of people already within the acquisition organisation are indeed military officers who have taken up a civilian career.

Senator HOGG --Could I refer you to R23. Whilst this is a recommendation, what is the basis for the recommendation that there is a saving of between 15 to 20 per cent?

Mr Tonkin --At the moment, the acquisition organisation is spread over a number of locations within Canberra. If we can consolidate like functions in the one building, which we intend to do in the second of the two new buildings being constructed at Russell offices, then the synergies of bringing it together enable us to have like support functions, such as management assistance functions, together which should enable us to achieve that form of reduction. So in grouping like functions and getting them together, you cut down the double handling of activity and yield an efficiency gain.

Senator HOGG --If you are looking at a 15 to 20 per cent saving, are those savings going to be reflected in this year's figures or are they figures that go out in, say, the four-year period?

Mr Tonkin --As a general point, for the savings arising from the defence efficiency review there are no savings programmed in the 1997-98 budget. That does not mean there will be no savings achieved this year, but the cost of termination payments--packages, et cetera--will offset those costs. In the case of that particular initiative, the savings would come about obviously after we have occupied the building. It is not a building yet; it is a hole in the ground with a few things sticking up at the moment making lots of noise.

Senator HOGG --When will we see that 15 to 20 per cent which has been spoken about?

Mr Tonkin --Those sorts of consolidations will be achieved over a three to four-year period. You would need to think the organisation through, get the new building bedded down, and rationalise it in that process.

Senator HOGG --But when will we see that 15 to 20 per cent that has been spoken about?

Mr Tonkin --Those sorts of consolidations will be achieved over a three to four-year period. You need to think the organisation through, get a new building, bed it down and rationalise it in that process.

Senator SCHACHT --As to the general overview of the restructure, will any of the suggested redundancies in the review, reductions in staff numbers, take place before 1 July?

Mr Tonkin --The only ones that I could think of would be on 1 July, a very small number of very senior military positions, but that I believe is all of it. There is a structured process to give effect to organisational changes and we will be following that.

Senator SCHACHT --And they will be going specifically because of the efficiency review?

Mr Tonkin --Yes.

Senator SCHACHT --They have been offered redundancy with advice that there is no further requirement in the Defence Force for their services because of the review?

Air Vice Marshal Rogers --That is quite right in a number of positions. For example, in the service headquarters, there were three service personnel chiefs--one in the army, one in the navy and one in the air force. Those positions have been abolished and I understand a number of those officers have been offered redundancy; their jobs are gone and there is no need to keep them, unless there is some alternative employment for them. I understand Air Vice Marshal Richardson, the Assistant Chief of the Air Force for Personnel Resource Management, retires on 29 June.

Senator SCHACHT --He retires normally, and then the position is abolished?

Air Vice Marshal Rogers --Then the position is abolished.

Senator SCHACHT --Is there anywhere where it is forced, where they did not have to retire by 30 June but the position is no longer available and they have been told that the best thing they could do is to take the package?

Air Vice Marshal Rogers --I would ask Air Vice Marshal Cox, who is the Assistant Chief of the Defence Force (Personnel) until 30 June, to answer that question.

Air Vice Marshal Cox --The arrangement was put in place to reduce the numbers. One of the recommendations of the report and the subsequent reform program was to reduce service numbers. These were mandated by percentages and the numbers were assessed at the time and the percentages were applied to see how those numbers would come down and then, in consultation between the Chief of the Defence Force, chiefs of the single services and individual service officers, officers were identified for redundancy and separation.

Senator SCHACHT --Were those positions identified within the efficiency review or were they identified as part of the working through of the recommendations of the efficiency review?

Air Vice Marshal Cox --They were identified subsequently. Some of the positions were identified as Air Vice Marshal Rogers has pointed out. With some of them it was quite clear where the positions were coming down--for example, the chiefs of personnel as he instanced; others were subsequent to the organisation structure. Indeed, we are still contemplating the one-star officer reductions, looking at the organisation with effect from 1 July, identifying what positions will be utilised and then subsequently reviewing redundancies as a result of that.

Senator SCHACHT --So if you were an officer in the personnel area, it was your bad luck that the position was being abolished and your chances of being transferred or having an opportunity to go somewhere else were limited?

Air Vice Marshal Cox --The mechanism that was used was the numbers came down and, as I said, discussions were held with the people. The people who leave are not necessarily linked to the specific job. The numbers of jobs go and then people go commensurate with those numbers.

Senator SCHACHT --You said that there were some service personnel chiefs, is that the phrase you used?

Air Vice Marshal Cox --The three chiefs of personnel; those positions have been abolished from 1 July.

Senator SCHACHT --If the people who held those positions were not retiring through the normal effluxion of time, they were offered a redundancy, because that was an easy way to get the numbers to meet the target. They just happened to be the unlucky senior officers in that position rather than in some other position where the service has said, `We need those positions anyway'.

Air Vice Marshal Cox --Madam Chair, I have a bit of difficulty in answering this because there are some sensitivities here with personnel individuals, as you would understand. I do not really want to name names in this circumstance. Perhaps I can answer the senator's question by saying that, to my knowledge, the arrangements which have been decided upon have been reached in an amicable way.

Senator SCHACHT --Yes, I do not want the names. What I am trying to get at is that, in meeting the targets of the efficiency review of the senior officer positions, it was identified that there were a number of positions in the personnel area. After a long career in the service in various positions, if you just happened to have been holding that position, it looks like you got an offer that, `Because the job is going, Tom, Dick or Harry, it might be a good idea if you were to take a redundancy as well.' Whereas if you happened to have had the good fortune to have been in a position at a senior level in some other area of the service, because the position was not targeted, you have been able to keep your job.

Were these the unlucky ones who happened to have been holding the wrong positions when those positions were abolished and, therefore, the easiest way was to get rid of them, irrespective of their performance or whatever else? I do not want to get into names, I do not want to in any way imply that at all. It just seems to me that this might have been the easier way for the service to get rid of people--to abolish their positions and say, `Well that's it.'

Air Vice Marshal Cox --Madam Chair, in giving these answers I do not wish to say who was lucky and who was not lucky or to make any of those connotations. The answer which I would give is that, as I indicated earlier, with the numbers coming down, there were discussions held between the Chief of the Defence Force, service chiefs and selected senior officers, and an amicable arrangement was met. It did not mean that there was a mechanical arrangement that said that the incumbents of any specific job were the ones who would necessarily lose.

Senator SCHACHT --How many people in these senior officer positions are taking a redundancy before 1 July, not including those whose time has run out and who are eligible for retirement?

Air Vice Marshal Cox --I cannot answer that specifically because I am not sure of the one-star numbers.

Senator SCHACHT --You would be able to take that on notice for me?

Air Vice Marshal Cox --Yes, I think we could.

Senator SCHACHT --That is up until 1 July.

Air Vice Marshal Cox --It is a very small number.

Senator SCHACHT --Yes, I know. I know this is at the beginning of the process, which ranges over several thousand positions at all levels--both civilian and military. After 1 July, how many further senior positions at the one-star and two-star level in the ADF have been identified to go during the 1997-98 financial year?

Air Vice Marshal Cox --The numbers are not difficult. The numbers are known, because they are a percentage number. I have got them here somewhere; I will get them in a second.

Senator SCHACHT --So that percentage number that is being applied at the senior officer level is going to be applied irrespective of any other assessment about the needs of the Defence Force itself?

Air Vice Marshal Cox --The numbers were mandated as a percentage after consideration of what the structure would be, but it was not finessed at that time. The run-down in numbers, which I can give you in a moment, has been known and the structure was looked at. In the new programming structure, the numbers of two-star, for example, were seen to go down and people were agreeable to that number. The one-stars have been mandated and an organisational arrangement around those new numbers is now being crafted.

Senator SCHACHT --And most of the one-stars will go after 1 July?

Air Vice Marshal Cox --The majority of the separations are going to take place--some with effect on 1 July and then subsequently throughout the year. Indeed, there is a degree of some flexibility on the period to best suit the individual circumstances.

Senator SCHACHT --In relation to those one- and two-star officers who are going, can you provide us with what the total cost of the redundancy packages are?

Air Vice Marshal Cox --I would have to check that.

Senator SCHACHT --Take that on notice. I do not expect you to have that figure in the folder. You may have, but I would be happy for you to take that on notice.

Senator Newman --You do not mean as individuals; you mean just the total?

Senator SCHACHT --No, I do not want individual figures.

Senator Newman --We can do it.

Senator SCHACHT --If you have got 10 one-star officers and 15 two-star officers, whatever the number is, and at that level it is going to cost us $3 million to pay them out and give them redundancy et cetera, that is separate from their normal entitlement from their normal service superannuation and so on. This is the figure.

Air Vice Marshal Cox --Madam Chair, that figure can be ascertained, but of course it impacts throughout the financial year on the period of their separation, so it is going to be a bit difficult to work out the exact figure.

Senator SCHACHT --Yes, I understand; I am not asking you to give me the last cent accuracy. I just want to get some idea, up till 1 July this financial year just ending, of what the payout cost is to Defence, then through 1997-1998 what you anticipate in redundancy at the various service levels.

Senator Hogg has just brought to my attention annexure C in the thin report. These have savings but they are all in general figures. It says `Financial year 1996-97 million dollars.' But are these actual figures for 1996-97 the total savings for 1996-97 across all areas, or is this the total that is going to go over three or four years?

Mr Tonkin --Chair, that is the total over the full period of the reform program.

Senator SCHACHT --And which is how long?

Mr Tonkin --Three to four years.

Senator SCHACHT --Three or four years? I just wondered--and you may correct me, Mr Tonkin, or other gentlemen--whether what you expect to pay for redundancies for 1997-98 may be elsewhere in the PBS document.

Mr Lewincamp --Senator, there are two spots on page 24 of the portfolio budget statements in the table which explains the variations--Table 4, Defence Function Outlays.

Senator SCHACHT --On page 24?

Mr Lewincamp --Yes. The first item under `Other', which is about one-third of the way down the page:

Provision for a productivity based pay increase and Defence Reform Program transition costs.

That is for the services.

Senator SCHACHT --That is $129 million.

Mr Lewincamp --And then further down, under `Civilian Salaries', the first item, the $60 million, includes the forecast pay increase for the year and redundancy payments for DRP plus other DRP transition costs.

Senator SCHACHT --Can you break that out for us as to what the redundancies are?

Mr Lewincamp --No, I cannot at this stage, for a couple of reasons, principally related to the pay increase matter and the fact that the management position and the size of the estimate that we have in there for the pay increase is not a matter that we would like to make public at the moment.

Senator SCHACHT --Would you take that on notice so that when you get past any particular sensitive point where you might tip your hand, you could provide us with that information?

Mr Lewincamp --We may be in that position by the supplementary hearing.

Senator SCHACHT --Good.

Air Vice Marshal Cox --I was just going to tell the senator what those numbers were. Two-star numbers are going down from 30 to 22.

Senator SCHACHT --That is two-star?

Air Vice Marshal Cox --And one-star numbers are coming down from 99 to 80.

Senator SCHACHT --The next level underneath two-star and one-star is, I suppose, in the civil public service the equivalent of the SES level, is it?

Air Vice Marshal Cox --The SES level normally embraces the First Assistant Secretary and there is some recognised equivalency about the two-star level, and Assistant Secretary has an equivalency of about one-star.

Senator SCHACHT --So it is roughly--

Air Vice Marshal Cox --So it is the SES, yes.

Senator SCHACHT --When do you get down for 1997-98 to the redundancies for the lower levels underneath one- and two-star?

Air Vice Marshal Cox --We call it colonel equivalent, which is army rank colonel, air force rank group captain and navy rank captain.

Senator SCHACHT --Colonel, captain--

Air Vice Marshal Cox --Colonel equivalent is the usual title. We will also be looking to run those down in 1997-98 and there is some action taking place to identify people at the present time. The military program will start with effect 1 July and a substantial run-down will take place very soon thereafter. Most of those numbers will be down by 1997-98--at the end of the financial year.

Senator SCHACHT --Do we have any idea yet of what you are aiming at in the colonel equivalent band?

Air Vice Marshal Cox --It is a similar 20 per cent, but I am not quite sure--

Senator SCHACHT --It is a similar per cent but you have a lot more colonel equivalents.

Air Vice Marshal Cox --There are a lot more of them, but I am not sure what those numbers are.

Senator SCHACHT --Can you take that on notice, please?

Air Vice Marshal Cox --Yes. In fact, it is here in the documents, I think. I remember seeing one of the breakdowns.

Senator SCHACHT --Is it in the PBS or in the purple volume?

Air Vice Marshal Cox --I think it is in the PBS where we have some listing of ranks and seniorities, but I will have to check on that.

Mr Lewincamp --It is on pages 214 to 215 of appendix 4 of the PBS. In fact, pages 216 and 217 have personnel numbers and the budget estimate for 1997-98, and that gives an indication of the current senior officers' strengths--the total of those under Navy, Army and Air Force, less 20 per cent.

Senator SCHACHT --`Senior officers' is the colonel equivalent--is that right?

Mr Lewincamp --Senior officers under that includes lieutenant colonel, so it not entirely those numbers that would be reduced by 20 per cent.

Senator SCHACHT --So we have got 393 in the Navy, 572 in the Army, and 487 in the Air Force--is that right?

Mr Lewincamp --Yes, that is colonel and lieutenant colonel equivalent.

Senator SCHACHT --We would not have too many lieutenant colonels. Which is the higher rank?

Mr Lewincamp --Colonel is the higher rank and there are fewer of those than lieutenant colonels.

Senator SCHACHT --Will the percentage figure be applied across this band?

Air Vice Marshal Cox --Twenty per cent.

Senator SCHACHT --That gives me a rough idea what you are aiming at.

Mr Lewincamp --There is a more helpful table which is on page 212.

Air Vice Marshal Cox --Madam Chair, I can probably assist on this. I have just had some figures passed to me which make it a bit easier. On the colonel equivalents, Navy is going from 89 to 70; Army is going down 26, but I am not sure what that is from; and the Air Force is dropping 20--from about 100, going down to 80.

Senator SCHACHT --At that level of colonel equivalents, including lieutenant colonels, do you have yet to determine which areas of a structure are going to be affected--where the jobs will come from?

Air Vice Marshal Cox --What is required here is a progressive arrangement. The broad outline of the program structure is given in these documents of what the organisation will look like on 1 July. The senior appointments are known. In military parlance: two-stars are definitely known and what the disposition of those two-stars will be and the one-stars will be will be known by 1 July, because action is taking place right now. The incumbents of those jobs will also be determined. So at 1 July the two-star and one-star positions will be known and the people will be identified in them. Subsequent to that, there will be a flow-on effect. The colonel `E' positions which are being looked at right now will perhaps not be quite as refined as the one-star positions will be, but they will be refined early in the new financial year.

Senator SCHACHT --In either of the two volumes of the efficiency review is there any indication of advice that you could take on board in sorting out which areas the percentage of positions may more heavily fall in the redundancy area?

Air Vice Marshal Cox --I think the recommendations of the review itself would give that guidance. The program structures are being put together and, for example--let me speak with some familiarity with personnel--the intent with personnel is to form an entity known as a personnel executive. That personnel executive will take on the functions presently performed by the single services personnel divisions, headquarters ADF personnel division and the civilian personnel division. Nominally, you are bringing together into that one personnel executive the five present separate personnel entities. If you were looking for run-downs and changes, you would focus in that sort of area. Similarly, with the collapsing of other programs into new entities, you know roughly where those areas will be. So it flows through from the recommendations of the report.

Senator SCHACHT --When do you think you will complete the colonel equivalent structure before you move down to the lower level?

Air Vice Marshal Cox --I am anticipating it will be very early in the new financial year. We need to do that to get on with the business of running the new entity.

Senator SCHACHT --After you go from colonel equivalent in defence terms, what is the next level?

Air Vice Marshal Cox --Lieutenant colonel equivalent.

Senator SCHACHT --We just added those together.

Air Vice Marshal Cox --They were banded in one of these tables as senior officers but, below those, you get down to what is known as a major equivalent.

Senator SCHACHT --What is the formula for the redundancy package for the various officers?

Air Vice Marshal Cox --It is the standard Public Service package.

Senator SCHACHT --Four weeks salary?

Air Vice Marshal Cox --No; two weeks per year up to a maximum of 48 weeks salary.

Senator SCHACHT --And that applies right across?

Air Vice Marshal Cox --As I understand it, yes.

Senator SCHACHT --Mr Lewincamp, you said that you cannot give us the figure because you do not want to tip your hand. In general, can you give us some idea what you think all these redundancies are going to cost the defence forces in 1997-98? You have not broken out these figures yet.

Mr Lewincamp --No.

Senator SCHACHT --If you did break them out now, are you telling me that that would tip your hand about what is available and people could, shall we say, negotiate more efficiently with you from their point of view?

Mr Lewincamp --It is difficult for us at this stage to predict the rate at which, for example, civilians will leave. As part of the efficiency review announcement, the minister also announced that we would be seeking a pay increase and, quite naturally, at the moment our civilians will be waiting to see what the size of that pay increase is before they decide to accept redundancy. We would expect that the timing of that pay increase will influence the number of people who will actually take redundancy or who will be prepared to take redundancy during 1997-98. There are also lead times associated with notification to unions and other processes that we go through as well. On the civilian side, we are anticipating that we will achieve fewer than 25 per cent of the savings during 1997-98. That is a reasonable estimate at the moment. That figure may be exceeded, but that is our estimate.

Senator SCHACHT --An experience of redundancies in other government enterprises or departments has been that, from time to time, there have been complains that someone retired the week before the redundancy became available and that, if they had waited another week, they would have been able to retire with a much bigger package, et cetera. Do you have arrangements in place for cut-in and cut-off points of eligibility or ineligibility for redundancy and some reasonably transparent rules about this--as far as you can get them? I am sure that there will always be someone complaining that, if they had received notice one week earlier, they would not have resigned but left in the normal manner and, therefore, were not properly informed. I know that this has happened in other organisations. What rules do you have in place on that?

Mr Tonkin --Defence has a well-established record in managing the downsizing of its work force. Over the last five to six years, the service and civilian work forces together have been reduced by 16,000. Therefore, we have fairly established practices to manage this sort of process. People in the organisations affected are well aware and get very substantial notice of the changes taking place. Obviously, it is up to an individual to time their retirement. Some individuals may age retire or some may have a personal circumstance for retiring earlier and do it with that knowledge.

Our process of achieving the reductions is partly constrained recruitment above the base level. If we can help it, we do not fill positions above that level. We have a process of voluntary redundancies, which is not an utterly volunteer system. In other words, people can express an interest, a desire to take a package, but it is management's decision in the end whether a package will be offered to an individual, because we want to maintain the functioning of the organisation as we proceed rather than having a less controlled process. I expect that individuals will have substantial notice. The requirement is usually six months notice before a major organisational change. That should catch up, by its nature, the problems that you have identified. And we follow that practice.

Senator HOGG --What percentage do you expect will be voluntary redundancies?

Mr Tonkin --Compared with what?

Senator HOGG --Compared with compulsory?

Mr Tonkin --The numbers bounce around slightly. Of the 16,000 separations we have had, there was, until recently, only one compulsory redundancy. There could well be four or five now in total. It is to the point of being minimal, but we can make no undertakings that in this program there will not be a requirement for compulsory redundancies. Providing a percentage on that is not viable at the moment, because all the detailed implementation plans which run right through the organisation have to be evolved. The effects of those plans on various organisations need to be assessed. The impact as a result of that on individual work groups, the ability for people to be redeployed, the age profiles of the organisation and so on all play into that question. I do not believe that it is possible for us to give you even an estimate.

Air Vice Marshal Cox --To answer the senator's question from an ADF perspective, we send out a message of a date with effect and if applications have been put in for separation prior to that date, then those members are not eligible for redundancy payments.

Senator SCHACHT --Prior to that date, they are not eligible?

Air Vice Marshal Cox --Yes.

Senator SCHACHT --I appreciate the fact that some of this could easily have come up in a later stage under personnel, but this is where it overlaps. On the general issue of overview, Minister: when Mr McLachlan was in New Zealand in early March, he made a statement warning that we are going to have to see a real increase in defence spending within two or three years. Is his desire for increased defence expenditure on top of the savings that are being accumulated as result of the efficiency review?

Senator Newman --As I understand it, yes, that is the general thrust.

Senator SCHACHT --Is that after the savings--which could be as high as a billion dollars--of the efficiency review? Does he believe, on top of that, that we should have a further increase in expenditure?

Senator Newman --That is the minister's personal view.

Senator SCHACHT --I don't know whether, as a minister, you can have a personal view.

Senator Newman --A minister can have a personal view before it is endorsed by cabinet.

Senator SCHACHT --It is a grey area, Minister, for all of us of when your personal view becomes a non-personal view.

Senator Newman --I am sure that the minister was referring to the challenges that lie ahead for Australia, to ensure that it is properly defended over the medium term.

Senator SCHACHT --Has the minister indicated what level of increased expenditure in three or four years time he would like?

Senator Newman --I understand that he has not.

Senator SCHACHT --Has he indicated what he thinks, if it is not a volume figure, as a percentage of GDP would be reasonable?

Senator Newman --No.

Senator SCHACHT --So it is a pretty open bid amongst his colleagues for money?

Senator Newman --I have seen some of his predecessors in a number of portfolios over the last few years do that.

Senator SCHACHT --There are also a number who have not done that; but you are right, numbers have done it.

Senator Newman --I seem to recall that even his immediate predecessor did it.

Senator SCHACHT --In the remarks he made in New Zealand, the minister implied that defence spending has fallen to close to 1.8 per cent of GDP, compared with 2.6 per cent some 10 years ago. Is the minister implying that he would like to see it back at 2.6 per cent of GDP?

Senator Newman --I think it would be pretty fair to say that most critics of the previous government's stewardship of the defence portfolio have repeatedly been referring to the gradual diminution of the percentage of GDP for defence. That is something which is very clear to everybody. It got down to 1.8 per cent--which is about a 60-year low, from memory--when Senator Ray announced his expenditure 18 months or so ago. That is a pretty extensive drop and it was a matter of concern to everybody. Therefore, anybody who was concerned for the future of Australia's defence would be concerned to see that better was achieved.

Senator HOGG --If that is the case, why is the government, in the documents that we have been provided with, forecasting that expenditure will fall as a percentage of GDP over the next three years down to 1.7 per cent?

Mr Lewincamp --The forecast over the additional estimates is for zero per cent real growth in defence outlays. That is at a time that GDP is increasing. Therefore, as a percentage of GDP, defence funding is falling.

Senator SCHACHT --So in these forward estimates, even as a percentage of GDP, the money is going to go down? That is despite the criticism that the minister at the table has just made of the previous government.

Senator Newman --Yes, and Kim Carr made it, too, of the previous government. Surprise, surprise!

Senator SCHACHT --I am just making the point that you are also letting it go down, despite your criticism of the previous government.

Senator Newman --They are simply estimates, though, aren't they? They have to be determined as the minister comes forward with proposals.

Senator SCHACHT --As Minister for Social Security, you will be in their battling for defence to get more than your department, will you? That will be interesting.

Senator Newman --I battled for defence for quite a long time, as you may or may not have noticed.

Senator SCHACHT --I have noticed. That is why they have you in social security.

Senator Newman --That is why the line is drawn in the sand.

Senator SCHACHT --Perhaps Mr Lewincamp or Mr Tonkin could help me with this. If defence expenditure does not go down as a percentage of GDP--the percentage stays where it is now--what would that be in, say, three year's time, in terms of money? You are the mathematician. You might be better than me on the calculations on these tables.

Mr Lewincamp --It is difficult to calculate.

Senator SCHACHT --I am not going to hold you to it and pull your fingernails out if you get it wrong.

Mr Lewincamp --The table on page 36 of the portfolio budget statement shows that the percentage of GDP for defence out to the year 2000-2001 is estimated at 1.7. Without having a calculator with me, I would say that an increase of $200 million or $300 million would maintain it at 1.9 per cent.

Senator SCHACHT --If the figure went back to 2.6, which is what it was historically, according to Mr McLachlan, would 0.6 of a per cent of GDP be another $800 million or $900 million on top of that?

Mr Lewincamp --I would need to do some calculations before I was confident to give you an answer on that.

Senator SCHACHT --It would be under a billion, wouldn't it?

Mr Lewincamp --Again, I would like to do the calculations.

Senator SCHACHT --You might take that on notice. It is not a matter I am going to hold you to because everyone can make a different calculation. When Mr McLachlan made the remarks about wanting to see an increase in expenditure, did he give any indication of where he would like to see the increased expenditure take place? Is it staff, personnel or acquisitions?

Senator Newman --Certainly an increase in the capacity to defend the country but, more specifically, beyond that, I cannot say that he has expressed a view. I will take advice on that. Simply, of course, there is the problem of block obsolescence coming up in the future. For your information, 2.6 per cent was the level back in 1972-73.

Senator SCHACHT --If it went back to that now, and Mr Lewincamp said he will make some calculations on that--

Senator Newman --It is hard to pull it back up.

Senator SCHACHT --I just wanted to get a rough idea--

Senator Newman --It is hard to pull it back up, especially when you inherit the budget deficit that we did. You had better remember that.

Senator SCHACHT --On top of the $200 million or $300 million that Mr Lewincamp has suggested it would be to maintain it at 1.9 per cent to the year 2000, which is about 0.2 1/2 per cent, and if you go back another 0.6 per cent of GDP, I think you are probably looking at another $700 million to $1 billion.

Senator Newman --I do not think you understood the impact of what I just told you. It was 2.6 per cent when we had soldiers, airmen and sailors in the field in Vietnam. That was a really relatively high level back in 1971-72. What we do in the future is obviously affected by the strategic outlook as well.

Senator SCHACHT --Of course. Mr McLachlan is quoted here in the AAP from New Zealand as saying:

Defence spending had fallen to close to 1.8 per cent of GDP from 2.65 per cent 10 years ago, at the same time as international obligations had increased.

He said only 10 years ago and he may have been wrong. It is not a matter over which I want to die in the ditch or nail him to the floor. I am just trying to get some idea of the increase in volume terms of money for the budget, if you accepted these figures.

Mr Lewincamp said he would take it away and try to make a calculation and I appreciate that. I then asked if we had any idea of what the minister would want to spend it on. I think you half mumbled that obsolescence is a problem.

Senator Newman --It is not just obsolescence, it is block obsolescence. A number of platforms will be coming well overdue for renewal in the coming decade. Therefore, that is a matter which is exercising the minds of the planners and has been now for the last few years. It will not go away and, while ever they can keep the life of platforms extended and weapons systems extended, they will do so. But there comes a time when you cannot keep doing that.

Senator SCHACHT --Just for general information, what are the particular platforms that are going to be hit with block obsolescence, to use that phrase, by around the year 2000?

Air Vice Marshal Rogers --Around about the year 2000 is a little bit early. I think what the minister is alluding to is that further downstream we do have a block obsolescence period in the years about 2010 to 2020 when a number of our major capabilities--for example, the FA18, the F111 and the P3, to mention a few, plus the FFGs--all reach their planned withdrawal date.

What we have to do, from a capability point of view in development, is to look at the programming aspects of that and see if we can even out the bumps and curves in the actual expenditure so that it can be affordable.

Looking to the future, there are a lot of options facing us. We can bring some programs forward and we can possibly extend the lives of some other types of capability. That is what the minister was referring to as block obsolescence.

Senator SCHACHT --Though we can predict it, the replacement of that equipment is going to start occurring in the later part of the next decade. Is that correct?

Air Vice Marshal Rogers --Yes. The replacement process will start in the early part of the decade.

Senator SCHACHT --So you are going to have to start planning around 2000, 2001 and 2002 in the planning process of what the budget implications would be for those years.

Air Vice Marshal Rogers --For the years 2010 to 2020.

Senator Newman --That has to be done over the coming five years.

Senator SCHACHT --Has the department done any planning on what percentage of GDP or, in volume terms, what would be needed to deal with, in general, the issue of block obsolescence during the next decade?

Mr Lewincamp --Not in terms of percentage of GDP. It is a difficult figure for us to use.

Senator SCHACHT --What about straight volume terms or bags full of money?

Mr Lewincamp --I have just borrowed a calculator and done some calculations on your earlier question. To raise the percentage of GDP back to 2.6 per cent--and using the estimate on GDP which is in this table, I emphasise that--would require an increase of $5 billion in defence outlays. That is then-year dollars.

Senator SCHACHT --Those are the dollars in those years.

Mr Lewincamp --In the years 2000-01. It would go up from $11.022 billion to over $16 billion.

Senator SCHACHT --I am glad you said that because I think my calculation was way out.

Mr Lewincamp --To take it back up to two per cent of GDP, for example, in the same year would be an extra $2 billion--just under $13 billion in 2000-01.

Senator SCHACHT --Up to the year 2000, on these estimates, the figures show that you are able to maintain, with the efficiencies of the review process now under way, the defence force accordingly. But for block obsolescence--to use that phrase--coming in during the next decade, there is no money in this program. Or is there some already in the acquisition budget that would be available to overcome some of the block obsolescence that Air Vice Marshal Rogers has described?

Mr Lewincamp --Yes, there is the normal investment that we make in major equipment that is included in our defence budget, but our estimates are that that normal level of investment will not be sufficient to replace current capabilities.

Senator SCHACHT --What percentage short is it, roughly? I am not going to say in three years time that you got it wrong back in estimates in 1997.

Dr Williams --We have done some long-term planning to try to determine what the costs might be into the future. I think, in short, one could assume that two per cent of GDP would be more than enough to cover maintenance of our capabilities. Real growth would depend--

Senator SCHACHT --Two per cent would be enough to cover it?

Dr Williams --More than enough. I am saying that would cover us quite easily. At the bottom end, if one maintained zero real growth going out to 2015, then we would need to get the full savings out of the defence efficiency review and/or we may have to make some trade-offs. That is the span if you like.

Senator SCHACHT --That is good news for the minister--to be able to report back that instead of being 2.6 it is two per cent and you have more than enough to handle block obsolescence.

Dr Williams --A lot depends also on the circumstances of the future.

Senator SCHACHT --Unless, of course, the Navy wants to buy three aircraft carriers or 400 B52s or some mad idea like that which is not, I do not think, in anyone's mind, even the Navy's, is it?

Dr Williams --No. But we are talking about maintaining the present level of capability. If we are looking to expand numbers, then we need more again.

Senator SCHACHT --The minister said in his remarks from New Zealand--in that same paragraph I quoted--that the defence spending has fallen from 1.8 to 2.6 over the last 10 years, at the same time as international obligations had increased. Can you give me some idea of what our international obligations are that have increased putting more demand on the budget?

Mr Behm --I think what the minister had in mind was a range of activities that we are conducting with allies in support of the United Nations, which are extensive and expensive. They include everything from working in the MIFF and places like that on the Gulf to the activities we conduct with other allies activities under FPDA, with the United States and so on.

Senator SCHACHT --On the UN case, are we not supposed to be refunded for those various UN programs?

Mr Behm --Yes, for some activities we are refunded and for others we are not.

Senator SCHACHT --For which ones have we not been refunded?

Mr Behm --The ones in the Gulf are not refunded.

Senator SCHACHT --That is our contribution?

Mr Behm --That is correct.

Senator SCHACHT --How much is that costing, roughly?

Mr Lewincamp --Senator, if I can refer you to appendix 10, page 245.

Senator SCHACHT --Mr Lewincamp, you are doing very well. I will give you a cup of tea afterwards.

Mr Lewincamp --That gives you a complete list of all of the peacekeeping operations.

Senator SCHACHT --These are the recoveries; some are recovered.

Mr Lewincamp --Some are supplemented and then the bottom line is the net cost to defence.

Senator SCHACHT --For 1996-97 it is under $1 million, isn't it?

Mr Lewincamp --Which one are you looking at?

Senator SCHACHT --Over the page; $6.6 million is the net cost. Is that right?

Mr Lewincamp --That is the net cost to Defence.

Senator SCHACHT --Which you will never get refunded from the UN.

Mr Lewincamp --We have absorbed that cost within defence outlays.

Senator SCHACHT --And next year that is down to $3 million?

Mr Lewincamp --Yes.

Senator SCHACHT --Unless some other program turns up. On the cost recovery there has often been criticism that UN is rather a slow payer. Are you confident that you will get it back for the ones that they are supposed to repay us?

Mr Lewincamp --Eventually, yes.

Senator SCHACHT --That is the UN; that is a $6 million cost for international obligations, which is not exactly a large amount of money in the total budget. Mr Behm, what other areas of international obligation are on the increase, I presume at a bilateral level?

Mr Behm --Senator, could I take that on notice? I have not got a full brief on that at the moment. We have increasing numbers of deployments, we have increased exercise levels. How we actually apportion the costs for those I am personally not sure.

Senator SCHACHT --Okay. Has there been an increased cost with the government's announcement of upgrading its relationships or arrangements with the United States? Has that cost us more money, either being involved in more exercises or paying them more for something else--buying more equipment off them, or whatever?

Mr Behm --I think it is fair to say it has cost us more money, but we do it by reallocating across the portfolio, Senator.

Senator SCHACHT --What I am trying to get at, Mr Behm, is that I think the minister may have been exaggerating a bit--and I will give him the benefit of the doubt--and being effusive in New Zealand when he said `at the same time as our international obligations had increased'. I do not think that where they have increased is going to be a major impact on the budget having to go up a substantial amount. I think that block obsolescence, which Air Vice Marshall Rogers has mentioned, is probably in the future going to be the major source of funding. But, as we have just had explained to us, if it goes back to two per cent, that will be more than enough money in the outlays.

Air Vice Marshall Rogers, in the preparation for early in the new decade, has the Defence Department yet determined which block obsolescences of which programs, which platforms, have got priority to be replaced? Has any prioritisation yet taken place?

Air Vice Marshall Rogers --The development of defence priorities is a matter which lies within the ambit of strategic policy and plans, which is within the new defence headquarters. Last year there was--

Senator SCHACHT --Is Mr White available then?

Air Vice Marshall Rogers --He is on his way to China at present, but I can get Air Commodore John Kindler--

Senator SCHACHT --That is one way to get out of questioning, isn't it!

Air Vice Marshall Rogers --If I can elaborate a little on the determination of defence priorities, last year we developed a defence long-term plan. One of the outcomes of that what was to be the list of defence priorities. That process is still ongoing; when the DER--the defence efficiency review--came into being, that particular process was placed on hold. What we are doing now within the new structure of defence headquarters is that in the new SPP or strategic policy and plans area, of which Air Commodore John Kindler is the deputy head, we will be developing that process so that we can inform the capability development process of which particular capabilities have priority.

I must also suggest to you that there are some factors outside our control which necessitate the replacement of some capabilities a little earlier than had been planned. For example, if a weapons system reaches its life of type through fatigue or some other factor outside our control, we have to accelerate that process. One, for example, is the lead-in fighter to replace the Macchi aircraft, because the aircraft is going to run out of fatigue life in mid-1999. That process had to be accelerated, which it was. So there are a number of factors that come into it, but Air Commodore Kindler may have a few things to add.

Senator SCHACHT --Air Commodore, are you in the same area as Mr White?

Air Cdre Kindler --Yes.

Senator SCHACHT --Thank you.

Air Cdre Kindler --The mature defence long-term plan will focus on strategic development of ADF capabilities. It will do this through a series of judgments about future developments and the sort of things that have been discussed this afternoon--block obsolescence. We know when those things are occurring because structures like aircraft have a finite life.

We need to review, through studies of different future worlds, whether we replace those capabilities or whether we find something different to provide us with a more relevant capability in the future. These balances and options will be tabled at the end of what we call a defence long-term planning process, in a series of factors which must influence our decisions today as we make decisions to replace some of these equipments, and in the near future. Of course, we will get smarter every year as we go through that process.

Senator SCHACHT --Are you yet able to determine whether, in terms of obsolescence, the frigates, the FA18, the F111, or the leopard tank is a more pressing problem? Have we got to that stage yet?

Dr Williams --We are at the moment looking at a range of options to try and manage the obsolescence period. One of the options is the choice of whether you upgrade capabilities now to extend their life, or replace them early. To some extent, one of the management tools is to try and spread that. It may not be a simple matter of saying some things will get up and others will drop out. There are options to manage.

In a number of the capabilities, we have actions in train now to extend the life, for example, of some systems. The strategic review that is under way at the moment will attempt to put some priorities on capabilities, and that will also help to inform us. Again, we expect to have that out shortly.

Senator SCHACHT --When do you anticipate that that strategic review will be completed?

Dr Williams --I understand that it is in its final stages now. I could not give you a date, but I thought we were no more than a month or two away from it being with the minister.

Senator SCHACHT --Minister, can we anticipate that that strategic review in one form or another will be a public document tabled in the parliament?

Senator Newman --Yes, the sanitised version is pretty much standard procedure. Sorry; I understand that the decision has not yet been taken. That has been past practice, I know.

Senator SCHACHT --So we have not even taken a decision on whether it should be sanitarily cleaned or something?

Senator Newman --It certainly will not be the total strategic review--for obvious reasons.

Senator SCHACHT --It will not have all the nasty bits in it.

Mr Lewincamp --Senator, only in recent years has a sanitised version been made available to the public, in 1990 and 1993. It is a matter for the minister as to whether he does that on this occasion.

Senator SCHACHT --Nothing went wrong in the world by making a sanitised version available, did it?

Mr Lewincamp --No.

Senator SCHACHT --We were not attacked, bombed or abused as a result, were we?

Mr Lewincamp --No.

Senator Newman --It adds somewhat to transparency.

Senator SCHACHT --Yes. I will probably end up reading most of it in some leaked defence review magazine newsletter or somewhere else around the place, so I do not know why we get hung up on this. Nevertheless, I understand that that is the form. Can I leave it on notice for the minister as to whether we can get an answer on a sanitised version--or some version--being tabled for some form of debate in the parliament?

Mr Lewincamp --I have a point of clarification on your earlier question about block obsolescence. To amplify that, that is not the only cost pressure that Defence is facing. I would not like the committee to gain the view that that is the only issue that we have to confront. We are actually confronting increasing costs above the rate of inflation, in all areas of our activity. Our analysis shows that the real cost of equipment is increasing at some four to five per cent above the rate of inflation. Simply continuing to replace and maintain the capabilities represented by current equipment is going to cost us more. The same is true in personnel, in operations and in preparedness. We are facing the pressures right across our activity.

Senator SCHACHT --I can assure you that I understood that the pressures were not just a simple bag full of money turning up to do block obsolescence; there would be other pressures. On the sanitised version, if it is made available--and I trust it will be--will that be able to deal with the issue of some information on the prioritisation of what would be the major equipment acquisition programs to overcome block obsolescence?

Mr Lewincamp --Even if the strategic review does not do so, you are probably aware that we publish an unclassified version of our forward investment program, the pink book, which would present that same information. It represents the broad priorities for investment in major capability.

Senator SCHACHT --Irrespective of the review?

Mr Lewincamp --Yes.

Mr Williams --Madam Chair can I just make one clarification on the strategic review? The minister has stated that it will be available later in the year--it is not clear yet as to whether he would want to put an unclassified version out. I said earlier that it was probably within a couple of months: I think that is the time in which it would be with the minister.

Senator HOGG --I want to return firstly to the issue that I raised earlier in respect of point F2. Unfortunately, Mr White has gone, but perhaps someone else could answer the question if I rephrase it. I understand that Army 21 and the army restructure assessed a certain type of threat, a force of a particular type and structure, in developing the appropriate army structure. I am not trying to name a specific country or anything like that, but I understand that there was a model.

What I was trying to get at in point F2 was: do the DER and the DRP assume the same threat, or have the DER and DRP been developed in a vacuum? What is the rationale, given that F2 says that we have got to defeat any credible attack?

Mr Tonkin --Madam Chairman, the basic rationale of the defence efficiency review was to recognise that we need to maximise the amount of defence resources--we just had a debate about how much resources we might expect--on combat capability. That objective stands independent of any assessment of the sorts of contingencies or capabilities or any other factors which our country might have to confront.

It has not been done in a vacuum but it has been done to say that, irrespective of the outcomes of the strategic review and the judgments which flow from that, the import of F2 will be reflected and addressed in the strategic review process. Irrespective of any of that, we still need to maximise the resources that we have which are devoted to those capabilities which in turn can be used to address any of these potential outcomes. The defence efficiency review gives us the enabling resources to then go forward and deal with whatever. So that is the linkage between the two.

Senator HOGG --What is the maximisation criterion--is it money?

Mr Tonkin --I suppose that in the end everything is expressed as money, but obviously it is the ability to acquire and maintain the equipment, the ability to recruit, retain and train the people who operate that equipment, the ability to do the same for all the organisations which support the forces that go forward. It all boils down to money, but it is very much people, equipment, stores, supplies, facilities--you name it.

Air Vice Marshal Rogers --Madam Chair, I do not think there is a nexus that Senator Hogg may be trying to draw between the DER and the strategic review. The DER was to look at where we can change our ways of doing business to improve our effectiveness; where we can change our processes; where we can change our organisation; where we can get the most bang out of the buck and, if there is something left over from those processes, within the limit we put that in towards the development of capabilities.

When the strategic review comes down later in the year, that will inform the process of where we should be looking for our capabilities in the future. What we are trying to do in Defence is to come up with a new organisation. As the minister said, this is the first time we have been given the opportunity for about 20 years since the Tang review to have a really fundamental look at the way we do business in Defence. We are grasping every possibility, remembering that most of the suggestions in the DER came from the people within Defence themselves. All the people in uniform, all the civilian people, put in the ideas that came out as the guidelines. The thick and the thin books, as we have explained earlier today, contain the ways we should be going.

Right now, what we are doing is coalescing all those ideas and the guidance that came out and the directives that came from the minister--putting that together to get a defence organisation which we can get the best effectiveness out of and then, when the dollars come out of it, we can put that into capability. Before we put it into capability, we need that strategic review to go through the processes of identifying in our region what capabilities Australia needs.

Senator WEST --I would have thought that if you are setting up a new organisation or you are going about revamping it and looking at new ways to do things, in this game one of the key determinants of the direction you took would be the type of scenarios that you would be facing. You really cannot structure a defence force without some mind to what the structure is that you are going to be facing--not by name or anything like that, but by force capability, type of exercise, and that type of thing. I would have thought that would have been absolutely crucial to the way you tailored and set your new organisational directions.

Mr Behm --The Senator asks a very pertinent question because the way in which we do go about planning our force structure and force disposition is based on very complex analysis. It is not based on scenarios, but it is based on a very detailed analysis of what our strategic environment looks like, the sorts of things that modern conflict entails, and our principal objectives in seeking to defend Australia.

They are questions of strategic geography, distance, time, the nature of the terrain, the extent of the sea and so on. All these factors are then brought in together to set up a strategic basis for force capability planning. For that reason we do not put in place specific threats because that is not the basis on which, as I said, we plan.

We plan on the nature of conflict, and so what we see in our own region--and it is summed up at the beginning of the slim volume here of Dr McIntosh's report in just a couple of pages and it will not surprise you, I think, to know that those couple of pages are quite consistent with where we have got in our current strategic review--is really that we have a very complex strategic environment in the Asia-Pacific region. It is marked by relatively high levels of uncertainty with respect to the future, and most of the players in it are increasing their own force levels. It is against that kind of background that we then proceed to develop our force structure.

Senator WEST --It is that background that we are trying to identify. What relationship does that bear to Army 21? Are they both built on the same premises or is Army 21's premise for this background different?

Mr Behm --The premises on which both are built are the same: that we are living in an environment which is much more complex; there are many more players in it; their own policies are by no means clear in every case, and yet they do have relatively high levels of force that they can bring to bear on issues that they take seriously. In our case, we are doing planning which is about ultimate things. It is about fighting and one hopes about winning, and for those sorts of reasons we bring those into calculation in order to develop forces which are able to do precisely those two things--fight and win.

Senator Newman --That is effectively the same approach that was taken by the previous government in such planning matters.

Senator WEST --I am just wanting to get that clear.

Senator Newman --I am just putting that as a full stop.

CHAIR --Are there any more general questions?

Senator HOGG --Can I just move on to the next paragraph while you are there, because you might be able to assist me. In point F4, it says that we need to build an increasingly technology intensive defence force. I have some concerns there. Whilst I understand that we are in a highly technological age, what safeguards are we putting in place to ensure that the technology that we buy is not dud technology?

You may well buy something that looks good and operates well now, but with the myriad of viruses that are around, someone can activate a virus or a virus will be activated which would render absolutely useless the equipment you buy. Has this been considered in this defence efficiency review and, if so, where do I find it?

Dr Williams --The issues you raise are very important ones and they are certainly matters that we attend to. There are a number of ways we try to deal with that. One is through the Defence Science and Technology Organisation which maintains expertise in technologies and can advise on appropriate security mechanisms. If we are talking technology in terms of information systems, which I think was the point you were making, then clearly we have to understand the security environment, we have to have security devices that greatly exceed those that perhaps the commercial sector might accept.

In addition, the alliance with the United States gives us access, obviously, to the sorts of technologies that they are developing and our relationship there is very important. But I would say it goes beyond information technology--that is just one element. The other areas where we need to pursue technology is in things like surveillance sensors where we are taking advantage of developments so that we can detect earlier, longer, and a wider range of targets. With weapons, if we are trying to make our aircraft more survivable we want longer range weapons. So we need systems that have longer range, are stand-off, are more discriminating, and can be more accurately fired. So, it is technology across a range of areas, not just information systems.

Senator HOGG --How much does that imply that we need to become more self-reliant in the manufacture of our own weapons and systems?

Dr Williams --Certainly, self-reliance remains a cornerstone of our policy. That does not necessarily mean that we have to manufacture ourselves. Obviously, the United States alliance and other arrangements we have are quite important. In some areas it may dictate that we need a capability in country, in others it may mean stockpiling, and in others it may mean the relationship with the United States gives us a degree of confidence.

Senator HOGG --Where does that see our relationship with industry? If one turns to R25, it says:

The Industry Involvement and Contracting Division should be disbanded and industry specialists closely integrated into acquisition functional groups.

It that going to weaken our position?

Dr Pearce --It is a very interesting issue. The defence efficiency review, in what was leading up to this recommendation, was pointing to what is quite a challenge for us. The challenge is that in our major capital equipment acquisitions we are able to ensure that the processes we use, the strategies that we use, the industry objectives that we put into those projects, are such that we will get within Australian industry the capacity for the ongoing support through life of those key assets.

The actual technologies that we need or the amount of additional development that has to be done in Australia will vary very much from project to project. The aim and the thrust of the DER was to ensure that industry considerations were more closely embedded in project considerations. It certainly did say that the Industry Involvement and Contracting Division is to be disbanded, but that does mean that the functions have been abolished as such. We are now working through how best to deliver some of those specialist services more integrally into the projects.

Senator HOGG --How do you envisage that happening? Where will I find it throughout this program?

Dr Pearce --It is a little bit tricky at the moment because we are in the process of working through, by 1 July, the precise details of new organisational structures. If I could go back for a second while I think about this, your comment about industry, in many ways industry overall, and the thrust of DER, is that it is to be, if anything, more important to us in the future and the relationship with defence. Indeed, a number of the elements coming through in the review as a whole will improve that.

For example, the increasing focus on more capabilities will mean that there will be more project work available and more work for industry. The increasing emphasis on contracting out of the commercial support program will mean that we will be increasing work with industry, increasing activities and partnerships between Defence and industry.

Overall, there was no intention that there be a diminution of the interaction that will be needed between Defence and industry. Indeed, I believe somewhere in the report you will find a comment that we are actually to maximise that interaction. But the detailed organisational plans have not yet been finalised in precisely how that will happen, except that it is to be with the industry specialists more closely aligned with the projects.

Mr Tonkin --To help the senator as to where he finds it in the estimates, the expenditure on that function will largely be represented by subprogram 9.2, which is on page 93. There is more resource information on pages 147-8.

Senator SCHACHT --On the Defence efficiency review, there is quite a large section in the actual thin volume and quite a prescriptive number of pages, I suspect, written because of Dr McIntosh's particular expertise and background in industry policy going back over many years long before he was head of CSIRO.

In reading through the description here, irrespective of the recommendations, does Defence believe that, if the description and the structure of industry policy for Defence was carried through as described here in its themes, it would still mean that we would build the submarines in Australia and the Anzac frigates in Australia?

After reading this, I have to say I have some doubt that we would actually build the submarines in Australia if you followed the theme of the description in this section from pages 29 through to 37, which include something on acquisition and DSTO as well.

Mr Tonkin --I would simply direct the senator's attention to finding 15 of the report, which says:

A fundamental element of defence policy for industry should be to use the widest possible range of industrial support in peace because that will be necessary in war.

Senator SCHACHT --Which one is that?

Mr Tonkin --Finding 15--the first finding under the industry section at the back of the thin book. I would draw from that that the policy intention is to maximise the opportunity for Australian industry to participate in and contribute to the production of defence capability.

Senator SCHACHT --I am interested that you interpret it that way. I turn to page 32 of the report and note the use of the pejorative words `socialist governments in the world', `market intervention', et cetera, which sounds like John Stone got his hand in here in a couple of paragraphs as well. He being an ex-dead hand from Treasury, we can understand why he always wanted to buy off the shelf, no matter what. At the bottom of page 32 it says:

Occasionally, the Scandinavian countries are cited as role models for Australia (Sweden was fashionable during the early days of the submarine project and Finland seems popular now) . . .

What are we buying from Finland that makes them so popular, apart from mobile phones? Do we have any idea what that is?

Dr Pearce --To be quite honest, I am not sure exactly what that reference to Finland means, in terms of being popular now. It has not been, in any discussions that I have been part of, suggested as a model for us.

Senator SCHACHT --So we can scratch Finland off?

Dr Pearce --I am simply unaware.

Senator SCHACHT --I hope the Finnish ambassador takes this with an even-handed approach. To continue:

. . . on the grounds that they have some apparent successes and are even smaller than we are. These countries are highly homogenous societies with (mostly) strong socialist economies, with a very high degree of Government intervention, backed by very high taxation and industry subsidies.

That certainly is Mr Stone's rating, I would imagine. I go on:

Their strategic circumstances (threats, allies and geography) are very different from ours, as are their industrial bases and markets. While there have certainly been some impressive results (e.g. Swedish submarines and fighter aircraft), their cost, ultimate value in war, and long-term sustainability are less obvious.

Do you take the meaning of this to be that the cost and ultimate value in war of the submarines which we have purchased and are involved in a joint project in developing are now less obvious?

Mr Tonkin --No, Madam Chair, I do not. I would have thought that those few paragraphs are a bit of a tour of the world of industrial policy from which few conclusions have been drawn. The conclusions drawn from that section of the report are those set out in the findings and recommendations on that chapter, which do not, I suggest, draw the conclusion that you are seeking.

Senator SCHACHT --I am very pleased to hear that you take a different interpretation than clearly some members of the committee who wrote this part of the report. I want to now turn to on page 33:

It is our view that the process of privatisation now needs completing with a sale of the Government's equity in Australian Defence Industries (ADI) and the Australian Submarine Corporation.

It is not clear from this that I can see, though I think that it is implied, whether the government has yet completed its scoping studies, I think is the phrase, for the privatisation of ADI.

Dr Pearce --As the Minister for Finance, who would head up the area that has the Office of Asset Sales within it, has stated in the budget papers, the government will during 1997-98 decide on the timing and the strategies for the sale and other relevant issues of ADI. At the same time, so far we have seen that the bill on the sale of AIDC has gone through and that the government shares in ASC are to be placed under the corporation and the government has yet to decide what it will do with those.

Senator SCHACHT --Has the government decided that the ADI, once privatised, will be maintained in majority Australian ownership?

Dr Pearce --The government has not made any announcements on the strategies and the conditions for the sale.

Senator SCHACHT --Has Defence a view about maintaining the majority of Australian ownership of a privatised ADI?

Dr Pearce --Defence would have some views which would be put into the appropriate process to advise the minister in due course when the government wishes to have such advice.

Senator SCHACHT --That is all right; I do not blame the officer for saying that. That is what you are expected to say in this particular matter here.

Senator Newman --Thank you.

Senator SCHACHT --Of course. I am not unreasonable. I do not want to get the officer into strife by saying something quite sensible like `We ought to maintain it in public Australian majority ownership.' Her life would not be worth living.

Senator Newman --You realise the officials' advice is to the minister.

Senator WEST --Does the minister or the government have a position on Australian majority ownership of Australian Defence Industries?

Senator Newman --As you would realise, we will make the decisions on this on corporate lines and we will make it on the best advice available to us when we are in a position to do so, and we are not going to canvass the advice from officials to ministers in this forum.

Senator WEST --I am not asking for the advice from officials. I am asking--

Senator Newman --I have just given you the definitive answer.

Senator SCHACHT --If Kockums decided to buy the rest of the Submarine Corporation so that it would end up totally being a Swedish company, would that be of concern in any way to the strategic interests of Australia?

Dr Pearce --Senator, I think you will find in the bill that went through the House recently that there are appropriate safeguards that have been placed upon that.

Senator SCHACHT --Safeguards for?

Dr Pearce --In terms of the sale of ASC and what that might involve.

Senator MARGETTS --If you are going to refer to the bill, you should perhaps refer to the whole discussion of whatever safeguards exist in relation to ownership.

Dr Pearce --I certainly cannot give a definitive answer on that, Senator. What I would say is that the government, if and when it goes forward to decide what it will do, will take appropriate advice and look into all those issues.

Senator SCHACHT --I know from my own experience as a South Australian that the Australian Submarine Corporation has been attempting to get sales overseas. If the Submarine Corporation, through the ADI, sold 47 per cent or whatever it is to the Swedes, Kockums--about a 98 per cent Swedish company--wouldn't it be obvious that the Swedes would be much more interested in selling the submarines from a site built in Sweden than actually building them in Australia, in their own company and national interest?

Dr Pearce --Senator, the selling of submarines is a complex business. I think you are speculating, and I do not particularly wish to speculate.

Senator SCHACHT --I cannot imagine the Swedes--even being kind socialists--when they own 98 per cent of the company, saying that is a good idea to sell submarines and they could be made in Australia,

CHAIR --Senator, aren't you stretching the question considerably?

Senator SCHACHT --No, it has just been brought to my attention that the minister, in speaking to the Joint Services Staff College earlier this year--or late April of this year--said--

CHAIR --Senator, could you just clarify the document from which you are speaking.

Senator SCHACHT --It is just a quote from Australian Defence magazine. It quotes the minister as saying:

. . . the future structure of Australia's defence industry is a private sector matter.

That is not a very encouraging indication of having a comprehensive industry policy available, I would have thought.

Dr Pearce --Having heard the minister speak on many occasions, I think you have to be a little careful to take lines out of text like that. In essence, it comes down to the marketplace in the end. There are ways in which defence can structure the projects so that it has industry objectives within its projects, to ensure that we get within Australian industry those capabilities that are required to support the assets through life. What I have just said now and what you have just quoted are not totally antagonistic statements.

Senator SCHACHT --Some Australian companies, from time to time over recent years, have said that there should be a much more strategic alliance arrangement in defence, defence procurement, defence acquisition and defence industry issues, and that the consistent insistence by government--this goes back over a number of years in a number of areas--that you should always make competition between two companies means that in the end you never reach any sort of critical mass in capability in Australia. I know this view is utterly rejected by Treasury for a start--they call it picking winners--which says you end up creating a monopoly that is then going to rip off the taxpayer.

Is it not possible that you could establish a strategic alliance and then impose on it a benchmarking arrangement about what is world's best practice, to compare what you are being charged? I notice the minister has used the phrase in this document that they will be benchmarking the recommendations of a thin document, to say the least. Is it not possible now, with what we have available with our sophistication in industry structures to benchmark and compare what we are being charged with what similar systems would cost overseas, to make sure that the strategic alliance that you have with an Australian company, making it in Australia, developing it in Australia, is not robbing the taxpayer?

Dr Pearce --Senator, you seem to be implying that we should have a series of monopoly relationships set up. I do not see that that is a necessary outcome for us to be able to obtain the support that we need. I believe the current government and the previous government certainly had competition as a fairly fundamental role of ensuring that one gets value for money. The question is how to shape your demand and how to set up your acquisition strategies so that you indeed end up with the capabilities you want.

There is a very big challenge for us, given the rate at which new technologies go, given the size of Australia, that we do need access to many technologies that are developed abroad and those linkages need to continue. The complexity of the range of types of acquisition, procurement and in-support arrangements that we have are such that it is virtually impossible to have a single solution along the lines you seem to be implying.

Senator SCHACHT --I thought you would say that, so I am not going to belabour it, but I find it very strange that everywhere else we can say we can benchmark, we can measure ourselves. In the telecommunications industry, Telstra was held up in a number of areas of inefficiency because we can benchmark their cost per line per employee and so on, and that is used as a justification for more efficiencies in Telstra. That is all measurable worldwide to keep the pressure on Telstra, yet we say we cannot do the same to measure an Australian company that may even have a strategic alliance and be almost a de facto monopoly. We cannot put the same measurement tests in to make sure that they are not robbing the taxpayer.

Senator Newman --Madam Chairman, are we on acquisitions now or are we still on the overview?

CHAIR --The overview.

Senator SCHACHT --We are still on this report.

CHAIR --We are in the position of advanced political theorising as far as I can gather, Senator! I would appreciate it if you could stick to--

Senator SCHACHT --Hang on. Have you read this?

CHAIR --Yes. I have read the part you are reading.

Senator SCHACHT --You have read this? For about four or five pages, Madam Chair, the theorising goes on here about industry policy in some of the most extraordinary terms. All I can say is that if I do not do it here now in the overview, I will wait until we get down to the acquisitions section and do it there.

CHAIR --That is what I asked you to do some four hours ago.

Senator Newman --I understand some of you did have a briefing. I do not think Senator Schacht availed himself of that opportunity.

CHAIR --No. That is correct.

Senator SCHACHT --A briefing for what? In the joint committee?

CHAIR --No. For the estimates.

Senator SCHACHT --That is a private briefing, is it not?

Senator Newman --It might have saved some of the lectures.

Senator SCHACHT --I want to get some things on the record. This is public.

Senator Newman --Do you mean what you have to say or what the officials have to say.

Senator SCHACHT --Of course, and I want to get the response from the department.

Senator Newman --You were making speeches as far as I am concerned.

CHAIR --Senator, all I would say is that we have been going for four hours at least and we need to start on the actual program.

Senator SCHACHT --If we had started at 9 a.m. we would have been all right.

CHAIR --Do you have any more general questions?

Senator SCHACHT --Not on the industry policies. It is now clear to me that part of this--which is in this review which goes at some length about the theory of industry policy--has been that the government is accepting this theory. That means that the development of a comprehensive industry policy is going to be a matter for public political debate and there will be differences. Fine. I shall move on.

CHAIR --That is a statement, not a question.

Dr Pearce --Senator, could I just make a clarification? I do think there is an assumption there. There are certain recommendations at the end of the report and they are the things that we will be reporting to government. Separately, this is a significant input into contributing to defence debate. The Minister for Defence Industry, Science and Personnel has stated that there will be a government statement on industry policy, probably by the end of the year. I would not assume that the whole of the text is now defence policy. It is the recommendations that we will be having to report against. There will be further policy work done.

Senator SCHACHT --I am glad you mentioned that we will have a defence industry statement by the end of the year by the Minister for Defence Industry, Science and Personnel. Is that going to be used as a basis of part of the reform program?

Dr Pearce --It was a suggestion in the secretariat papers, which is the fat volume, which the minister is going to take up.

Senator SCHACHT --So it will be part of the defence reform program?

Dr Pearce --Essentially.

Senator HOGG --Let us go to page E6, recommendation 27 on industry. Could you give me some indication as to what spawned that recommendation? To me, it is a fairly nebulous recommendation at this stage. What is its purpose? It says that a small dedicated export unit, headed by a marketing expert from industry on a fixed term secondment, should be established.

Dr Pearce --In part, that came from some comments within the text talking about the example in the UK of what is called DESO, the Defence exports services organisation, which is headed by an industry person. There is also some discussion in the subsidiary document about the need to focus our export facilitation somewhat more onto projects. The recommendation here is slightly different from the text which said that it should be effectively examined, if I remember correctly. We will be looking at these recommendations, in terms of how we handle the export facilitation function, as we work through the new structures and new processes.

Senator HOGG --Can I assume that a review will be established for the next recommendation there on the defence trade commissioners? If so, when will it take place?

Dr Pearce --You can assume that, Senator. Indeed, some preliminary work is being done at the moment in conjunction with Austrade.

Senator HOGG --When will that review take place?

Dr Pearce --I imagine it will take place over the next few months.

Senator HOGG --Is there a prospective reporting date?

Dr Pearce --I do not know that we have specifically put a date on it--by October, for sure, and perhaps before then. The date will be part of the implementation plan going to the minister for 1 July.

Senator HOGG --Recommendation 40 on the next page is to do with the principle of payment for the job type rather than for qualifications held. Who came up with the idea that it would be payment for the job type as opposed to qualifications? I would have imagined that, if you are getting to the leading edge, it would be the qualifications that would be important in this area rather than the type of job.

Mr Tonkin --The senior review tank came up with the recommendation. As to what we are doing about it, that is an example of one of the recommendations which will require some study and consideration to draw out what was meant, what the implications are and how we might respond.

Senator HOGG --In the case of those sorts of recommendations, as they appear throughout this particular document, who is going to determine the review process? How will that come about and what time frames can we expect?

Air Vice Marshal Cox --It has been a reasonably longstanding suggestion that we change our approach for remunerating some of our staff. It was raised in previous reports done by Mr Graham Glenn and others that we should be looking at a different way of remunerating the officer corps in particular. The ADF conducted a review of the pay structure for the other ranks, and there is still action left to review the remuneration and pay structures for our officers. That process and work is going on now to see how we should align the pay structure of our officers to the jobs they hold.

Senator HOGG --Who is conducting that review?

Air Vice Marshal Cox --Staff within personnel division are doing it presently. When the case is prepared, it will be in consultation with the Chief of the Defence Force and then it will be taken further beyond that point.

Senator HOGG --How does that fit into DER, DRP and the PBS statements that we have?

Air Vice Marshal Cox --In relation to the first two, it is one of those activities which--and I can only guess on this--was ongoing at the time of the efficiency review and it was endorsed by that process as being a sensible thing to do. It was one of those activities where action which was being taken was put to the efficiency review people. They were aware of it and they endorsed it and put it in their report as a sensible thing to do. It will be going forward for further work and will be staffed through the normal procedures.

Senator HOGG --Will that impact in any way upon the redundancies that will occur over a period of time and, if so, how?

Air Vice Marshal Cox --The military redundancies are going to be fairly early. As I mentioned before, they are starting pretty early in the new financial year. There could be some overhang of redundancies taking place beyond the financial year, but a large number will be taking place in this financial year. It is not intended to change the substantial nature of the way we remunerate our officers until about mid-next year.

CHAIR --Order! As it is 6.01 p.m., I will suspend the committee until 7.00 p.m. There will be a short private meeting of the committee now.

Sitting suspended from 6.01 p.m. to 7.02 p.m.

[7.02 p.m.]

CHAIR --As a result of the short committee meeting before dinner, the committee will review progress at 11.00 p.m. when we will see how things are going. There will be a 10-minute break at approximately 9.30 p.m. We are still on the general overview. I will call for questions on the general side of the portfolio.

Senator SCHACHT --Mr Tonkin, I just want to clarify the status of the recommendations in the thick volume of the efficiency review. Are they working recommendations which you will not guarantee will be picked up unless they are already covered in the 70 in the thinner volume?

Mr Tonkin --That is correct. They are advisory. A lot of them build to the recommendations which are in the thin document.

Senator SCHACHT --By the time we come back in the spring session, when we have supplementary estimates, would it be possible to get a run-down of how the 235--or whatever it is--in here are going? Whether you have seen them as necessary to build upon or whether they have been dropped or amended and so on?

Mr Tonkin --Yes, we can do that. We are in the process of going through all the things that build to the 70 findings and recommendations to see how they work and fit together.

Senator SCHACHT --With respect to the recommendations in the Army restructuring book could we also, by the spring session, see whether they are fitting in or not within the review process?

Mr Tonkin --We will do that as well.

Senator SCHACHT --I will get to a couple of other questions in the budget overview when we deal with Women in the Australian Defence Force. I want to ask a few specific questions about that to start off with.

Senator HOGG --I have a few more questions on the thin document. At recommendation 43, page E7, it says:

A review should be conducted of the totality of initial officer entry and training.

Could you outline what that recommendation is about? Is there an actual review taking place and, if so, when will it happen?

Air Vice Marshal Rogers --Commodore John Lord is the designate head of joint education and training. I will ask him to address that question.

Cdre Lord --My understanding at the moment is that we have no review under way but, after forming my executive, we will be looking at the three single services initial entry officer training and ways we can rationalise that in the future.

Senator HOGG --Rationalise in what way? Do you have any ideas? This fairly bland recommendation turned up here and I was trying to see how it fitted into the overall process.

Cdre Lord --Yes. Reading the DER, I think the DER sees value in the joint training we already do at ADFA and, therefore, would like us to have a look at doing more training in a joint environment for all officers with their initial entry.

Senator HOGG --If there is to be a review conducted, I presume that will not be known until after you establish yourself fully after 1 July.

Cdre Lord --That is right.

Senator HOGG --On the next page, R47 says:

Legal services should be restructured to confine military officers to military and combat law, with commercial law work being outsourced.

Could you go into the outsourcing of that? Does it already happen to any degree?

Mr Tonkin --Some commercial work is already outsourced in the areas of acquisition and facilities.

Senator HOGG --How is it outsourced? Is it by tender?

Mr Tonkin --No, it is a panel contract.

Senator HOGG --Who actually is responsible for the let-out of the contracts?

Mr Tonkin --You would have to ask the areas of capital equipment acquisition or facilities to comment.

Senator HOGG --Is that going to change under this program?

Mr Tonkin --What is stated here--and Mr Brown might be able to expand on it--is that the recommendation goes to the point of ensuring that our military legal officers restrict themselves to those things for which you would employ a military legal officer, rather than having them take a wider role in doing things which we can provide commercially or by the department. As a result of that, an integrated legal organisation will be established which will bring together all our legal capability and then focus on the things which we should do and outsource the things we can have outsourced.

Senator HOGG --Is there any economic proof that outsourcing it is cheaper than doing it in-house?

Mr Tonkin --The proof we have about outsourcing--and that can include insourcing the outsourcing--is that we are achieving a 33 per cent reduction in the pre-CSP cost of our activities on average. We have done some 85 to 90 activities--33 per cent is the average saving on the pre-CSP cost to the contracted or in-house option cost.

Senator HOGG --How often is the work let out by tender or through the panels?

Mr Brown --I might amplify on what Mr Tonkin has said. The underlying assumption in regulation 47 about commercial law work is unsound because it implies that commercial law work is done in-house at the present time. That is not the case. Virtually all commercial law work in the Department of Defence portfolio is obtained from external providers: either the Attorney-General's Department or the private firms that are on the two panels that the Department of Defence has established.

Senator HOGG --Who are on the two panels?

Mr Brown --There are three commercial firms on each of the panels. I cannot remember them.

Senator HOGG --How do they get the work?

Mr Brown --They were selected by a competitive selection process. The work was advertised, bids were obtained and they were selected by a fairly rigorous process.

Senator Newman --A couple of years ago, I think.

Senator HOGG --Right. How often is that reviewed?

Mr Brown --The existing panels I think are in place for three years, with an option for extension for one year.

Senator HOGG --So this recommendation therefore brings nothing new to defence?

Mr Brown --Not in the latter part of that recommendation. In relation to the early part of the recommendation, about legal services being restructured, there is a process going on at the present time to establish an integrated defence legal office in Canberra, as from 1 July, which will combine separate legal elements that have operated in several programs up to this stage.

Senator HOGG --How will that differ from what we currently have?

Mr Brown --There will be a single defence legal office instead of, as at present, four separate offices. At the present time there is a legal services branch, which is in the budget and management program, and there are directorates of legal services in each of the service offices. Those will all be combined as from 1 July.

Senator HOGG --Will that see any change in staffing levels?

Mr Brown --To start with there will be no changes in staffing levels. The integrated office will be organised on functional lines, rather than on single service lines, and somewhat further down the track there will be a review of the operation of the legal office to see whether it is operating at its most effective and whether there is scope for savings.

Air Vice Marshal Rogers --I might add that we did an experiment over the last 12 months where we collocated the single service legal offices with the office of the director-general of legal services for the Defence Force down in Canberra, in Moore Street, so we have some experience in organisation along the functional lines to which Mr Brown refers. The further efficiencies that will come out of the recommendation in the defence efficiency review may be minor, but they certainly will be of benefit. I think what Mr Brown was saying was that we will be integrating the elements of the civilian side as well.

Senator HOGG --My next question is the interesting one that I wanted to raise. It is under implementation, at F18. It says:

While there is great enthusiasm for and expectations of change in many areas of Defence, there is considerable resistance in others.

Where is the resistance and what is the resistance about?

Mr Tonkin --In the conduct of the review the senior review panel and the review teams which supported it conducted wide-ranging consultations right across the organisation and at levels right from the top down through various parts of the organisation. Finding 18 I think was intended to reflect the fact that the predominant view was favourable to the need for further change. If you discuss change with any large organisation, especially some change which is fundamental, some people are going to have a view that it is not necessary or that there are different ways of doing it. What I think the review was seeking to capture there was the fact that there were these differential views expressed. You would expect that in a big organisation having a robust exchange. The point I would--

Senator HOGG --I would expect that. I am more interested in where the considerable resistance was experienced--at the upper echelons or down in the lower ranks--and what was the resistance about?

Mr Tonkin --I think it is extremely difficult, unless you went through every issue that is expressed right through the review, to give you a summary answer. There were concerns expressed as to the practicality of certain proposals; concerns expressed about whether the scale of some of the savings which could be identified were actually there to be realised; concerns to make sure that the levels of standards and performance which organisations rely on now from support, which is part of their organisations, could be provided by centralised or consolidated and rationalised support areas. They were the general tenor of the concerns which I recall being expressed, and it was not uniformly from the high end, the middle end or the low end. They were the sorts of perspectives people offered.

Senator HOGG --Were there concerns about job security?

Mr Tonkin --Certainly there are concerns about job security in any review which is targeted on realising substantial efficiency gains, the large bulk of which must come about by reducing the size of the work force. That is a characteristic of all major reviews. The challenge for us in Defence in managing this reform program is to have regard to these sorts of concerns, both in terms of security and of process and methodology in the way things will be delivered, and to ensure that the organisations and processes put in place continue to produce defence capability and that the methodology of doing each of the various reforms is sensitive to those things so that we overcome the problems which those concerns were flagging. That is part of the challenge of going forward in a considered and phased process, and it is why you do not find available today snap solutions to a whole pile of recommendations.

These recommendations require considered judgment and a high degree of consultation with staff in general terms--unions and management--while we are relying upon the program managers and their middle managers and so on to produce the outcomes. We are not sitting here in the centre of defence determining how the outcomes are going to go, which is why we are not able to answer in detail a lot of your questions--because the organisations are not in place. We had three weeks from the time the report was developed to produce the document in front of you; and we think that was a pretty reasonable sort of an effort. The organisations have had about a month to think about what are very major things. We are going to go through this carefully and progressively, and we will therefore take into account the concerns that people have expressed. We will harness the enthusiasm and expectation for change which has also been identified.

Senator HOGG --What about the general morale?

Mr Tonkin --I have been to visit the defence centres around the country in every state. My assessment is that morale is quite reasonable and generally positive. There is a natural concern on the part of individual members to want to know what is happening about their job specifically. I have said to them that that will evolve progressively. There will be no ambushes, no snap shots taken; they will be part of the processes which evolve the change.

Once that becomes clearer to people, and as our program managers get further into the process, confidence will build. In all the places that I visited, the general tenor of discussion was, `Why hadn't some of this stuff been done sooner? Can you get out of the road and let us get on with it?' It was that sort of an attitude. I would not want to mask the fact that there are people who are concerned and want more detail, and they will get it.

Senator SCHACHT --Did you get their names down?

Mr Tonkin --No, absolutely not.

Senator SCHACHT --Have you recorded the names of those who are enthusiastic about this reform and can you produce them to the estimates committee, showing that these are the living examples?

Mr Tonkin --I am one of those living examples, so that is one.

Senator SCHACHT --That is one. How are we going with the other 80,000?

Senator Newman --One presumes that a whole lot of those people who have made submissions to the inquiry were also pleased. I know that that is a fact.

Air Vice Marshal Rogers --I would like to add a little to that. Statement F18 is a statement of fact which the Defence Efficiency Review Committee found and recognises that, over the last five years, defence has already gone through quite an amount of restructuring. The services have been reduced as a result of the force structure review back in 1991, and there has been a period of continual change--and not just change, but evaluation and change again. It is a dynamic process and, obviously, now that we have come to the defence efficiency review, within the ADF there is a degree of uncertainty, not so much at the higher ranks because the defence efficiency review states that there will be some reductions in those things, but right throughout the rest of the Defence Force. The questions that they ask are very similar to the questions that the senators are posing today. We are in the embryonic stages of developing this new organisation and the new process. We do not have all the answers but we probably will.

Senator SCHACHT --On the basis that there are some enthusiastic people such as you and Mr Tonkin, I presume you have your job security stitched up already, have you? Neither of you is being asked to take a redundancy package, is that correct?

Mr Tonkin --That is my present understanding, Senator.

CHAIR --Do you mean as of this moment, Mr Tonkin?

Mr Tonkin --As of this moment, on the basis of information available to me, et cetera.

Senator HOGG --Can we have a show of hands of those who are not safe? An article appeared in the Canberra Times of Thursday, 29 May which is quite relevant to this. The heading is `Officers angry over changes in Defence'. Like all of these articles, no-one is named. All it will say is that senior officers in the Australian Defence Force are expressing grave concerns about the pace of change and the motivation for change flowing from the defence efficiency review.

Whilst I understand what you have put to me, it seems to me that there is a problem: where there is smoke there is fire. As this tends to hint, there must be some real difficulties emerging in the senior officer ranks. Obviously, you have outlined here today the number of those people--I am not talking about the actual names of people but the positions--that will be laid exposed. What is happening there? Those people would transmit their feelings, their uncertainty, to the people who are below them.

Senator Newman --Can I intervene here. I answered a question in the Senate recently based on a report in the Canberra Times which was absolutely and totally untrue--it did not relate to defence--and I put that on the record in the Senate. I urge you not to ask the officers to comment on something which is unattributed and for which there is no evidence given. It sells headlines, perhaps, but it does not necessarily--

Senator HOGG --What I am going on, Minister, with the greatest of respect, is that F18 says that there is considerable resistance--not `resistance' but `considerable resistance'--to this. I can understand resistance. I am trying to find out where the resistance is and how the resistance is being handled--

Senator Newman --And I would suggest that you should not place too much reliance on a Canberra Times report.

Senator HOGG --Whether one takes this as being anecdotal or not--

Senator Newman --It does not give you any evidence at all; it is simply a claim.

Senator HOGG --It might be a claim, but it is no less a claim than what is in the report.

Senator SCHACHT --They are not upset about the performance of the Canberra Raiders, are they? They are obviously leaking stories that they are upset about the performance of Defence and their security within it, I would have thought.

Mr Tonkin --I would draw a clear distinction between concern with proposals which occurred during the consultative phases of the review and the approach which is being adopted by members of our organisation--senior, middle and junior--now that the government has reached its decision. I believe that it is the second set of considerations which is the pertinent one, and I am not aware that the senior level people with whom I associate have any difficulty in giving full force to the implementation of these proposals--none.

Senator SCHACHT --Do you want to hold a secret ballot of all the senior members and ask them whether or not they are upset or concerned? Obviously, Mr Tonkin, if you ask the officers sitting behind you, no-one is going to put up their hand.

Senator HOGG --They will be thinned out over time.

Senator SCHACHT --They want to protect their jobs.

Mr Tonkin --What I am interested in is the delivery of the report in accordance with the government's decisions, and the organisation is going to do that.

Senator SCHACHT --Mr Tonkin, trying to explain now that everything is hunky-dory or that there is no dissent around the place does not do your position any good. I think you should say that obviously there is still concern in some areas--not least amongst the service chiefs, from what I have been able to put together: they even had a meeting with the Prime Minister about it, as we found out earlier today--that everything is not agreeable. Of course it is not. Restructuring is going to upset some people. Trying to put it to us that it is all sweetness and light is wrong.

Mr Tonkin --That is not what I said, Senator. I said that there was robust discussion. There is a distinction between robust discussion and the views that people held--and would still hold to some extent--and how this organisation of servicemen and civilians is going to give effect to the decision of the government on this matter. On that, in my view, there is no question.

Senator SCHACHT --Accepting the fact that this F18 recommendation is history--because it related to when discussions were going on with Defence, and obviously people disagreed with some of the ideas that were put forward and so they honestly said that there would be resistance--is there any particular group in Defence now--whether it is geographic, whether it is by rank or at function level--that is still arguing that some of these recommendations are the wrong way to go?

Mr Tonkin --I am not aware of any group that would fit the sort of classifications or typology that you set out. As we go forward on responding to the minister on the fine detail of how individual recommendations are implemented, there is bound to be some exchange on that point. The minister's statement announcing this actually said he anticipated there would be some variability to the working through of the recommendations. I would not interpret that, though, as being in the category of resistance, which you put it in. That is simply taking what is proposed, looking at the practical implications, and coming back and saying what the best way to give effect to the intent of the recommendation is, in our view. That will go on progressively as we report to the minister month by month, over the next few months.

Senator SCHACHT --I thank you that we now have tabled the statement by the minister on 8 April. At the bottom of what is the second-last page, it talks about net staff reductions of some 3,100 civilians and 4,700 Defence Force positions which will be required as part of these savings initiatives. That is over three or four years, is it not?

Mr Tonkin --Three or four years.

Senator SCHACHT --It says that more than half of these military positions will be redirected in combat and combat support areas. Can you give us any indication yet of, first of all, positions that have been abolished? You said earlier today there were some in the personnel area at a high level--one- and two-star positions. Have any of those people who held those positions now been directed into what people call the sharp end or the pointy end of the Defence Force in combat or combat support areas?

Air Vice Marshal Rogers --Madam Chairman, I can address that question. I still say it is too early, Senator. We have not got a handle on the whole thing. We are still developing the organisation and we are still developing the process. But the principle that you raised there is quite valid: we are not going to put those people who have valuable skills in the Defence Force out on the street because it is their job. We will look at them, under the personnel executive people, and if there are skills we can move to certain areas in the field and in the various levels of headquarters then we will do it.

Senator SCHACHT --The efficiency review has come up with the figure of half of these 4,700 going out to the pointy end or where the combat capability or support areas are. Prior to the efficiency review recommendation, was any consideration being given within Defence itself to redirecting such positions back into combat or combat related positions?

Mr Tonkin --Over the past five or six years, the defence organisation has generated $625 million worth of efficiency gains, which have been primarily or principally--it is not only the use of the money--directed towards providing additional resources to combat capability. That is both in terms of equipment and in terms of personnel. It is an ongoing process. This is a very significant acceleration of that.

Senator SCHACHT --Can I therefore get this quite clear. When it says more than half of these military positions will be redirected, is that actually transferring the equivalent of a staff position back into a combat or combat-related area, or is it actually when you get rid of somebody, taking the equivalent saving of their salary and redirecting that back into either buying more equipment or employing three extra sergeants to go and shoot somebody or whatever?

Air Vice Marshal Cox --The transformation process is not necessarily one for one. If somebody who is in Canberra in a bureaucratic appointment or a staff appointment, when the processes are changed and refined--

Senator SCHACHT --So we will not find you, Air Vice Marshal Cox, going back to the SAS for a bit of retraining?

Air Vice Marshal Cox --No, no. I thought about it, but no.

Senator HOGG --That was a popular move with some of your colleagues.

Air Vice Marshal Cox --I think it is important that people understand that a lot of the people who are presently employed, say, in Canberra, where most of our staff--

Senator SCHACHT --This is military staff?

Air Vice Marshal Cox --Military staff in Canberra are indeed poorly placed with the wrong skills specifications and specialisations to go back into the front end. Some are eligible and, indeed, those that are, will be identified and will be posted back into areas where there are shortages of staff. To get the right numbers in the right place is going to take some time, because the people with skills that are not appropriate for the front end--the sharp end, or operational units--will probably be made redundant and then, as you indicated, the salary vote will be used to bring in the right people for the units to bolster up the strength and capability.

Senator SCHACHT --By the spring session of parliament, would you be able to give us a clearer idea about how this process of redirecting staff and resources to the front end is proceeding?

Air Vice Marshal Cox --The progression of time is going to make it more and more clear.

Senator SCHACHT --I am just trying to get a time scale.

Air Vice Marshal Cox --As I indicated previously, it is going to take some time indeed to bring the people back in and train them. To get the right people in the right place is going to be a protracted process.

Senator SCHACHT --Is there any thought of putting any of these civilians at the front end as well and giving them a go?

Senator Newman --Or a senator or two?

Senator SCHACHT --Like Mr Tonkin and Mr Lewincamp?

Mr Tonkin --We are interested in enhancing the capabilities, Senator, not--

Mr Lewincamp --I find the prospect tempting.

Senator SCHACHT --Is the staff reduction of 3,100 civilians over the next three to four years overwhelmingly here at Russell? Or are they spread across your establishments across Australia?

Mr Tonkin --Which numbers, Senator?

Senator SCHACHT --It says here, `Net funded staff reductions of some 3,100 civilians'.

Mr Tonkin --Of the total of 7,800 Defence Force and civilian staff reductions, approximately 2,000 are in Canberra and the rest are spread across the country, depending upon the locations. That is 2,000 military and civilian combined in Canberra.

Senator SCHACHT --How many civilian in Canberra?

Mr Tonkin --I will have to take that on notice.

Senator Newman --Do you mean how many civilians are there totally in Defence?

Senator SCHACHT --No, how many positions will be made redundant in Canberra under the 3,100 to go out?

Mr Tonkin --My broad feeling is about 1,000 but that would be a rough estimate. I would like to go and check that. It will depend very much on how we evolve these organisations. We obviously are seeking to maximise the dollar target which drives the staff number targets. Once we have moved through this on an organisational scale--and in Canberra that will happen earlier than it will happen in some other areas--I think we will have a better feel. I would rather give you an estimate in six months time on that.

Senator SCHACHT --Do the 1,000 civilians in Canberra run right through the whole system from deputy secretary right down?

Mr Tonkin --Not deputy secretary but--

Senator SCHACHT --First assistant then; Mr Lewincamp is in the raffle. Is it going to run all the way through?

Mr Tonkin --Yes, it will.

Senator SCHACHT --And proportionately all the way through?

Mr Tonkin --In fact, as with the Defence Force reductions, it will be skewed with a larger reduction at the top. The minister's directive says that we will reduce senior officers which are colonel equivalent and above in the Defence Force, and senior officers, grades A and B, and above in the department by the order of 20 per cent. The total reductions for the Defence Force for this program is eight per cent and for the civilians it is 15 per cent. So we are certainly taking a high shape slice out of our organisation, biasing the reductions towards the higher end of the organisation.

Mrs WEST --You are not going to lose too much corporate knowledge there, are you?

Mr Tonkin --We hope not because we are trying to consolidate those parts of the corporate knowledge which have been squeezed, so that some of the race memory will be preserved.

Mrs WEST --Corporate knowledge in this particular department and the ADF itself is of importance so as not to re-invent the wheel.

Mr Tonkin --We will be conscious of that requirement, Senator.

Senator SCHACHT --Here in Canberra where about 1,000 could lose their jobs or their positions could go, are there any areas in the civilian area of defence that are showing resistance as obviously some areas of the service are?

Mr Tonkin --I think it would be best, Madam Chair, if I could simply refer the senator to my previous answer without having to go back and remember the exact words that I used.

Senator SCHACHT --There is resistance in some of the civilian areas?

Mr Tonkin --No, my previous answer, Senator, was that there are clearly people who have views about the implications of what is proposed. They have views and have expressed those views. That makes no difference as to how they are now proceeding with implementing the requirements which have been endorsed.

Senator SCHACHT --Over on page 5, the minister's statement says a further 12,900 funded positions--which are broken up into 5,900 civilians and 7,000 Defence force staff--are to be market tested under the commercial support program. Will that be starting soon? Are you going to do the 7,800 first or will that be under way early in the new financial year?

Mr Tonkin --This needs to be explained in a couple of stages. The financial targets which have been set for the defence reform program comprehend the estimated outcomes of a range of commercial support program initiatives. All the commercial support programs which are affected or addressed by the defence reform program are reflected in the dollars. The 7,800 staff reductions represent the situation which would apply if, in every instance, those CSP processes resulted in an in-house option being adopted. In other words, the 7,800 is the minimum staffing impact of the full range of defence reform initiatives.

If every one of the CSP initiatives comprehended by the review was to result in the function being sourced to industry, then the total impact on employment would be the 7,800 plus the 7,000 military staff and 5,900 civilians. The second set represents the outer bounds of the employment impact of the initiatives, which in dollar terms come to the $773 million identified plus the prospective $146 million.

Senator SCHACHT --Are you aiming for your target in the minister's statement of 12,900 because it is in the recommendations?

Mr Tonkin --No, it is not a target, Senator. That is an assessment of the outer bound potential impact on employment. The targets we have are the targets for financial efficiency savings.

Senator SCHACHT --Which are the--

Mr Tonkin --The $773 million of indicated savings and a prospective further $146 million. They are the minimum points of our dollar target. The staffing numbers quoted are the assessed impact of achieving those things.

Senator SCHACHT --If the 12,900 positions all went out to the commercial equivalent in a commercial area, would you then get the total maximum saving of $700 million plus $100 million?

Mr Tonkin --No, the savings have been worked out irrespective of whether or not the function is retained in-house or gets outsourced. When you look at each CSP at issue, you say `What is the saving of the pre-CSP cost?' That is the culmination of increased efficiency or reduced work force or whatever. They have worked the dollar sum out independently of whether the outcome was an in-house option whereby the work force is retained, or an out-sourced option whereby the work force is lost.

Senator SCHACHT --I will chew that over a bit and come back to you later in the corporate section.

Senator HOGG --Can I just come back to the implementation. You refer to a small implementation team in recommendation 51. Who comprises the implementation team?

Mr Tonkin --Apart from a small transitional group of about nine people, which is reviewing the baseline costing assumptions and everything else in the review which is--

Senator HOGG --Who are in that group then?

Mr Tonkin --There are nine senior officers involved in that group.

Senator HOGG --Out of anywhere in particular?

Mr Tonkin --They are drawn primarily from the resources and financial programs division, inspector-general's division, forces executive program, with an officer from the Department of Finance and an officer in the acquisition organisation. That is about the breadth of the sourcing. They are essentially a group of number crunchers who are talking with the implementations teams, which have been established in each of the 14 programs to give effect to this.

The vast bulk of implementation is the business of the 14 program managers, not the business of a central team. All we are doing is making sure the numbers are coherent to start with. One or two people will have a responsibility in defence headquarters to monitor progress as we go through it. The hard work of doing all these things lies with the teams which have been established in each of the programs.

Senator HOGG --So we really have to wait until 1 July when the heads of each of the programs are permanently in place before we will start to see those particular people drafting a functional program.

Mr Tonkin --No, they have started already. We had Commodore Lord sitting up here before as head of joint education and training program designate, which means that he is already in place and is addressing those issues, as are the heads of the other new programs, as are the old--

Senator HOGG --Do they have a team in each of their organisations?

Mr Tonkin --They are building embryonic headquarter staffs and policy staffs in most of the programs--

Senator HOGG --And where will they receive their direction from?

Mr Tonkin --They are receiving their direction primarily from their program managers, who have got it in the sense of what is sitting in front of you--the objectives, the descriptions, the strategies, and everything else which are set out in this document--

Senator HOGG --This seems to be a fairly fluid sort of program, that is why I am trying to--

Mr Tonkin --It is necessarily a fluid program, if you are taking what are primarily concepts and objectives and translating that into improved processes, practices and organisations to derive an outcome. It has to be to some extent fluid at this point.

Senator HOGG --All right. Did those people then have to come back to a central group to see that they have not erred or strayed from the concept?

Mr Tonkin --In the broad. Recommendation 50 was thatthe Secretary and CDF should lead and manage implementation. So the Secretary and CDF are the ones who are required to report to the minister monthly, the Vice Chief of the Defence Force and myself are responsible for coordinating the bringing together of that information, and seeing that it is going in the right direction. If you like, we are the focal point for bringing together the product that comes out of all the programs, to package it, to report to the minister, and then the minister has discussions both with the Secretary and CDF, the Vice Chief of Defence Force and myself, and also collectively with all the program managers. So it is an ongoing process of dialogue that we have got going in this process.

We have periodic meetings of all the program managers with the Secretary and CDF to discuss exactly this--we have had a series of those, and we will continue to have a series of these discussions, which shapes the nature of the work which is being done in each of the programs, especially the new programs which have been established.

Senator SCHACHT --Mr Tonkin, in the statement by the minister on 8 April, it says towards the bottom of page 2 that:

The chiefs of service and their immediate policy and management support staff, limited to 100 for each service, will be included in the organisation of the Defence Headquarters staff.

How many people do the chiefs of the service have now on average? And don't say `too many'.

Air Vice Marshal Rogers --The number is about 220 to 230, but it varies between the services, the idea being that the service chiefs have been given 100 staff each to implement the command function of their service, and also to look after the policy for their individual services, and to also interface within the Defence Headquarters, but to eradicate all those areas of duplication that were there before.

Senator SCHACHT --So, on average, they are all losing 150 positions?

Air Vice Marshal Rogers --Over 50 per cent of the staff goes.

Senator SCHACHT --Equivalent positions either get abolished completely or get transferred to ADF?

Air Vice Marshal Rogers --Or new positions--

Mr Tonkin --Or are picked up in the placement of other functions within the organisation.

Senator SCHACHT --And at the moment you have not got a clear idea exactly what those other functions are?

Mr Tonkin --We have a clear idea what the functions being undertaken are, because they are the 14 programs set out before you. But what is in the process of being refined is to go back and look at our organisation as it stood at the beginning of 1996-97, which is the baseline for the review, to look at that organisation in very fine detail, and then map the transition of that organisation to the new structure to give effect to all these recommendations. That is one of the reasons why it takes a bit of time to do this. You then move those functions across, with the resources, identify very precisely the savings targets that each of these new areas has got to generate, and set the time lines to do it, and go and get it.

Senator SCHACHT --This reduction in the staff for each service chief to a limit of 100 is achieving the first dot point, which says that the chiefs of service will have an enhanced role in policy development at the strategic level.

Mr Tonkin --Absolutely.

Senator SCHACHT --So they lose 150 to 200 staff, and they are being enhanced?

Mr Tonkin --The question of enhancing the role of the chiefs of service is: what are they going to do and how can they have an impact? Placing the chiefs and those staffs within the defence headquarters places them in a position, which they have not had previously, of having a clear opportunity to participate fully in what the minister's statement also says is an enhanced role in policy development at the strategic level.

Senator SCHACHT --In the enhanced role and policy development at the strategic level, but they lose a couple of hundred staff. You might say I am a simple-minded person, Mr Tonkin. I am very open really and I do not mind them saying that. But there is this use of the phrase `an enhanced role in policy development at the strategic level' and then I find, in every other way, the role and the support to the chiefs of service has been gutted. It should be very simple. You should not have said that. You just say, `We are reducing the role of the chiefs of the service. They are going to be within the ADF box'--as it was described earlier--`and, be that as it may, that is the way the service is now developing.'

Mr Tonkin --Madam Chair, the difficulty that the senator has, I suggest, is distinguishing between a policy role at the strategic level and assuming that that equates to the totality of functions which the chiefs of service undertake. That is not a correct connection.

Senator SCHACHT --Other officers said earlier today that, in that wonderful diagram in the report on page 69 that has less errors in it, the chiefs of each of the services--the navy, the army, the air force--will have their responsibility role for their service. How many of those hundreds of positions are going to be continuing their role of running--if it is the chief of the navy, running the navy--and how many of those roles of those hundreds are going to be there to assist them in this enhanced policy development at the strategic level?

Mr Tonkin --I suggest that is a question that might be more appropriately put to each of these programs when they come up.

Senator SCHACHT --Hang on. You are the one that is restructuring it all round.

Mr Tonkin --No, I am not restructuring the defence organisations. The program managers are restructuring their organisations. I am simply assisting in bringing together the reporting and monitoring of it.

Senator SCHACHT --What is your position, Mr Tonkin? It is such a long title I cannot read it with my poor eyesight.

Mr Tonkin --What?

Senator SCHACHT --What is your title again?

Mr Tonkin --Budget and Management.

Senator SCHACHT --You cannot tell me that, being in charge of budget and management in Defence, you are not having a little twist here and there in how the structure is coming out on the operation.

Mr Tonkin --I am not sure how I should take that, Senator.

Senator SCHACHT --You are underplaying yourself, Mr Tonkin. Your modesty is not becoming.

CHAIR --Order! I think Air Vice Marshal Rogers has something to add.

Air Vice Marshal Rogers --Thank you, Madam Chair. Perhaps I can clear the air a little, Senator. When the service officers, or the service headquarters as they are now known, come to about 250 that involves the personnel managers, resource managers, the policy and engineering responsibilities and logistics managers. A lot of those people are moving into different areas of the program. For example, the personnel side are moving over to the personnel executives.

Senator SCHACHT --Yes but they are still in ADF.

Air Vice Marshal Rogers --But also, there are economies being gained by the fact of collocating the army, navy and air force. So in some areas where there were three sets of policy in the past, there is going to be one body of policy. Similarly, in the other areas, it will be brought into the centre of which the service chiefs will be part and they will be playing a part in that thing. Not only are they responsible for developing their own service policy, but now--and I strongly suggest now you are playing down the term `enhanced role' the wrong way--they are going to be much more involved.

Senator SCHACHT --I am playing up this enhanced role. I am just playing it up because I think there is a contradiction.

Air Vice Marshal Rogers --Dare I say you have used these words in a somewhat facetious way.

Senator HOGG --We want you to share these estimates with us.

Air Vice Marshal Rogers --I think in some cases you have used it `in a facetious way'.

Senator SCHACHT --I am never facetious.

Air Vice Marshal Rogers --The chiefs are going to be involved in a lot more process determinations in the defence headquarters.

Senator SCHACHT --Okay, so all those personnel have gone off to a collective group in the headquarters. What are the other areas that have gone out?

Air Vice Marshal Rogers --Some of the policy areas will be coming into, for example, the logistics areas. If the service chief may have had 20 people, they brought together 20 men--

Senator SCHACHT --Responsible for them.

Air Vice Marshal Rogers --They were involved, but they were developing policy which does have triservice implications. Now we are bringing together that in which the service chiefs will be involved. Bear in mind that they will be part of the defence headquarters--and I am part of that defence headquarters under the capability development. Previously they could not task--

Senator SCHACHT --But you are the ADF, aren't you?

Air Vice Marshal Rogers --Until 30 July.

Senator SCHACHT --Then what happens?

Air Vice Marshal Rogers --Now they cannot task me but, come 1 July, the service chiefs will be able to task me and my staff to do things in support of their activities.

Senator SCHACHT --And if you do not want to do it, you will go to the head of the ADF and say, `Look, these blokes are trying to put something over me,' and you will have a right of appeal. The Chief of the Defence Force may say, `Yes, you're right, Air Vice Marshal Rogers, we'll tell them you are not going to do it.' I understand that is a simple line responsibility.

Air Vice Marshal Rogers --I think you underestimate the deal of conviction that is in the Department of Defence to make this revised process work.

Senator SCHACHT --The history of Defence is no different from that of any other bureaucracy. Where the line responsibility runs, that is where the power is. The power is being shifted from the service chiefs into the ADF. That may not be a bad idea.

Senator Newman --Madam Chair, can I suggest, just to ease this burden that the senator has got, that when he gets to the three service programs--

Senator SCHACHT --It is just that I suspect they will not answer.

Senator Newman --he will be able to get the necessary senior officers. He will be able to take them through and ask them to answer questions about how their 100 staff will be structured and what roles they see for their service. I am thinking, for example, of air safety. Currently, as I understand it, you have somebody doing that job in each of the three services. It will come together with the Chief of Air Services having responsibility for that but having a small cell of people in addition to his 100. Wouldn't it be better if you asked the requisite services as you get there?

Senator SCHACHT --Don't worry, Minister, I was going to do that anyway.

Senator Newman --That is good. I think we are really going around and around--

Senator SCHACHT --No, we are not going around in circles. It is taking a long time to actually get this to emerge.

CHAIR --I suspect, Senator, we were debating this some five hours ago when you first touched upon the point. I do think you are debating the point. Would you please proceed to the questioning of Air Vice Marshal Rogers on another point--

Senator SCHACHT --No, I have not finished this.

CHAIR --so that we can move on and finally start the program.

Senator SCHACHT --Madam Chair, I have to say that if we had come in here and done it the way you had wanted to, we would not have got information later in the afternoon. We would not have got the fact that in the thin report all but three recommendations have now been accepted and three have been rejected. It has taken a long time to work our way through getting some of this information on the public record.

I will just go back to this enhanced role in policy development at a strategic level. The chiefs of the various services get at this enhanced role and have a view about it. Where does their view go? They say, `We have a view about the policy at the strategic level.' They have had access to all these structures--many of them under the ADF. If they make a view, where do they put it?

Mr Tonkin --They are members of the Defence Management Committee. It is in the Defence Management Committee and the Chiefs of Services Committee--both of which they are members of now--where they have the unfettered ability to put those views as part of the overall formulation of Defence policy proposals which then go to government. As I explained earlier, if there is a substantial difference of view in the preparation of that, then ministers will be so advised. My experience in our organisation over successive governments is that ministers would avail themselves of the opportunity to seek out those sorts of views and make themselves confident that all the factors are taken into account.

Senator SCHACHT --As I said before, I can count on that management committee, even if the three service chiefs ganged up together, being outvoted.

Mr Tonkin --As I said, this committee is not a committee which votes.

Senator HOGG --Strangest committee I have ever heard of.

Senator SCHACHT --I am sorry. Maybe I have been involved in politics for too long. In the end, any executive committee, on a crunch issue, may have to call for a show of hands. Do you say that that never happens on the management committee?

Mr Tonkin --That is correct.

Senator SCHACHT --That means that the lowest common denominator outcome is the one that is adopted--the one that they can all live with.

Mr Tonkin --That does not follow at all.

Senator SCHACHT --That is bad management.

Mr Tonkin --That does not follow at all, Senator.

Senator SCHACHT --It does follow.

Senator Newman --Chair, I do not think there is opportunity for this. Senator Schacht has had an opportunity to express his scepticism and ask for answers. As you say, he has had a long time. I think he is debating the issue.

Senator SCHACHT --I am not debating it. I am just trying to work out how this system is going to operate.

Senator Newman --It is not fair to the official to do that.

CHAIR --I think we agreed before that that may have been decided by consensus--a word I thought you would have known very well, Senator Schacht.

Senator SCHACHT --Yes, well I have never known consensus to work that often in politics. Usually it means that you end up with the lowest common denominator and the most useless decision. It is the one that everyone can agree with because it does the least amount of damage to everybody. It will not work that way. We know another system will operate. The ADF chief will make the decision and convince the defence minister, which is probably the best way.

CHAIR --Do you have another question on general issues?

Senator SCHACHT --On general issues?

CHAIR --We are still on general issues.

Senator SCHACHT --Good.

Senator WEST --I asked the minister on 7 May about the Queensland public relations company, Turnbill Fox Phillips, which received $80,000-odd to help sell the defence efficiency review. Who made the decision to engage that company?

Mr Tonkin --I believe that the exact same question was asked at the last hearing and I answered it at that time. It is in the Hansard record. It was asked at the estimates hearing a couple of months ago.

CHAIR --In the additional estimates.

Mr Tonkin --It was asked in the context of additional estimates.

Senator WEST --I have not received it. The only answers I have are the answers that Minister Newman gave me.

Mr Tonkin --It was not an answer taken on notice; I answered the question at the time. It was in the supplementary hearing so it is in the Hansard. A series of questions were asked. We will get it for you, if you like.

Senator HOGG --Where do these audit reports that were handed down, and referred to earlier by Senator Schacht--that is audit reports 15, 17, 27 and 34 of last year--fit into the defence efficiency review or do they not? If one wants to address issues arising out of these, are they best dealt with in the overview or will someone point me to the place where they are fit within the various programs?

Mr Tonkin --They are best dealt with in relation to the functions or the descriptions of each of those. If you read out the subjects that they relate to, we can tell you the relevant programs. They are best dealt with there.

Senator HOGG --The first one is work force planning in the Australian Defence Force.

Mr Tonkin --That would be in personnel executive.

Senator HOGG --Has this been subsumed into the DER outcomes?

Mr Tonkin --The response to those audit reports will be addressed and managed by the responsible functional area and the approved recommendations or the agreed recommendations reflect the way we build our organisation. It will merge what is said in those reports and what the DRP is doing in future implementation.

Senator HOGG --I suggest to you, Mr Tonkin, that that is the bit that I am finding pretty hard to work out at this stage. We have all these bits of paper flying; it is seeing where the bits of the jigsaw puzzle fit together.

Mr Tonkin --Perhaps the best way to help you is to say that the recommendations of the defence efficiency review, which form the defence reform program, are general in nature, as you would have seen. How you give effect to those recommendations allows a fair degree of scope. Findings of audit reports provide a very useful way of assisting determining the range of scopes to respond to a particular policy proposal. You use the audit reports, as with the other documents you have been considering, to inform the consideration of how the organisation will give effect to one of those defence reform program initiatives.

Senator HOGG --Where did you say the first one goes?

Mr Tonkin --Work force planning is under personnel executive, program 8.

Senator HOGG --What about defence health?

Mr Tonkin --That is in program 8.

Senator HOGG --We will have fun in program 8. What about food provisioning?

Mr Tonkin --That is in program 6.

Senator HOGG --What about APIN?

Mr Tonkin --That is in program 3--army.

Senator WEST --Can I return to Turnbull Fox Phillips in Queensland?

Mr Tonkin --Yes.

Senator WEST --The decision was made by the DER secretariat to engage a public relations firm. Was that done through OGIA?

Mr Tonkin --My understanding is no.

Senator WEST --Is that unusual?

Mr Tonkin --You would have to ask OGIA as to what extent their processes are used or not used? In this case the need to make a decision was time bounded and a restricted tender was done from companies with a track record in defence communication. In other words, they knew the sorts of companies that had provided this sort of performance, this sort of service, and issued a restricted tender on that basis. This was a three-month study, after all, and it needed to be done quickly.

Senator WEST --Does Defence use OGIA?

Mr Tonkin --My understanding is that we do use OGIA for the defence force recruiting advertising program. That was my understanding in the past.

Senator WEST --Can you tell me how many are employed in Defence public relations?

Mr Tonkin --I would have to seek advice on that and give you an answer later on.

Senator WEST --I want to know how many are employed in Defence public relations and how many were working on Tandem Thrust and the Black Hawk inquiry at the time that precluded them from actually undertaking this project.

Mr Tonkin --We can find that out for you.

Senator WEST --I want to know exactly what Defence got for its $80,000 such as travel, accommodation, venue hire, printing, a complete breakdown of costs and copies of any documents that were prepared. That can go on notice as well.

Mr Tonkin --Yes.

Senator WEST --I also notice in the answer that the minister gave me that one of the things they were tasked to do was to anticipate a range of questions that could be posed by stakeholders both within and external to Defence, together with appropriate responses. I presume that would have included preparing questions likely to be asked by the media.

Mr Tonkin --Only to a very limited extent. The process which was followed was that the consultant provided advice on how you would do a large scale launch of this nature and identifying the sorts of interest groups right across the community. That helped to guide an internal process undertaken by the DER secretariat to develop questions and answers and the questions and answers which were developed were done by the secretariat and cleared by me.

Senator WEST --Did you get them all right? Did you second guess them all?

Mr Tonkin --I do not know whether all the questions we thought about were asked.

Senator WEST --Were there any asked that were not anticipated?

Mr Tonkin --I cannot recall. My point is that the process that went on, which was essentially a briefing process for ministers and for the people giving explanations in the media lock-up, was largely an internal process assisted by the expertise of Turnbull Fox Phillips in terms of the sorts of issues which, from our Defence perspective, we might have missed.

Senator WEST --The second dot point on page 8 ends by saying:

. . . future requirements, priorities and outputs.

It almost reads as if the end is justifying the means, that you are doing away with your inputs and you are concerned about what your outputs are, an end justifying the means.

Mr Tonkin --The point of that is to say that we have an organisation or accounting structure et cetera which has been directed, as has the presentation of material often in this forum, towards the scrutiny of things like how much we spend on travel, rather than a scrutiny of what is the cost of the capability outputs which the organisation is expected, by government, to deliver. What we want to do in the new structure is to focus our organisation, and all the supporting systems which go with it, to far more readily identify what is the cost of each of our capabilities, what is the cost of our organisational outputs, so that we can form judgments on that basis.

We are going to develop a more effective long-term planning process and resource management process to do exactly that, so we focus on the deliverables of our organisation, rather than on the input costs. We will still control and look at input costs, but we want to focus our attention, especially at the strategic planning level, at the output part of our equation. That is what that is about.

Senator WEST --You still will be monitoring your input costs, though?

Mr Tonkin --We will still be monitoring our input costs, we will still control our input costs, but we do not want to look at the inputs and forget what the purpose of the inputs is for, which is why we are here--that is, the outputs of our organisation.

Senator WEST --I just read that as an either/or, that it was not a combined--

Mr Tonkin --No, it is a significant shifting of the balance of attention, without losing sight of the traditional aspects.

Senator WEST --I am interested in how you are going to measure some of this, how you are actually going to be able to turn it up here in a format so that we are able to scrutinise the expenditure of taxpayers' money and what the inputs and the outcomes are, and what you are going to use to measure a number of those criteria. If we cannot measure it here in estimates, we are going to be having fun and games, and so are you.

Mr Lewincamp --We appreciate that, Senator, and it is an issue that we are grappling with as well. There are two other initiatives that I should make you aware of at the same time. One, of course, is the introduction of accrual accounting and budgeting, which will add a whole new dimension to the whole process of providing detail for this committee. We are still working through it and waiting for advice from the Department of Finance on exactly how they intend to do that. There is also a review of the whole process of portfolio budget statements in that documentation that is about to take place with one of the Senate committees, so we are waiting for advice there too.

Separately, what we are doing internally is redesigning our chart of accounts to give a far better explanation of the output that we achieve by the consumption of certain inputs. It is an accounting structure we use where we are trying to capture the cost centres and the activities against particular outputs. We are quite confident that when we come to present the data at the end of this year we will have that in place and be able to give you a good explanation of what we achieved for the expenditure.

Senator WEST --I look forward to seeing if this mud is any clearer than the last lot of mud. Thank you.

CHAIR --I am calling for more general questions or we will move on to program 1.

Senator WEST --I am not ready for that yet.

Senator SCHACHT --I want to turn to page 14 of the overview, referring to public events of national significance program. It says this program is compiled on a six-monthly basis and enables the ADF to support events which are considered to be worthwhile recruiting and public relations opportunities and which provide the opportunities for the public to observe military skills first-hand. Could you take this on notice, if you cannot provide it now: what is the most up-to-date list, on the last six-monthly basis, of these public events of national significance?

Air Vice Marshal Rogers --I cannot give an up-to-date list. As a bit of background, the PENS, or public events of national significance, was a process that was put in train some years ago and there was a limitation on the activities in which the Defence Force and the three arms could participate. When the new government came into power it reviewed that list and made some decisions whereby the ADF could participate in two particular days--one being Australia Day and the other Anzac Day--in terms of providing some visibility for the ADF on those special days. There is a list which is controlled by the Assistant Chief of Operations and I know I have Commodore Shalders here who may be able to add light to that, but I would like to address that in program 1, if possible.

Senator SCHACHT --Okay, we will deal with that in program 1. On page 14 there is a subheading `Women In The ADF' and it talks about the `Women in the Australian Defence Force' report which came out in December 1996, which is by Clair Burton. Then it goes on:

The report has been widely circulated and a number of consultative and educative forms have been held to determine priorities for implementation. The planned reforms/improvements for 1997/98 are:

Then there are four dot points. The first one is the identification of appropriate professional consultants. I do not know whether you want to discuss that here or wait until we get to another section of the report.

Air Vice Marshal Rogers --As it is addressed in the overview, I think Air Vice Marshal Cox can answer that now.

Senator SCHACHT --On the identification of appropriate professional consultants, once they are identified, will they be employed on equality issues and make advice to the department?

Air Vice Marshal Cox --That is correct.

Senator SCHACHT --How much is that going to cost?

Air Vice Marshal Cox --I cannot answer on the cost. I do not know that I have that information.

Senator SCHACHT --Has there been a figure set aside in the budget for it? I presume there has.

Air Vice Marshal Cox --I will have to check on that. I will have a look and you can pick it up.

Senator SCHACHT --Was it a tender process? You can take these questions on notice.

Air Vice Marshall Cox --It was a recommendation within the report. To make sure it was not insular it recommended getting some expertise from outside, and this is what it is for.

Senator SCHACHT --Yes. I appreciate that--I am not having a go at that. I just want to know how much you are going to spend; how you are going to appoint the consultants; whether they are going to be put out to tender; and whether they will report during 1997-98. You can take that on notice. The next dot point is to conduct a study into the effectiveness of single service EEO programs to ensure they remain focused on employment equity principles based on quality management practices. Who is doing the study?

Air Vice Marshal Cox --To answer this question I need to refer you to the top. An equity unit has been put together which has a small staff in the personnel division, and those staff are working with--

Senator SCHACHT --So the equity unit is conducting the study?

Air Vice Marshal Cox --The equity unit, with the single service equity staffs, which are presently on site doing their job. It is a bringing of them together to refocus on the issues raised in that report. The existing staff will do it, aided by the consultant.

Senator SCHACHT --Right.

Senator WEST --Can I just go back so we can start at the beginning. How many are in the Defence Force Equity Unit?

Air Vice Marshal Cox --Three people.

Senator WEST --What rank?

Air Vice Marshal Cox --A lieutenant commander is heading it up presently, but we are contemplating whether we leave it at that.

Senator WEST --Okay. Are they males or females in there?

Air Vice Marshal Cox --There are two females--in fact, it might be three positions, with one to staff--but the leader is a female and her offsider is a female.

Senator WEST --And it is currently at lieutenant commander level?

Air Vice Marshal Cox --Yes, it is.

Senator WEST --What resources do they have to draw on?

Air Vice Marshal Cox --We did not want to put in a whole range of extra staff. There are staff in the three single services doing a damned good job now. This was to sit on top of that and to coordinate the total effort within the ADF on the topic of EEO. There really are three Headquarters ADF staff, if you like, supplementing or adding to the total who are out there in the single services doing the job now. I do not know how many they have got. I think it is a matter of three or four--that sort of number--which we brought together and focused on the topical issues which were raised in the Burton report.

Senator WEST --What structural relationship is there between this unit and the single service EEO people?

Air Vice Marshal Cox --A very close one. It is not a command relationship, it is a coordination arrangement.

Senator WEST --Is there a line relationship, or how does it--

Air Vice Marshal Cox --This organisation works with the three single services. Indeed, after the formation of the personnel executive on 1 July they will come close together again. In fact, they will form the group that is going to do this. So, there is very close coordination, a close working relationship. They are doing the job for the Chief of the Defence Force and the single service chiefs. So, collectively, they are providing advice and guidance on EEO matters for the ADF.

Senator WEST --After 1 July when personnel is under a single structure, how many people will be, all up, working on EEO issues?

Air Vice Marshal Cox --I cannot answer that. I am not sure that we have got right down to that number. This goes back to the continuing debate we have had during the evening, it has got to be put together and then refined. I do not know what the outcome will be.

Senator WEST --Would you be looking at one group that would contain elements of the three forces?

Air Vice Marshal Cox --That is what I envisage but later on when we look at the personnel executive program we could ask the head designate of that program if he has any different ideas. I would imagine that it will come together, working more closely together, because of the one personnel executive than perhaps they have in the past, and that may provide an opportunity to be a bit more efficient in the use of staff.

Senator WEST --Would that mean a change of rank for the person at the top?

Air Vice Marshal Cox --I cannot answer that. I do know that we are looking at it but I cannot say what the outcome would be. There is going to pressure on rank levels all the way across so to say that one might go up at this time is premature.

Senator WEST --I recognise that.

Senator SCHACHT --I presume the third dot point is the same as the second one:

.to conduct a broad review of ADF policies and instructions to ensure compliance with both the direct and indirect provisions of the Sex Discrimination Act;

Will that be conducted by the Defence Force Equity Unit with the help of the consultants?

Air Vice Marshal Cox --Correct, Senator.

Senator SCHACHT --The last one again I presume is by the unit:

.to conduct a review of the ADF policy which currently precludes women from employment in ADF combat positions.

Will they be assisted by the consultants in that review, on women being precluded from employment in combat positions?

Air Vice Marshal Cox --The consultancy will provide advice on all the issues but that is a particular expertise which rests predominantly with the services, women in combat and women in employment in those categories. It is an ongoing review which we have all the time. We are always looking to see how they may be enhanced and increased. So, it is a continuation of that arrangement.

Senator SCHACHT --Is this the first time this Defence Force Equity Unit has been involved directly in reviewing the issue of women in combat positions?

Air Vice Marshal Cox --Only since the inception of this equity review have they been brought together, but the three single services have individually been looking at the employment of women in the ADF and trying to reduce the numbers who are excluded from any position in the ADF.

Senator SCHACHT --In the conduct of the review, presumably the unit will be taking submissions from within and without the defence forces. Is that correct?

Air Vice Marshal Cox --I cannot answer that.

Senator SCHACHT --Could you take that on notice because it seems to me that on an issue that does have some broader interest in the community, to say the least, about the role of women in what level of combat, this might be a broader debate. I can remember years ago I was on the Joint Committee on Foreign Affairs, Defence and Trade that dealt, amongst other things, with the role of women in combat positions. I have to say since then that the defence forces have moved on even further than what the committee probably recommended. In those days, in 1988, it was considered anathema to suggest that women could serve in submarines or frigates and I understand they are in those positions now, or are eligible to be in those positions.

So, in the conducting of the review, are they doing that as a stand-alone review or are they having input from other areas in view of the sensitive subject matter. Well, I do not think it is a very sensitive issue, I think it probably can be dealt with pretty easily, but some people might say it is a sensitive and controversial issue. Are they being overseen in the work they are doing on that or have they been left to get on it?

Air Vice Marshal Cox --I cannot say whether or not they are going to go out to the public at large to seek advice on this, but--

Senator SCHACHT --What about seeking advice within the services? Presumably they would do that.

Air Vice Marshal Cox --They are doing that now, that is the point I was making.

Senator SCHACHT --They are doing that now, but this unit has not been going long, I understand?

Air Vice Marshal Cox --Madam Chair, perhaps I will go over this. The single services presently have units within their services looking at how they can extend employment of women in their particular service. It is being done by the army, the navy and the air force. What we have done here is put in place an organisation which brings all that together so that the best practices of the army, navy and air force can be looked at. They can look sideways at what each service is doing to see if they can enhance it or change it. There are some categories which are similar, for example air defence guards in the air force and things such as that, so that when you bring them together you can have a look from an ADF perspective.

Not only are they going to be doing that and continuing that single service review under a tri-service banner but also they will get some guidance from a consultancy which will be used to provide expertise on matters of EEO.

Senator SCHACHT --Are the people within each of the services that have been doing the work so far on reviewing women in combat positions in each of the individual services continuing with their work or have they been wound up and replaced by the defence force equity unit?

Air Vice Marshal Cox --They became part of the equity unit.

Senator SCHACHT --Could you take it on notice to provide the number of people who are involved with this review work on the equity issues in each service itself who have been doing it in the past?

Air Vice Marshal Cox --Yes. We can do that.

Senator Newman --Senator West has already asked some part of that.

Senator SCHACHT --The last thing or a couple of last things--

Senator Newman --Do not raise my hopes too high, Senator.

Senator SCHACHT --I thought I would just test you out.

Senator Newman --Yes, I am still awake and I am still listening.

Senator SCHACHT --When do you expect that review on employment of women in combat positions to be available to the defence forces?

Air Vice Marshal Cox --I see it as an ongoing thing. There is an ongoing review of women in the ADF and their employment capacities.

Senator SCHACHT --If they make a recommendation in one area of the defence forces to change the present definition of what is permissible and what is not, will that be made public at that particular time, even though it is only work-in-progress so to speak?

Air Vice Marshal Cox --I see no reason why it would not be.

Senator SCHACHT --Okay. Do you expect that we would get any of those work-in-progress reports some time this year?

Air Vice Marshal Cox --Yes.

Senator SCHACHT --Finally, could you provide--or you may well bring it to my attention, it being provided somewhere else in endless numbers of defence reports or in the annual report--the list of what areas of combat are precluded from women at the moment in the Australian defence force?

Air Vice Marshal Cox --Yes. We can. I have probably got it in here. It is a matter of finding it quickly.

Senator SCHACHT --Please take it on notice. It is not a matter I want to press now but I want to get up to date myself on what those areas are that women are still precluded from or, to put it around the other way, in what areas they are allowed to be in combat.

Senator WEST --I cannot see it in the recommendations but in 5.2.7 it does talk about reviews and gender. Claire Burton makes the point that, in processes of restructuring and rationalisation of the defence force over recent years and in studies of career structures to prepare other reviews, gender has virtually been ignored. In all of the planning and stuff that has gone into the DER and the follow-on from that, what cognisance has been taken of gender issues?

If you move more people to the pointy end, so to speak, particularly in the army, that is where women are precluded from serving in a lot of the infantry/artillery areas. It is not quite the same in the navy and air force but I have grave concerns that with moving lots more people to the pointy end there is going to be a consequent reduction in places and postings that female personnel, both commissioned and non-commissioned, can serve in. I am wondering what has been done to be cognisant of that concern and that issue.

Air Vice Marshal Cox --Madam Chair, I cannot answer that. I do not know what note they took of it in their deliberations.

Senator WEST --I am reading from the executive summary, but there is certainly a significant piece that--

Air Vice Marshal Cox --I understand the point, but I do not know what was taken into consideration.

Senator WEST --You are probably not the right person to be asking, but I am asking somebody: what cognisance has been taken? What is being done to ensure that this does not become another method of excluding women from the Defence Force, albeit not intentionally? If you were to read Clare Burton's report, you would see how it could happen.

Air Vice Marshal Cox --On that point, I can see what you are getting at, Senator, because she did make those sorts of recommendations about career management and the like, and exclusion from combat and its impact on promotions and career development.

Senator WEST --That's right.

Air Vice Marshal Cox --The point that I cannot answer is what note was taken of these measures when the defence efficiency review was conducted. Despite the observations which Ms Burton has made, with the emphasis on combat--and moving to greater emphasis on combat--if women are excluded, well then, I guess women are excluded.

Mr Tonkin --I refer the senator to page 261 of the thick book, the Addendum to the Report of the Defence Efficiency Review, where the second last paragraph addresses that point.

Senator SCHACHT --That was good of you, Mr Tonkin, to get us back to the thick book.

Mr Tonkin --It was not necessarily of my volition, Senator.

Senator SCHACHT --This is the non-core book.

Mr Tonkin --It says:

As the size of the non-combat areas of Defence reduces, so do the number of positions able to be filled by women. Both improved job descriptions and focused personnel planning are needed to better balance the conflicting requirements of reducing the size of non-combat elements and increased female participation in the ADF's workforce.

The problem that Senator West raises was identified, and one of the objectives or challenges in developing the restructured Defence Force will be to have regard to those considerations. It is something of which we are aware, and we will do our best to moderate it.

Senator WEST --I will be interested to see how you are going to change the job descriptions. Is there work under way to look at the job descriptions? That is a very valid point of Clare Burton's report.

Mr Tonkin --I would suggest that it is too early in the review process to answer that question. You can ask the question, but it is too early to answer it. As we evolve these organisations over the next three years, those processes will be addressed, amongst many others.

Senator WEST --I take it that it will be evolving with that paragraph out of nearly 400 pages--one paragraph: not bad!--and Clare Burton's review, plus a number of others.

Senator SCHACHT --That is a pat on the back, Mr Tonkin.

Mr Tonkin --Was it?

Senator SCHACHT --You can go home and tell the committee that you have done very well to remember that paragraph.

Mr Tonkin --I am sorry, I have missed it.

Senator WEST --Somebody has done very well. Whoever it was should take a bow.

Air Vice Marshal Cox --If the questions are specific questions, the single-service deputy chiefs could perhaps answer some of those details.

Senator WEST --Can they consider themselves taken on notice, please?

Air Vice Marshal Cox --Yes. I can give you the exemptions of women in employment. In Navy, women are excluded from clearance diving; in Army, women are excluded from armour, artillery, infantry, combat engineer--

Senator SCHACHT --Can you slow down? Armour--they can't be in a tank.

Air Vice Marshal Cox --Artillery, infantry and combat engineer. The Air Force exemption is ground defence.

Senator SCHACHT --Defending the perimeter of the airport?

Air Vice Marshal Cox --Defence guards.

Senator WEST --The air force equivalent of the infantry, as they used to be.

Senator SCHACHT --Are you able to provide the reason why each of those is still exempt in defence policy? Why are women excluded for each of those areas you mentioned--one for the navy, one for the air force, and I think four or five for the army?

Air Vice Marshal Cox --I invite the senator to ask the deputy chiefs on that but, in a broad based point, my understanding of the rationale for that is that it is to do with more or less one-on-one combat.

Senator Newman --It is what your government thought was a reasonable thing--and we thought that they were right, for once!

Senator SCHACHT --There was a debate about that in the government as well; I was in the minority of course, as always.

Senator WEST --Further on Clare Burton--and I guess this will come in with the DER--she says, at paragraph 5.2.1 on page 17 of the executive summary, that the privileging of operational background is `culturally mandated' and has not been `subject to scrutiny to establish the extent to which it operates as an artificial barrier to progression for some categories of members and for women, in particular.' Is anything going to happen to `privileging of operational background'--a very nice phrase!--to get to the star category?

Air Vice Marshal Cox --The answer is that the very reason we put in place this defence equity organisation is to grapple with questions and observations of that kind and, in particular, indirect discrimination in career development. So it is an area that we are focused on. It is too early yet to have an outcome for it. One of the reasons that we put the defence equity organisation in place was to examine all of those issues.

Senator WEST --Maybe the lieutenant commander will get to be a commodore or an admiral.

Air Vice Marshal Cox --Who knows?

Senator WEST --I look forward to that day. So there is really not much point in me going through all of the things I have marked here. I will wait.

Air Vice Marshal Cox --The point on that particular report is that the recommendations were broadly endorsed. The thrust to putting in place closer emphasis and examination was embraced by the chiefs of staff, particularly. Minister Bishop has announced the report so we have an organisation which, for the first time, was put in place specifically to look at these issues.

Senator WEST --I am not being critical of that. I suppose what I am after is a progress report and maybe now is not the appropriate time.

Air Vice Marshal Cox --It is early days. They have only been on the ground a few months.

Senator WEST --Yes.

Senator SCHACHT --There are five categories that are still excluded. You did take on notice that you would provide me with information of any reason, other than where the definition that excludes people could be one-to-one combat. Is that the only reason?

Air Vice Marshal Cox --I said that was my broad recall of what this was. I did invite you to ask the deputy chiefs to shed any light on it.

Senator SCHACHT --I do not know whether this is the correct area for my next question. You might ask me to take it up with the individual services but I think it goes to ADF policy. In recent times, the American forces have got themselves into a terrible mess, in my view, in dealing with the issue of adultery, and relationships between women and men and men and women. It seems that, initially, if you are a woman having a relationship that might be called adulterous you get hit over the head but if you are about to be appointed chief of the joint staff you do not get hit over the head with it until there is a public outcry about it.

Senator WEST --Boys will be boys!

Senator SCHACHT --He apparently has been hit on the head or has withdrawn his nomination to be chief of the general staff. Are there any rules in the ADF dealing with these sorts of relationships, adulterous relationships, et cetera? Is there anything in the administrative orders whereby people can be penalised?

Air Vice Marshal Cox --There are some orders, limited though they might be. We would be very concerned in, say, an instructor/student relationship, areas such as that. There are instructions and orders which relate to those sorts of activities. Not only are there orders which specifically relate to that but also there is the concept of good order and discipline, which is a concept that can be used if there is behaviour which is deemed to be not in the interests of a unit or command or some such thing. In the main, and it is being focused on these days, there are statements of ethics and expectations of members of the three services. They have been developed by the chiefs of the services and they are becoming well published.

Senator SCHACHT --The reason the American situation struck me, and I hope it does not apply here, is that whatever one may say about the issue of adultery, it is a moral issue. It is not a legal issue in Australia--that you can go to gaol for committing adultery. Some people might say you should but, under our law, adultery is not a criminal offence or any sort of legal offence. The Americans appear to have some internal rules that it does not operate to the good standing of their defence force. You implied there that there is a general order. But has that ever been used in recent times to deal with someone making a complaint about a relationship that could be called adulterous?

Air Vice Marshal Cox --The usual categories do not go to that detail. They might be in the sense of sexual assault or some such thing which is illegal by law.

Senator SCHACHT --That is illegal activity. If you sexually assault somebody--

Air Vice Marshal Cox --That is correct.

Senator SCHACHT --No matter where you are, that is a criminal offence.

Air Vice Marshal Cox --On the offence of adultery, if it were to be an offence, I think the context which I would be most aware of is the one that I alluded to. We do have orders which proscribe certain conduct in command relationships and in particular relationships between a major and a minor in the ADF; for example, in a training organisation, whether it was adultery or otherwise.

Senator SCHACHT --They are using their positions. No, I understand that.

Air Vice Marshal Cox --Yes, it is excluded and there is an order in relation to that. But, more generally, unless it is some form of undermining of command or some relationship of that kind, it is normally embraced under an ethics and expected behaviour pattern.

Senator Newman --I think, from memory, when Senator Ray was introducing a policy relating to homosexuals in the Defence Force, he drew on the existing requirements in defence for heterosexual relationships to do with fraternisation problems, where they might lead to undermining authority or prejudice to the military discipline. It would not matter whether it was homosexual or heterosexual, they would be ruled out.

Senator WEST --Have there been any forced separations from the ADF in recent times because of fraternisation or this erosion of good morale and discipline, whatever it is? What was the gender of the people involved? Did both parties get treated equally or in fact was one treated more severely than the other? I remember from the Swan inquiry that we had evidence from the navy that if there was fraternisation occurring both were posted in different directions; there was not a single posting, there was a doubling posting and that reduced the--

Air Vice Marshal Rogers --Senator, rather than asking Air Vice Marshal Cox in the policy section, that may be best handled in the single service programs because we have the single service chiefs of personnel here, who have maybe some knowledge of those cases.

Senator SCHACHT --I understand that but why I mentioned the ADF level is that on this policy I would have thought that it was across the three services; that if you have got good order and standing, as Senator Newman and Air Vice Marshal Cox have described it, that should apply equally to all services. I will ask a final question on this in relation to the situation that occurred in America which became an extraordinary saga of the bomber woman bomber pilot who had a relationship with another officer of the armed forces. In the end there was this extraordinary negotiation and she left without an honourable discharge but did not suffer any other penalty. What I want to know is whether anything like that has occurred in people's institutional memory in Australia, in our Defence Force.

Air Vice Marshal Cox --Not to my knowledge, Senator.

Senator SCHACHT --Thank you. I hope it does not.

CHAIR --Are there any further questions on the general overview?

Senator HOGG --Yes, if I can take you to page 7 of the PBS, there is a specific objective there `to attract, retain and develop highly skilled, educated and motivated people'. Can you give me some idea of the level of recruitment that is being envisaged there?

Air Vice Marshal Cox --Could you explain further?

Senator HOGG --It says `to attract, retain and develop highly skilled, educated and motivated people' and to ensure that they can work and so on. I am interested in what level of recruitment the ADF are looking at under that particular objective that is outlined there, given that we are going through a process where many people are going to lose their jobs. Are there targets that I can find somewhere?

Air Vice Marshal Cox --We have targets, yes. I have targets that we work to planned for this financial year and the next financial year, but whether the full impact of the defence efficiency review has been worked onto those targets is a moot point. I doubt whether those targets have been revised adequately following the DER, because there is still that requirement to see which people can be redeployed and which people cannot, and to look at the whole issue. So the figures which we have as targets for the coming financial year, which is not far away, are probably going to require amendment.

Senator Newman --We can get more detail on that one when we get to program 8. Page 87 is an appropriate place later on to get more detail, if you want it.

Senator HOGG --Can I take you there--

Senator Newman --Not now, later.

Senator HOGG --Can I take you then to page 11? Under resource and staffing implications, the last dot point there says:

. As part of the implementation of these reforms, early action is to be taken to negotiate productivity-based agency agreements--

In view of the overall DER and DRP, what are productivity based agency agreements? Who is the agency and who will do the negotiating?

Air Vice Marshal Cox --I will have a go at that, from the ADF. A lot of these terminologies are terminologies from the IR changes of the government which, on the face of it, do not seem to have total relevance to the ADF, but they are the phraseology which is--

Senator HOGG --I understand that; that is why I am asking the question, because I am finding it difficult to come to grips with what `productivity-based' means. Is it how many people you kill? Or how many landmines you--

Senator Newman --That is what we asked when you were introducing productivity bonuses for them!

Senator HOGG --I tell you what, this is going to be interesting.

Senator Newman --You started it.

Air Vice Marshal Cox --Productivity based agency agreements are wage outcomes where some form of productivity is identified in reaching a conclusion on the outcome.

Senator HOGG --By whom--

Mr Tonkin --Defence has to fund the increase. The cost of the salary increase has to be funded by efficiency gains within the agency, within the Defence Force and the department.

Senator HOGG --Within the Defence Force, will it be by program or subprogram?

Mr Tonkin --No.

Senator HOGG --How will you do it?

Mr Tonkin --There will be one agency based agreement for the Australian Defence Force, and the intention is one for the department, not on an area by area, unit by unit basis.

Senator HOGG --Right. So there will be a centralisation of the negotiating process under the new structure?

Mr Tonkin --Yes.

Senator HOGG --Who will be responsible for that?

Air Vice Marshal Cox --The ADF are still operating under the extant arrangements, which are the Defence Force Remuneration Tribunal and the Chief of the Defence Force making recommendations to it. The pay fixing mechanisms for the ADF have not changed, although in going to the tribunal, and in going forward for some form of pay change, it is necessary for the ADF, in consultation between CDF and the Secretary, to have regard to the funding and the budgetary outcomes of the defence program.

Senator HOGG --All right. If we are getting to productivity based, I can understand how we might be able to do that for the civilian side of the operation, but how do we do it for the army, navy or other personnel who are involved?

Mr Tonkin --We have spent six hours, roughly, discussing a productivity initiative called the defence reform program. The contributions of the Defence Force and the departmental staff in the bringing forward and implementation of that represents very, very substantial productivity gains.

Senator HOGG --Right. So that is your productivity measure? In straight IR terms--

Air Vice Marshal Cox --In the past we have changed things. We might remove the amount of administrative processing of an allowance or some such, where there is deemed to be an efficiency gain and thus a productivity increase. We go with the APS and the ADF, usually in a similar sort of a vein in the defence agency arrangement, if we can call it that. With this particular review, for all intents and purposes it is about an $800 million dollar per annum productivity increase. So many of the recommendations made in here are greater efficiencies.

Senator HOGG --The last part of that paragraph refers to both the defence personnel and civilian personnel of the Department of Defence incorporating individual Australian workplace agreements as appropriate. Where would they be seen as appropriate within the structure that you have outlined?

Mr Tonkin --I do not believe that is contemplated for the Defence Force, Senator. In the department there may be limited individual cases where the very special circumstances of a person's employment and the nature of what they do might better be reflected in an individual Australian workplace agreement than by the generality of an agency based process. We envisage that this would be very much the exception. But in a work force of 18,000 and given the requirements under the Workplace Relations Act for meaningful negotiations in the formulation of an AWA, you could see the efficiency impact of doing lots of them.

Senator WEST --On page 13 you talk about the commercial support program. You talk about the multi-program activities and the last line of the next paragraph says:

During 1997/98 substantial progress will also be made on three MPAs which are already under-way: ADF Explosive Ordnance, ADF Freight Distribution and ADF Health Services.

I presume you would like me to ask questions about the health services in program 8?

Mr Tonkin --Yes please.

Senator SCHACHT --On page 17, the overview budget summary lists the significant new major capital equipment projects and mentions the commissioning of a second Collins class submarine HMAS Farncomb. Recently in the press there have been stories--again, I do not know whether they are beat-ups--about so-called hitches with seals, clamps and various pieces of equipment. Will they delay the commissioning of the Farncomb or will they be dealt with in the normal way, so that the submarine will still be able to meet its normal launch deadline? Should we deal with this matter when we talk about the Navy or about acquisitions--I am not sure where this should come?

Air Vice Marshal Rogers --It is part of the acquisition program. We would like to address that further down the track and move on now.

Senator SCHACHT --Okay. I am happy to deal with it later.

Senator HOGG --Can I take you back to page 14 for a moment? At the top of the page, there is a heading `Defence Assistance to the Civil Community (DACC)'. When is it best to ask questions about that?

Air Vice Marshal Rogers --Madam Chair, it depends which area you would like. If it is one of the particular Services, I would suggest--

Senator HOGG --I am interested in particular in the Aboriginal and Torres Strait Islander Commission area.

Mr Lewincamp --It comes under Army program.

Senator HOGG --I will ask those questions in Army. However, if DACC is to continue, where will it continue under the restructured program?

Mr Tonkin --Under program 6, in terms of its coordination, but the implementation will very much be a matter for single services to give effect to. I may have got it slightly wrong. There are two parts: natural disasters forms part of program 6, but the immediate provision of defence aid to the civil community forms part of program 1 because it comes under the strategic command subprogram, which is subprogram 1.6, I think.

Senator HOGG --So in the future we will look for this under subprogram 1.6.

Mr Tonkin --Yes.

Senator HOGG --Whereas today we should ask the questions under program 6.

Mr Tonkin --You should ask them under program 1. If it is natural disaster specific activity, that is program 6's business.

CHAIR --Further general questions?

Senator WEST --On page 20, table 1 headed `Derivation of 1997-98 Budget Estimate and 1998-2001 Forward Estimates', at the fifth line down, under the heading `Below the Line', it says, `Compensation for detriment caused through defective administration.' That makes the mind boggle. What is it? Why is it? Who is it? How is it? Or would you like me to deal with it somewhere else--or not at all?

Mr Tonkin --Thank you, Senator!

Senator WEST --I am not giving you the last option! It is $400,000 in this financial year and $400,000 in each of the outyears. Who has done what that has caused detriment?

Mr Tonkin --It is just a changed expression for payments such as act of grace payments--I think they have changed the language--and that is a standing provision. As you can see, it was in 1996-97 and so on.

Senator WEST --But it is not in 1995-96.

Mr Tonkin --Because they have changed the arrangement. It is below the line because we get funded for whatever the actual cost of the outcome is, and it is difficult to predict and so it is one of those `whatever it costs, we get' items.

Senator WEST --It is not for HREOC compensation payments and things, is it?

Mr Tonkin --I do not believe so, Senator.

Senator WEST --Maybe I can leave that on notice.

Mr Tonkin --If my belief is inferior, then we will come back to it.

Mr Lewincamp --I have a broad description here. I will try and distil it as I read it myself. It is a new scheme introduced by the previous government in October 1995 entitled `Compensation for detriment caused by defective administration'. Each agency has the same provision now.

Senator WEST --It is not just for defence?

Mr Lewincamp --It is not just for defence--all government agencies have the same provision. The request of payments of this nature were previously considered in the act of grace context by the Minister for Finance, but that has now been devolved to agencies. A claim for compensation under this scheme can be considered if it falls into one of the following categories: a specific and unreasonable lapse in complying with existing administrative procedures; an unreasonable failure to institute appropriate administrative procedures; giving advice to or for a claimant that was in all the circumstances incorrect or ambiguous; and an unreasonable failure to give to a claimant the proper advice that was in the official's power and knowledge to give.

Senator WEST --The next question that follows on that is: if it was in this year's budget, has anything been paid out? If so, what program would this be dealt with under?

Mr Lewincamp --Can I try and find that while we go on?

Senator WEST --Yes, I am quite happy for you to come back to it at some stage. I just thought it was an interesting set of phraseology that I had not come across before.

Senator SCHACHT --On the same table, while we are at it, on the Voyager compensation, which was the big payout of 1995-96, has got some years still to run. For 1997-98 it is $2.5 million, then $1 million and $1 million and $1 million. Is that based on an estimate that someone is going to be more successful in getting some legal appeal? I noticed only yesterday on television that one of the gentlemen that was on the Melbourne who took the case actually has passed away and his widow is going to continue seeking compensation. Does that figure take account of the fact that there may be further claims that the court gives, or do you actually know what you have got to pay out over the next few years?

Mr Lewincamp --It is a provision.

Mr Brown --This is to cover the residual claims arising from the administrative settlement scheme which was established in 1995. There have been about 115 matters that have been settled under that scheme in total. Of the 232 survivors of the Voyager, we have reached settlements or verdicts in relation to about 212 of those. Not everybody has claimed, but there are still some cases outstanding which we would expect to be resolved in the context of the administrative scheme. This does not cover claims from crew of the Melbourne. It does not cover claims that are progressed through the courts outside the administrative scheme.

Senator SCHACHT --Where would they be covered in your budget? You have not put anything aside yet for--

Mr Brown --Those would be covered under the general heading of compensation and legal expenses, which is a very much larger allocation which deals with all common law verdicts against the Commonwealth arising out of defence activities.

Senator SCHACHT --Which page would I find that list on? That is the general provision of payment for all compensation claims--which, in this case, is the Melbourne--but you said there was another line somewhere else.

Mr Brown --Compensation and Legal Expenses.

Mr Lewincamp --On page 22, under `Other Services', halfway down, `Compensation and Legal Expenses' gives you the numbers.

Senator SCHACHT --Yes: $125 million! Is that right? It just shows you my sheer innocence. How much of that is compensation, and how much is legal expenses? How much are the lawyers taking out of it--apart from too much, obviously?

Mr Lewincamp --I am not sure we can provide that figure. We will take that on notice.

Senator SCHACHT --I am not up to full score about the claims from people who were on the Melbourne. How many claims have been lodged from people who were on the Melbourne when it sank the Voyager?

Mr Brown --About 60.

Senator SCHACHT --Has anyone on the Melbourne also claimed from when ramming seemed to be coming back as a technique by the Melbourne, unfortunately, and it sank the American destroyer Frank E. Evans?

Mr Brown --We have had one writ from somebody who was on the Melbourne at the time of the collision with the Frank E. Evans.

Senator SCHACHT --But no-one from the Frank E. Evans who survived has claimed against us? Or have the Americans accepted all of that?

Mr Brown --We have not fully decided how we will handle the claim in relation to the Frank E. Evans collision.

Senator SCHACHT --That was someone on the Melbourne?

Mr Brown --That was an Australian crewman on the Melbourne at the time of the collision with the Frank E. Evans. Our position would be that that particular collision was solely and entirely due to the negligence of the Frank E. Evans, and so it would be quite wrong to be suing the Commonwealth for negligence.

Senator SCHACHT --But under some defence arrangements, if it is the full fault of the Americans, do you tell the Australian crew member from the Melbourne not to not sue you but to go and sue the US Defence Department?

Mr Brown --It is not really our job to give legal advice to prospective claimants. But we would certainly be defending the claim against us.

Senator SCHACHT --I am not trying to be tricky. Do we have some arrangement whereby, in the defence relationship with America, even though it might have been all the fault of the Frank E. Evans that it got sunk, we pick up any compensation for Australians aboard the Melbourne , and they pick up all the compensation for the Americans aboard the Frank E. Evans? Or is it that you have to go to an Australian and tell them that they have to go to America and take an action in the American court?

Mr Brown --Assuming there is some basis for this claim--and that would have to be a bit dubious, in view of the lapse of time since the collision with the Frank E. Evans occurred--really, if someone wants to bring a claim in negligence, they should bring that claim against the negligent party, which in this case was the government of the United States.

Senator SCHACHT --You say the claim for the Frank E. Evans was a long time ago, but the Voyager was even longer ago than the Frank E. Evans. Therefore, is your view the same about the 60 claimants from the Melbourne who were on that ship when it sank the Voyager by collision?

Mr Brown --I do not want to go into the full history of the Voyager claims; I could go on for about 20 minutes about that.

Senator SCHACHT --I thought you would be going pretty well to do it inside 20 minutes; I thought it might be 20 days.

Mr Brown --The initial claims that were finalised were finalised as a result of common law proceedings, and it was when we had got to the stage where about 31 or 32 of those claims had been finalised that the previous government took the decision, in 1993, to establish an administrative scheme to attempt to resolve all the claims that had been made up to the commencement of the--

Senator SCHACHT --By crew of the Melbourne?--

Mr Brown --Voyager survivors only.

Senator SCHACHT --Sorry, the Voyager.

Mr Brown --Sixty-nine claims were resolved under that administrative scheme; and then the issue was revisited in relation to the other people who had not brought claims before the cut-off point for that first scheme. The second scheme was established in 1995. The combination of those three methods of resolving claims--that is to say, the initial common law proceedings, the first administrative scheme and the second administrative scheme--has taken us up to the point where we have resolved, as I said, about 212 claims by survivors of the Voyager.

It was implicit in establishing the administrative schemes that the Commonwealth was not disputing liability in relation to those claimants. The Commonwealth takes a different position in relation to people who were on the Melbourne because, for a variety of reasons, their circumstances were quite different: they did not suffer physical injuries, they did not go into the water and they did not lose shipmates--all those sorts of factors. We are defending those claims--including the claim by Mr McLean, who died yesterday--on the available legal grounds.

One of the grounds on which we defend them is that the statute of limitations has expired but, in practice the Commonwealth, like all institutional defendants, does not have much success in maintaining limitation period defences, because the courts almost invariably give extensions of time. So, although it is now 33 years since the Melbourne-Voyager collision, people are in practice getting extensions of time to bring common law proceedings. But the fact that people have waited 33 years to bring these claims does perhaps call into question the genuineness of the claims that they have made.

Senator SCHACHT --Does the Melbourne-Voyager peacetime accident, although it was an exercise, establish any principles about a war time situation where a ship got sunk through enemy action and they got sunk because someone else on the Australian side made a mistake in some command decision which let the enemy sink the ship? Are these sort of things all being opened up now?

Mr Brown --No. There is a well-established legal principle that nobody can bring an action for injuries suffered as a result of enemy action or actual operations against an enemy. The Melbourne-Voyager collision occurred in the course of peacetime training, which is well outside that envelope. The High Court, in the case of Groves and the Commonwealth, which considered the scope for a member of the defence force to sue the Commonwealth in respect of the negligence of a fellow serviceman, left open the question of whether an action could be maintained in circumstances where there was war-like training going on. That is an unresolved issue. It may be necessary to test it in a case at some point, but we have not got to that stage yet.

Senator SCHACHT --We have got ships which are from time to time still in the Gulf, are they not, as part of the UN? They were in the Gulf. If someone had had what we might call a normal accident--falling overboard or getting hit--when they were in the Gulf in some potential situation under UN activity, could that person sue for an accidental injury, or would that be considered to have happened `in action'? I notice that at times in the past with the Gulf arrangements, we were accepting repatriation arrangements, weren't we, for those people who served at that time?

Mr Brown --Service in the Gulf certainly did attract veterans' entitlements.

Senator SCHACHT --If it attracts veterans' entitlements, does that overcome the ability to sue?

Mr Brown --In theory, there is no reason why somebody who was injured as the result of negligence on board ship, while on an operational deployment, could not bring an action against the Commonwealth, but you would have to immediately qualify that proposition because there is a bar on common law actions under the Safety Rehabilitation and Compensation Act, or at least a limitation on the extent to which actions can be brought. If you did get common law damages, however limited by the SRCA, you would nevertheless have to look at a possible offset against benefits under the Veterans' Entitlements Act because you cannot get both statutory compensation and common law damages.

Senator SCHACHT --You cannot double dip.

Mr Brown --No.

Senator SCHACHT --Thank you. Mr Lewincamp, I notice that the budget for 1996-97 had compensation legal expenses at $109 million. The revised estimate is $138 million. That is a pretty substantial jump from the budget to what should be the final outcome. What occurred, other than possibly the greed of lawyers, that made it jump by some $30 million?

Mr Lewincamp --We will come back to that later in the appropriate program.

Senator SCHACHT --And can we get the break down between compensation and legal expenses on notice?

Mr Lewincamp --Yes, I have taken that on notice.

Senator SCHACHT --The figure for legal expenses does not include the legal people who are full-time members of the ADF. Is that correct? I presume the lawyers employed in the three services are using their legal skills. Are there any lawyers employed in uniform?

Mr Lewincamp --Yes, there are.

Senator SCHACHT --Does that figure include their expenses?

Mr Lewincamp --No, I would not think so.

Senator WEST --I also see on that same table that again we have compensation for detriment, which this time is $350,000.

Mr Lewincamp --It is the same figure. The one in the other table is rounded up, of course.

Senator WEST --I thought that may have been the case. Several spots under that we then have payment to ADI Limited. Can you tell me what that is, or do we deal with ADI somewhere else?

Mr Lewincamp --Yes, under the acquisition program.

Senator HOGG --Before we get further into the tables, has Defence adopted a user pays principle where Defence renders a service?

Mr Tonkin --Do you mean in respect of a service to someone outside Defence?

Senator HOGG --Either outside Defence or within.

Mr Tonkin --Our general policy on services outside is full cost recovery unless there is some special arrangement in place, which means that all the overheads, the amortised cost of capital, et cetera, will be recovered.

Inside Defence, not usually. I am not sure whether I dare to come back to the defence reform program, but one feature of that in respect of the management of the Defence estate will be the charging of, at least initially notionally and then possibly actually, rents to the occupants of all our facilities around the country to encourage the rationalisation of the use of those facilities. That is an example where they may well be a productive benefit from having a user pays arrangement.

However, as a more general principle, we have a substantial reluctance to playing shops inside our organisation because you add an overhead chasing your own dollars around your own organisation.

Senator HOGG --All right. I know it will come up in the estate area later, but what about the instance of, say, Fairbairn? If that were sold, you would obviously then get into a user pays system where you would have to pay the new owner, I would presume. As part of your overall program under the DRP, are you factoring in now a user pays principle for yourself in the use of facilities? Even though it is a book entry as this stage, it might become a reality later on.

Mr Tonkin --Senator, I suggest that what happens with the sale of these airports and the future arrangements is a hypothetical. We will address that when it arises.

Senator HOGG --It might be a hypothetical into the future in that sense, but it is not a hypothetical now in the sense that should air force not pay some user-pay fee for the use of that property. Am I misconstruing who owns the property?

Air Vice Marshal Rogers --It might be a good idea if you hold that question for Mr Corey and give him time to give a bit of thought about it. I would add that, under the defence assistance to the civil community, there are provisions of delegation within the defence department for the waiver of particular charges where services are provided by the defence force, in the course of their duty, where there is some particular training value.

For example, if there is a request from some charity organisation to carry some books to an orphanage in New Guinea, if we have an aeroplane going up there, there are delegations within the defence department at certain levels for those sorts of things to be done where there are benefits and good value for the defence department. So it is not all completely what's-a-name. But some activities are required to be user-pays. In other words, they have to recover.

Mr Lewincamp --Senator, I could elaborate a bit on the user-pays activities outside the defence organisation. We have addressed some of them in previous hearings here. A good example is search and rescue, where defence absorbs fully the cost, although we make available the additional cost.

There are other areas that we discussed earlier with peacekeeping, where a proportion of it is by cost recovery and a proportion of it is absorbed by defence. With things like defence cooperation, counter-terrorism and assistance to the civil community, we apply different rules in different circumstances, depending upon the degree to which we are using extant defence capabilities that can be used for those purposes without any significant detriment to the ADF, or whether we are moving more towards a commercial side of the spectrum, where we expect full-cost recovery.

Senator HOGG --What happens now if an air force plane or one of the VIP fleet lands at a commercial airport? Do they have to pay charges?

Air Vice Marshal Rogers --Senator, under the Defence Act 1903, the guarantee was that defence force vehicles had right of access to airports and the national highways.

Senator SCHACHT --I do not know about the highway.

Senator HOGG --Does this apply though with the sale of these airports?

Air Vice Marshal Rogers --I said vehicles. Senator, I was not referring to the special purpose aircraft. Your point is about if, for example, an aircraft of 34 Squadron lands at Brisbane airport on a defence or training mission. No, there are no landing fees levied against the defence force for that.

Senator HOGG --Right. What will happen now that these have been sold?

Air Vice Marshal Rogers --That is under review at present because there are a number of private airfields around Australia where some of the aircraft do land and there is action taken sometimes to recover the cost. If they go to a private airfield, there is an arrangement with the operator, and that is the subject of ongoing review within the defence department with the decision to sell the major airports in Australia.

Senator WEST --What about Wagga airport?

Air Vice Marshal Rogers --That is not a defence airport, Senator.

Senator WEST --It is not a defence airport. So what do you pay Wagga City Council for the use thereof?

Air Vice Marshal Rogers --I cannot answer what we pay. I think we have access to that because it is a public airport. It is owned by the council. It is exactly the same as if it is owned by the Federal Airports Corporation. It is considered a public body.

Senator WEST --There are always more of yours on the ground there than there are of the civilian ones.

Air Vice Marshal Rogers --Not of late, Senator. We have not had much activity down there at Wagga because the tower is now closed. It was closed by Airservices Australia. We used to deploy the helicopters from the Australian Defence Force helicopter school for exercises and some of our training aeroplanes. We do not do that very much now.

Senator WEST --It is a few months since I have flown in there.

Air Vice Marshal Rogers --I shall check some of those facts to see if they are perfect.

Senator WEST --Thank you.

Senator SCHACHT --In this budget summary, there are several pages under table 4, `Defence function outlays'. Many of the questions on that may end up being referred to other programs.

Mr Lewincamp --I would hope to be able to answer most of them.

Senator SCHACHT --Somebody wants to go back to table 3 so we will do that first.

Senator WEST --Where would you like Woomera village operating expenses? That is on page 22. Is that under defence estate?

Mr Lewincamp --I am not sure which of the new programs is handling that. They are trying to sell it. This is our difficulty.

Senator WEST --Now you know the difficulty we are struggling under!

Mr Lewincamp --We, too.

Mr Tonkin --This is part of the working through of the fine detail of allocations. I believe that it will be under `Corporate support'. I suggest you seek answers to that under program 13.

Senator HOGG --What about the item on grants to independent organisations?

Mr Lewincamp --Do you want a list of the organisations?

Senator HOGG --Do we ask the question here or--

Mr Lewincamp --I can answer that now. There are four organisations covered by that: the Strategic Defence Study Centre at the ANU; the Red Cross; the RUSI--the Royal United Services Institute; and Army Military History. Just recently, as a result of discussions with Finance, we have moved family support funding into there as well.

Senator HOGG --Is that movement responsible for the substantial change there?

Mr Lewincamp --Yes, it is. There is movement of some $600,000 from family support into there.

Senator WEST --So family support is now in personnel executive.

Mr Lewincamp --That is right.

CHAIR --Are there any further general questions?

Senator SCHACHT --I just want to get that clear about table 4 which goes for several pages, item by item. The variations between forecast outcome 1996-97 and the budget estimate are contained in the table. Should we ask questions now rather than put them in the various programs?

Mr Lewincamp --If they relate to the funding of them, I will try to answer them now. If they relate to the activities, and the policies behind them, they are best referred to programs.

Senator SCHACHT --All I can say is that there is a grey area here.

Mr Lewincamp --Absolutely.

Senator SCHACHT --Madam Chair, if we do not ask them all now and something pops back--

CHAIR --I am really not fussed as to whether you ask them now or later. Do you want to ask them now?

Senator SCHACHT --I have some for now. On page 25, there is increased provision of $465,000 for projects Parakeet and the JORN communication systems. How much of that is for Parakeet and how much of it is for JORN?

Mr Lewincamp --There is $110,000 for Parakeet and $355,000 for JORN.

Senator SCHACHT --Why was there an increased provision for that?

Mr Lewincamp --For which of the two?

Senator SCHACHT --For Parakeet, first.

Mr Lewincamp --It relates to increased usage of bandwidths due to operational requirements for Parakeet.

Senator SCHACHT --And that is a payment to Telstra, is it?

Mr Lewincamp --Aussat.

Senator SCHACHT --To Aussat, to Optus. And the JORN?

Mr Lewincamp --It is an increased cost associated with operational testing, as they move out of the transition phase into operational testing.

Senator SCHACHT --Are there any other payments elsewhere in the budget, particularly for JORN?

Mr Lewincamp --That would be under the acquisition program.

Senator SCHACHT --The increase of $465,000 had to be paid because of a blow-out from last time, and you have just explained that. Did the blow-out on JORN have anything to do with the problem that Telstra has gotten into with the program?

Mr Lewincamp --I would not describe it as a blow-out. It is simply a move in the project in the normal phasing of expenditure.

Senator SCHACHT --Okay, and the rest dealing with JORN should be dealt with--

Mr Lewincamp --Under acquisition.

Senator SCHACHT --The same with Parakeet, I presume.

Mr Lewincamp --Yes.

Senator SCHACHT --Just out of curiosity, how long has Parakeet been going? I turned up in 1988 as a new senator and Parakeet was on the list. It is the oldest bird in history. Can you tell me when it first started. I think there have been about five governments--

Senator Newman --You need an old fellow in the army to answer that question.

Senator SCHACHT --Nobody is going to put their hand up for Parakeet, I see. Someone is coming forward as a volunteer.

Brig. Grant --I can not answer the question.

Senator SCHACHT --I am not surprised because when I asked in 1988 someone said, `Oh, somewhere in the 1970s it started'.

Brig. Grant --It does not go back that far at all. It starts about 1992.

Senator SCHACHT --Now hang on. Parakeet? I am sure that in 1988-89 I was asking questions about Parakeet because I remember the name about this bird--about the acquisition of Raven and a whole range of communications equipment.

Brig. Grant --I can take it on notice. We are up to phase six, or coming into phase six, and I think that is where you see it as a long-term project because there are several different components that come with each phase.

Senator SCHACHT --When you come back--it may not be tonight, it might be on Thursday--could you come back with information about how much has been spent on Parakeet over the--is it the sixth phase we are now in?

Brig. Grant --We are coming up to that now.

Senator SCHACHT --How many more phases to go?

Brig. Grant --There is a seventh phase.

Senator SCHACHT --I would be interested if you could give me the run-down of, by the time the seventh phase is completed, how much we will have spent on Parakeet. I also wonder how much of it has now been made redundant by technological advances in communications.

Brig. Grant --I can tell you, in answer to your last question, that none of it has been made redundant. It is actually leading-edge technology.

Senator SCHACHT --Leading-edge technology?

Brig. Grant --Parakeet, yes.

Senator SCHACHT --All that stuff we have been buying for a long time is still leading-edge technology on a system of providing a network of communications across Australia?

Brig. Grant --No, this is a satellite communications system which works off the back of a Landrover and sends signals off into space which come down into other satellite communications facilities.

Senator SCHACHT --I must apologise. Am I thinking of DISCON?

Brig. Grant --You could well be.

Senator SCHACHT --What happened to DISCON? Everyone shakes their head at the name.

Brig. Grant --Parakeet is a system that has been in service on Landrovers for the last two and a half to three years.

Senator SCHACHT --It is a satellite system?

Brig. Grant --Yes, it is.

Senator SCHACHT --When we get to logistics you had better give me a very brief run-down of the various communications systems we have operating. DISCON has come and gone, I presume. Raven has been completed?

Brig. Grant --Raven is nearly finished.

Senator SCHACHT --How much have we spent on Raven?

Brig. Grant --I could not tell you off the top of my head.

Senator SCHACHT --It is a lot, isn't it?

Brig. Grant --It is a lot of money.

Senator SCHACHT --Which is the program that provides the equivalent of the trunk system of communications across Australia for the defence forces?

Brig. Grant --DISCON is probably the one you are talking about.

Senator SCHACHT --That is still DISCON, is it? That is the one that provides a secure defence system of communications across Australia without any reference--

Mr Tonkin --It makes use of civilian trunk communications. It is not a totally unique system. It makes use of a commercial Telstra system.

Senator SCHACHT --It buys into the Telstra system, but it has its own switching equipment, is that right?

Brig. Grant --I could not answer that either. It is not a project I am familiar with.

Mr Tonkin --I believe that is the case.

Senator SCHACHT --Is it packet switching?

Mr Tonkin --That is outside my zone of knowledge.

Air Vice Marshal Rogers --The Defence Switched Data Network, DSDN, replaced DISCON when DISCON died some years ago. Its initial procurement was carried out under the DISCON packet switching arrangements and defence materiel projects. Since the completion of the DISCON project, the expansion of the DSDN has continued in an evolutionary acquisition manner as a series of minor projects. A new one called Project 2047 has been under consideration. It is a joint project. We are looking for a year of decision in 1998-99 to implement a coherent defence-wide communications network supporting voice data and video communications, and it will build on the basis that has been established by the current DSDN.

Senator SCHACHT --Is it all digital?

Air Vice Marshal Rogers --Yes.

Senator SCHACHT --Can you take on notice and give us an idea of what 2047 is costing, when it started and when it finishes?

Air Vice Marshal Rogers --When we are talking about development of projects, I am very reluctant to give out estimates--because they are estimates--of what the product may cost. When they get into the commercial environment, it gives the advantage to some of the potential contractors.

Senator SCHACHT --When we come to acquisitions, can you tell us how much has already been spent on Project 2047?

Air Vice Marshal Rogers --We will attempt to do that. But, again, I make that caveat about release of prices.

CHAIR --Yes, I understand that.

Senator SCHACHT --Thank you for the information about Parakeet. I am pleased to hear that it is still around. On communications and defence what are still operating? Parakeet is and Raven is coming to an end--or has it ended?

Brig. Grant --Nightingale is coming to an end.

Senator SCHACHT --DISCON has been replaced by DSDN, and DSDN is now evolving into Project 2047. Is that correct?

Air Vice Marshal Rogers --It will be correct, as I have just explained.

Senator SCHACHT --Can you tell us now, so that people are aware that I have a few questions in this area, what are the other communications projects that Defence has which we can discuss when we get back to acquisitions?

Air Vice Marshal Rogers --One is the Defence Messaging and Directory System, which is JP2054.

Senator SCHACHT --Which is what?

Air Vice Marshal Rogers --It is a joint project, which means it is not army, navy or air force, but has a joint connotation right across the three services within Defence.

Senator SCHACHT --That should be the range of communications programs?

Air Vice Marshal Rogers --Yes.

Senator SCHACHT --A lot of the questions I have asked deal with defence in the overview, and I have always said that this is going to cross backwards and forwards. I have had a lot of questions answered, which means that some of this area will not take that long when we get to the programs. As to the three services, I think you have a fair indication as to what questions are going to be coming out of the review area.

Senator HOGG --I am not in a dissimilar position to Senator Schacht. A number of the questions that I want to raise have been covered as we have gone along.

CHAIR --Perhaps, in that case, Minister, we could have the officers from program 1 and program 2.

Senator SCHACHT --Or you can sit it out if you like.

CHAIR --For those programs remaining, we will be resuming at 9 o'clock on Thursday morning onwards from program 3.

Senator HOGG --Will we have a minister at that time?

CHAIR --We will have a minister. Thank you very much to those officers who have been in attendance.

Sitting suspended from 9.30 p.m. to 9.46 p.m.

[9.46 p.m.]

CHAIR --The committee will resume and I will call for further general questions.

Senator HOGG --My question relates to page 24--I think this may have been covered elsewhere--and the heading `Provision for productivity based pay increase and Defence Reform Program transition costs' at the top of the page. I think you said that when you have undertaken negotiations you will break down that figure for us. Also, I notice that that heading occurs further down the page as well.

Mr Lewincamp --Yes; one relates to Service salaries and the other to civilian salaries.

Senator HOGG --Under the civilian salaries there is an item for the recruitment and placement of 380 trainee administrative service officers. I notice that that is spread across several programs throughout.

Mr Lewincamp --Yes, it is.

Senator HOGG --I could not pick up what it was actually for and what it was about.

Mr Lewincamp --You might recall last year that when we made $125 million savings in administrative expenses by shedding 1,200 civilian staff, there was an offsetting increase in staff of 380 to continue to maintain a throughput of trainees in order to meet some of the government's broader trainee programs and also to provide a pool of expertise at more junior levels within the department. We made a commitment there to fund 380 trainees per year out of those administrative savings.

The figure that you see here is the net difference between the first year last year which is a half-year effect and a full-year effect this year. The overall costs are some $8 1/2 million per year of that initiative and that is being funded from the savings initiatives made last year.

Senator HOGG --And that is allocated by program?

Mr Lewincamp --We have made an allocation to programs of the target of trainees that they should recruit.

Senator HOGG --Those 380 trainee administrative service officers are additional staff?

Mr Lewincamp --Yes, they are.

Senator HOGG --That then takes me to the bottom of the page where there is an item--`Non-recurrence of voluntary redundancy payments in 1996-97 associated with the Government directed reduction. . . ' Is that an additional saving?

Mr Lewincamp --No. When we started the $125 million administrative savings last year, you might recall the target was to make 600 civilian savings in the first year and 600 in the second year because of the defence efficiency review and reform program coming in. We accelerated that process and the cost to the department during 1996-97 was some $46 million. We achieved redundancies of some 1,000 to 1,100 so we almost achieved the 1,200 program within one year. This variation here reflects the fact that we do not have to fund that again this year, so it is minus $46 million of what we spent last year, in effect.

Senator HOGG --I move to page 25 and the Army program- specific heading of `Increased provision for military training--$7.277 million.' Are questions about that best asked when we deal with Army?

Mr Lewincamp --In general terms I can say that it reflects an increase in training associated with the decision to move 1,000 military personnel from the enabling force to the combat force. That is under the restructuring of the army initiative and its increased requirements in both individual and collective training.

Senator HOGG --Then further down there is the increased provision for activity based management initiatives in navy--$1.887 million.

Mr Lewincamp --Yes, there is. Navy has had an activity-based management program going for some time. This figure is the difference between the cost in 1996-97 and 1997-98. The increase is primarily associated with the employment of consultants on the project.

Senator HOGG --How does that project sit then with the DRP that is going on? I am not exactly certain what the project is.

Mr Lewincamp --For that detail I think you will need to talk to someone in the navy program. I think the deputy chief of navy can answer that when the navy program comes up. Senator, while you are looking for your next question I can answer that earlier question on compensation and legal expenses. I think, Senator Schacht, you asked me the difference between the budget estimate and the forecast outcome of some $29 million. Some $22 million of that is associated with the CODOCK expenses and the settlement of that dispute.

Senator SCHACHT --The what?

Mr Lewincamp --The Cockatoo Island Dockyard.

Senator SCHACHT --Legal expenses?

Mr Lewincamp --Yes. There was a legal case with Cockatoo resulting from the cessation of Oberon refit work back in 1991 or 1992; and there was the settlement of that. You will see the figure in fact on page 26, near the bottom of the page, under `Compensation and Legal'. It is $22.248 million, the second last item on the page. That is the principal part of the increase.

The other $6 million of the increase was associated with increased compensation costs in general across the three services. That arises because of a publicity campaign we had in 1994 about the entitlement to compensation and suggesting to people that they should claim before they leave the ADF rather than afterwards. The second reason was that there was a change to the legislation in 1994 which precluded people from claiming under the Veterans' Entitlements Act and--

Senator SCHACHT --You mean it was cheaper in the long run?

Mr Lewincamp --The responsibility for payment shifted from the Department of Veterans' Affairs to the Department of Defence. Those two factors together have resulted in an increase in compensation and legal costs over the last two to three years.

Senator SCHACHT --Could you just give me a bit more information, because I have been out of the loop for several years, about the background to this settlement of the Cockatoo Island--$22 million?

Mr Lewincamp --Could I ask that you do that in the acquisition program?

Senator SCHACHT --Okay, I will.

Senator HOGG --My next question goes to page 26, the second point from the top, `The reduced provision for travel, training and other administrative expenses.' It is listed as $4.281 million. It says `due to reduced personnel numbers and other efficiency measures'. If I remember, last year in the PBS there were claims that there were going to be substantial savings made, particularly in the travel area. Is that the saving there?

Mr Lewincamp --No, this is on top of last year. The ones made last year were in our budget and in the forecast outcome for 1996-97, so they have already been achieved and this is a further saving as a result--

Senator HOGG --They have been achieved, so we will pick that up when we see the annual report?

Mr Lewincamp --Yes.

Senator HOGG --Or can we pick that up in here?

Mr Lewincamp --If you turn to page 37, table 8, that gives you an indication of the ongoing administrative savings being made first in 1996-97 but being made from now on in those areas. So, the $4 million you see back in the table you refer to is additional to that.

Senator HOGG --But it says there that it is a reduced provision.

Mr Lewincamp --That is right, it is a reduced provision in 1997-98 compared with that in 1996-97.

Senator HOGG --On the next page, page 27, under the heading `Major Capital--provision for new major equipment projects', the figure is $19.836 million. What is that?

Mr Lewincamp --That is a provision for not yet approved projects that are still awaiting government approval.

Senator HOGG --So one can only assume that that is a fairly accurate or reasonable figure.

Mr Lewincamp --That is a reasonable figure. It ranges across eight or 10 projects. Clearly, I cannot give you details of those.

Senator HOGG --No, I understand that.

Senator SCHACHT --You said before that you were a bit cautious about talking about future projects in the communications area because it could affect the commercial sector and what price they might be willing to give, et cetera. I notice here in the same area that Senator Hogg has just been mentioning it has `Major Capital--Projects not yet at contract such as Lead in Fighter and Seahawk Upgrade' and the figure is $60 million. If they are not at contract, how can you be confident that the $60 million figure is going to be the one they sign up on?

Mr Lewincamp --First of all, the $60 million figure is the variation between 1996-97 and 1997-98. So it is not the total figure.

Senator SCHACHT --Sorry, it is not the total figure, it is the variation.

Mr Lewincamp --Clearly, when we go into those contract negotiations we have a preferred schedule of expenditure, or an estimated schedule, and we have to base our planning around that. If there are variations resulting from actual contract signatures--

Senator SCHACHT --So you publish here the $60 million as the variation. It has gone up $60 million compared with the previous year.

Mr Lewincamp --Yes, that is right.

Senator SCHACHT --Can we work out from another table when it goes up $60 million what the figure will finally be, roughly?

Mr Lewincamp --You probably could but from that figure you would not get an idea of how many projects are covered by that category and what the specific amounts for each project are.

Senator SCHACHT --So you deliberately lump them together to create some confusion.

Mr Lewincamp --You might think that!

Senator SCHACHT --I do think that, and I was about to congratulate you for doing it. And the item `Projects at contract such as ANZAC Ships and P3C Update' is down $95 million--

Mr Lewincamp --Again, it is the variation. Those are more mature projects that have passed their hump of expenditure and expenditure in 1997-98 is less than 1996-97.

Senator HOGG --What are the other projects there? It just says `Other projects'.

Mr Lewincamp --They are miscellaneous. They are minor variations in a range of projects. Again, without giving details, they are for smaller variations such as the minehunter project.

Senator HOGG --Under the next item under the heading `Program Specific--Reclassification of contracted out training costs from Administrative Expenses (Navy)', the variation is a substantial amount.

Mr Lewincamp --It is a question of in which category this contracting out is best presented. If I can refer you back to page 26, the third item from the top, you will find exactly the equivalent figure. We have simply moved it from the category of `Administrative expenses' into `Equipment and stores' where it more appropriately belongs.

Senator HOGG --The next item there is `Increased provision for in-service support for Collins and Anzac ships'. The variation is $9.97 million.

Mr Lewincamp --Again, the variation between years reflects the build-up of the support funding as the classes enter service.

Senator SCHACHT --This whole table is a bit like standing in quicksand because this just shows the variation,--

Mr Lewincamp --Yes, it does.

Senator SCHACHT --it does not actually show the original amount and then what it ends up at. I understand that in a couple of areas you are protecting your contractual negotiating position but, across the board, these pages are really very difficult to get a grip on unless you find somewhere else the actual acquisition project.

Senator MARGETTS --Welcome back to Defence estimates!

Senator SCHACHT --I know; I have been out of it for five years and I have suddenly realised that the world has not changed at all. Governments come and go, but Defence is still the same. All we have done is swapped sides on the table.

Senator Newman --And now you cannot read a book.

Senator SCHACHT --I can read the book--

Senator Newman --I meant you cannot read a book or the racing guide during estimates now. It is the price of being in opposition.

Senator SCHACHT --I never did. I used to get a note sent around to me by Robert Ray saying, `Shut up, stop asking questions, you are an outsider.'

Senator WEST --And when he was a minister he used to get notes sent around the other way saying, `Shut up, let the department answer!'

Senator SCHACHT --I used to do all the answering for the department.

CHAIR --Order! Next question.

Senator HOGG --Could I keep going down that path? Whilst these are variations, and I understand their status, the increased provision for army central manpower information system is $5.15 million. What happened?

Mr Lewincamp --Again, it is a normal project phasing. This is coming more into the implementation phase and the cost is going up.

Senator HOGG --What about the 707 simulator operating costs?

Mr Lewincamp --That has gone up because of slippage in the introduction to service of the simulator, which means that we cannot yet achieve the savings we had programmed. The provision is to fund the 707 operating costs as a result of that.

Senator HOGG --And with project Bluefin?

Mr Lewincamp --That is a project to address deficiencies in the counter-terrorism capability. I prefer not to go into more detail about that.

Senator HOGG --I would not expect you to. What about the RAAF Pearce Base support contract?

Mr Lewincamp --I have no full detail on that, although there are some other elements where CSP savings are captured, but this is the actual contract cost or the increased provision for the contract cost.

Air Vice Marshal Rogers --The increase in the pilot numbers over Pearce necessitated a review of the support contract to look after the increased numbers and throughput there. Those figures represent the renegotiation of the contract.

Senator HOGG --Would it be more appropriate when air force come up to get those numbers?

Air Vice Marshal Rogers --Yes, either that or the CSP program. But air force should be able to answer that, Senator.

Senator SCHACHT --On this general issue, Mr Lewincamp, with these wonderful lists here, on page 29, it says that the Russell redevelopment has gone up by $45 million. Is that because there has been some blow-out and some architect or construction bloke has got it really wrong, or was it just a normal part of the program that is going to be spent over a number of years? And, of course, Salisbury lab complex has gone down $22 million--only because I suspect that is the end of the building program, is it not?

Mr Lewincamp --Yes, that is right.

Senator SCHACHT --Shouldn't these figures be broken into a different level, putting an asterisk next to them saying, `This was what we expected when we started this program, however, with the other ones, where there have been significant changes, it was because something untoward has happened'--like someone has disappeared to the Riviera with all the money, or someone has made a terrible blue in the design and it has not worked out?

Much of these changes are on programs that are actually on line and are doing what we expected them to do when they started two or three years ago. I am finding it very difficult to work out what the estimates is about--whether there has been, shall we say, a stuff-up, compared with ones where genuinely you ought to be given a pat on the back and told, `You got it in on budget, on time' and so on. You have them all mixed in. You have the good, the bad and the ugly in the same--

Senator HOGG --That is why we have no choice but to ask.

Senator SCHACHT --That just means that we have to go through line by line asking what each one means and then you tell us, `That is on line, the project is finishing, it did not do anything further--give it a tick' or, `Oh, this one happened because there was a sudden increase in some new demand that meant that we hadn't budgeted for it.' Do you think I am making a reasonable point about that?

Mr Lewincamp --Yes, I think you do, Senator.

Senator SCHACHT --That is the first agreement I've had all night!

Mr Lewincamp --There is some further information available in appendices six and seven--appendix six, on the capital equipment program, and appendix seven, on the capital facilities expenditure.

Senator WEST --The other confusing thing about that is that section four, which I am looking at, is done back in the old programs, and you have to try to relate that to the new programs.

Mr Lewincamp --No, I am referring to the appendices, and they will be there in every document. The further explanation is under the acquisition program for major equipment. You will find there in prose a more detailed explanation of exactly how the projects are progressing.

Senator SCHACHT --No, that is not true. Under appendices six and seven, it says that current project approval for the ANZAC ship project is $5,063 million.

Mr Lewincamp --Yes.

Senator SCHACHT --This coming year you will spend $438 million. What was the total estimate for the project? Is the $5,063 million what the project was initially estimated to be? What we are trying to get to is whether the project is still on line to be in budget in time. The appendix does not say whether it is or not; it just says that you have approved $5 billion. Next year we are going to spend $438 million, but we do not know whether the budget figure is outside the original estimate; or whether the current approval is a combination of several approvals--which are varied--and which are the original estimate.

Mr Lewincamp --Senator, I agreed earlier that you made a reasonable point, and this document does not answer all of the questions that you are putting forward. I am simply saying that there are two places at which you will get a more detailed explanation--

Senator SCHACHT --Well, you have given me appendix 6--it still has a gap in it.

Mr Frank Lewincamp --The other one is program 9--Acquisition--which goes through each of those projects and gives you a paragraph on progress. Similarly, under the Defence estate, you will find the facilities projects described with a paragraph. All we can do is try next year to give more information on changes in projects scope and approval.

Senator SCHACHT --Well, just show me on appendix nine, where the ANZAC ship--

Mr Lewincamp --Program nine on page 94, ANZAC ship project is the first one covered.

Senator SCHACHT --Yes, but that doesn't give the detail.

Mr Lewincamp --No it doesn't. I have admitted that this document does not give you the detail you seek.

Senator HOGG --That is why I have effectively done this in three parts. This part here, program nine, and then the appendix at the end. Without sitting down and trying to interrelate the three, which is a fairly time-consuming job, I am just dealing with it line by line, in this variations part, so that I might get a feel for where there is something that is abnormal or out of the ordinary.

Mr Lewincamp --I understand. We are required to give the presentation on variations between years as part of the portfolio budget statements process.

Senator SCHACHT --I know. It is those madmen over in Finance and--

Senator HOGG --Well, this is really what the Chair raised at the outset of the meeting, which needs to be put on the Hansard. This is an area that needs to be looked at.

Mr Lewincamp --We will review the process of reporting this for next year.

Senator SCHACHT --I would appreciate that very much, Mr Lewincamp. In the report of the Estimates Committee back to the full Senate chamber, I think this point that I and Senator Hogg have raised, will need to be made. Mr Lewincamp has, in a way, accepted some of the comment we have made--I do not say it is criticism; it is just the structure. No matter how you lay these goddamn documents out, there will always be some problem. If you put everything in them they will be so massive that we will never be able to read them inside five years. But I think that the discussion we have had shows that, in effect, as Senator Hogg has said, we are going to come three different ways at asking a question about the same program.

Mr Lewincamp --That is a unique difficulty I think for this year. From next year, when we have the variations between years reflected in the programs--as they have been previously--you will be able to capture that variation and the project description all within the acquisition program, and we will expand that description along the lines that you mentioned.

Senator SCHACHT --Right. I think once you say that if the project acquisition is in line, on budget and in time, even if it is an enormous amount of money, then you can say, `That is working okay.' It is where the variation takes place--this other list here; you take out the variations because something unusual has happened to change the variation, not that the project has come to an end and therefore it is $45 million less--that ought to be given a tick. It is where, for some reason, there has been a blow-out that you had not anticipated. That is what ought to be explained so that we can ask the question about that, and all those that are good we move on from.

Mr Lewincamp --We will seek a way of presenting that sort of information on each project, so if it is within certain boundaries of what was projected, we do not--

Senator SCHACHT --I have to say that you might find that the finance department might have a different view about that. But I suggest you might say to them that we would find it a bit easier. I think from your side it might be a bit easier too--you would get fewer questions.

Senator HOGG --Maybe to simplify matters I will just nominate them. I think you understand what the question is already.

Senator SCHACHT --Can I just ask a question on these variations. If I put to you now a question on notice to go through these pages--24, 25, 26--and the variations, and asked if you would come back to us at the supplementary hearing with only those variations where it is because of something unusual that happened in the program that there is a variation, rather than the list that includes programs because they have been completed and therefore there is a natural variation, is that a request that would blow your brains and you would say, `God, we have got to have 37 blokes and women running around for a month trying to put that together'?

Mr Lewincamp --It is more a judgmental issue on what you classify as unusual.

Senator HOGG --I can say, just looking at page 28, the third last item, the rescheduling of ship repair and maintenance activities--$16.7 million--that I would be anxious to find out why that large variation is there.

Senator SCHACHT --$16.748 million.

Mr Lewincamp --There are major changes that relate to a reduced scope of work for HMAS Melbourne refit, a rescheduling of work packages for the destroyers and part of the HMAS Adelaide refit moving into 1998-99.

Senator HOGG --Is that deferral going to affect their operational capacity?

Mr Lewincamp --That is a question for Navy.

Senator SCHACHT --That is one I would leave in, because there has been a significant change to the program--deferral off to another year et cetera. But if I take the Russell redevelopment, which is plus $45 million, that is a program that had been announced and that is within that program budget.

Mr Lewincamp --It is. The project is on schedule and it is within budget.

Senator SCHACHT --Yes; therefore I do not see that as a variation that is worthy of comment other than to say, `Well done.' Most of those in capital facilities, going from Russell down to APIN stage 1--what does APIN stand for?

Mr Lewincamp --Army presence in the north.

Senator SCHACHT --Are any of those unusual, outside of budget, or are they either coming to their conclusion or just winding up and that is why there are either big increases or quite substantial decreases?

Mr Lewincamp --I do not believe so, but I will take that on notice for the supplementary hearing.

Senator SCHACHT --Can I leave it with you? I do not want to unduly create labour or work, but if you could go through and say, `That is a reasonable request that we can meet, with reasonable preparation, of what are not unusual things that have occurred.'

Mr Lewincamp --We can do that, yes.

Senator SCHACHT --Okay.

Senator WEST --Page 29 talks about the non-recurrence of lease fit-out expenditure at Fyshwick, Dubbo and Nowra. What is the Dubbo one? Maybe that is something that should be in defence estate.

Mr Lewincamp --Yes, the defence recruiting centre shopfront.

Senator WEST --Thank you. Also on that page, under defence housing, there is a variation of $8 million, which is due to the change in the Defence Housing Authority's monthly billing. Would you like me to ask that in personnel executive?

Mr Lewincamp --No, I can answer that. We changed the date of the monthly rental payments to the Defence Housing Authority from the middle of the month to the end of the month. That was to align the payments more with peaks in Commonwealth balances and therefore minimising the government's borrowing requirement. By doing that, we had to pay an extra half month within this financial year, which meant we made 12 1/2 payments. That is the extra $8 million.

Senator WEST --What does this do to personnel?

Mr Lewincamp --It does nothing. It is when we pay the bill to the Defence Housing Authority.

Senator WEST --It has no impact upon people?

Mr Lewincamp --It has no impact upon personnel.

Senator HOGG --The next item there deals with the variation in the number and cost of DHA houses on which defence pays rent. What has been the variation?

Mr Lewincamp --There is a small reduction in the number of DHA houses on which we will pay rent. A reduction of 300 from some 20,900 to 20,600. It is offset, in part, by the increase cost of the housing as a result of the revaluation that occurred in January 1997. The net effect is the reduction of minus 1.2 million.

Senator HOGG --What has brought about that reduction?

Mr Lewincamp --Reduced demand.

Senator HOGG --Let us go back to page 28, the second box from the bottom. There is a non-recurrence of payment there for the West Dock crane.

Mr Lewincamp --Yes. The West Dock crane was paid for in two instalments, one in 1995-96 and one in 1996-97. That completed the purchase, and this is the reflection of the difference between--

Senator HOGG --So it is a project that has come to its end?

Mr Lewincamp --It is completed.

Senator SCHACHT --Why is it here? The crane has not fallen over; it is delivering and it is working.

Mr Lewincamp --I would be delighted not to have to report on the all of these.

Senator SCHACHT --Is this a request from the previous estimates committee, the way it is laid out, or has this come from Finance under its rules for discussion with senate committees generally?

Mr Lewincamp --Part of the general rule is that we have to be able to explain the difference in expenditure between the previous year and the budget estimate for this year. Normally we do that, as you know, by program and we do not go into a detailed portfolio variation. But, because of the structural change this time, we are unable to do that. So we have done it as a single portfolio variation table. It does make it more complex but it was the only way we could capture for you the variation.

Senator SCHACHT --Yes, but when you get down to the bottom of page 29, the total defence appropriation variation is $332 million.

Mr Lewincamp --Yes, that is right.

Senator SCHACHT --But it is not a variation created by inefficiency and competence at all. It is a mixture.

Mr Lewincamp --That is right.

Senator SCHACHT --Can you tell us the ones where there has been incompetence?

Mr Lewincamp --How long have you got?

Senator SCHACHT --That is the obvious question it leads to.

Mr Lewincamp --Yes, it is.

Senator SCHACHT --It is where something unusual has occurred. It is not really incompetence, just that things have occurred that means there is a change that you could not have predicted 12 months ago.

Mr Lewincamp --There a number there. I will do my best to cull that list for the supplementary hearing and provide that information.

Senator HOGG --Can I take you now to the top of page 30?

Senator WEST --Before we go to page 30, at the bottom of page 29 there are payments to ASTAAS. Have we sold ASTAAS?

Mr Lewincamp --Yes.

Senator WEST --Have we sold Avalon or are we leasing it?

Mr Lewincamp --Where it says `reduced provision', it should actually be non-recurrence of the provision. Again, that was the provision in 1996-97. There will be no expense incurred.

Senator SCHACHT --Yes, and it has just finished.

Mr Lewincamp --Yes, it has finished.

Senator WEST --Is there a positive somewhere for Defence due to the fact that Avalon Airport at Geelong has been leased out? Has it been leased out?

Mr Lewincamp --I believe it has been.

Senator WEST --That is the one that Fox has got with--

Mr Lewincamp --As I recall, the Deputy Secretary, Acquisitions, answered some questions on this at the previous hearings.

Senator WEST --There should be a positive coming in somewhere--maybe not to Defence's coffers but to somebody's coffers.

Mr Lewincamp --It is not to ours. I would think it is to the Department of Finance.

Senator WEST --The head behind you is saying that it is not to yours.

Mr Lewincamp --No, it is certainly not.

Senator WEST --That is a bit rude, isn't it?

Mr Lewincamp --That is the way these things work.

Senator HOGG --At the top of page 30 there is an item there--`Increase in retention benefits due to expected increase in the number of members taking up the benefit'--of $2.388 million.

Mr Lewincamp --As you are probably aware, the MSB Act includes a provision for a retention benefit to be paid to ADF members of a certain rank when they reach 15 years of continuous service, if they give an undertaking that they will continue to serve up to the 20-year point. This is our estimate of the increased take-up of that in the current climate. We expect an increase in the take-up and this is the increase. The actual level in 1996-97 was $18 million. This is one where I can give you the actual difference. The figure in 1997-98 will be $20.4 million.

Senator WEST --Is that just for officers or is it for NCOs and other ranks?

Mr Lewincamp --It is for both. It is for those officers who have reached the rank of major equivalent or for NCOs who have reached the rank of sergeant equivalent.

Senator HOGG --How will that affect the DRP program that you have got going?

Senator WEST --That is somewhat like a five-year return of service for payment, is it not?

Mr Lewincamp --That is right; although, there is a method of a partial payment if the compulsory retiring age is reached within that five-year period. Those people who are contemplating redundancy would not, of course, be eligible for this benefit.

Senator HOGG --So you will really have to have your lists sorted out before you know who is actually going to access that?

Mr Lewincamp --Yes.

Air Vice Marshal Rogers --When we brought the new MSBS system in, it was attractive to the younger members of the Defence Force because they had portability, and they had the things that were brought in by the previous government in relation to superannuation. The MSBS gave them the opportunity to be portable, to take their superannuation with them. As Mr Lewincamp said, we make estimates, as the numbers of people get towards the 15-year point in both the squadron leader level and the sergeant level, to anticipate those people who will stay and take the benefit. I would anticipate that that number may get a little bigger each year, as we have more people in the MSBS system.

Mr Lewincamp --As the people in the system get older, more reach the 15-year point and can take up the benefit.

Senator WEST --That is not an indication that you are getting a whole stack staying on longer than you would actually want them to be staying on, and there are less positions down the bottom to be--

Air Vice Marshal Rogers --Less in the DFRDB system and more in the MSBS. It is compulsory when you join to join the MSBS system.

Senator WEST --But this is not for MSBS people, is it?

Air Vice Marshal Rogers --Yes, it is.

Senator WEST --I may have misunderstood you in the first place.

Senator HOGG --On the next page, page 31, under `Defence property disposals', there are a number of properties listed and increased proceeds. It has a figure of $19.6 million, variation.

Senator WEST --Less.

Senator SCHACHT --It says, `increased proceeds.' It is less $19 million.

Mr Lewincamp --It is a receipt.

Senator HOGG --So it is a negative figure.

Mr Lewincamp --In the receipt column, all the signs are reversed so it is an increase. The estimated outcome for asset sales in 1996-97 was $69 million. We are estimating $89 million in 1997-98 and this is the difference.

Senator HOGG --So can we have the breakup by property?

Mr Lewincamp --I am not sure. We had better ask Defence Estate tomorrow, although that would rather foreshadow our hand on what we expect the property to fetch.

Senator HOGG --I am sorry. These have not been sold?

Mr Lewincamp --No. It is the estimate for the coming year.

Senator HOGG --What has led to that estimate--that increased proceeds?

Mr Lewincamp --It is $89 million in total for 1997-98.

Senator HOGG --No. What has led to the improved expected value return from the properties? Is there an upturn in the property market?

Mr Lewincamp --Again, you would have to ask Defence Estate that question.

Senator WEST --None of them is obviously in Canberra.

Senator SCHACHT --I just want to get this correct. In the defence property disposals, compared with this coming year, you will get $19 million less from the disposal.

Senator HOGG --More.

Senator SCHACHT --It is a 28 per cent increase. I see. So every time you see a minus on this page--

Mr Lewincamp --On the receipts page, that is an improvement.

Senator SCHACHT --Right. The receipts are halfway down page 30. Sorry, I missed that.

Mr Lewincamp --Yes.

Senator SCHACHT --Now I understand it.

Senator HOGG --On page 31, under `Program Specific', second point down, it mentions the non-recurrence of project refunds and other miscellaneous minor variations, with an amount of nearly $12 million.

Mr Lewincamp --This is related to some intelligence projects, and I am unable to give you any more information about those.

Senator HOGG --Thank you.

Senator SCHACHT --Which one is that one?

Senator HOGG --The second point down.

Senator SCHACHT --I suppose you will say the same about the one down near the bottom--the Speakeasy units. Are they the ones commercially sold?

Mr Lewincamp --We would like to sell them commercially, but it is not quite turning out that way.

Senator SCHACHT --I remember at the estimates hearing of Defence six years ago being told that Speakeasy had or could have considerable commercial application and was something that DSTO was reasonably happy with the development of because there was a commercial application of it. Are you telling me now that that has not occurred?

Mr Lewincamp --My briefing says that the prospect of further revenue in the immediate future is considered low and the provision has been reduced to zero for 1997-98. The detail of that--

Senator SCHACHT --Considered low! You are right.

Senator WEST --I think this is one of the ones you were looking for Senator Schacht.

Mr Lewincamp --This is one you will need to ask Defence Headquarters under program 1.

Senator SCHACHT --What about DSTO? Who runs the sale of the Speakeasy in the commercial sector? The money here--the $252,000--is not much. That is actually a reduction, is it not? The receipts have gone done $252,000 for Speakeasy. This is receipts, so that means it is $252,000 less than last year.

Mr Lewincamp --That is right. Down to zero.

Senator SCHACHT --So it has gone to zero now?

Mr Lewincamp --We are not forecasting any receipts for 1997-98.

Senator SCHACHT --And they were the ones that were being sold--the application--on a commercial basis?

Mr Lewincamp --Yes, they were.

Senator SCHACHT --And you have no further information about why that has occurred?

Mr Lewincamp --No, I do not.

Senator SCHACHT --Who do we wait for to tell us this?

Senator Newman --I think this is a pretty clear example of why you really need to ask these sorts of questions in the programs rather than try and deal with them like this. You are really not going to get the specialists in those areas.

Senator SCHACHT --Now that I know it has gone to zero--

Mr Lewincamp --I am informed that it is the acquisitions program that you should direct that question to.

Senator SCHACHT --Acquisitions?

Senator WEST --It does say Defence HQ in the--

Mr Lewincamp --Yes, it does.

Senator WEST --How are we supposed to follow it when--

Senator Newman --Can I suggest that there was a briefing offered to members of the committee ahead of time to clear away some these.

Senator WEST --Yes, Minister, but the briefing was when--

Senator HOGG --No, it was quite different.

Senator WEST --The briefing was actually when some people had to be in the chair, too, so people had other commitments.

Senator Newman --That was the sort of thing that was given to the opposition in the past.

Senator HOGG --It was not what was canvassed at the briefing, Minister. I happened to be there--

Senator Newman --But you could have raised those things if you had chosen to.

Senator HOGG --No.

Senator Newman --It is a very handy thing to get a whole lot of the nuts and bolts sort of financial information out of the way. You should try and do it in the future, and I am advising you.

Senator SCHACHT --We will take it up under acquisitions.

Senator Newman --Why do you not avail yourself of it?

Senator WEST --I would not have thought to ask this one at that sort of briefing because after it it has Defence HQ. I would therefore have done as Mr Lewincamp has done and said that it is defence headquarters because it is designated there. When the designation slips up, God help me.

Mr Lewincamp --This simply reflects the fact that we had to prepare this document within three weeks of the announcement of the reform program and it was our best attempt but, in this case, we got it wrong.

Senator WEST --That is fine.

Senator SCHACHT --In the same column there is, in program specific on page 31, the reduction in receipts from Telstra refund, $1.9 million, which it says is under corporate support. Do you have any further information before we get to corporate support about why Telstra's refund has dropped off? Is this a refund from Telstra because they overcharged you for telephone systems and communications systems? Did they get their billing wrong?

Mr Lewincamp --No. What we did was to make a pre-payment to Telstra in 1995-96 and therefore got a discount on our account in 1996-97. That is not happening this year.

Senator SCHACHT --Was that to do with JORN?

Mr Lewincamp --No, it was just a pre-payment on our normal telephone account.

Senator SCHACHT --It is on the telephone account.

Mr Lewincamp --Yes. It is the corporate support area.

Senator SCHACHT --While I am on telephone accounts, certainly from 1 July this year we have open competition in the telecommunications system. Are you going to put out for tender the telephone communications and telephony data business that the carriers can provide and get them to compete in providing you with a more competitive price?

Mr Lewincamp --That is a question that you should direct to the corporate support area. That is not part of my responsibility.

Senator HOGG --Before we get off page 31, in the third item down in program specific: the non-recurrence of project refunds in 1996-97 is $7.7 million?

Mr Lewincamp --Again, that relates to a classified project receipt.

Senator SCHACHT --Which one does?

Mr Lewincamp --The $7.7 million.

Senator SCHACHT --Can we get that covered in a private briefing, Minister?

Senator Newman --You can ask for whatever you like in a private briefing. It is what suits you; it is being offered.

Senator SCHACHT --I will probably read it in some defence journal next week anyway.

Senator HOGG --Over the next page 32, in the first box at the top it talks of the impact of the one per cent efficiency initiative. Were you required to apply the one per cent efficiency initiative?

Mr Lewincamp --We were in last year's budget. The government applied an efficiency dividend to all Commonwealth Owned Purpose Outlays--COPOs--and the Young Endeavour is the only one we have in that category.

Senator HOGG --What about in general? Have you been required to apply an efficiency dividend this year?

Mr Lewincamp --No, we have not, although when the government imposed the administrative savings on us last year at $125 million per annum in running costs, that represented some six per cent of running costs. They took that to be the equivalent of the efficiency dividend. I guess the difference for us is that we were able to redirect that towards other activities within defence rather than offer it up to the budget.

Senator WEST --Can I ask on that page about the DFRDB expenditure and the provision of new pensions of $34 million? I am taking it that that is not a receipt.

Mr Lewincamp --A five per cent increase to some 47,700.

Senator WEST --People or dollars?

Mr Lewincamp --People.

Senator SCHACHT --Forty-seven thousand people on the pension.

Senator WEST --The DFRDB is one of the old schemes, isn't it?

Mr Lewincamp --Yes.

Senator WEST --It ceased 10 years ago?

Air Vice Marshal Rogers --The system is still going.

Senator WEST --There would be some of you still--

Air Vice Marshal Rogers --The younger ones obviously, yes.

Mr Lewincamp --We still have a number of people retiring now who are under the DFRDB scheme.

Senator WEST --And because they have been in for significant lengths of time they would have risen up the ranks and therefore be on reasonable payouts, too.

Mr Lewincamp --Yes. So the number of pensions in the scheme is still increasing at the moment; and that will take some years to turn around.

Senator WEST --When do you expect them actuarially to start to turn around and decline?

Mr Lewincamp --I do not have that figure.

Mr Neumann --From memory we have about 19,000 of the DFRDB people who are still members of it; that is not pensioners, that is contributory members. I think the rate is going out at about 2,000 a year at the moment. You have a fair while to go.

Senator WEST --Another 10 years or so?

Mr Neumann --Yes. The scheme itself was closed in 1991. The youngest member now has five or six years service, but they could keep on in an ADF career and say do another 30 years. In terms of pension it is probably longer.

Senator WEST --I hope so. So it could be 50 years or more before you finish paying this one out.

Mr Neumann --Yes, we still have members of the previous scheme, the DFRB scheme of 1948. We still have pensions from there.

Senator SCHACHT --Can I ask a question on page 33, tables 5A and 5B. I presume, if I read this correctly, two tables show the old program structure and table 5B is the new program structure as a result of the efficiency review?

Mr Lewincamp --That is correct.

Senator SCHACHT --On personnel numbers, `Forces Executive' was 2,988 people and `Defence Headquarters' has 1,076. How many of those 2,988 have gone to Defence headquarters, how many of those have gone to each of the service chiefs areas and so on? You might want to take this on notice. How many have just been abolished?

Mr Lewincamp --We are unable to provide those figures because what is happening at the moment under the Defence reform program is that we are validating the allocation of resources and personnel into the new program structure. We are still some weeks away from completing that properly, including the complete tracking from the old program to the new program. For example, the almost 3,000 forces in the executive included almost 1,700 in the old program 1.5 Corporate Support. There were 700 in personnel. Those people will be going to a range of programs in the new program structure and we do not yet have that mapped in--

Senator SCHACHT --You do not have the detail yet worked out--the positions that disappear, the staff who disappear and those who are reallocated? There is not actually a black hole that they are falling into, it is just the fact that administratively you do not have the detail together?

Mr Lewincamp --That is correct.

Senator WEST --What about the next three under Forces Executive--the navy, army and air force? There is not a great deal of opportunity for them to go some place else if they do not--

Senator SCHACHT --Eighteen thousand to 11,000.

Senator WEST --Eighteen thousand to 11,000, 54,000 to 44,000 and 19,000 to 13,000.

Mr Tonkin --There are quite a number of places where those personnel could go. The first point I would make is that the staffing numbers you see in both programs are service and civilian numbers combined. In the new structure, elements of each of those service programs, for example, will be transferred to the support command, educational training, joint education and training, the personnel executive, defence of state, corporate information or corporate support.

So there are quite a number of places. What we are doing is taking functions which were done by each of the three services, and by other programs which are of an enabling nature, and consolidating those functions so there is a fair shift. As we go through the process in very fine detail baselining our organisation as to what the functions were and how many, the next step is to track those numbers as they used to be from the old structure to the new structure and then apply the savings initiatives to that new structure to work out when and how we harvest the required efficiency measures. This is quite a complex exercise. If you think these tables are interesting you should see some of those.

Senator WEST --A very interesting spreadsheet, I would think.

Senator HOGG --Does this mean we are going to get revised tables which will replace the bottom table at least?

Mr Tonkin --Yes, certainly, the table--

Senator HOGG --When do you see that being available?

Mr Tonkin --By additional estimates.

Senator WEST --Will there be a table somewhere that says how many are actually in uniform and how many are not?

Mr Tonkin --Yes, the details further on would show you how many are in uniform and civilians for each program.

Mr Lewincamp --With Table 5-A, the break-out of that is at section 4. With Table 5-B, the break-out is in section 2 of the document by program, and it shows you the break-out.

Senator SCHACHT --What is section 2?

Mr Lewincamp --Section 2 is the new program structure, program descriptions, on page 39.

Senator SCHACHT --That is the 14 programs. But you will be able, by the supplementary estimates, to say where the forces executive of 2,988 went amongst the 14 programs?

Mr Lewincamp --At additional estimates, not at supplementary estimates.

Senator SCHACHT --In October, and you hope not to lose anybody on the way through.

Mr Lewincamp --Well, we hope to lose some.

Senator SCHACHT --No, no, deliberately lose some. We will not find that in October suddenly somebody discovers, and puts it on A Current Affair, that there is a unit of 57 people based at Wagga West that have never been moved anywhere and have just gradually--

Mr Tonkin --We are endeavouring to find all such organisations.

Senator SCHACHT --Have you got the intelligence people on to that?

CHAIR --Next question, Senator. Do we have any more questions on the overview?

Senator HOGG --On page 37, Table 8, `Budget and forward estimates impact of administrative savings', I thought you said we could get some sort of breakup of those figures there. Is that correct?

Mr Lewincamp --I do not recall saying that.

Senator HOGG --That is what I am asking. There is a figure there of $67.36 million on administrative expenses.

Mr Lewincamp --That is a combination of things. There is an impost on each of the programs simply to come up with a certain level of administrative expense savings. There were targeted savings in areas such as travel. Would you like a break-out of that figure?

Senator HOGG --I do not want to put you people to too much work unnecessarily. I am interested in the travel, and that is where it came up before.

Mr Tonkin --Given the way we administer our budget by programs, it is really up to the discretion of each program in most cases how they are to achieve their share of these savings and we do not tend to track individual sub-elements. We do not track centrally the sub-elements--

Senator HOGG --You just siphon all their savings off and put them in one basket, you do not worry about the component elements?

Mr Tonkin --No. It is their choice as to how. If the program was given a target to reduce their cash limit of administrative expenses by a certain figure, unless there was some specific initiative embedded in that, then it would be the program's management decision and choice how they would derive those savings or reductions. We harvest it and redirect it.

Mr Lewincamp --We reduce the allocation we give them in administrative expenses. We force the saving and then it is up to them how they make it.

Senator HOGG --That is more or less an academic exercise for you rather than being something that you--

Mr Lewincamp --It is a real saving. I am not sure about the characterisation as an academic exercise.

Senator HOGG --It is an academic exercise in that it is up to the individual programs to monitor and run that and achieve those savings.

Mr Lewincamp --We do it by a reduced allocation to them.

Mr Tonkin --The limitation applied to programs was that those administrative savings would be achieved without detriment to defence capability. There were broad policy bounds put upon how the savings were to be reduced. You could not reduce administrative expenses by reducing some activity which was related to defence capability. The aim was to target it truly at the support elements of all the programs. In apportioning the reductions by programs, we have attempted--I am sure some of my colleagues would perhaps disagree with the success or otherwise of that attempt--to focus the savings by program on those elements which were of an enabling and supportive nature rather than capability related.

Senator HOGG --How do you know that the defence capacity is not affected by your proposed savings?

Mr Tonkin --That is a matter for the management responsibilities of each of the program managers to achieve.

Senator HOGG --You don't actually physically check that yourselves?

Mr Tonkin --In the case of the defence force, they then have to do their annual assessment of how well they are performing against their preparedness requirements, exercise tasking and so on. If there were a deficiency, it would show up in the annual reporting process.

Senator WEST --On general questions, where would you like us to ask a few questions about the travel carrier for the ADF?

Mr Tonkin --Preferably in corporate support.

Senator WEST --What about the National Aerospace Museum?

Mr Tonkin --Defence Estate. You might start that in air force.

Senator SCHACHT --Table 10, on page 38 is entitled `Initiatives to be funded by the redirection of $125 million per annum administrative savings.' Can you explain to me why: in 1996-97 it adds up to $150 million and, in 1997-98 it adds up to $241 million and, over the five-year defence program, it adds up to $829 million? I may have simply misread something and there may be a simple explanation. If you say that the initiatives are to be funded by the redirection of $125 million per annum, why does the figure not add up to $125 million?

Mr Lewincamp --The explanation is in the paragraph underneath the table. In very simple terms, in 1996-97 we had projects there worth a total $150 million just to make sure that we got at least a $125 million saving, because it is a little difficult, particularly with our major equipment acquisition--

Senator SCHACHT --It is overprogramming to ensure it was right.

Mr Lewincamp --It is overprogramming to make sure that we achieve the appropriate level of expenditure. Similarly, in the following years, a range of those projects are related to acquisition. We are not sure about the actual achievability of the timing associated with them. We will manage that and we will incur expenditure well in excess of $125 million. Some of those projects will be funded out of the investment program funds. We have used the $125 million to work towards those projects, but they were not funded in full. We will ensure that in each year we achieve at least $125 million savings, and that we spend that money wisely.

Senator SCHACHT --Yes. Where does the other $25 million come from?

Mr Lewincamp --From redirection of other portfolio funds.

Senator SCHACHT --Is it not a saving but a redirection?

Mr Lewincamp --Yes, at the moment we are estimating actual expenditure in 1996-97 of somewhere around $142 million or $144 million, against that $150 million.

Senator SCHACHT --I see. With the programs you have targeted to get this extra $25 million to get to $150 million, you have saved $125 million, you have redirected it in the areas listed there, and if you are going to meet the $150 million, you have got to find another $25 million.

Mr Lewincamp --It is part of the normal cash management process within a budget the size of ours.

Senator SCHACHT --I suppose most of us are used to other departments. I think a cash flow of $25 million is a major and extraordinary amount of money. I know in Defence it is equivalent to the stamp money and the tea money passing through on a Sunday afternoon.

Mr Lewincamp --Not quite, but it can be a small part of a major project shifting expenditure from one--

Senator SCHACHT --So you would juggle the cash flow.

Mr Lewincamp --Exactly.

Senator SCHACHT --I see. I think if you actually used the phrase `cash flow' there I might have understood it.

Mr Lewincamp --`Cash management technique' is the phrase we used in the paragraph.

Senator SCHACHT --I see. I understand now. As soon as you say cash flow, I know you are doing it.

CHAIR --Are there any further general questions?

Senator WEST --I think we are just about ready for program 1.

CHAIR --Yes or no? Are there any further general questions? I am still waiting.

Senator SCHACHT --I think that is about it.

CHAIR --Let us start on program 1.

[10.51 p.m.]