Mr BRUCE SCOTT (1:03 PM) —On behalf of the Joint Standing Committee on Foreign Affairs, Defence and Trade, I present the committee’s report entitled Review of the Defence annual report 2003-04.

Ordered that the report be made a parliamentary paper.

Mr BRUCE SCOTT —I rise to present the review by the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade into the Defence annual report 2003-04. During the period July 2003 to June 2004, Defence has been subject to a range of external and internal challenges. The Defence update 2003 highlighted the changed strategic environment in which the Australian Defence Force, ADF, operates. In particular, the rise of global terrorism and the threat of non-state actors are causing Defence to reassess its capabilities. The new Defence Capability Plan provides detailed information on the capabilities that Defence will acquire during the next 10 years.

Defence has embarked on an ambitious program of reform to its procurement arising from the Kinnaird report. These reforms culminated when the Defence Materiel Organisation, the DMO, became a separate prescribed authority on 1 July 2005, headed by Dr Stephen Gumley. In addition, a Capability Development Group, headed by Lieutenant General David Hurley, has been formed within Defence for the purpose of better defining capability requirements and advising the DMO of specific capability needs. This procurement reform is the first of four topics explored by the committee as part of the review of the Defence annual report 2003-04. The committee found mixed progress on major procurement projects but overall noted significant improvement to the process by which capability requirements are identified and briefed to government.

The committee next reviewed decisions relating to the selection of Australia’s future amphibious capability. This critical capability will serve Australia to the middle of this century and is regarded by Defence as a capability of first resort for contingencies from disaster relief to mid-intensity war fighting. The current Defence Capability Plan states that two large amphibious ships will be purchased to replace Australia’s current amphibious capability. The Australian Strategic Policy Institute, ASPI, has argued that it may be more effective to purchase four smaller amphibious vessels rather than two large ships. The committee notes ASPI’s arguments that a larger number of smaller ships may be more effective in some circumstances but accepts the comprehensive nature of the Navy and Defence analysis, which shows the acquisition of two larger ships to be more efficient in both operational capability and cost-effectiveness over the life of the project. In addition, Defence’s decision to procure two large ships was based on their capacity to embark an Army combined arms battle group and deliver this force ashore more rapidly and effectively than would be possible from smaller platforms.

The management of Defence’s budget continues to be problematical. In part, difficulties stem from the transition to accrual accounting standards, but other procedural and cultural difficulties remain. The Department of Defence is a complex organisation, designed in the first instance to support operational activities such as the deployment of the Al Muthanna Task Group to southern Iraq. However, like other government agencies, Defence must comply with Australian accounting standards and demonstrate transparency and accountability to the parliament. Defence’s budget remains qualified and, while a significant amount of work is being done to rectify these concerns, much room for improvement remains.

Defence’s qualified financial statement and the steps the department is taking to remedy this situation are the third topic examined by the committee report. In its review, the committee notes that the Defence leadership have been particularly frank about the nature and extent of the problems they face and that significant progress has been made on reforms. The committee makes some recommendations in this section intended to assist Defence in prioritising resources while seeking to meet the requirements of the Financial Management Act. These recommendations are based on the need to stratify the data held by Defence to ensure money is not wasted in seeking old audit data that has not been retained.

The final topic examined by the committee was a review of Defence’s capability in humanitarian relief operations. The most recent example of the ADF capacity for relief operations came during the exemplary response to the tsunami on Boxing Day 2004. During the hearing, Defence detailed the extent of its humanitarian relief capabilities and their relationship to Defence’s key war-fighting objectives.

Finally, the committee offers its sympathy to the families and friends of the crew of Sea King Helicopter Shark 02 for the tragic loss of their loved ones in Aceh. The loss of this fine group of service men and women during this period of committee consideration highlights the dangers faced by all ADF personnel and confirms the need to ensure the ADF receives the best equipment and support our nation can afford. (Time expired)