Senator CAMPBELL (Parliamentary Secretary to the Minister for the Environment and Parliamentary Secretary to the Minister for Sport, Territories and Local Government)(3.37 p.m.) —I seek leave to make a statement on behalf of the Minister for Defence relating to defence policy initiatives, to incorporate the statement in Hansard and to move a motion to take note of the statement and a related document.

Leave granted.

The statement read as follows—

Today I am announcing two major initiatives in Defence policy designed to increase the combat capability of the Army and the efficiency and effectiveness of the whole Defence organisation.

These measures are designed to build an Australian Defence Force better able to meet the security challenges of the next few decades.

No area of government is more important than maintaining Australia's defence and security. The speed and scale of change in the post-Cold War era means there is a constant need to reassess our defence posture and capabilities.

The Government's commitment to defence

The Coalition went to the March 1996 election with clear-cut defence commitments: we said we would keep Defence spending at projected levels and protect the forces from budget cuts.

And we said we would increase spending on the combat elements of the forces by cutting administration and non-combat activities.

In both cases that is exactly what we are doing.

We quarantined the Defence Force from the other spending cuts we had to make to bring down the deficit inherited from Labor. But at 1.9 per cent, Defence spending is at its lowest as a percentage of GDP since 1938-39.

At $10.2 billion the 1996-97 Defence budget was in keeping with the previous government's spending plan. However, we required $125 million a year for the next three years to be cut from administration and directed towards improving combat capabilities, training and readiness and personnel retention measures.

While these steps were necessary, by themselves they do not go far enough to address pressing financial and capability problems in Defence.

In order to maintain and increase the forces' very high level of capability; in order to arm them with the most effective technology; in order to develop the most streamlined command and control procedures; we need to look at how Defence is structured and how efficiently it is managed.

Quite simply, we cannot countenance inefficiency in the Defence organisation. Every dollar spent inefficiently is one we cannot use for improving our forces.

Planning for change

The Government's first initiative is called Restructuring the Australian Army.

The Army's assessment of its current position is that deficiencies in its structure, training and equipment put barriers in the way of its ability to respond quickly and effectively to defence emergencies.

This plan will make the Army more responsive, more mobile, better trained and better equipped to handle a wide range of military contingencies—- from the defence of Australia to offshore operations.

Restructuring the Australian Army

The Task

Our key defence aim is to develop forces with the capability to defeat any attack against Australian interests.

The defence of our air and sea approaches, and our ability to contribute to offshore operations, calls for a maritime focus for Defence.

But the Australian Army plays an essential role both in plans for the defence of Australian territory and in possible contributions overseas.

The Army of the future must be capable of performing a more diverse range of missions, with the firepower, mobility and ready access to information required on the future battlefield.

The Challenge

The Army's advice—- as well as the advice from military and civilian heads from the rest of Defence—- is that its present structure is not well suited to Australia's defence needs.

Some Army units are not adequately prepared for combat. In some circumstances the Army lacks sufficient combat power to quickly end conflict on terms favourable to us.

Some Army units suffer from shortages of trained personnel and insufficient equipment. Elements of the force are hollow. While the current structure provides a framework for expansion, it would require substantial warning time and financial expenditure to mobilise for major conflict.

There are insufficient night fighting devices, command and control aids and mobility available for widely dispersed, mobile operations on the modern battlefield where high precision weapons may be used.

The present Army structure is inadequate to meet the demands of widespread concurrent operations. The divisional structure brings together combat elements such as infantry, armour, artillery and engineers into separate organisations with their own command structures.

This arrangement was suitable for the concentrated battlefields of World War Two but it is not necessarily suited for modern conflict.

There are also shortcomings in the capability and readiness of much of the Army Reserves.

With some exceptions, like the Regional Force Surveillance Units, Reserve units are understaffed, poorly equipped and have low readiness levels.

Reform goals

The Army problems I have described did not develop overnight. They are the result of more than a decade of neglect on the part of the previous government.

I have made a point in recent months of giving credit where it is due when the previous government made worthwhile initiatives. The decisions to acquire Collins submarines and ANZAC frigates, the Commercial Support Program and the commercialisation of Commonwealth defence industries were all valuable reforms.

However, the Army is not one area where credit is due to the previous government. Labor did not seriously address the difficult issue of Army reform.

The Government is therefore setting in train a series of discrete trials for reshaping the Army which are designed to achieve the following goals.

We are aiming to eliminate hollowness in Army units, thereby reducing the overall number of units, and redistributing personnel and equipment so that all established units can deploy within shorter readiness times.

We will increase the number and effectiveness of combat troops by strengthening the contribution of Reservist or Part Time soldiers. Most Reserve personnel will have an initial six weeks full time training. Thereafter, ongoing training will be increased to an average of 50 days per year.

Infantry, armour, artillery and engineers will be integrated into Task Forces. This principle is known as embedding. The resulting forces will be independent and largely self-contained. They will be able to deploy to different regions in Australia and to defend these areas.

We will create a base for adopting new technology to modernise the force. We will develop proposals for acquiring new equipment aimed at increasing the mobility and firepower of the force, including helicopters and fixed wing aircraft and more protected vehicles for infantry mobility.

Higher readiness elements will contain more Full Time personnel. We will ensure that Regular forces will be able to be deployed at short notice.

The application of these principles will of themselves significantly increase Army capability. Capital equipment investment after the year 2000 will be guided by these principles as well as the lessons learned over the next few years, to further strengthen Army capabilities.

The shift from the traditional divisional structure towards flatter and more responsive Task Force structures will create units which will be flexible, capable of a range of independent operations and better able to operate in concert with the Navy and the Air Force.

The reconnaissance, mobility and embedded firepower of the Task Forces should result in a versatile structure able to operate effectively in both widely dispersed and conventional operations. They should also be able to sustain themselves in the field for longer because those elements needed to support and sustain combat elements will be readily available.

The Plan

A number of assumptions underlie the concept I have outlined.

Key among these is that the Reserve component can be expanded, its standard of training increased and readiness improved.

In considering reforms of this scale, the Government has an obligation to ensure that change is introduced gradually and with the confidence that trialling and evaluation will bring.

While we are restructuring, we will retain the Special Air Service Regiment's counter-terrorist capability and the Townsville-based Rapid Deployment Force at existing high levels of readiness. This will ensure that current options to respond to short-notice contingencies are maintained.

Therefore, the Government will trial and evaluate these new Army concepts using selected formations and units. As concepts are proven, they will be more widely applied.

Members may be aware that the plan for Restructuring the Australian Army draws on an internal Defence study called the Army in the 21st Century.

In Restructuring the Australian Army, the Government has sought to achieve a more immediate increase in readiness and capabilities, and has chosen not to reduce the size of Army's full-time combat force.

The Government's plan achieves a prudent balance of reform and evaluation designed both to increase capabilities now, and to lay the foundations for further strengthening after the year 2000.

On this basis the Army has already begun to restructure. The decision to end the Ready Reserve Scheme and to increase Part Time capabilities is an integral part of these changes.

The Army's share of the $125 million annual administrative savings detailed in the Government's election platform will, over the next three years, enhance capabilities including night vision equipment, radios, satellite navigation equipment, laser rangefinders and simulators.

To increase overall readiness, it will be necessary to raise personnel numbers in the combat force. This will be achieved by moving up to one thousand Full Time troops from base support areas into the combat force and by integrating Full and Part Time units.

Planning has commenced to combine the Ready Reserve 6th Brigade and the Part Time 7th Brigade in Queensland into a Task Force to test integration options. Ready Reserve soldiers will transfer to the Full Time Army or join Part Time units in their home state.

The Regular 1st Brigade will continue its move from New South Wales to the Northern Territory. In addition to developing concepts for the defence of the north, the Brigade will trial unit organisation and command arrangements.

The Headquarters of the Reserve 5th Brigade will be moved from Lidcombe to Holsworthy. It will take command of the Full Time combat elements remaining in Sydney after 1st Brigade Headquarters moves to Darwin.

In Sydney the Full Time 4th Battalion will be increased in strength and converted to a Regular commando battalion. This unit will develop a counter-terrorist capability in the longer term.

In Victoria, the Reserve 4th Brigade will have priority for additional resources. There will be a significant increase in Full Time personnel within the 4th Brigade. Part Time recruiting, training and employment practices will be trialled and evaluated in Victoria—- a key activity in defining the most effective ways to revitalise the Reserve force nationally.

The Reserve 9th Brigade, with units located in both South Australia and Tasmania, will receive a small increase in Full and Part Time numbers as a result of the closure of the Ready Reserve Scheme.

The 13th Brigade will be the focus for revitalising Reserve combat units in Western Australia. Within eighteen months, we will raise an integrated Full Time/Part Time battalion in Perth with the addition of a Regular infantry company to the 16th Battalion. Along with the continued presence of the Special Air Service Regiment, this amounts to a major increase in the Army presence in Western Australia.

At the end of this statement I will table a map detailing these changes on a state by state basis.

The approximate cost of these initiatives will be $60 million in 1996-97; $120 million in 1997-98 and $200 million in 1998-99.

These costs will be met from within the Defence budget, reflecting the Army component of savings from our $125 million cuts to administrative costs, savings from the closure of the Ready Reserve Scheme and from reallocations within the Army budget.

The Outcome

By 2000, the Army's capabilities will be significantly enhanced.

The viability of revitalising Part Time Army forces will have been demonstrated in Victoria and southeast Queensland. Full Time personnel will have been redistributed, and a large amount of essential equipment purchased. A substantial strengthening of units will have taken place in Queensland and Western Australia.

We are aiming to create an Army in which structural and technological adaptation is regarded as an essential norm.

Following trial and evaluation, the Army will further modernise after the year 2000 with the introduction of a new range of high technology equipment.

Defence Efficiency Review

The second initiative I am announcing today is to establish a Defence Efficiency Review.

At a time of great financial pressure in Defence, we must ensure that the absolute minimum necessary is spent on administration and that Defence focuses on its core functions.

I have appointed a panel of eminent figures from the public and private sector under the chairmanship of Dr Malcolm McIntosh, Chairman of the CSIRO, to review Defence management and financial practices.

Dr McIntosh has been Chief of Capital Procurement in Defence; Secretary of the Department of Industry, Technology and Commerce; and Chief of Defence Procurement for the United Kingdom Ministry of Defence. He is internationally respected for his expertise in defence policy matters.

Other members of the Senior Review Panel are:

Mr Ian Burgess, Chairman of the AMP Society since 1994;

Mr John Stone, Former Secretary of the Treasury and former Senator for Queensland;

Mr Andrew Michelmore, General Manager for Business Development, Planning and Technology, Western Mining Corporation Resources;

Vice Admiral Robert Walls, Vice Chief of the ADF; and

Dr Richard Brabin Smith, Chief Defence Scientist in charge of the Defence Science and Technology Organisation.

Terms of Reference

The terms of reference for the Review ask Dr McIntosh's Panel to identify key Defence management processes; to assess the efficiency and effectiveness of these processes; and to make reform proposals ensuring that Defence management:

is carried out in the most efficient and effective manner possible;

eliminates duplication between and within Defence programs;

.   takes a rigorous approach to defining `core' and `non-core' business;

.   makes appropriate use of commercialisation options; and'

.   reflects, where appropriate, modern business practices.

I have not given Dr McIntosh a specific savings target; indeed the Review is not a cost-cutting exercise, but rather one designed to ensure that our management processes are as efficient and effective as possible.

I do not want to constrain the work of the Review Panel by setting any savings figure. However I do expect that significant savings will emerge as a result of the Review Panel's reform proposals.

Savings will be retained by Defence and programmed to enhance combat capabilities.

It will not be the role of the Efficiency Review to make recommendations about force structure or strategic outlook, that is something being explored by other areas of the Defence organisation.

It is, however, the role of the Review to examine all major Departmental functions. The Senior Review Panel should test underlying assumptions about current Defence management processes.

I have said to Dr McIntosh that I fully expect that he will find it necessary in some cases to propose fundamental changes to ensure that Defence management is as flexible, efficient and effective as possible to meet future strategic challenges.

In setting up this review I have deliberately refrained from too narrowly defining the areas in which—- or the means by which—- Dr McIntosh's panel should pursue its work.

I have asked the Secretary of Defence, Mr Tony Ayers, and the Chief of the Defence Force, General John Baker, to provide expert senior staff for a Secretariat and for eight or so separate teams comprising both Defence and non-Defence people, each of which will review specific management activities at the direction of the Senior Panel.

The Reform Task

Among the key areas which will be considered for closer review are: capital equipment procurement; personnel management; corporate administration; facilities management and holdings; regional support; industry policy; provision of advice to government; logistics; health and personnel services; recruiting; science; training and financial management.

There will be sufficient flexibility in the review to identify and pursue new areas for investigation should they emerge during the study.

No one should doubt the urgency of this study.

There are a great many things which the Defence organisation does very well. The ADF and civilian bureaucracy has many highly trained, motivated people.

With this skills base, we maintain one of the most formidable and capable military forces in the Asia-Pacific.

But there is no large organisation in the country which cannot be made more efficient through a rigorous external review. My experience is that people in Defence are keen to see this process under way and will work hard to ensure its success.

The Minister for Defence Industry, Science and Personnel and I take this defence reform challenge very seriously. We are sure that the non-Defence and private sector representatives on the Senior Review Panel—- who form the majority of the panel—- will add impetus and a fresh perspective to the process. But I am equally confident that the Defence representatives will give a defining sense of direction to the review.

The Defence budget papers show that some $2 billion of our annual ten billion dollar outlay is spent on areas directly designated as combat forces.

Of the remainder, about $3 billion is spent on new equipment, facilities and the modernisation of ADF capabilities.

That leaves around half of the budget, $5 billion, spent on everything else—- including areas absolutely essential for Defence to function, such as logistic support, intelligence, communications, medical support, industry programs, recruiting costs, everything down to stationery and postage stamps.

The task for the Defence Efficiency Review is to determine what value for money we get from spending in all these areas. I have no doubt that Dr McIntosh's panel will find as many areas of high-quality management as it will find areas in need of reform.

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. I have asked the Senior Review Panel to propose an implementation strategy giving effect to its recommendations.

In developing what are two of the largest and most ambitious reform proposals in this portfolio for some years, it is appropriate for me to record my appreciation of Defence senior management for its work.

The rewards of Restructuring the Australian Army and the Efficiency Review will be the development of a more flexible, efficient and capable defence force—- a defence force better able to protect Australia's interests into the next century.

I table a copy of an explanatory map showing the Army restructuring plan on a state-by-state basis.

Senator CAMPBELL —I table the statement by the Minister for Defence on two major initiatives in defence policy designed to increase the combat facility of the army and the efficiency and effectiveness of the whole defence organisation, together with a copy of an explanatory map showing the Army re structuring plan on a state-by-state basis, and move:

That the Senate take note of the statement and document.