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Thursday, 21 June 2007
Page: 237

Senator MARK BISHOP (9:11 PM) —The incorporated speech read as follows—

The appropriation bills allow us an opportunity to scrutinise the Government’s recent budget.

We can look at macro economic management, as well as at the particulars.

We can also reflect on our findings in all the committees at Senate Estimates.

Today I’d like to do both, but with a focus on the Defence budget.

To put this budget in perspective, it must be said that it’s little more than a statement of accounts.

It’s certainly not a platform of economic reform or a strategy for the future.

Indeed it seems those days are well past. Or are they?

The boom in world economies, I suspect, is masking what we all fear ...

We are living in a lotus land.

Managing the economy is a doddle. It manages itself.

The credit being claimed for economic management is empty spin, taken as gospel as a measure of competence.

It’s nothing of the sort.

In fact, underlying indicators are a serious worry.

At the macro level, current circumstances could never be imagined.

The three levers of economic management have been surrendered.

First interest rates have been delegated to the central bank.

That’s a good idea when there are conservative treasurers around who like to tinker, or who won’t make the right decision in time.

The history of economic management under Tory governments since World War Two has been one of fumbling on that issue.

So there are good reasons for that delegation and it’s probably contributed to economic stability.

Nothing to do with the government, though.

Second, the use of taxation as a control over the economy has also diminished.

Taxation’s now seen as a burden, rather than an economic control device.

Conveniently, the economy’s so strong—as part of the growing international economy—this government’s awash with revenue.

Were it not for the inflationary fear of putting too much cash into the economy, much bigger tax cuts should have been made by now.

The test of this will come of course, if and when economic circumstances turn.

That is, if China sneezes.

Similarly for the third lever, government spending.

It appears government spending has become much less influential in the health of the economy than it once was.

That’s because the private sector is also awash with funds.

It’s always on the look-out for higher levels of return, high income-

producing businesses, or just fat assets to strip.

The recent emergence of private equity funds and investment banks are good examples.

I also note the nature of government investment has changed.

Sometimes, to our detriment.

It’s notable, for example, the government no longer invests in much at all.

Increasingly, budgets are made up of a large proportion of administered funds.

That is, health, welfare and payments to the states for education.

In a narrow sense this is investment, but it doesn’t generate a return on funds.

It’s not capital investment.

For ideological reasons, capital investment is now seen as the prerogative of the private sector.

The equation for the government is all capital investment warrants an economic return.

Otherwise, the investment is not an investment.

But as we know, economic returns from such investments are limited to certain parts of the economy.

That’s why toll roads only get built in high traffic areas of our cities.

That’s why country roads are built by the National Party in the bush.

And unfortunately, that’s why railways and increased water storage don’t get built at all.

Infrastructure investment by government is where it suits the National Party mentality for an “indirect subsidy”.

The old adage is as true today as always.

Socialise your losses and capitalise the gains.

That’s why the budget’s pretty much a non-entity.

There’s little, if any, long-term investment ...

But plenty of short-term payments providing flexibility and avoiding long-term lock-in.

And we haven’t seen most short-term payments.

That’s because they’re the election give-aways and barrels of pork which will be announced later.

So in summary, the budget did little in terms of long-term investment.

Another massive surplus was predicted, adding to all the other surpluses.

Which says either the government’s not spending where it ought, or it’s collecting too much.

And that’s what the future fund is; a contrivance of masterful spin which appeals to the piggy-bank mentality.

In fact it’s a device to store excess revenue —the debt reduction commenced in the early ‘80s has now matured.

There are no debts to repay.

Unfortunately, the ideological bias against public investment means spending which once took place on vital infrastructure is no more.

That’s why we’ve invested nothing in water storage for 20 years.

That’s why roads, bridges, ports and railways are becoming less efficient.

And that’s why schools, hospitals and other services can’t cope.

Once again, the private sector has to pick up the task.

And it’s it at a cost ... for those who can afford it.

Mr Acting Deputy President, having painted that context, let me turn to the Defence budget.

Defence is a great place to spend lots of spare cash.

To buy $6 billion on fighter jets is dead easy.

There’s no economic downside.

All this spare cash is exported.

In this and many other cases, it’s the US economy which benefits.

And good luck to them.

Our industry might get a few scraps if they’re lucky, but in a time of a skills shortage this short-term thinking doesn’t matter.

Or so it’s thought.

Long-term planning and investment beyond the boom isn’t a priority, It seems.

Nor is industry capacity, transfer of intellectual property, self sufficiency or economies of scale.

Hence, the feature noted by many commentators: That Defence is a good place to park spare cash.

Indeed, as many have noted, Defence is already constipated.

It can’t spend what it’s already been paid.

In this financial year, $1.8 billion dollars from last year is to be carried over.

That’s a relaxation on the old rules of budget austerity, where unspent and uncommitted funds went back to the Treasury.

The surplus was already embarrassingly large, so it was left as an over-allocation in Defence.

The hope is that Defence will spend it—and no doubt they will.

But whether it’s spent usefully is another thing.

I don’t want to harp on this, but waste and Defence seem to be synonymous.

I’ve frequently, in this chamber and at estimates, made reference to Defence procurement failures in particular.

The Australian National Audit Office frequently releases reports about financial mismanagement in Defence.

Excessively generous allocations not spent in the past has led to many bad practices.

Among those has been hiding money in trust funds and paying accounts in advance.

Finding devices to hide money is an art form.

That’s because the financial discipline for everyone else has been use It or lose it”.

That doesn’t suit the government’s politics, of course.

They’re hooked on the macro figures of Defence allocations, which by apparently indicate a firm resolve to the defence of the nation.

Typically, though, we know this isn’t true.

The Defence annual report, as we examined at Senate Estimates recently, is full of projects behind time and over cost.

In other words, capability paid for but not delivered.

The instances of the Seasprite helicopters and the armoured personnel carriers, combined, represent more than $2 billion


The list, however, is endless.

There’s a yawning gap between what the Government has said it’s paid for and what it’s received in return.

On a more positive note, however, the Defence budget does have some benefits. Though perhaps years late.

The biggest single deficiency in Defence, apart from procurement bungling, is its inability to recruit.

We know that many ships in the Navy fleet are below their optimum crewing levels.

Our submarine fleet is barely a fleet at all with respect to qualified crew available.

And the task of forming a new Army battalion seems Insurmountable, given the attrition of personnel in recent years.

This is not necessarily the fault of the forces (though their public image has been tarnished a little) but of government failure to act in time.

The tight labour market, largely to blame for failed recruitment, is not a new phenomenon.

The economy has been stretched for at least five years by labour market shortages.

And the out-turn of skills from our TAFEs and schools has suffered through funding starvation.

Education is a cost for the Howard Government, not an investment.

And the pigeons are now home on the roost.

So it’s a relief to see in the Defence budget a significant effort in recruitment, training and retention.

Sadly, for a government so wedded to the theory of market forces, it’s been caught with its pants down.

Much of the new money will be spent competing with other demands for labour.

It’s suddenly realised young people won’t sign up just out of public interest and a sense of public duty.

It’s about a career, good working conditions, rewards and a future.

Comparatively speaking, Defence hasn’t been able to compete.

So the money now available might help.

Unfortunately, budget outlays have been inflated by the need to spin.

That is, the figures are made to look impressive because they’re for a period of ten years.

Two point one billion dollars is to be spent on recruitment and retention.

This includes $113 million for Navy retention allowances $306 million for the gap year experiment $371 for recruiting initiatives, and $226 million for targeted retention measures.

Another $950 million will be spent on additional housing costs.

Enhanced technical training will benefit by an extra $71 million.

Professional development for ADF medical officers will receive $12.1 million.

Let’s hope that brings a competitive edge to recruitment.

That’s good, but remember, this is for 10 years, not the standard four years of Estimates.

Beware the spin.

Care also needs to be taken to distinguish between existing budgets and additional funding, not net funding increases.

Such large numbers always sound impressive.

The rest of the Defence budget, is dominated by additional money for operations overseas—to be expected—and for new equipment.

Labor was hopeful that soon we might see some turnaround in procurement outcomes.

We’re still hopeful, but the signs are ominous.

We note the prediction of ASP!, that $2.1 billion of new assets will be late on current estimates.

Further, approval of new projects in the 2006 DCP have already fallen behind.

What’s worse, in its eagerness to spend its enormous revenue, the Government is pumping even more into the sausage machine.

Little wonder there’re more decisions outside the due process, to buy off-the-shelf without comparative analysis.

The numbers are impressive, but the question is, will it make a difference?

We sincerely hope on recruitment it will.

On procurement we have no confidence at all.

It’s too ad hoc and reeks of panic as lost ground is sought to be recovered.

We fear a continuation of waste and the usual propaganda which seeks to make a virtue out of a perennial disaster.

The more things change the more they stay the same.