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Australia's Changing Strategic Circumstances: speech to the Australian Strategic Policy Institute (ASPI) [and] Questions and answers



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Minister for Defence - To the Australian Strategic Policy Institute (ASPI), Australia’s Changing Strategic Circumstances

1 August 2012

Introduction

Thank you Davyd Thomas (Austal), for your warm welcome.

I acknowledge and thank Austal as sponsor of this event.

I acknowledge Mr Stephen Loosley, Chairman of the Council of the Australian Strategic Policy

Institute (ASPI) and Mr Peter Jennings, Executive Director of ASPI.

I also acknowledge the Secretary of the Department of Defence, Duncan Lewis, the Chief

Executive Officer of the Defence Materiel Organisation, Warren King and Vice Admiral Ray

Griggs, Chief of Navy.

I also acknowledge former Defence Minister Robert Hill.

Distinguished guests, ladies and gentlemen.

Thank you for inviting me to speak to ASPI.

ASPI plays an important role by informing public debate and encouraging discussion on

important national and international strategic and security affairs.

National security and economic security are the two highest priorities of any Commonwealth

Government.

Protecting and defending our national security interests involves making complex strategic

judgments about short-term and long-term risks and opportunities in relation to the

international strategic environment. This includes judgments about Defence posture and

operations, Defence capability and Defence funding.

This periodically requires Australia to methodically review the international strategic

environment and our own strategic settings and posture to ensure they are appropriate to

Australia’s changing strategic circumstances.

The gap in Defence White Papers between 2001 and 2009 was far too long a one to enable

such consideration.

That is why the Government committed in 2009 to Defence White Papers not more than 5

years apart and why the Prime Minister and I announced in May that the Government would

deliver a new Defence White Paper in the first half of 2013.

The 2013 White Paper will address the range of significant international and domestic

developments since the 2009 White Paper, which influence Australia’s national security and

Defence settings, including their impact on force posture, future force structure, budget and

finances.

2009 White Paper

The May 2009 White Paper underlined that Australia’s most basic strategic interest remained

the defence of Australia against direct armed attack.

This includes not just armed attacks by other states but, in the modern world, by non-state

actors.

The 2009 Defence White Paper also had as a strategic priority the security, stability and

cohesion of our immediate neighbourhood which we share with Indonesia, Papua New

Guinea, East Timor, New Zealand and the South Pacific island states.

Beyond our immediate neighbourhood, the 2009 White Paper found that Australia has an

enduring strategic interest in the stability of the wider Asia-Pacific region, from North Asia to

the Indian Ocean.

These three enduring strategic interests remain.

Our most basic strategic interest must continue to be the defence of Australia against direct

armed attack.

Australia as well has a deep stake in the maintenance of an Asia-Pacific security environment,

including in our immediate neighbourhood, which is both conducive to stability and the

peaceful resolution of problems between countries and which can absorb the rise in strategic

influence and military power of emerging major players.

As part of this, Australia has a deep stake in the security of South- East Asia, which covers

our northern approaches, through which hostile forces would have to operate in order to

sustainably project force against Australia.

Beyond South-East Asia and the Asia Pacific region, Australia has a strategic interest in

preserving an international order that restrains aggression by States against each other, and

which can effectively manage risks and threats, including from the proliferation of Weapons

of Mass Destruction (WMD), terrorism, fragile and failed states and intra-state conflict.

The 2009 White Paper underlined that Australia’s national security and defence policy had to

be founded on the principle of self-reliance in the direct defence of Australia and its strategic

interests.

This also envisages the maintenance of regional and international defence relationships which

enhance our national security and which provide us with the interoperability required to work

with others when we need to pool our resources as part of a regional or international

community response.

The 2009 White Paper identified the following tasks for the Australian Defence Force (ADF):

 The principal task for the ADF is to deter and defeat armed attacks on Australia by conducting independent military operations without relying on the combat or combat support forces of other countries.

 The second priority task for the ADF is to contribute to stability and security in the South Pacific and East Timor. This involves conducting military operations, with others as required, including in relation to protecting Australian nationals, providing disaster relief and humanitarian assistance and, on occasion, stabilisation intervention.

 The next most important priority task for the ADF is to contribute to military contingencies in the Asia-Pacific region, including in relation to assisting our South-East Asian partners to meet external challenges, and to meet our Alliance obligations to the United States.

 Finally, the 2009 White Paper stated that the ADF has to be prepared, where our national interest aligns and where we have the capacity to do so, to contribute to military contingencies in the rest of the world, in support of efforts by the international community to uphold global security and a rules-based international order.

These tasks remain current and I expect them to be reflected in the 2013 White Paper.

As a result of these priorities, the 2009 Defence White Paper envisaged a future ADF which

would be more capable in certain areas, particularly undersea warfare, anti-submarine

warfare, surface maritime warfare, air superiority, strategic strike, special forces, Intelligence

Surveillance and Reconnaissance (ISR), and cyber security.

As a consequence, the 2009 Defence White Paper outlined an ambitious program of capability

enhancements for the ADF, with a number of core capabilities, including:

 twelve future submarines;  three Air Warfare Destroyers (AWDs);  two Landing Helicopter Dock amphibious ships (LHDs);  twenty four naval combat helicopters  replacements for the Caribou aircraft  new maritime patrol aircraft  the Joint Strike Fighter  a fleet of new combat and logistic vehicles for Army  seven new CH-47F Chinook helicopters.

In total, there were some 180 capability projects in the 2009 Defence Capability Plan

associated with the 2009 Defence White Paper.

The vast majority of those remain in the DCP today, with about ten removed, largely as a

result of being overtaken by other projects.

Since the 2009 White Paper, Government has approved over 100 first pass, second pass and

other approvals with a total value of around $13.5 billion.

This includes a record 49 approvals of capability projects in 2011. The previous record was 36

in 2006.

And we continue to progress our core capabilities, including the future submarines, the

AWDs, the LHDs, the naval combat helicopters, the Joint Strike Fighter, the Caribou

replacements, vehicles for Army, Chinooks and maritime patrol.

Why bring forward the next White Paper?

The Government is committed to delivering the core capabilities identified in the 2009 White

Paper and to delivering one of the most capable defence forces in our region, with the people

and equipment needed for the task. The Government remains committed to the enhanced

strategic planning process outlined in the 2009 Defence White Paper, which involves a new

White Paper at intervals no greater than five years.

On a five year timetable, the next paper would be due in the first half of 2014.

However, because of the significant developments internationally and domestically since the

2009 White Paper, the Government has brought forward this schedule to the first half of

2013.

These changing strategic circumstances, which influence Australia’s defence posture, future

force structure and defence budget, include:

 The ongoing strategic shift to our region, the Indo-Pacific and Asia Pacific, particularly the shift of economic weight to our region;  The ADF’s operational drawdown from Afghanistan, East Timor and Solomon Islands;  The United States’ (US) re-balance to the Asia Pacific and Australia’s enhanced

practical cooperation with the US pursuant to our Alliance relationship;  Australia’s own Force Posture Review - the first in a quarter of a century;  Bearing in mind the 2009 White Paper judgment that the Global Financial Crisis (GFC)

was the most fundamental economic challenge facing Australia, the ongoing adverse effects of this crisis, which have continued to have a significant deleterious impact on the global economy.

Strategic change in our region

The strategic change described in the 2009 White Paper has continued.

In recent years, changes in Australia’s strategic circumstances and the global security and

economic environment have been significant.

Australia’s current and future strategic interests are overwhelmingly positioned to the north,

the north west and north east, and to the Indian Ocean Rim.

The 2013 Defence White Paper will address these changing strategic circumstances and

interests, including:

 the shift towards the Asia-Pacific as a region of global strategic significance;  the rise of the Indian Ocean rim as a region of global strategic significance;  the growth of military power projection capabilities of countries in the Asia-Pacific and the Indian Ocean; and

 the ongoing presence and role of the US.

Shift towards the Indo-Pacific

In this century, the Asia-Pacific and the Indian Ocean Rim, what some now refer to as the

Indo-Pacific, will become the world’s strategic centre of gravity.

The rise of China is a defining element in this, but it is far from the only or whole story.

The rise of India is still under-appreciated, as is the rise of the ASEAN economies combined.

The major and enduring economic strengths of Japan and South Korea also need to be

acknowledged.

So must the great individual potential of Indonesia - as it emerges from a regional to a global

influence so important to Australia.

As well, the US re-balance to the Asia-Pacific will see greater US military, economic and

political engagement in our region.

India and the Indian Ocean

The critical strategic importance of the Indian Ocean continues to be substantially under-appreciated.

The countries of the Indian Ocean Rim are home to more than 2.6 billion people, almost 40

per cent of the world’s population.

The security of its waters goes to the heart of global, regional and Australian strategic

interests.

The proportion of world energy supplies passing through critical transport choke points,

including the Straits of Malacca, the Straits of Hormuz and the Suez Canal will increase in the

coming years.

The Indian Ocean already ranks among the busiest routes for global trade. It will become a

crucial global trading thoroughfare in the future.

Crucial trading routes, the presence of large and growing naval capabilities, as well as

transnational security issues such as piracy, drive Australia to ultimately put the Indian

Ocean alongside the Pacific Ocean at the heart of our maritime strategic and defence

planning.

In recognition of this imperative, Australia has joined the Indian Ocean Naval Symposium, an

initiative of the Indian Navy.

Australia will host the Indian Ocean Naval Symposium Conclave of Chiefs in Perth in 2014.

India and Australia are also leading the Indian Ocean Rim Association for Regional

Cooperation, a Ministerial level forum with membership ranging across the entire Indian

Ocean region.

The growth of military power in the Indo Pacific

The ongoing shift in influence towards our region is, however, not just about economics or

demographics.

Military and strategic influence is also moving to our part of the world.

Economic growth has underpinned military modernisation and military capability growth

across the region.

The Indo-Pacific will be home to three of the world’s superpowers - the United States, China

and India - and is home to four of the world’s largest militaries - the United States, Russia,

China, and North Korea.

The Indo-Pacific is also home to the world’s largest navies, including the navies of the United

States, China, India and Russia.

The implications of the historic shift continue to unfold.

No one can say with precision or certainty what the new international or regional order will

look like.

The regional and international community response to these challenges will be critical and will

in many ways help determine the outcome.

These changes of strategic circumstance, the changes in economic, political and military

weight, do require adjustments and the United States, China, India and Australia and our

region are adjusting to that.

How we manage that adjustment to ensure continued stability and prosperity is the most

important objective we have and the central challenge that we have in the coming decades.

The level of economic integration between Australia and China sets an important benchmark

for our political, strategic and defence to defence and military to military engagement.

The challenge is to raise our level of political and strategic engagement to the same level as

our economic engagement.

The same is true of the US-China relationship, and even more importantly so.

The bilateral relationship between the US and China is and will be the most important

bilateral relationship we will see in the course of the first half of this century.

In the fullness of time the bilateral relationships between the US and India and between

China and India will grow to the same level of importance.

We have already seen deep economic integration between the US and China.

The US and China now need to grow their political and strategic relationship to the same

level.

Australia now encourages enhanced defence to defence and military to military engagement

between the US and China.

That is why we have welcomed the progress made by US Secretary for Defense Panetta and

Chinese Minister for National Defence Liang at their recent ministerial meeting in Washington,

and why we welcome the forthcoming visit by Secretary Panetta to Beijing.

The ongoing role of the United States

Some assume that the economic and strategic influence of the United States, the world’s

largest economy and superpower, will be rapidly eclipsed overnight as a result of this new

distribution of strategic influence in the Indo Pacific.

That is not Australia’s view.

By the second half of this Century, the Indo Pacific will be home to three super powers and

the strategic environment will be defined as I have said not just by the relationship between

Washington and Beijing but also by the relationships between Washington and New Delhi and

New Delhi and Beijing.

The US, China and India will be the great strategic powers of our region and the international

community.

The emergence of three great strategic powers in the region will see an adjustment in the

balance of power across the region and around the globe.

In Australia’s view, the United States has underwritten stability in the Asia-Pacific for the past

half century and will continue to be the single most important strategic actor in our region for

the foreseeable future, both in its own right and through its network of Alliances and security

relationships, including with Australia.

A continued, indeed enhanced, United States’ presence in the Asia Pacific is essential to

peace and stability in our region. Australia welcomes the United States enhanced

engagement, its rebalance to our region.

Amidst these strategic shifts, some have posited, indeed even suggested to the US itself, a

substantial decline in or a withdrawal from our region.

I do not see it this way.

The US is not going away and is re-balancing towards the Indo-Pacific, as President Obama

underlined in his speech to the House of Representatives in November last year.

President Obama, Secretary of State Clinton and Secretary for Defense Panetta have all

reinforced that the Asia Pacific and the Indian Ocean rim is of vital importance to the US.

We are seeing a shift in focus by the US to our region, from US Central Command focus on

the Middle East to the US Pacific Command, characterised when I was recently in Hawaii as

having responsibility “from Hollywood to Bollywood”, from the West Coast of the United

States to India and the Subcontinent.

Substantially enhanced practical cooperation between Australia and the US is an essential

part of Australia’s contribution to regional peace and stability.

In November last year, the Prime Minister and President Obama announced during the

President’s visit to Australia new force posture initiatives that significantly enhance practical

defence cooperation between Australia and the US.

Coming on the 60th anniversary of the ANZUS Alliance, these initiatives strengthen an

already robust partnership that has been an influence for stability and peace in the Asia-Pacific region.

It represents an evolution of existing exercises and activities that the US already conducts

with the ADF in Australia.

The first rotation of around 200 US Marine Corps personnel arrived in Darwin in April.

The initial rotation is a US Marine Corps infantry company.

Over a six month period, this initial US Marine Corps rotation will undertake bilateral training

in Australia with the ADF and conduct unilateral training in Australia.

The US Marines have so far spent the majority of that time in Northern Territory ADF training

areas and ranges including the Mount Bundey and Kangaroo Flats Training Areas.

The intent in the coming years is to establish a rotational presence of up to a 2,500 personnel

Marine Air Ground Task Force, rotating into Northern Australia in the northern dry season.

Australia and the US have also agreed to closer cooperation between the Royal Australian Air

Force and the US Air Force that will result in increased rotations of US aircraft through

northern Australia.

This will also enhance bilateral collaboration and offer greater opportunities for combined

training and exercises.

The details of such enhanced aerial access is yet to be the subject of detailed discussion

between the Australian Government and the US Administration.

Down the track, it is also proposed to examine the possibility of increased US naval access to

Australia’s Indian Ocean port, HMAS Stirling.

For Australia, this presence will support our long-held strategic interests in maintaining and

expanding US engagement in our region.

US force posture initiatives are an extension of our existing defence cooperation and defence

arrangements.

Australia already hosts military exercises involving large numbers of US military personnel.

But the US does not have permanent military bases on Australian territory and this will not

change. The activities will take place in Australian facilities.

This initiative will also provide tangible benefits by increasing the number, variety and

complexity of training opportunities for the ADF.

This will further develop our interoperability with US forces and helping the ADF develop its

ship to shore capability which will be important as the LHDs come on line.

Our respective military forces must be postured to respond in a timely and effective way to

the range of contingencies that may arise in our region, in particular humanitarian assistance

and disaster relief.

We expect that this deepening practical cooperation with the US will also reinforce existing

relationships and provide opportunities to enhance cooperation with our partners in the

region.

Australia is exploring these possibilities with both the US and our regional partners.

For example, Australia, Indonesia and the United States are planning to hold a trilateral

Australia-Indonesia-United States humanitarian assistance and disaster relief desk top

exercise in 2012 and a full scale exercise in 2013, under the general auspices of the East Asia

Summit humanitarian assistance and disaster relief framework.

Indonesian President Yudhoyono has said on a number of occasions that he sees the prospect

of China observing such exercises and in the longer term he sees the potential for Australia,

the US and China doing exercises themselves, which Australia welcomes.

Australia also welcomes Brunei’s proposal to host a humanitarian assistance and military

medicine exercise in conjunction with its Chairing of the 2013 meeting of the ASEAN plus

Defence Ministers Meeting.

In addition to the enhanced practical cooperation between Australia and the US under the

force posture initiatives announced by the Prime Minister and the President in November

2011, the US has signaled its intent to significantly enhance its military, economic and

political engagement in the region more generally.

The United States is enhancing its relationships with Singapore and the Philippines.

The US has sought to enhance its economic engagement with the region through the

negotiation of the Trans Pacific Partnership.

The region has welcomed the enhanced US political commitment to the region through its

membership of the East Asia Summit and its active role in the ASEAN plus Defence Ministers

meeting.

The ADF’s operational drawdown

Afghanistan

The Australian Defence Force has been engaged in land based expeditionary operations in

Afghanistan then Iraq and then Afghanistan since 2001.

Australia’s military contribution in Afghanistan now focuses on:

 Training and mentoring the Afghan National Army 4th Brigade in Uruzgan Province to allow transition of lead security responsibility for the Province to Afghan National Security Forces (ANSF); and

 Operations to disrupt insurgent operations and supply routes utilising the Special Operations Task Group.

Australia’s military contribution is an annual average of 1,550 Australian Defence Force

personnel deployed within Afghanistan.

Approximately 800 personnel provide support from locations within the broader Middle East

Area of Operations, including our maritime commitment.

Australia has committed to long-term support for Afghanistan, but our training and mentoring

forces in Afghanistan will drawn down and return to Australia in line with the International

Security Assistance Force transition strategy, as determined in Lisbon and Chicago.

On 17 July, transition to Afghan-led security responsibility in Uruzgan province formally

commenced, where the majority of Australian military personnel in Afghanistan are based.

The formal start of transition in Uruzgan reflects the progress made by Afghan, Australian

and International Security Assistance Force (ISAF) military and civilian teams in training and

mentoring the ANSF and strengthening security and development.

This was a welcome sign transition in Uruzgan is on track for completion over the next 12 to

18 month period.

East Timor

In East Timor, the Australian-led International Stabilisation Force (ISF), currently consisting

of Navy, Army and Air Force personnel from Australia and New Zealand, commenced in 2006.

The ISF operates at the invitation of the Government of East Timor, and in support of the

United Nations (UN), to maintain stability and provide a secure environment for the ongoing

development of East Timor.

The ISF includes nearly 400 ADF personnel, including infantry, aviation and support

elements.

Following the success of the East Timor elections, the ISF will potentially start to draw down

during 2013.

Solomon Islands

In the Solomon Islands, the Australian-led Regional Assistance Mission to Solomon Islands

(RAMSI) was formed in 2003.

RAMSI’s mission is to assist the Government of Solomon Islands in the maintenance of

security, law and justice, economic governance and improving the machinery of government.

RAMSI is shifting in focus to a law and order mission and with this shift the conditions will be

favourable for a potential draw down of our military contribution during 2013.

These transitions from long standing ADF operational commitments will involve a major

readjustment to ADF posture and Australia’s defence priorities.

The Government needs to carefully work through what impact this drawdown will have on the

ADF and how to ensure we maintain ADF operational capability and readiness.

The lack of such planning for the period following the withdrawal of the ADF from Vietnam

had adverse impacts on ADF capability and readiness in the subsequent period.

After ten years of working side by side, day by day with our Alliance partner the US, careful

thought needs to be given to how the ADF can, for example, maintain and continue to

develop its interoperability with the US.

Many people cite the close and productive working relationships of our Special Forces and

intelligence organisations. Less well known is the work of our embedded staff officers in

Headquarters from Tampa to Brussels to Kabul.

Australian Force Posture

The ADF’s geographic positioning, or force posture, in response to these current and

emerging strategic challenges has been an area of Defence planning which has not received

enough attention.

The last time a major review of ADF geographic positioning was effected was in March 1986

when Professor Dibb did some work for one of my predecessors, Kim Beazley, that informed

the 1987 White Paper and its outcomes.

This resulted in the establishment of some of our so-called bare bases, RAAF Learmonth and

RAAF Curtin in Western Australia and RAAF Scherger in Queensland.

These bare bases are well located to deliver critical air power capabilities, including air

combat and strike operations in our Northern approaches.

This review also saw the move of some of our fleet assets and submarines to HMAS Stirling

(Fleet Base West) in Western Australia.

HMAS Stirling is well-located for maritime operations in Australia’s Western and Northern

approaches, and has excellent access to industry support and a maritime exercise area.

HMAS Stirling will continue to be a highly effective homeport for submarines and frigates and

will grow in importance as India rises.

But this, the last such Force Posture Review, was some 25 years ago.

With some obvious exceptions, these days what we still might term a World War Two style

‘Brisbane Line’ disposition of Navy, Army or Air Force assets does not reflect the reality of

where the ADF must operate, whether for military operations or humanitarian assistance and

disaster relief, or other contingencies.

The ADF needs to be positioned to meet current and future strategic circumstances.

These are overwhelmingly to our north and northern and western approaches.

While securing north western and northern Australia presents challenges because of the size,

distance and its relatively underdeveloped infrastructure, the rapid growth and scale of

minerals and petroleum resources development in these parts of Australia need to be a

addressed in future force posture considerations.

And there are significant weaknesses and risks to our current force posture which will become

even more significant in coming years.

These risks relate to the capacity of ADF bases and facilities to support current and future

capabilities in Australia’s North and West, and our ability to sustain high tempo operations in

Northern Australia and our approaches, our immediate neighbourhood, South-East Asia and

the wider Asia-Pacific region.

That is why I announced the Force Posture Review in June last year - to review our current

force posture in light of such challenges and opportunities.

The Force Posture Review considered all of the factors I have outlined and made

recommendations about the future security and strategic environment and challenges

Australia needs to be positioned to respond to and the future force posture of the ADF.

As its starting point, the Review drew on the security, strategic and capability judgements

outlined in the 2009 Defence White Paper, as well as the Defence Planning Guidance.

The Force Posture Review also considered:

 the implications for Australian Defence Force posture of the need for energy security, including security issues associated with expanding offshore resource exploitation in our North West and Northern approaches;

 how the future Australian Defence Force posture will support Australia’s ability to respond to a range of activities, including overseas missions;  the impact on the Australian Defence Force’s posture of a range of domestic, demographic and economic issues; and  the potential strategic and security role of Australia’s offshore territories, particularly

Cocos and Christmas Islands, for Force Posture requirements.

The Review also examined logistics support requirements, training areas for large-scale and

joint training exercises, demographic and economic factors and engagement with industry,

particularly the minerals and petroleum resources industries in Australia’s North and West.

Defence’s work on the Force Posture Review was overseen by an Expert Panel comprising two

of our leading national security experts, Allan Hawke and Ric Smith, both former Secretaries

of the Department of Defence.

In May, the Prime Minister and I released the final FPR Report.

The Report found that as a general proposition, our changing strategic environment does not

necessarily require widespread changes in the physical location of our Defence Force bases,

but that adjustments should be made to meet future needs.

It confirmed that there are some risks associated with the capacity of Australian Defence

Force bases and training areas as well as our ability to sustain high-tempo operations in

Northern Australia and our neighbourhood and region.

The FPR also identifies the demands arising from Australia’s expanding maritime capabilities

as significantly influencing Australia’s future force posture.

The Review found that Navy’s future capability and sustainment plans pose some of the

greatest challenges for Australian Defence Force posture and basing.

The Review examined possible basing options in the North and North West of Australia and

the possibility of arrangements that enhance access to commercial ports.

This includes the potential for greater wharf capacity and support facilities at HMAS Stirling to

support major surface combatant capability and operations.

The Review also found that while Air Force bases are well-located, many currently lack the

capacity to fully support new platforms, and some air bases in Northern Australia face

significant logistics constraints.

The Review found that Defence should upgrade bases at Edinburgh, Learmonth, Pearce,

Tindal and Townsville to enable unrestricted operations by KC-30 air to air refueling aircraft

and and P-8 maritime surveillance aircraft.

In relation to Army, the Review found that Army’s current posture does not require significant

changes.

The Review concluded that the Australian Defence Force needs a force posture that can

support operations in Australia’s Northern and Western approaches, as well as operations

with our partners in the wider Asia Pacific region and the Indian Ocean Rim.

This will be a particularly important focus as the Australian Defence Force approaches

transition and subsequent drawdown in Afghanistan, East Timor and Solomon Islands.

The ongoing effects of the Global Financial Crisis

Financial and fiscal circumstances clearly present a real challenge for the 2013 White Paper.

The 2009 Defence White Paper noted that the GFC was the most serious global economic and

financial crisis in decades, and that its strategic impacts were still unfolding.

The long-term nature and ongoing fiscal impact of the crisis was not predicted.

Since 2009, the GFC has continued to have a significant adverse impact on the global

economy.

In addition, the global economy has witnessed the European debt crisis, which has also had a

significant negative impact on the global economy.

It is therefore unsurprising that, following the GFC, the defence forces of major developed

countries have increased efficiencies and reduced their budgets, including the United States,

the United Kingdom and Canada.

This is in response to what United States Secretary of Defense Leon Panetta has described as

the new fiscal reality.

As Secretary Panetta said at the Singapore Leadership Dialogue in Singapore, we live in a

new fiscal reality in which we need to balance both fiscal security and national security.

I agree.

This new fiscal reality has a number of very clear implications for Defence and the Defence

budget.

First and foremost, this new fiscal reality means that Defence must redouble its efforts to

ensure that it is spending public money wisely and well.

It means that Defence must make the correct decisions when choosing capabilities and then

it must deliver those capabilities on time and on budget.

The new fiscal reality has diminished even further the public’s tolerance of cost blow outs and

project overruns.

The new fiscal reality means that Defence must continue to improve its capability and

procurement processes.

Capability and procurement process reform

One recent reform has been to align the DCP with the four-year Forward Estimates period.

Last month, the Minister for Defence Materiel Jason Clare and I released the four year

Defence Capability Plan.

A new document to complement the public DCP, the Defence Capability Guide (DCG), will

provide general guidance for industry on projects over the six year period following the four

years of the DCP.

The six year period DCG will be released in the near future.

The DCG will ensure that industry has information generally about the Government’s longer-term capability intentions, noting that beyond the four year DCP, there is more uncertainty,

and historically projects are less well defined and have been subject to change, both in terms

of scope, cost and schedule.

This reform reflects consultations undertaken with industry and aligns with industry’s focus

on projects that are approaching consideration by Government.

Alignment of the DCP with the four-year Forward Estimates period in the Budget provides

greater certainty for industry.

Advice from industry was that release of a DCP now ahead of the White Paper would provide

important information for industry on project cost, project schedule and local industry

content. Advice from industry was that the Government should not defer release of a DCP

until after the 2013 White Paper.

The new fiscal reality has meant that in Australia, Defence contributed $5.4 billion across the

Forward Estimates to the Government’s fiscal strategy of returning the Budget to surplus in

2012-13 to ensure the future economic security of Australia.

The Defence Budget was developed following a comprehensive review of the Department’s

budget to identify contributions Defence could make across the Forward Estimates to support

the Government’s broader fiscal strategy.

Importantly, we have ring-fenced key priorities from these savings:

 There will be no adverse impact on operations in Afghanistan, East Timor or the Solomon Islands.  There will be no reduction of the number of military personnel in the Army, Navy and Airforce.  There will be no adverse implications for equipment for forces about to be deployed or

on deployment.  There will be no reductions in conditions or entitlements for service personnel, other than those already being considered as part of the Strategic Reform Program.  Core Defence capabilities will continue to be delivered.  There will be no adverse impact on our enhanced practical cooperation with the US in

our region.

Even with Defence’s contribution to returning the Budget to surplus, the Defence Budget

remains a significant element of the Government’s overall Budget and its fiscal strategy.

Our Defence Budget equates to 6.4 percent of Australian Government outlays. It is equivalent

to around 1.6 percent of Gross Domestic Product.

As a consequence we have a responsibility to, and we must ensure that, the Defence dollar is

spent on priority items, and that it is seen to be spent wisely.

We must prioritise our investments in capability, reduce administration costs to the most

efficient levels and spend our funds wisely.

Defence spending must be calibrated against an up to date assessment of short and longer

term priorities.

And so the White Paper will consider such issues around the Defence Budget.

Reaction to the 2012-13 Defence Budget has failed to take account of the new fiscal reality

we, the United States, the United Kingdom, Canada, New Zealand, Europe and others face.

Claims that this year’s budget was “the worst day for Australia’s Defence since the fall of

Saigon in 1975”, that ”the best time to invade Australia will be around 2028-30” and that the

ADF is in “terminal decline” are overblown and misplaced rhetoric.

Analysis of Defence funding based on Gross Domestic Product data is not the only reference

point.

There has, for example, been no fundamental change to our Defence Budget from a strategic

perspective:

 In the 2009-10 Budget, the Government, for the first time, budgeted over $100 billion for Defence across the Forward Estimates.  Last year in the 2011-12 Portfolio Additional Estimates Statements, Defence’s Budget across the Forward Estimates was $103 billion.  In this year’s Budget, the Government has again budgeted $103 billion for Defence

across the Forward Estimates.  This level of funding will maintain Australia’s status in the top 15 nations in terms of world Defence expenditure, along with Canada either 13th or 14th in that list.  Australia continues to be 2nd on the list of military expenditure per capita basis

compared to the G7 countries and China, with only the United States spending more per capita.  In real dollar terms, we spend far greater than any of our regional neighbours, including Indonesia and Malaysia.

I also reject suggestions I have seen that Australia is somehow taking a free ride in our

Alliance with the US.

I reject that suggestion as does my counterpart Leon Panetta.

Australia is the tenth largest contributor in Afghanistan, the largest non-NATO contributor and

the third largest special forces contributor.

We are also the country most active in enhancing our practical cooperation with the US in our

region, as demonstrated by the developments on the US Global Force Posture Review.

2013 Defence White Paper

I expect the 2013 White Paper will draw together all of the factors I have referred to, to

ensure that Defence and the ADF are positioned with the right Force Posture and Force

Structure required for the defence of Australia and the security of our region.

I have asked Dr Allan Hawke, Mr Ric Smith and Mr Paul Rizzo to form a Ministerial Advisory

Group to assist in the development of the 2013 Defence White Paper.

Dr Hawke and Mr Smith are both former Secretaries of the Department of Defence.

Mr Rizzo, a Director of a number of major Australian corporations including the National

Australia Bank and Mallesons Stephen Jacques and is the Independent Chair of the Defence

Audit and Risk Committee, led the development of the plan to address problems in the repair

and management of the amphibious and support ship fleet.

Their work and Defence’s work will build on work already completed or underway since 2009,

including:

 The Defence Planning Guidance (completed);  The Force Posture Review (completed);  The Force Structure Review (underway).

Concluding remarks

Planning for the security of Australia and its national interest is a fundamental responsibility

for the Australia’s Government.

An essential part of fulfilling this responsibility is making strategic, risk-based decisions about

Australia’s long-term national security and Defence needs.

This means we must understand the implications for Australia of changing strategic, security

and economic circumstances.

It means we must analyse and understand the impact of these changes on Australia’s

defence force posture, our future force structure and defence budget.

The 2013 Defence White Paper will therefore address Australia’s Changing Strategic

Circumstances:

 The shift towards the Asia-Pacific and the Indian Ocean rim as a region of global strategic significance;  The increased focus of the US on our region through its Global Force Posture Review;  Australia’s operational drawdown in Afghanistan, East Timor and Solomon Islands;

 Australia’s own Force Posture; and  The ongoing effects of the GFC.

Thank you.

Minister for Defence - Australian Strategic Policy Institute Q&A

1 August 2012

TRANSCRIPT: ASPI - Q & A

TRANSCRIPTION: PROOF COPY E & OE

DATE: 1 AUGUST 2012

QUESTION: Minister, Anna Henderson from ABC News.

You spoke in your address about the possibility down the track of increased US naval access

through HMAS Stirling, and this afternoon there have been reports about a US Defense

Department commissioned report on the possibility of basing a nuclear aircraft carrier in

Perth.

Is this a serious possibility considering the Premier Colin Barnett has already ruled it out?

STEPHEN SMITH: Well as you know the arrangements that we entered into with the United

States administration and announced when President Obama was in Australia in November

last year, have three priority areas.

Firstly, the rotation of a marine task force group through Darwin that started with an initial

contribution of 250 and over a period of time will grow to 2500, and that’s gone very well.

It’s gone very well, not just in an exercise in itself reflecting the cooperation between the

United States and Australia, but also because we have already seen expressions of interest

from the region, not just Indonesia, which I referred to, but to tease out the possibility of

enhanced cooperation between partners in the region particularly in the area of humanitarian

assistance and disaster relief.

The second area which was agreed was the potential for enhanced aerial access to our air

bases in northern Australia. And as I have said in the past and indicated in my paper tonight,

we have focused to date with the rotation of marines through Darwin. We’ve not yet had a

detailed discussion about the enhanced aviation or aerial access to our northern bases - that

is the next cab off the rank.

The third cab off the rank, and I’ve said in the past that I consider this further down the

track, if only because, as I indicate in my paper it will take some time before we see the

growth of India and the growth of the strategic importance of the Indian Ocean rim - but as

sure as night follows day, that will occur.

What you have referred to, I think, is the release today of the Center for Strategic and

International Studies, the CSIS report, which is commissioned by the Department of Defense

on a, from memory, on an annual basis. It’s being released overnight; it is being

accompanied by a letter from the Secretary of Defense, Leon Panetta, and a comment from

him.

He makes it clear as I do that the report is an independent report to the United States

government - it is not a United States government document - and Leon Panetta’s covering

letter and comment makes it clear that whilst there is much in the report which is consistent

with United States policy, particularly so far as rebalancing is concerned, that the suggestions

contained in it are from an independent report - not United States policy.

So far as the possibility of enhanced access to HMAS Stirling is concerned, as I have said

previously that is very much the third cab off the rank.

We have not had a conversation with the United States administration about that or any of

that detail. I do make this point very clear - we don’t have United States military bases in

Australia and we are not proposing to. What we have talked about in terms of increase aerial

access or naval access is to have greater access to our facilities.

I haven’t read the full CSIS report; I have read parts of it. Some of that creates the

impression that the independent think tank is talking in terms of home porting or a US base.

That is not the basis on which we would proceed. What we are looking at down the track is

further or enhanced naval access to HMAS Stirling. The strategic rationale for that is the

growing importance of India and the growing importance of the Indian Ocean rim, particularly

in a naval maritime sense.

QUESTION: (Neil James) Minister, I know what you said, and I hesitate to sound like a

Greens Senator at Senate Estimates. The CSIS report on page 8 and 9 is quite interesting.

Everyone seems to be fixing on the idea that the Americans would go to base and carry a

task force in Perth, but it’s the discussion of the [indistinct] task force which would be more

interesting to many Australians. The report seems to assume, and I quote from the report

“moving select US marine corps units might [indistinct] marine task force to be located in

Okinawa, Hawaii, Australia” so at least some parts of the American hierarchy are thinking of

rotations but also of a more permanent nature of the move, and it’s interesting to note that

they comment on the following page “include involvement of government and decision

making e.g. Australia Guam, Hawaii” so perhaps some of them are thinking that the

Australian government is some level of authority similar to local governments in Guam and

Hawaii.

STEPHEN SMITH: Well, I think the more important part so far as government to government

connection, relationship and contact is concerned, the more important part of the report is

not what the independent think tank says but what the United States Secretary of State for

Defense says in his covering letter and in his comment. And on my quick read of that this

afternoon that falls into the category of one of those suggestions that the Secretary of State

for Defense is at pains to make clear - is not something which is adopted as US policy.

The entire basis of the agreement between the Aust Government and the United Stated

administration, announced in the course of the Presidents visit in November last year, was

predicated on the following approach. There are not United States military bases in Australia,

and there is no proposal to and the government would not countenance such bases.

Secondly we have joint facilities, the most obvious and important of which is Pine Gap.

Thirdly, we have had for a long period of time United States access to our facilities, whether

those facilities are Army, Navy or Air Force, and what we have agreed with the United States

administration is a logical extension of access which has been provided over a long period of

time. There is no suggestion being made to us that Australia should receive such a large

number of marines transferred from Okinawa or Guam.

We are proceeding on the agreement between the Australian government and the United

States administration of a six month rotation out of Darwin. It is actually difficult to have a

lengthier rotation in Darwin, given that the wet season and the dry season - not much gets

done in the wet season as you would know. And in terms of that rotation, we are in a staged

way, proceeding over the next five or six years to increase the number from 250 to 2500.

As a general proposition I see a lot of suggestions made everywhere, either from

commentators or from journalists or from think tanks, here or elsewhere. I often see those

views ascribed to the views of the United States government, Australian Government, the

Australian Defence Force organisation, or the United States Defense Force; invariably that’s

not the case. They are views of commentators, journalists, think tanks or academics.

QUESTION: Thank you Minister. It’s Graham [indistinct] from the Australian Industry Defence

Network. Thank you for your presentation.

My question, earlier you talked about state actors and non state actors, I’d like to hear your

opinion on the development of defences in cyber warfare and obviously if we had defences in

cyber warfare the vital role that Australian industry would play in any cyber warfare

defences?

STEPHEN SMITH: Well I think in my prepared remarks I refer to the 2009 White Paper

referring to cyber security or cyber warfare as a priority, firstly.

Secondly, that’s a view shared by me and shared by the Australian government and you

might recall that when General Hurley became Chief of the Defence Force he put that out

there as one of the areas that he thought was of increasing priority and in need of increasing

attention.

I think that the two significant touchstones so far as I’m concerned about our work on cyber

security has been firstly the AUSMIN meeting that we held with the Secretary of State Clinton

and Secretary of State for Defense, Gates, in Melbourne in 2009, where we agreed that the

United States and Australia would work closer together on Cyber Security matters. That was

followed pretty quickly by a meeting of AUKMIN, the 2 + 2 arrangement between Australia

and the United Kingdom, where we agreed the same thing, and that I think did a couple of

things.

It firstly focused our mind on not just the need to have this as a priority of our own, but

make sure it was a priority of the work that we did with our allies, but also with other

partners.

There are three points I’d make. Firstly, as you correctly identify, cyber security is not just an

issue for nation states, it’s an issue for industry, it’s an issue for government, it’s an issue for

individuals, and we’ve been at pains to urge industry and business to be taking necessary

precautions themselves. And the dangers here come from not just nation states but also from

non-state actors.

Secondly, we need to ensure, given the fact that we are dealing with cyber security, that it is

not something Australia is seeking to act alone on, but acting in concert with its friends and

partners and thirdly, in addition to taking individual and also bilateral and multi-lateral action,

we need to start now establishing some of the rules of the road.

What we don’t have are international norms which are accepted by nation states as being

appropriate or inappropriate conduct and that’s one of the issues that we have put out there

as being of significant importance.

Agreeing at some stage of international norms would be of some significance to state actors

but would be ignored by non-state actors, but there is a very close collaboration on the

matters by the Australian Defence Organisation and other security agencies and the

Australian Defence industry with expertise in this area. That also occurs in comparable nation

states including the United States and the United Kingdom, so that collaboration with

expertise and industry is of deep significance, and that will - in my view - only grow because

this danger will not abate, it will but enhance and increase and we need to take the necessary

steps to protect the confidentiality of information which is relevant to national security. But,

business and industry and local commerce also need to take steps to protect and defend their

information which is relevant to their own and the nation’s economic security.