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Wednesday, 27 November 1985
Page: 2341

Senator MacGIBBON(12.04) —I would like to ask the Minister for Community Services (Senator Grimes), who is present in the chamber, whether the Department of Defence will be fully compensated for the effects of the devaluation of the dollar. When the Budget was put together, as the estimates show, the basis on which the planning was done was that one Australian dollar would be worth $US72c. Since then there has been a considerable erosion of that position. The Department of Defence estimates that this year's expenditure will be $6,535m. Of that sum, the capital equipment component is estimated to be $1,771m, an increase of $158m on the previous year. That figure of $1,771m is about 25.9 per cent of the defence vote, so it is a very significant component. As a large part of that capital equipment comes from overseas, exchange rate fluctuations are highly significant. By way of reference, I note that in 1982-83 the capital equipment component of the defence budget was 17.4 per cent. I seek an assurance that the manpower figures of the Australian defence forces and the budgets for operations will not be cut any further.

While I am on this point, I come to the very relevant question of how the defence vote will grow in the years ahead, given the changes in the exchange rate. Does the Government propose to increase the defence vote? The Fraser Government's five-year defence plan provided for an average real growth of 6.3 per cent per year for the five years running from 1982-83 to 1986-87. When the present Government got into power its first action was to cut the five-year defence plan's projected average growth of 6.3 per cent per year to 4.5 per cent. In May of this year it cut the nominal figure from 4.5 per cent to 3.1 per cent.

The present Minister for Defence (Mr Beazley) claims that, despite the projected target figure of 6.3 per cent in the five-year defence plan of the Fraser Government, that Government did not attain in its final year a growth rate greater than 2.8 per cent. I have not been able to confirm that figure, but if that is so, and I suspect that there may be an element of truth in it, it just shows that targeted figures are not attained by governments. If we reach 2.8 per cent, having had a target of 6.3 per cent, what are we likely to reach with the target of 3.1 per cent that we have at present?

Again, the present Minister for Defence claims that the expenditure has increased on average by 3.3 per cent since the Labor Government came to power. I think that those figures are correct, but it is also relevant to point out that they are correct because the overseas suppliers of equipment under the foreign military sales contracts accelerated deliveries in the last two years and the Government has had to meet payments for those foreign military sale contracts. It had to meet something like $62m that was not budgeted for last year and, I think, $80m the year before because the suppliers made equipment available earlier than was intended and we therefore had to meet the bill. The effect of the accelerated FMS deliveries meant that the defence vote had to go up to cover for them.

The devaluation of the dollar is a very real problem. The change in the exchange rate has become manifest since we dealt with this matter at the Estimates Committee E meeting nearly two months ago. I seek information on what compensation the Department proposes to make for the devaluation and how it will cope with the years ahead.