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Budget 2010: Address at the Defence Budget Breakfast, Canberra.

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THE HON. GREG COMBET AM MP Minister for Defence Materiel and Science

Wednesday, 12 May 2010 060/2010

Defence Budget Breakfast National Press Club

16 National Circuit, Barton, ACT

12 May 2010



Thank you for the kind introduction and good morning, ladies and gentlemen.

Today I would like to talk you about the Defence Budget, and focus particularly on the new measures implemented by the Government in the Budget handed down last night.

I would also like to take opportunity to recap some of the achievements of the 2009-10 Budget and provide an update on the Strategic Reform Program and the delivery of Force 2030.

I’d then like to discuss a few developments in my particular portfolio area of defence materiel and science.


The Government recognises that the security of our nation is its highest priority and, despite the tight fiscal times, has maintained its funding commitment for Defence.

The Government has committed an additional $1.1 billion in 2010-11 and a total of $1.6 billion over the budget year and forward estimates for its continued commitment to combating global terrorism and bringing peace and stability to Afghanistan.

Our efforts aim to help prevent Afghanistan from again becoming a stronghold for international terrorist activity by providing security and development assistance and building capacity for Afghan institutions.

Australia’s long-term commitment to Afghanistan offers a practical and effective contribution to international efforts, it aims to help stabilise Afghanistan and serves to reinforce our alliance with the US and our links with other NATO partners.

This commitment to Operations in Afghanistan and the wider Middle East results in around 1,550 ADF personnel deployed to Afghanistan and around 800 in the Middle East Area of Operations.

The Government’s contributions to the international campaign against piracy in the Gulf of Aden and to promoting maritime security in the Middle East Area of Operations are also included in this funding.

Our troops have made, and continue to make, an important contribution to the stability of Afghanistan and will do so throughout 2010-11.

Force Protection

Coupled with this renewed commitment to operations in Afghanistan, the Government has committed approximately $1.1 billion over the forward estimates, including $487.1 million in 2010-11, for enhanced force protection measures for our deployed troops.

The Government’s investment in force protection capabilities and initiatives includes a range of measures that provide direct protection to Australian Defence Force members from small arms, improvised explosive devices and indirect fire, as well as improving intelligence and surveillance capabilities.

Australian forces in Afghanistan currently face a very high risk from insurgent operations, most notably in the form of improvised explosive devices and indirect fire.

That is why the centrepiece of the force protection measures is the acquisition of a Counter-Rocket, Artillery and Mortar sense and warn capability. This is a very significant step forward - a direct result of the Force Protection Review commissioned by my colleague, the Minister for Defence in July 2009 shortly after taking up the portfolio.

Other capabilities being funded include: • Improved route clearance capabilities; • Improved protection and firepower for Protected Mobility Vehicles; • New night-fighting equipment; • Improved body armour; • A new weapons system for the Special Operations Task Group; • Additional military working dogs; and • A suite of improved intelligence and reconnaissance capabilities

The Government has put a premium on the safety of our deployed forces and has, therefore, redirected existing capital investment funds for this purpose.

In addition, the Government has also provided Defence with an additional $221.6 million in 2010-11 to fund these initiatives.

By enhancing force protection levels, we will reduce the risk faced by ADF personnel in Afghanistan as a result of enemy action.

Other Operations

The Government has also committed $13.1 million for the continuation of a tailored security detail to protect the Australian Embassy in Iraq, known as Operation Kruger.

Australia continues to make an important contribution to the stability and development of Iraq through our ability to conduct diplomatic relations. At the same time Australia is also a significant development assistance donor to Iraq. In March 2009, Prime Minister Rudd reaffirmed Australia's commitment to assisting Iraq with its development needs. This included a strong focus on agriculture, governance, basic service delivery and supporting vulnerable populations.

The Government has also committed $170.0 million in 2010-11 and a total of $204 million over the budget year and the forward estimates for continued operational commitments in East Timor, known as Operation Astute.

Operation Astute is the ADF contribution to maintaining security and stability in East Timor.

The ADF has approximately 400 personnel deployed to East Timor as part of the International Stabilisation Force, and this commitment not only consolidates our continuing mutual commitment to regional security and stability, but it also represents a real investment in East Timor’s future.

The security situation in East Timor has remained stable since February 2008. Consequently, the focus in East Timor is changing from security operations to Defence co-operation and building capacity for the developing East Timorese military.

The Government has provided additional supplementation to Defence of $42.5 million in 2010-11 for its continued support to the Regional Assistance Mission to Solomon Islands, known as Operation Anode.

The Government has also committed $15.3 million in 2010-11 for continued support to coastal surveillance operations, known as Operation Resolute.

Operation Resolute is the ADF's ongoing contribution to Australian whole-of-government efforts to protect Australia’s maritime borders.

In total, the Government has allocated an additional $1.4 billion to Defence for the financial year 2010-11 for the continuation of Defence operations and force protection measures.

Our continuing commitment to funding National Security

As I said earlier, the Government has maintained its commitment to national security despite the tight fiscal times.

This year the Government has committed to total Defence resourcing of $30.8 billion in 2010-11. This compares to the 2009-10 estimated actual of $29.4 billion.

Over the 2010-11 budget year and the 3 Forward Estimates years, we will have committed $122.7 billion to the defence of the nation.

To give you some idea of the level of commitment this Government has to national security, total funding provided from Government excluding administered items in real 2008-09 dollars of the three defence budgets under the Rudd Labor Government totalled $71.2 billion. By contrast the last 3 budgets under the Coalition delivered $63.1 billion1. This constitutes a

1 Figures are based on funding from Government set out in the 2005-06 PAES, 2006-07 PAES, 2007-08 PAES, 2008-09 PAES, 2009-10 PAES and 2010-11 PBS. Excludes administered appropriation, capital receipts and own-source revenue.

12.8% real increase in the defence budget under the first Rudd Labor Government compared to the last Coalition Government.

As part of the 2009-10 Budget, the Government delivered a new financial plan that will fully fund the 2009 Defence White Paper, or Force 2030.

That new financial plan has two important elements: 1. A new funding model promising substantial real growth and long term predictability of funding; and 2. A comprehensive program of reform and savings referred to as the Strategic Reform

Program or SRP. The savings from the SRP will be reinvested back into Defence capabilities.

In total, this new financial plan results in an additional investment by this Government of $146.1 billion to 2030. In last night’s budget, the Government has maintained its commitment to Defence and national security.

The Defence funding model, implemented as a part of the White Paper, is predicated on three key elements: • 3.0% average real growth to 2017-18; • 2.2% average real growth from 2018-19 to 2029-30; and

• 2.5% fixed price indexation from 2009-10 to 2029-30.

This funding model was a primary component in reducing uncertainty in the Defence Budget and enabling the sort of long-term planning required in the complex business that is Defence.

As many of you will already know, the SRP’s objectives are to drive cost reductions and efficiencies in Defence to enable delivery of Force 2030. Contrary to the claims by the Opposition this does not involve a cut in the Defence budget. In fact we have increased the Defence Budget.

What the SRP does involve is the redirection of funds to help ensure more, and greater, capability is delivered to the ADF.

The SRP includes a comprehensive set of reforms that will overhaul Defence, produce efficiencies and generate savings of around $20 billion over the coming decade. These savings and their re-investment in current and future capabilities underpin Force 2030 and its delivery.

While it is still early days, Defence is starting to implement these reforms and it is already evident that the targeted savings of $797 million in 2009-10 will be achieved.

The SRP is scheduled to deliver more than $1 billion in cost reductions in 2010-11 for reinvestment in Defence capability. The cost reductions forecast over the Forward Estimates totals $6.4 billion.

Notwithstanding the fiscal shock associated with the Global Financial Crisis, the funding model and program of reforms implemented as a part of the White Paper have made it possible for us to commit to substantial additional investment in the capability of our Navy, Army and Air Force, to develop an agile and flexible force that is capable of meeting the contingencies the ADF is likely to encounter in the coming two decades.

The budget forecasts that the Government will spend $21.2 billion over the forward estimates on approved and unapproved capabilities to build Force 2030. This is a very significant spend that will sustain the Australian defence industry.

Improved Procurement Performance

If I may now turn to the area of defence materiel, I am happy to report that the DMO budget for 2010/11 is $12 billion, this compares to the actual budget for 2009/10 of $10.97 billion.

In 2008, as Parliamentary Secretary for Defence Procurement, I gave a similar briefing to this on the defence budget.

In the briefing I detailed how $1 billion of the Approved Major Capital Investment Program (AMCIP) from 2008/09 and $1.78 billion over the then forward estimates had been reprogrammed into later years. The majority of this reprogramming had been caused by

industry delays, including an inability to meet contracted milestones by payment dates. Other reasons for this reprogramming included DMO processes, FMS delays and the unavailability of platforms for upgrades.

Since my appointment to the Defence portfolio, I have been focussed on improving defence procurement performance to avoid if possible this sort of reprogramming. And more importantly to ensure that materiel is delivered to the ADF as close to schedule and budget as


Key initiatives to improve performance were the Projects of Concern process and the Government’s response to the 2008 Defence Procurement and Sustainment Review. These initiatives are bearing fruit.

When the Rudd Government was elected in 2007, we instituted the Projects of Concern process to focus attention on projects that are more expensive than we expected, later than we’d like and not working as well as we need.

The original list contained over $13 billion worth of projects. Since then we have been able to remediate projects worth around $6 billion and they are no longer on the list.

The most recent to be removed was the $1.5 billion upgrade of the Adelaide Class Guided Missile Frigates. The FFG upgrade as it was known was over four and half years late and had been the subject of a very critical performance audit by the Australian National Audit Office just before the Rudd Labor Government was elected.

As a result of the contractual acceptance of all four FFGs and the decision by the Chief of Navy to approve Initial Operational Release of this capability, I made the decision to remove it from the Projects of Concern list. This is also reflected in the DMO Portfolio Budget Statement that now rates the FFG Upgrade as low risk.

Another project that the PBS reports major progress on is Air 5077 - the Wedgetail Airborne Early Warning and Control Aircraft. This $3.9 billion project is running around four years late.

This project was drifting when the current Government was elected. As the result of a lot of very concentrated work by both the DMO and Boeing and its sub-contractors, we have now formally accepted the first two aircraft in an ‘initial’ configuration capable of supporting training and peacetime national tasking.

In fact, I am now confident that the Wedgetail, when full operational capability is achieved, will be among the best airborne early warning and control aircraft in the world and a tremendous asset for the ADF.

Another problem project was the $660 million JP2043, Phase 3A or HF MOD project. The final delivery of the Final System was scheduled for October 2007. That clearly did not happen.

I am proud to announce today that the final Fixed Network system has recently been formally accepted from the prime contractor, Boeing Defence Australia. This is the culmination of two years of renewed focus and cooperation by the DMO and Boeing.

The achievement of this milestone represents a significant achievement in the modernisation of Defence’s high frequency communications capability. This final system capability has been supporting Australian Defence Force (ADF) operations since late 2009, taking over from the previous core system which was delivered by Boeing as an interim capability in 2004.

As I said, this focus on project performance is bearing fruit as DMO and industry work better together. I’m proud to announce today that instead of returning funding because of poor performance, the DMO has had to bring funding forward due to improved project performance.

Between the years 2009/10 and 2012/13, $1.4 billion in approved major capital investment funding has been brought forward due to improved project performance.

This is a very important achievement and I thank everyone in this room who has played a part in this.

Defence Science

The Defence budget also includes a very strong increase in funding for the Defence Science and Technology Organisation compared to last year’s budget. I am happy to announce today that the DSTO will receive an additional $138 million in funding between 2010-11 and 2012-13.

This is in recognition of the key role that DSTO plays in ensuring that the ADF develops and maintains a strategic capability advantage. The Government is investing in DSTO in three priority areas.

The first is to allow it to grow its workforce over the next few years to support the increased requirements of a technologically demanding Defence Capability Plan (DCP). DSTO's workforce was at a level of around 2,400 in 2007. This investment will see it grow to around 2,600 in 2011. This workforce growth will be vital to continuing our commitment to improving project performance by removing technical risk.

DSTO is using its more experienced, highly skilled scientists and engineers to support the DCP, and recruiting to backfill staff in other areas to maintain a balance with the other demands of the DSTO program. This investment has enabled it to undertake a significant recruitment program to seek people who have recently graduated as well as experienced scientists and engineers from other research agencies, academia and industry.

DSTO has already recruited around 220 new scientists and engineers from a strong field of applicants. The majority of these new recruits will be based in Adelaide and Melbourne.

The second area of investment is in providing dedicated funds to allow DSTO to strengthen its Corporate Enabling Research Program, which focuses on technologically challenging areas of Defence significance for current and future operations. These areas include: • cyber;

• intelligence, surveillance and reconnaissance; • hypersonics; and • electronic warfare.

The third area of investment is in a rolling program of technology upgrades of some of DSTO’s laboratories and technical facilities, to ensure that DSTO has access to infrastructure that will continue to enable it to conduct highly classified research, such as in missile simulation and phased array radar analysis.

This investment does take account of the fact that DSTO has also made significant reforms in its business in line with the SRP, and DSTO is achieving efficiencies alongside the rest of the Defence Organisation.


To conclude, the Government has committed to total Defence resourcing of $30.8 billion in 2010-11. This will fund operations vital to national security and protect the troops carrying out this vital work.

We have also continued to implement the SRP process and institute a long term funding framework for defence.

Within my particular areas of responsibility, there is a $138 million increase in DSTO funding to fund future technologies and reduce the technical risk of major procurements.

In defence materiel, we have seen $1.4 billion brought forward due to improved project performance. One such improved project is the $660 million HF Mod Program where we saw formal acceptance of the final Fixed Network system.

I thank you for your time.

Media contacts: Rod Hilton (Greg Combet): 02 6277 7620 or 0458 276 619

Defence Media Liaison: 02 6127 1999 or 0408 498 664