Defence Budget ADM Congress 2014

Mark Thomson

Outline:

• Defence Budget Status

• Capital Investment and Industry

• Budget Prospects

Defence Budget Status

Slide 1

Recession

Recession

NOT a recession

Australia’s GDP 1959 to 2012

5

1

2

3

Late breaking news:

• $1.1 billion has been ‘rephrased’ from 2015-16 and 2016-17:

• 2013-14 budget increased by $360 million

• 2014-15 budget increased by $304 million

• 2015-16 budget decreased by -$89 million

• 2016-17 budget decreased by -$1 billion

• extra $1.8 billion over four years for forex

Net Cost (Cash)

Budget

Estimate

Revised

Estimate Difference

Employee payments 10,727,745 10,701,344 -26,401

Supplier payments 9,305,856 9,689,400 383,544

Purchase of Specialist Military Equipment 3,179,327 3,853,037 673,710

Purchase of inventory 1,054,362 1,069,603 15,241

Purchase of land property, plant and equipment 1,492,844 1,595,427 102,583

Other cash used 1,515,708 1,595,994 80,286

Own Source Receipts -1,940,798 -2,166,230 -225,432

Net Cost 25,335,044 26,338,575 1,003,531

Late breaking news:

• $1.1 billion has been ‘rephrased’ from 2015-16 and 2016-17:

• 2013-14 budget increased by $360 million

• 2014-15 budget increased by $304 million

• 2015-16 budget decreased by -$89 million

• 2016-17 budget decreased by -$1 billion

Total -$425 million

• extra $1.8 billion over four years for forex

Capital Investment

and Industry

Budget Prospects

Within a decade, the budget surplus will be 1 per cent of GDP,

defence spending will be 2 per cent of GDP, the private health

insurance rebate will be fully restored, and each year,

government will be a smaller percentage of our economy.

Opposition

Government

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

What about reform and efficiency?

The Fiscal Outlook

1% of GDP ~ $16 billion

Last possible date for next election

Downside risk of

further deterioration

in terms of trade

Nonetheless…

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

There is no fundamental economic reason why Australia

cannot afford to maintain a defence force of the size

and shape it has today out to at least 2050, or build a larger

force if need be.

It’s just a question of accepting the opportunity cost in:

• public goods (health, education, welfare)

• private consumption (plasma TVs, holidays, cars)

Politics and the New Government

What are the chances of

2% being delivered?

‘5% pa real growth for 5 years’

2.3% GDP (1976-77)

‘5% pa real growth for 5 years’

2.3% GDP (1976-77)

~ 2.6% pa real growth

2.3% GDP (1980-81)

‘require 2.6% to 3% of GDP’

2.5% GDP (1986-87)

‘require 2.6% to 3% of GDP’

2.5% GDP (1986-87)

2.05% GDP (1994-95)

2.05% GDP (1994-95)

‘sustain ~2% of GDP’

2.05% GDP (1994-95)

‘sustain ~2% of GDP’

1.74% GDP (2000-01)

1.74% GDP (2000-01)

3% real growth to 2010

1.74% GDP (2000-01)

3% pa real growth to 2010

1.83% GDP (2009-10)

1.83% GDP (2009-10)

3% pa real growth to 2017

1.83% GDP (2009-10)

3% pa real growth to 2017

1.6% GDP (2012-13)

…the Government is committed to

increasing Defence funding towards a

target of 2 per cent of GDP.

1.6% GDP (2012-13)

…the Government is committed to

increasing Defence funding towards a

target of 2 per cent of GDP.

1.6% GDP (2012-13)

Funding only adequate for

1.65% GDP in 2022

Questions?