Defence budget 2024-25: Nuclear-powered submarines distort spending patterns

A few things jump out from an analysis of next year’s Defence budget of $55.687 billion.  As has been widely expected, the quest to acquire nuclear-powered submarines has started swallowing money like the black hole in the centre of the galaxy absorbs light and matter.  This is at least eight years in advance of any capability being delivered. Labelled DEF 1 – what else – this preparatory phase of the project has a budget of $11.814 billion + $1.79 billion (recorded in separate parts of the papers) for about $13.6 billion during the next four years.  In the next financial year $2.223 billion of that will be spent.  A large chunk of this will be gifted to US and UK submarine building companies. To this needs to be added the $330 million of salaries for the Australian Submarine Agency (ASA) next year. While the exact amount to be transferred overseas is concealed, the papers refer to the huge amount as being “a fair and proportionate contribution.” Since the government cannot – or will not – explain how Australia’s total $4.6 billion gift to the US was calculated, this claim is impossible to verify.  The US Congressional budget office (CBO) is likely to be disappointed as it was expecting a US $1.8 billion (AU $3 billion) payment on October 1, so that does not appear to be happening. We can surmise that some of the handout to US industry will happen in the next Financial Year, we just don’t know how much.  Looking at the ASA spending pattern for the following three years, we see that two of them have amounts in excess of AU$2 billion: FY 2025-26 ($2.241 billion) and FY 2027-28 ($2.751 billion) and presumably they include substantial transfers to the US.  FY 2026-27 drops back to a modest $881 million – excluding ASA salaries. Australia will also donate $4.6 billion to UK submarine builders, but there is no detail of this apparent in the documents. ASA staff numbers continue to rise steadily followed by a sharp drop at the end of the Forward Estimates in FY 2027-28, perhaps because their job will have been done. Over the next four years the “operating costs” of the ASA total about $8 billion.  It seems likely that this figure is in fact money that will be handed over to US and UK submarine builders.  The additional $1.4 billion to make up the grand total of $9.4 billion is probably sloshing around in the numbers disguised as something else. Some further features of the budget include the information that Defence expenditure will hold steady as a percentage of GDP, hovering at just a fraction under 2% for the next three years.  It rises to more than 2% only in FY 2027-28 and then stays there indefinitely.  This of course depends on future governments sticking rigidly to this plan – and we note that the big jump in expenditure takes place after at least two Federal elections. The workforce projections are improbable.  It might seem hard to believe, but since the 2016 White Paper, the ADF has grown by an average of only 20 per year.  That’s not a misprint. However, for 2024-25 the Budget papers claim numbers will jump from a current figure of 58,242 fulltime personnel to 63,597 – a rise of more than 5,000. Of the individual services, the RAN is meant to grow by 1,300; Army by 2,300 and the RAAF 700. In the past three years RAN personnel numbers have gone backwards and yet we are expected to believe that it will suddenly go on a wildly successful recruitment spree.  The figures for Army look equally improbable. The ADF has a growth target of an extra 20,000 people in uniform by 2040 and on current patterns it is hard to understand how they will get anywhere remotely near that number.  It should be remembered that this non-existent growth is happening in the middle of a three-year wage increase, which will lift all salaries by 11.8%, so the reluctance to join the military might be factors other than money. Paradoxically, the papers show that the salary bill for both the ADF and Australian Public Service has exceeded budget projections for several years. Also of concern, expenditure on the Hunter class frigate program will decline next Financial Year.  The current spend is $780 million – but this will drop to $745 million for 2024-25.  Given that inflation is still running at more than 3% per year the actual dollars available for the ships is effectively lower than the headline number. This seems strange – and worrying – because a production contract for three or six ships is expected to be signed later this calendar year.  Usually this leads to a jump in expenditure as lots of steel starts to be cut and a huge amount of hardware is ordered. Another acquisition in trouble looks to be AIR 555, the purchase of four MC-55A Peregrine ISREW aircraft.  According to last year’s Budget papers they were meant to start flying in the next financial year – but on the current numbers they won’t be operational until FY 2026-27, a two-year delay.  No reason is given.  At the same time, we are scheduled to spend $130 million next year for Peregrine support costs with not a single aircraft in service. It’s also clear that the F-35 fleet has been more expensive to support than budgeted and the aircraft have failed to meet their flying hour targets for several years in a row. The figures for the current year are almost certainly affected because the final nine RAAF jets are in storage somewhere in the US waiting for clearance to fly with new mission computers.  This core processing improvement is a necessary precondition for the forthcoming major capability upgrade to the Block 4 configuration, but the USAF flight test program is way behind schedule. Having written that, flying the current fleet of 63 F-35s will cost $526 million next year, while the budget for 36 Super Hornets and Growlers for the same period is $544 million.  As expensive as the F-35s are to operate, they still look to be an improvement over older legacy jets. Army seems to have given up on digitisation with no mention of LAND 200.  To be accurate, this was always a combination of LAND Projects 75 (the battle management part) and 125 (future soldier system).  This latter activity seems to have moved to the new project LAND 300 but the digital command and control element seems to have vanished unless it is combined with another project. Another curiosity is SEA 1180, the acquisition of Arafura class patrol boats with a project budget of $3.705 billion.  Even though the number of ships has been cut in half from 12 to 6, the funding stays the same. Next FY year the project will consume $469 million – up from the current $414 million – even though the RAN is refusing to take delivery of the first two ships as it carries out self-defeating bureaucratic trench warfare with prime contractor Luerssen over a variety of paperwork issues. A surprise in the sustainment figures is it looks like the Army’s 22 Tiger Armed Reconnaissance Helicopters will continue to fly until 2027 and with a contingency to keep them going until 2028.  This seems to contradict the rhetoric that they will be retired this calendar year and means that there will be no capability gap as 29 Apache AH-64E attack helicopters start to arrive. Speaking of helicopters, project SEA 9100 will see $4.77 billion spent on lifting the number of MH60R Seahawks from the current 24 to 36.  Of this, next FY sees an acquisition spend of $512 million.  This is to support 14 flights – a flight being the ability of a helicopter and crew – plus a lot of spares – to deploy onboard a ship and keep operating for several months without returning to port. This looks strange when calculating the number of ships available to embark helicopters.  The three Air Warfare Destroyers commence their upgrades to Aegis Baseline 9 – with a budget of $2.451 billion – in 2026, with each being sequentially taken out of service for about two years.  Anzac frigates are being withdrawn from service faster than expected and will soon be down to five hulls or less. Putting all this together, the RAN will have 14 Seahawks, crew and maintainers available to go to sea but will have at best 7 surface combatants to carry them.  Some can be embarked on the two Canberra class LHDs, but this looks to be a considerable amount of overcapacity until the new General Purpose Frigates become available, hopefully from 2029. One of the many mysteries of Defence capability development is how the RAN managed to get away with replacing 6 Taipan utility helicopters with 12 specialised ASW MH-60Rs.  Operating the current 24 Romeos will cost $197 million during FY 2024-25. There is no mention of SEA 3000, the acquisition of the new frigates.  This also seems to be a mismatch with the rhetoric that a design will have been selected and a contract signed within the next 12 months.  This reflects either: a) the budget papers being finalised before the GP Frigate program was scoped; or b) a return to sanity and a recognition that while this project needs to move quickly, there are limits to what can be achieved in a short period of time. In summary, the Budget papers confirm the view that the government’s boasts of huge increases in Defence expenditure are just hot air.  As we have previously reported, meaningful growth only happens later this decade – and only if future governments stick to the same trajectory.  In the meantime, the nuclear-powered submarine project makes sure that the other services will not be able to afford any new capabilities for at least the next decade. 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