ASPECTS OF AUSTRALIA’S DEFENCE WHITE PAPER

Transcript of a Speech by The Hon. Joel Fitzgibbon MP, Minister for Defence

The Sydney Institute May 21, 2009

Thanks Gerard, my sincere apologies to you all for being so late. As Gerard pointed out we’ve had some fog in Melbourne today.   My staff are well trained to ensure that I’ve always got plenty of time to get to important functions such as this, but the fog this morning has caused mayhem in Melbourne and held us up by a least a couple of hours so I apologise again. It’s great to be here Gerald and I really appreciate both the invitation and the warm welcome.

Well we are eighteen months into Government, it has been a busy eighteen months.  We have all been busy of course pursuing our reform agenda, implementing our election promises and in particular and more recently dealing with the largest global recession in at least seventy five years.  So it has been a busy time and Defence has not been exempt from that busyness.

Since coming to office we have withdrawn our troops for Iraq without causing any relationship problems with the US or any of our key allies or partners or indeed any relationship problems to our friends in Iraq.  Of course we were able to leave Iraq with our heads held high having done a good job there and again reinforcing our very, very strong reputation around the globe for our peace making and peace keeping efforts.

In Afghanistan we’ve given clarity to our mission, reconfigured and enhanced our operations. The clarification or clarity to the mission of course is the new focus on training – the training of the Afghan National Security Forces.  Our very strong view is that our work in Oruzgan Province will be complete when we have built sufficient capacity and skills in the Afghan National Army.  In particular, to the level they require to enforce their own rule of law and to take care of their own security over the medium to long term.

We have also been more deeply engaging ourselves in the NATO and ISAF processes. I was surprised when I first came into Government to see how little involvement the Australian Government had had in those processes.  Indeed, we didn’t even have access to NATO planning documents which came as a shock to me.  My very strong view is that if we are going to send our young people to war we should be engaged in the planning processes.   We should be part of the decision making processes and we certainly should have access to the documents we need to allow us to make a proper assessment of the operations and of the risks involved and the likelihood of success.  We have certainly involved ourself in that process over the course of the last eighteen months or so.

We have opened up Afghanistan to the Australian media, something very close to my heart.  In the tradition to the CEW Bean who of course famously reported from the trenches during the First World War.  Australian journalists will now embed with our troops in operations in Oruzgan Province.   I think this is very important, I think we need to be providing to the Australian people an unfiltered uncensored report of progress in Oruzgan Province.  That’s exactly what we will get in the future and I am personally delighted about that.

More broadly we are more deeply engaged in Pakistan.  Just yesterday I met with their Chief of the Defence Staff in Canberra.  As you know Pakistan is important to global security and is certainly important to Australia’s interests and certainly important to better progress in Afghanistan and we will continue to further involve ourselves more deeply in our dialogue and partnerships with the Pakistani Government. Of course, we believe we have a lot to offer in counter insurgency training in particular and we believe that we can do a lot to assist the Pakistani Government and the Pakistani Armed Forces in that regard.

We have also more deeply engaged in Africa, again, important to global security and the evidence of has been apparent in the recent months with the rise and rise of piracy in the Gulf of Aden.  I was surprised when I first came to this position to learn that while we have around 185 uniform personnel in various missions around the globe we do not have one permanent person in uniform anywhere on the African continent.  I found that very surprising and that is about to change and while I was in Africa earlier this year I had a number of meetings with various African union officials and some bilaterals with a number of East African countries.  I have indicated to them, as Stephen Smith has done, we are keen to become more engaged more involved. We see an important role for us there in training particularly in the area of counter insurgency.  And of course we have been more deeply engaging in Asia for obvious reasons and we will continue to do so.

Closer to home we have appointed three new service chiefs and have given them a new, clear reform agenda. We put in place important Defence procurement reforms to ensure that in the future we don’t have significant procurement debacles.  We put in place a “Projects of Concern Program” which is designed and is addressing those capability projects we inherited that are problematic and costly to the Australian tax payer and are still not delivering the capability they were designed to deliver.

We have created the Asia Pacific Civil Military Centre of Excellence this was a key election promise and I think a critical new capability.  Whether we look to the South Pacific and stabilisation of peace keeping operations there, or whether we look further a field in places like Afghanistan, it is now more clear than ever, that the secret to better progress and greater success is the proper marrying of our Civil and Military efforts.  We now have a dedicated centre in Canberra from which we will prepare doctrine and better ways of better marrying those civil and military efforts.

Of course we have produced a new White Paper and along with it, a Strategic Reform Program and it’s those two things that I want to draw on most tonight.

The 2009 Defence White Paper is arguably the most comprehensive assessment of our strategic future and strategic environment in our history. It represents 14 months of very, very hard work by many people both inside the Defence organisation and from outside the Defence organisation.  From a government level it’s meant countless hours of meetings of the National Security Committee and I have to say plenty of robust discussion about the various assessments coming from various agencies including our intelligence agencies.  I was bemused to read in the newspaper - shock horror that there had been some robust debate in the National Security Committee about these various assessments. I would have thought that’s exactly what the National Security Committee was designed to do and that’s what the Australian people would expect National Security members to do when considering such important issues and when trying to or attempting to, assess our strategic outlook over some twenty years.

I want to say that something new in that process was an initiative of mine called the Ministerial Advisory Panel. Many of you will be aware that Major General Peter Abigail, retired, Dr Mark Thompson and Professor Ross Babbage formed that Ministerial Panel. I thought it worked really, really well and if I am the Defence Minister I certainly intend to do it again next time we do a White Paper.  I think that they added some contestability to the discussion  - which was invaluable to me - a second source of advice and I think it was a better White Paper for their contribution.

Of course one of those things that rendered the White Paper process such a slow one was the fact that we hadn’t had a White Paper in almost a decade.  In fact, it is a decade since the last White Paper was developed. It was developed in the late 1990’s and delivered in the year 2000.

Now the world, I’m sure you will all agree, has changed very significantly since then. September 11 and subsequent terror events in London, Spain, Jakarta, Bali and more recently in Mumbai. The wars in Afghanistan and Iraq.

The rising nuclear ambitions of rouge states like North Korea and Iran. The growing fear of the prosects of weapons of mass destruction falling in the hands of non-state actors.

Now, the emergence and the growing emergence of new capabilities - space warfare, electronic warfare, cyber warfare.  And of course the biggest change of all  - huge shifts in the global distribution of power including, of course, the rise and rise of China, the emergence of India and the re-emergence of Russia.  And of course you look to places like South America where we see big changes. So as I’ve said in the preface of the White Paper, we are now seeing the beginning of the end if you like of the so called unipolar moment - a transition from the unipolar moment which extended ten years or more after the cold war to an environment in which there are many players -  not just one super power but many super powers across the globe.

Now having said that I can see there are some continuities  - some things that haven’t changed. We’ve made the point in the White Paper that it’s the Government’s assessment that for example, the US will enjoy supremacy over the course of the next two decades. We have reinforced the importance of the US alliance to Australia’s National Security. We have reinforced the importance of self reliance - that is, not having to necessarily rely upon the forces of other nation states to defend our continent.  Of course we have re-affirmed our commitment to multi national arrangements including forums like the United Nations but there are also some discontinuities and the biggest of those of course are the big global shifts in power that I‘ve spoken about.

Now what is our response to all this?  Well our response is not just a military or defence response and since day one the Prime Minister has been talking a lot about the formation of an Asia Pacific community.  A forum not unlike the many currently operating in the region but one which deals with both economic matters and security matters but also involves all the major players in the region.

But on the military side, we have produced a response.  And our response is Force 2030 a bigger force, a more powerful force, a more sophisticated force, a more flexible force and a more integrated force.

In that regard of course, our focus has been understandably on what we have done in planning terms. In terms of submarines, bigger and more sophisticated surface combatants, more air power of course with the confirmation of the four squadrons of Joint Strike Fighter aircraft, and a new commitment, an enhanced commitment to strategic strike which I think is a very prominent commitment but one which has largely escaped the notice of the commentariat and in particular the media.  And of course, I should mention anti-submarine warfare in all of that too - a critical new capability - something we haven’t done well in the past. I should have also mentioned a commitment to cyber warfare and electronic warfare something that has been underdone in the past.  But having said all of that, it is also true to say we’ve produced what I would describe as a balanced force.

A force which will enable us to continue to do all the things we might be called upon to do over the next ten to twenty years. For example defending the continent which I’ve spoken about.  But also of course, maintaining that capability needed to take a lead role in stabilisation efforts in the South Pacific and in places like East Timor, something we have done well in the past.  The capability to participate in the coalition efforts in the broader Asia Pacific Region and also of course, maintaining the capacity to participate in the future on an ongoing basis in coalition efforts further a field in places like Afghanistan and where ever we believe our interests are under threat.

So far the media focus has been on the big sexy maritime capability but we have done a lot in Army. We have a bigger Army  - from eight battle groups to ten  - and of course, they will get more new and heavier deployable vehicles.

They will also get the latest in battlefield management technology including things like blue-force tracker. They will get a lot of enablers  - helicopters for example new battlefield lift which will replace our caribous, there will be lots in terms of communications and there will be lots in terms of soldier systems.

So, how are we paying for all of this?  I have noted that there has not been a lot of challenge to our strategic assessment.  Nor has there been a lot of people challenging our force structure proposals.  Nor at this stage, have I seen a lot of people challenging what we plan to do in terms of capability.  

Can I say that when I started the White Paper process almost instinctively, I knew that there would be some big challenges on the financial front. I didn’t have to go too far into the strategic assessment process to identify the fact that the strategic outlook would be calling upon us to invest more, not less. 

Then of course there were some big challenges we faced in terms of what we inherited from the former government.  I don’t say this to make a political point but I think it’s an important point because they are not my numbers.  They are Defence’s numbers and they are numbers that come from management consultant George Papas and McKinsey and Company.  The black hole that we have inherited amounts to some $30 billion over the decade. So the challenge became some what greater when I started to add up those numbers.  And then of course came the global financial crisis and our challenge became almost insurmountable. I just want to draw on those black holes for a moment because $30 billion is a lot of money and it could pass you by very quickly without getting a full appreciation for where those dollars lie.

The remediation of the current defence capability plan, or the continuation of, will cost me $5.9 billion over the decade. Remediation of defence systems and infrastructure $5.7 billion over the decade.  And filling the budget black holes we have inherited in other areas of government administration in Defence - some $17.6 billion. Let me just give you an example of each of those three areas so that you understand the sort of things that I am talking about.

The capability plan .  This is about properly making provision for all the weapons for example, that go on our various platforms. The previous government, for example, made provision for JSF but not the weapons systems. They had not made provisions for the weapons systems. Future weapons systems on our Anzac class frigates for example.  $5.9 billion.

Systems and infrastructure - my favourite example.  The government made provision for two LHD’s, these are our new big troop carriers, but they didn’t make provision for the infrastructure that supports them. You would expect those LHD’s to embark from Townsville or Darwin for example, but was there any provision or any planning for a wharf at Townsville or at Darwin? The answer is no. My favourite example. $5.7 billion over the decade.

Budget black holes .  The single biggest and the most prominent example is $9.5 billion for Net Personnel and Operational costs. These are the costs of sustaining our capability.  You buy a warship, capital costs, that’s fine that’s been provisioned for.  But you also have to provide money over the decade to man it, to sustain it, to repair it and to fuel it and quite frankly ladies and gentlemen, that has not been done with respect to a whole range of capability and that’s the black hole that I have inherited - $9.5 billion just for so called NPOC  - the Net Personnel and Operating Costs. There are a range of other areas.  For example, the failure to provision for pay rises over the coming decade, pay rises that were more then foreseeable.

So they are our challenges. My key goal has been to - for the first time in a long time - put the Defence budget back on a sustainable footing so that we can fully afford and fund Force 2030.

So how are we going to do that? This is the big challenge.

Well for the first time we are providing a funding model and funding certainty for the whole period of the White Paper - some twenty years. We have also provided additional certainty in that funding model by ditching the so called non-farm deflator, for an average of the non-farm deflator over the course of the last decade. This will stop the ebbs and flows in the “real” component of the three percent real over the course of the next decade.  We have reaffirmed our commitment to growing the defence budget by three percent real on average over the course of the next decade and by two point two percent real over the course of the second decade.

But that won’t be enough quite frankly, given the strategic assessment is calling upon us to do more, and given the demands on the budget due to the black holes that we have inherited.

So we come to the Strategic Reform Program. A program to stop wasteful spending in defence and to drive efficiencies.  A program with an ambitious goal I concede, to raise $20 billion over the next decade.  Not for putting back into the Government coffers, but for reinvestment in the defence enterprise. To fund those remediation works and to fund the capability projects we have identified under Force 2030.

Now I want to tell you tonight why I’m confident that this can be done. I have heard many commentators over the course of the last couple of weeks say “well we have seen this tried before, Defence has had many reform programs, we had heard it all before and we don’t believe that you can do it”. Well I want to tell you why I think this time is somewhat different. First of all the PM, Cabinet, the CDF, the Secretary of Defence, the Service Chiefs and the Group Heads are all this time in the reform bus. I’m not so sure any Minister could have argued that case in the past.

Second, we haven’t just plucked the $20 billion out of the air. Indeed when I first became Minister, acting almost on instinct and initial, limited enquiry into the state of the books I set us a target of $10 billion over the course of the decade. Some people very publicly laughed and said that was not possible to achieve. I then engaged George Pappas and McKinsey and company to undertake their independent audit and inquiry into defence enterprise. Their recommendation is that we can secure $20 billion over the course of the next decade and they are a very experienced team of people that have done a lot of this work both in the public and private sector.   I believe the model they have produced for us can do just that and certainly they share that confidence.

Third we put in place the right governance arrangements.  That of course is very important. Implementing reform is a challenge and pushing the reform program right down to the lower ranks, of course is an enormous challenge. The key thing about that governance arrangement is the creation of a Defence Strategic Reform Advisory body. This body will sit permanently over the course of the next five years.  It will be chaired by someone from the private sector with the appropriate and relevant experience in defence or defence industry. It’s membership will be made up of both people from government including the Department of Defence but other government agencies as well  - Treasury and Finance being a key, but also additional players from the private sector who have a two-fold role.  First to advise and drive the reform program, coming up with innovative ways of applying the model to the Defence enterprise, but also acting as the group that measures the success, checks the progress of our savings program against clearly defined benchmarks which we will set down for the advisory board.

The next point is five year White Papers. For the first time the Government has taken the decision not to wait for the next Prime Minister to decide when we are due for a white paper.  Not unlike the Americans who have a rolling program of strategic update. Now that’s good on the strategic side and I think overdue on the strategic side.  I think we’ve locked future government’s of any political persuasion now into that process.  It will take a brave government to come along in the future and say we don’t believe that in the future we need such regular strategic updates. More importantly in every fourth year we will again open up the Defence enterprise to an independent audit of the George Papas and McKinsey type.  So we will be shining that spot light into that organisation like never before.  Never before has defence had to face such external scrutiny and I think that will be a fantastic discipline on all those involved including of course, the Government because there are some tough decisions to be made along the track and governments have been known to bend when the time comes to make some of those decisions.                   

The last point is an important one, there is very deliberately an incentive buried in the model we’ve produced. I made the point that every cent saved in Defence will be reinvested in Defence. That means everyone from the CDF to the lowest ranked solider, from the Secretary to the lowest ranked civilian in the organisation has an incentive. If they want Force 2030, if they want the hollowness remediated in the Force, if they want the best facilities and capability then they need to back the Reform Program. I think that’s a really important point.

By the way there’s a bit of a fat there too. I was just reminded of one example this morning, which in fact, Secretary Nick Warner shared with the Lowy Institute about a year ago. I was going back over his speech in fact. He makes the point that just in inventory and in stores, Defence has stores to a value of $4.7 billion. Now anyone in the room who has been involved in advising business, particularly businesses that might be facing some difficulty, knows that the first thing you do is have a look at their inventory. And Defence has certainly got a big inventory. But here’s a more particular point, at Moorebank which is our biggest store we have 295 active stock codes.  When we last checked 68 percent of those stock codes haven’t been utilised in the last two years. I think that’s an important point.

Another important point is that our reform program is very structural.  Reform programs in the past have been about one-off cost saving exercises and assets sales. Sure there will be a little bit of that in our own plan, but this is structural and therefore cumulative. The efficiencies build on efficiencies year in and year out. What we’ll be doing is taking best practice public sector and private sector models and applying them to the defence enterprise. We’ll be doing it in procurement, in sustainment, in ICT, in maintenance it goes on.

Now, I said before that there were some sceptics and that’s very true. There are also some opponents emerging out there. A couple of people have asked me over the course of the last couple of weeks or since the release of the White Paper, I suppose, some of them sceptical about the Strategic Reform Program and the savings target. “What Minister do you believe are the biggest risks to your reform program”, they ask?   Well of course, the only alternative to reforming is not to reform. The only risk that I see, having outlined to you why I think we can be very confident about that reform, is political risk.

Now already we see people taking the opportunity to run political interference in this area of reform or that area of reform. Well I say to those people, the White Paper and the strategic assessment have told us very clearly that to adequately defend our nation and the people and their interests in the future, we need Force 2030. That’s the size, shape and weight of the force of the future if we want to be sure about our National Security. So those who want to run political interference on the reform program and cut our cost savings programs, I think justifiably need to nominate how they will fund Force 2030 or how they would find alternative sources for funding for Force 2030.

With the White Paper strategic assessment, Force 2030, the Government is making a very, very significant contribution, three percent real, as I said over the decade and two percent real beyond. But, we will need those internal savings. The re-prioritisation, the extra money, and the redirection of funds will result in us spending some $43 billion more on defence over the next two decades then would ordinarily have been the case if we remained on John Howard’s trajectory. So those who want to oppose the reform program need to nominate how they would fund that project if they weren’t relying on those important savings. My objective, my determination, the Government’s determination is to secure those savings for redirection to what will be an important structure for Australia’s future National Security. Thanks for the opportunity, I look forward to taking your questions.