dr mark thomson - australian strategic policy institute - 2015-2016 defence budget outlook

Defence Budget2016

Mark Thomson

Outline:

• Defence Budget Past and Present

• 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.”

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

• $29.3 billion = 1.8% of GDP

• 6% year-on-year real boost

• $1.5 billion brought forward over 4 years

2014 Budget

2015 Budget

• $32.1 billion = 1.93% of GDP

• 4.5% year-on-year real boost

• large forex and op cost increases

0

5

10

15

20

25

30

35

40

45b

illi

on

20

15

-16

$

Operational supplementation

Baseline costs

Steady growth

actual spending

budget

estimates

projected

1.7

4%

1.7

7%

1.7

5%

1.7

8%

1.7

4%

1.9

4%

1.8

2%

1.7

0%

1.7

6%

1.7

6%

1.7

6%

1.7

9%

1.9

5%

1.9

3%

1.9

0%

1.8

7%

1.8

3%

1.7

8%

1.9

3%

1.8

7%

1.6

8%

1.6

0%

GD

P s

har

e =

2.0

0%

1.9

8%

6

8

10

12

14

16

18b

illi

on

20

15

-16

$ (

bil

lio

n)

Personnel

Capital

Operating

Operating Costs

3.0% real growth

2019-10 to 2023-24

Personnel Costs

2.5% real growth

2019-20 to 2023-24

Capital Investment

6.9% real growth

2019-20 to 2023-24

Budget Estimates

Capital Investment

and Industry

Major acquisition announcements:

• Onesky air traffic (February 2015)

• 2 extra C-17 (April 2015)

• CRAM (June 2015)

• 2 extra KC-30 (July 2015)

• Styer upgrade (July 2015)

• OCV to ‘cut steel’ in 2018 (August 2015)

• Frigates to ‘cut steel’ in 2020 (August 2015)

• New grenade launcher (August 2015)

• Battlefield Communications (September 2015)

• Hawkei contract (October 2015)

• Pilot training system (December 2015)

• SEA1000 & SEA1179 set for 2016

Budget Prospects

2% of GDP or not?

0

10

20

30

40

50

60

0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10

Eff

ecti

ve

bu

yin

g p

ow

er

US$ - A$ exchange rate

$12.7 billion (-26%)

Base:

A$

1 =

0.8

0 U

S$

0.0

0.1

0.2

0.3

0.4

0.5

0.6

IGR 2003 IGR 2007 IGR 2010 IGR 2015

20

14

-15

$ (

tril

lio

n)

$98 billion (-20%)

2% GDP 2% GDP 2% GDP 2% GDP

The Economic Outlook

The Fiscal Outlook

Budget Forecasts

Government Receipts

Government Payments

Nonetheless…

Fiscal problems represent political

rather than economic constraints

on the government’s freedom of action.

The Electorate

Source: Ray Morgan Research

Falling

Revenues

Restive

Electorate

Questions