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'Megaprojects' crowding out capabilities: ASPI

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Defence enablers like facilities and ICT are at risk of suffering as the bulk of Defence's budget spend goes to 'megaprojects', the 2018 Cost of Defence Report from ASPI has argued.

In his review of the Department of Defence's budget for 2018-19, ASPI's defence economics senior analyst and author of the report Dr Marcus Hellyer cautioned the major shipbuilding projects and the sustainment costs of the Joint Strike Fighters present great uncertainty and "potentially unsustainable" goals.

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With Defence set to acquire nine Future Frigates, from which designer still remains undecided, and 12 Future Submarines, the sustainment costs for these vessels will also increase substantially, with Dr Hellyer warning that Australia could be paying $2 billion a year to operate these submarines on top of the $2 billion a year it will cost to build them.

"Since the Navy is essentially undergoing a transformation that will double its tonnage, sustainment costs will also increase. Submarine and frigate sustainment (currently the largest and third-largest sustainment lines in Defence) are likely to triple and double, respectively. Submarines alone could cost $2 billion a year to operate, on top of $2 billion a year to build, which together will potentially require 10 per cent of Defence’s total budget for one capability," Dr Hellyer said in his report.

"Granted, we are still a long way away from having all the future frigates and submarines, but at a time when Western navies are shrinking due to the cost of building and operating modern warships, the fact that we are moving in the other direction raises questions about affordability."

The report also flagged the cost of sustaining Australia's 72 F-35 jets as a potential risk.

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"There are other cost pressures. The future sustainment cost of the Joint Strike Fighter is a big unknown, but if it’s anywhere close to the jump from the classic Hornet to Super Hornet (around three times as much per aircraft), it will be hard to absorb," Dr Hellyer said.

"In short, the megaprojects, in particular shipbuilding, have the potential to crowd out other capabilities."

Dr Hellyer said usually key enablers like Defence facilities and ICT are the first to suffer in these scenarios, pointing out that the ANAO has recently warned that the $50 billion budget for the Future Submarines may already need an increase.

"Historically, it’s the enablers (facilities and ICT) holding everything together that suffer. But it could be that the big projects will also distort the overall force structure. There are already signs of that, and the ANAO has noted that Defence may have to increase the future submarine project’s budget by $6.7 billion, even before the first submarine is delivered. That can only come from other areas of planned expenditure, most likely other capital investment," Dr Hellyer said.

In light of their centrality to Australia’s future military capability and to the government’s defence industry policy, Dr Hellyer has called for better scrutiny of the two major shipbuilding projects, with "real" data at the centre of any discussion.

"There [needs] be informed understanding and public scrutiny of the future frigate and future submarine projects – the two biggest projects in Defence’s, and potentially the nation’s, history. That discussion must be supported by real data. As a minimum, the two projects should be included in the ANAO’s major projects report, regardless of whether they have received formal second-pass approval from government," he said.

'Megaprojects' crowding out capabilities: ASPI
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