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Budget 2019: What it means for Defence and industry

Treasurer Josh Frydenberg has handed down his first budget ahead of a proposed election to be held in May, here’s what it means for Defence and broader national security.

Treasurer Josh Frydenberg has handed down his first budget ahead of a proposed election to be held in May, here’s what it means for Defence and broader national security.

While Australia's defence expenditure looks set to increase to $38.7 billion in 2019-20, it is a case of business as usual for Defence and industry, with the budget announcement signalling the government's continued commitment to supporting the capability and development of Australia's sovereign defence industry capabilities. 

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The budget outlines continued investment in key projects identified as part of the government's 2016 Defence White Paper, which focused on delivering a series of major capability upgrades and modernisation programs across the Australian Defence Force including:

  • The delivery of the first unit as part of the $5.2 billion LAND 400 Phase 2 Boxer Combat Reconnaissance Vehicles;
  • Industry partners presented their bids as part of the $10-15 billion LAND 400 Phase 3 Armoured Fighting Vehicle program; 
  • The announcement of BAE Systems Australia as the successful tender for the $35 billion SEA 5000 Hunter Class guided missile frigate program;
  • Construction commencement and milestones at the $535 million SEA 5000 Shipyard facility at Osborne, South Australia;
  • The arrival of Australia's first two Lockheed Martin F-35A Joint Strike Fighters; and
  • The signing of the Strategic Partnership Agreement (SPA) between Naval Group and the Commonwealth and the Framework Agreement between Naval Group and ASC as part of the $$50 billion SEA 1000 Attack Class future submarine program.

The 2016 Defence White Paper (DWP) and supporting Integrated Investment and Naval Shipbuilding Plans set the tone for the 2019-20 budget, establishing its focus on supporting industry through the sovereign industry capability and naval shipbuilding plans sought to respond to increased regional tensions and forge a path forward, following nearly two decades of 'valleys of death', cost and delivery overruns and shrinking defence budgets.

Defence industry export has been a primary focus of the coalition government, with new Defence Industry Minister Linda Reynolds recently announced a renewed Industry Participation Plan to build on the success of the government’s Australian Industry Capability Program and Local Industry Capability Plan initiative but extends the requirement to consider opportunities for Australian industry to all Defence procurements of $4 million and above ($7.5 million for construction).

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Focus shifting to regional security role

The 2019-20 defence budget includes renewed focus on Australia's commitment to regional and global security to as Defence Minister Christopher Pyne said, "protect our interests at home and abroad".

Defence will continue to play a crucial role in supporting the Pacific step-up program, while also supporting increased support to south-east Asian partners, including: 

  • Building Fiji’s Blackrock Peacekeeping Humanitarian Assistance and Disaster Relief Camp into a regional hub for police and peacekeeping training;
  • Working with the Solomon Islands and Vanuatu to increase security cooperation;
  • Helping to develop the Papua New Guinea Defence Force’s Lombrum Naval Base in Manus Province and increase the interoperability between Australian and allied defence forces;
  • Continued investments in the $504 million Guardian Class patrol boat program to support Pacific Island nations; 
  • Increased frequency of visits and training opportunities for regional countries;
  • Supporting the training of regional military forces in Australia, including the $2.25 billion Australia-Singapore Military Training Initiative in central and north Queensland; and
  • Continuing to work cooperatively with regional countries to support their security, including through the Five Power Defence Arrangement.

Committed to delivering the Integrated Investment Program

The government has confirmed over the next decade to 2028-29 the government will invest more than $200 billion in defence capabilities including:

  • The continuous naval shipbuilding program, which is investing around $90 billion to build world-class vessels, while also building a strong and viable Australian naval shipbuilding industry;
  • Continuing the purchase of the fifth-generation F-35 Joint Strike Fighter and P-8A Poseidon maritime surveillance aircraft to provide Australia with regionally superior combat and maritime surveillance capabilities;
  • Continuing to upgrade the EA-18G Growler electronic attack aircraft and E-7A Wedgetail battlespace management aircraft; and
  • Building Australia's policy and intelligence capabilities to ensure Australia has a deeper understanding of the changing geo-political environment. 

Continued industry growth critical to defence capability

In addition to the existing sovereign industry capability plan, the government plans to introduce a number of industry support programs, including: 

  • Implementing the Defence Industry Skilling and Science, Technology, Engineering and Mathematics (STEM) Strategy, released by the government in February 2019, which outlines support to help the local defence industry to meet anticipated workforce and skills demand over the next decade; 
  • Establishing the Defence Global Competitiveness Grant program, an initiative of the Defence Export Strategy (launched in January 2018), investing up to $4.1 million a year to support small to medium enterprises to overcome barriers in accessing export opportunities;
  • The establishment of the Sovereign Industrial Capability Grant program, a key initiative of the Defence Industrial Capability Plan (launched in November 2018) to invest up to $17 million per year in grants to build the capacity and capability of Australian small to medium-sized enterprises to deliver operationally critical capability for Defence;
  • Providing advisory and facilitation services through the Centre for Defence Industry Capability for 550 small and medium enterprises, issuing over $3 million in grants and conducted stakeholder outreach events which have been delivered to more than 5,000 participants; and
  • Administering the Defence Innovation Hub, which has received over 800 innovation proposals and awarded around $100 million in contracts and an additional 12 Special Notice contracts worth around $10 million focused on specific capability challenges. 

Sharpening Australia's cyber security capabilities 

The mounting cyber attacks in recent months will see the government commit investment to the Australian Signals Directorate (ASD), including the Australian Cyber Security Centre, to support the collation and delivery of intelligence, cyber security and offensive cyber operations to support the Australian government and the ADF. 

As part of this continued investment to protect government networks from hostile cyber compromise and ensure the integrity of the 2019 federal election, the government has announced an investment to create the 'SPRINT' cyber security teams and a Cyber Security Response Fund. 

Growth is good, but regional dynamics mean we need to be spending more

While the continued defence budget growth is expected to be widely welcomed by industry, the growing challenges to the Indo-Pacific region are raising questions about whether Australia's commitment to 2 per cent of GDP is suitable to support the growing role and responsibilities that Australia will be required to undertake as regional security load sharing between the United States and allies becomes a reality. 

Dr Malcolm Davis of the Australian Strategic Policy Institute (ASPI) reinforced this, telling Defence Connect at the Avalon Airshow in late February, "The government aspiration of spending 2 per cent of GDP on defence is simply not enough any more. We need to look at planning our force structure, our capability requirements and spending on a number of factors, including allied strengths and potential adversarial capabilities, not arbitrary figures."

"It is time for us to throw open the debate about our force structure. It is time to ask what more do we need to do and what do we need to be capable of doing," Davis added. 

Budget 2019: What it means for Defence and industry
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