ADF General discussion thread

[Julian 82]

So tax the stuff that can’t move and we have an abundance of. Resources and land. Both are currently lightly taxed by global standards.

Definitely also need to address the spending side however…

The issue is that resource projects in Australia require a huge capital investment to get them going (just think of the rail lines, pipelines, power stations, ports and electricity grids that need to be built to extract and ship out these resources. Unlike Norway or Saudi Arabia, we don’t have a government owned enterprise building the mines, LNG wells And related infrastructure. This is all built at high cost by private capital.

We are therefore completely reliant on private (mainly foreign) capital to commercialise the extraction and export of our mineral wealth. Without this capital, this mineral wealth will remain in the ground. If you introduce a resource tax on top of the royalties, payroll tax, land tax already paid, high OH&S compliance costs, environmental approval and compliance costs, indigenous land use agreements and heritage compliance costs, high electricity prices as a result of net zero and unionised workforces, these projects become less attractive and the capital goes elsewhere. Africa has huge untapped resources. Rio is already investing in a huge (low cost) high grade iron one mine in West Africa which will push iron ore prices down once it is operational.

For a crude analogy that people in the Eastern States will understand. The Victorian State Government increased its port fees for cruise ships by 15% in late 2023 (with no warning). This meant the cruise liners had to wear the increase because most of their tickets for the 2024 summer cruise season had already been purchased by passengers. The result, no cruise ships visiting Melbourne anymore and Melbourne’s businesses that rely on cruise ship tourism have been decimated.

For miners and oil and gas companies, an increase in any tax on the resources produced means the cost of production goes up. They may be able to wear this while commodity prices remain high. However, your profit margin shrinks as commodity prices drop (until your mine is no longer making money). In this case, the mine will likely be closed or mothballed (the nickel industry in WA is a case in point). Future Investment will also dry up.

The world doesn’t owe Australia a living and there is no immutable law that says the rest of the world has to invest in Australia (particularly where it is less profitable to do so as compared to other countries). There are so many hungrier nations out there fighting for the investment dollar. Australia is already a high cost place to do business. Increasing taxes only makes us less attractive for foreign investors and may eventually kill the golden goose.

 

[Morgo]

The issue is that resource projects in Australia require a huge capital investment to get them going (just think of the rail lines, pipelines, power stations, ports and electricity grids that need to be built to extract and ship out these resources. Unlike Norway or Saudi Arabia, we don’t have a government owned enterprise building the mines, LNG wells And related infrastructure. This is all built at high cost by private capital.

We are therefore completely reliant on private (mainly foreign) capital to commercialise the extraction and export of our mineral wealth. Without this capital, this mineral wealth will remain in the ground. If you introduce a resource tax on top of the royalties, payroll tax, land tax already paid, high OH&S compliance costs, environmental approval and compliance costs, indigenous land use agreements and heritage compliance costs, high electricity prices as a result of net zero and unionised workforces, these projects become less attractive and the capital goes elsewhere. Africa has huge untapped resources. Rio is already investing in a huge (low cost) high grade iron one mine in West Africa which will push iron ore prices down once it is operational.

For a crude analogy that people in the Eastern States will understand. The Victorian State Government increased its port fees for cruise ships by 15% in late 2023 (with no warning). This meant the cruise liners had to wear the increase because most of their tickets for the 2024 summer cruise season had already been purchased by passengers. The result, no cruise ships visiting Melbourne anymore and Melbourne’s businesses that rely on cruise ship tourism have been decimated.

For miners and oil and gas companies, an increase in any tax on the resources produced means the cost of production goes up. They may be able to wear this while commodity prices remain high. However, your profit margin shrinks as commodity prices drop (until your mine is no longer making money). In this case, the mine will likely be closed or mothballed (the nickel industry in WA is a case in point). Future Investment will also dry up.

The world doesn’t owe Australia a living and there is no immutable law that says the rest of the world has to invest in Australia (particularly where it is less profitable to do so as compared to other countries). There are so many hungrier nations out there fighting for the investment dollar. Australia is already a high cost place to do business. Increasing taxes only makes us less attractive for foreign investors and may eventually kill the golden goose.

I am not saying that private capital shouldn’t be able to earn a reasonable rate of return on their investments. But the way that the current system is designed (somewhat but less so for iron ore and coal, substantially more so LNG) is completely dysfunctional and results in perverse outcomes where through a combination of transfer pricing suppressing the market price paid and “uplifts” in losses carried forward (that no other businesses in Australia get) there are many projects that pay very little tax.

Iron ore isn’t the main offender but is certainly not paying its fair share. Australian iron ore is low production cost and very high quality by global standards. It will continue to be cost competitive against global peers, and iron ore production continues to have profit margins north of 50%. There is no shortage of capital happy to chase those returns, even if taxes were to double (and I’m not suggesting they should). The Australian people should be the primary beneficiaries of this, not offshore shareholders, and not Gina.

I’d also highlight that we have the third largest pool of savings in the world through the super system, and the big industry funds literally can’t find enough assets onshore to invest in. We’re not short of capital by any stretch of the imagination.

 

[Bluey 006]

Australia managed to spend around 2.9% of GDP during the Cold War and Vietnam War period and the times we find ourselves in now are if anything even more perilous. Over the last couple of decades we have shown no real urgency in addressing the elephant in the room and we are now copping the consequences.

The Rudd government acknowledged we would need to boost defence spending to counter the growth of China back in 2009 and since then subsequent governments of both sides of the house have done very little about it.

The plan was called Force 2030 which basically called for the construction of a new fleet of a dozen submarines and an expanded surface fleet which was to see the replacement of the ANZAC frigates with a new class of large frigate and around 20 offshore combat vessels.

Well 2030 is almost here and not a single one of these vessels has entered service.

Ironically I do agree with Trump that we have been bludging for the last decade or so and we need to lift our game. The US spends 3.4% of its GDP on defence and our other AUKUS partner is talking of pushing their spending up to 3%. Australia on the other hand seems to think we can get away with 2.3% to 2.4%.

Agree hauritz. The Indo-Pacific is rapidly becoming one of the most contested and strategically complex regions in the world. With accelerating military modernisation, increasing assertiveness from regional powers, and growing uncertainty around the durability of alliance structures, Australia’s sovereign defence capability has never been more vital.

The recent escalation in the Middle East only reinforces this urgency. While the full implications are yet to unfold, it is increasingly clear that we may be entering a more sharply divided global environment. This could further fracture the international order into two distinct and competing blocs. In that context, Australia’s ongoing avoidance, strategic ambiguity, and lack of urgency around defence investment risk leaving us dangerously exposed. While strategic ambiguity may work diplomatically, in defence procurement it leads to costly indecision.

The politicians have argued lately that defence is not solely about how much of our GDP we spend, but how effectively funds are allocated to meet capability requirements. That is true, to a point. However, the GDP figure still plays a crucial role. It serves as a benchmark for strategic ambition, provides defence planners with a foundation for long-term capability development, and ensures procurement programs have the stability required to deliver. Just as importantly, it sends a clear signal of intent to allies, adversaries, and the Australian public about how seriously we take national defence. Without that clarity, we risk falling short in a time where hesitation is noticed and decisively exploited.

Since 2020, Australia’s defence spending has fluctuated between 1.9 and 2.1 percent of GDP, even as the global strategic environment has become significantly more volatile. Now, with AUKUS underway and volatility continuing to rise, we are still only projecting 2.3 percent by 2033–34. That projection does not align with the scale or urgency of the challenges we face. If we are serious about safeguarding Australia’s national interests in an increasingly contested Indo-Pacific, our ambition and our budget must rise to meet the moment. A tough ask after a big spending election campaign, but here we are.

 

[hauritz]

That NATO has agreed to boost its own defence spending to 5% by 2035 has now put even more pressure on Australia to follow suit. The 2.33% of GDP target set by Australia by by the mid 30's is looking pretty paltry by comparison.

Albanese argues that it is pointless setting arbitary spending targets, but it is also obvious that the current government is trading off spending money on certain capabilities in order to pay for big ticket items such as the AUKUS submarines.

It should also be noted that increasing defence spending isn't just about guns and bullets. It is also about increasing our industrial capability, improving defence related infrastructure, training workers and so on. These are the sort of things governments should be spending money on anyway.

Defence contractors and training organisations say they can produce the skilled workers and build the industrial base. All they need is are some actual government contracts rather than just promises.

NATO’s 5% of GDP defence target ramps up pressure on Australia to spend vastly more

In the event of a major crisis or conflict in the region, Australia would not presently be able to defend itself for a prolonged period.

theconversation.com

 

[Todjaeger]

That NATO has agreed to boost its own defence spending to 5% by 2035 has now put even more pressure on Australia to follow suit. The 2.33% of GDP target set by Australia by by the mid 30's is looking pretty paltry by comparison.

Albanese argues that it is pointless setting arbitary spending targets, but it is also obvious that the current government is trading off spending money on certain capabilities in order to pay for big ticket items such as the AUKUS submarines.

It should also be noted that increasing defence spending isn't just about guns and bullets. It is also about increasing our industrial capability, improving defence related infrastructure, training workers and so on. These are the sort of things governments should be spending money on anyway.

Defence contractors and training organisations say they can produce the skilled workers and build the industrial base. All they need is are some actual government contracts rather than just promises.

NATO’s 5% of GDP defence target ramps up pressure on Australia to spend vastly more

In the event of a major crisis or conflict in the region, Australia would not presently be able to defend itself for a prolonged period.

theconversation.com

One also needs to remember that any new or expanded orders for kit will also require that the personnel to operate and maintain the new/additional kit will also be required (unless of course the kit is to immediately placed into some sort of mothball or stockpile) and that expansions of base facilities and infrastructure will also be required. All of which will not only require funding (and could count towards increasing the Defence budget as a % of GDP target) but also time.

Hypothetically, if the ADF were to quadruple the size of missile warstocks for things like AIM-120, RIM-162, RIM-67/RIM-174 and AGM-158, would Australia have enough secure ordnance storage to safely hold more munitions? Similarly, is there enough munitions storage facilities which are relatively accessible to the distributed ADF bases? If not, then this might be another way to both increase the Defence spend as a % of GDP, keep the spend 'local' as well as increasing the security and resiliency of the ADF. To be fair IMO the same would likely apply to fuel storage facilities as well as establishing domestic storage for a strategic national fuel reserve. Storing fuel in Japan is all well and good, unless/until the facilities in Japan get damaged and/or the SLOC between Australia and Japan get threatened or cut.

 

[John Fedup]

That NATO has agreed to boost its own defence spending to 5% by 2035 has now put even more pressure on Australia to follow suit. The 2.33% of GDP target set by Australia by by the mid 30's is looking pretty paltry by comparison.

Albanese argues that it is pointless setting arbitary spending targets, but it is also obvious that the current government is trading off spending money on certain capabilities in order to pay for big ticket items such as the AUKUS submarines.

It should also be noted that increasing defence spending isn't just about guns and bullets. It is also about increasing our industrial capability, improving defence related infrastructure, training workers and so on. These are the sort of things governments should be spending money on anyway.

Defence contractors and training organisations say they can produce the skilled workers and build the industrial base. All they need is are some actual government contracts rather than just promises.

NATO’s 5% of GDP defence target ramps up pressure on Australia to spend vastly more

In the event of a major crisis or conflict in the region, Australia would not presently be able to defend itself for a prolonged period.

theconversation.com

Note that the 5% is split, 3.5% military kit and 1.5% defence infrastructure.

 

[swerve]

Note that the 5% is split, 3.5% military kit and 1.5% defence infrastructure.

Not quite. 3.5% for defence spending under the NATO definition (see link) & "up to 1.5% of GDP annually to inter alia protect critical infrastructure, defend networks, ensure civil preparedness and resilience, innovate, and strengthen the defence industrial base".

NATO definition of defence expenditure

Note that NATO definition defence spending isn't only military kit. It includes R&D, pensions for former military personnel & relevant civilian employees, e.g. of the defence ministry - all sorts of stuff that isn't directly for fighting, but are expenses incurred as a result of fighting, or preparing to fight.

 

[hauritz]

Not quite. 3.5% for defence spending under the NATO definition (see link) & "up to 1.5% of GDP annually to inter alia protect critical infrastructure, defend networks, ensure civil preparedness and resilience, innovate, and strengthen the defence industrial base".

NATO definition of defence expenditure

Note that NATO definition defence spending isn't only military kit. It includes R&D, pensions for former military personnel & relevant civilian employees, e.g. of the defence ministry - all sorts of stuff that isn't directly for fighting.

That”s interesting. In Australia we have the Department of Veteran Affairs. It isn’t funded from the Defence budget but still costs the tax payer $15 billion a year. As a reminder our defence budget is $59 billion a year.

A quick bit of head math and that is around 2.5% of GDP for a combined defence and veterans affairs budget.

It is also likely that funding arrangements for other defence related programs could come from different parts of the budget. Some things might even have been funded directly or indirectly through the state governments.

Working out exactly how much is spent on defence isn’t all that straightforward.

 

[John Fedup]

That”s interesting. In Australia we have the Department of Veteran Affairs. It isn’t funded from the Defence budget but still costs the tax payer $15 billion a year. As a reminder our defence budget is $59 billion a year.

A quick bit of head math and that is around 2.5% of GDP for a combined defence and veterans affairs budget.

It is also likely that funding arrangements for other defence related programs could come from different parts of the budget. Some things might even have been funded directly or indirectly through the state governments.

Working out exactly how much is spent on defence isn’t all that straightforward.

I think it fair to say Canada will definitely find all sorts of questionable projects to stick into the 1.5%, Australian and EU pollies, perhaps the same albeit to a lesser extent.

 

[SammyC]

One also needs to remember that any new or expanded orders for kit will also require that the personnel to operate and maintain the new/additional kit will also be required (unless of course the kit is to immediately placed into some sort of mothball or stockpile) and that expansions of base facilities and infrastructure will also be required. All of which will not only require funding (and could count towards increasing the Defence budget as a % of GDP target) but also time.

Hypothetically, if the ADF were to quadruple the size of missile warstocks for things like AIM-120, RIM-162, RIM-67/RIM-174 and AGM-158, would Australia have enough secure ordnance storage to safely hold more munitions? Similarly, is there enough munitions storage facilities which are relatively accessible to the distributed ADF bases? If not, then this might be another way to both increase the Defence spend as a % of GDP, keep the spend 'local' as well as increasing the security and resiliency of the ADF. To be fair IMO the same would likely apply to fuel storage facilities as well as establishing domestic storage for a strategic national fuel reserve. Storing fuel in Japan is all well and good, unless/until the facilities in Japan get damaged and/or the SLOC between Australia and Japan get threatened or cut.

Going back and having a look at the IIP, it included $10-15B for additional and enhanced logistics centres, and another $4.5B for fuel storage and handling over the 10 year period. So I think this is part of the overall defence budget.

 

[SammyC]

That”s interesting. In Australia we have the Department of Veteran Affairs. It isn’t funded from the Defence budget but still costs the tax payer $15 billion a year. As a reminder our defence budget is $59 billion a year.

A quick bit of head math and that is around 2.5% of GDP for a combined defence and veterans affairs budget.

It is also likely that funding arrangements for other defence related programs could come from different parts of the budget. Some things might even have been funded directly or indirectly through the state governments.

Working out exactly how much is spent on defence isn’t all that straightforward.

It's fustrating how nothing is ever apples for apples. It's difficult to compare budgets because of different inclusions, the above just being one of them. I also don't think our military assistance to Ukraine has been included in the Defence allocation, nor has Border Force and AFP (to the extent they can support defence).

With the pressure the Government is under to increase defence spending, it is surprising that it has not made this all in expenditure argument earlier to enable fair comparison. A 2% GDP Australian spend is not the same as a 3.5% GDP NATO spend.

I assume the Americans follow the NATO model.

 

[Volkodav]

One also needs to remember that any new or expanded orders for kit will also require that the personnel to operate and maintain the new/additional kit will also be required (unless of course the kit is to immediately placed into some sort of mothball or stockpile) and that expansions of base facilities and infrastructure will also be required. All of which will not only require funding (and could count towards increasing the Defence budget as a % of GDP target) but also time.

Hypothetically, if the ADF were to quadruple the size of missile warstocks for things like AIM-120, RIM-162, RIM-67/RIM-174 and AGM-158, would Australia have enough secure ordnance storage to safely hold more munitions? Similarly, is there enough munitions storage facilities which are relatively accessible to the distributed ADF bases? If not, then this might be another way to both increase the Defence spend as a % of GDP, keep the spend 'local' as well as increasing the security and resiliency of the ADF. To be fair IMO the same would likely apply to fuel storage facilities as well as establishing domestic storage for a strategic national fuel reserve. Storing fuel in Japan is all well and good, unless/until the facilities in Japan get damaged and/or the SLOC between Australia and Japan get threatened or cut.

Many people see increased defence spending in terms of warship numbers, armoured brigades and combat squadrons.

To be honest we would be better served by investing in infrastructure, resilience, people development pipelines etc.

These things build the economy as a whole and allows the government, hand on heart, to say they haven't buckled to Trump.

Most importantly, they increase the efficiency of our defence force and industry, allowing them to equip, sustain, and operate what is needed, when it is needed. WWII wasn't won by the gear they bought in 1936, it was won by the gear the delivered from 1943.

 

[Bluey 006]

Many people see increased defence spending in terms of warship numbers, armoured brigades and combat squadrons.

To be honest we would be better served by investing in infrastructure, resilience, people development pipelines etc.

No arguments here, we need to do that, and like others have pointed out much of this is covered by the suggested “defence associated” spending on infrastructure etc

Most importantly, they increase the efficiency of our defence force and industry, allowing them to equip, sustain, and operate what is needed, when it is needed. WWII was won by the gear they bought in 1936, it was won by the gear the delivered from 1943.

That may be true, but modern defence equipment is far more complex than it was in the 1940s. Procurement cycles are longer, manufacturing takes more time, and training is no longer a matter of weeks, it now spans months or even years, and costs an exorbitant amount. On top of that, there's the added burden of bureaucracy, doctrine development, and system integration. In WWII, tanks and aircraft could be built in bulk quickly, and crews trained rapidly. That’s no longer the case. In today’s world, if we want capabilities to be operational and effective by the late 2020s, they need to be funded, developed, and underway already. All of this highlights why our defence budget and planning timelines need serious attention now, because waiting until a crisis hits is no longer a viable option.

What’s more, by the government’s own admission, our strategic warning time has been reduced, the 2024 National Defence Strategy reaffirmed “Australia no longer enjoys the benefit of a 10-year window of strategic warning time for conflict.” This was one of the key judgments of the 2023 Defence Strategic Review and the 2020 Defence Strategic Update.

 

[Volkodav]

No arguments here, we need to do that, and like others have pointed out much of this is covered by the suggested “defence associated” spending on infrastructure etc



That may be true, but modern defence equipment is far more complex than it was in the 1940s. Procurement cycles are longer, manufacturing takes more time, and training is no longer a matter of weeks, it now spans months or even years, and costs an exorbitant amount. On top of that, there's the added burden of bureaucracy, doctrine development, and system integration. In WWII, tanks and aircraft could be built in bulk quickly, and crews trained rapidly. That’s no longer the case. In today’s world, if we want capabilities to be operational and effective by the late 2020s, they need to be funded, developed, and underway already. All of this highlights why our defence budget and planning timelines need serious attention now, because waiting until a crisis hits is no longer a viable option.

What’s more, by the government’s own admission, our strategic warning time has been reduced, the 2024 National Defence Strategy reaffirmed “Australia no longer enjoys the benefit of a 10-year window of strategic warning time for conflict.” This was one of the key judgments of the 2023 Defence Strategic Review and the 2020 Defence Strategic Update.

I think Ukraine is a good example of how quickly things can change.

Old gear, suitably modified and upgraded is doing well, when supported buy new, but other gear has proven less successful, even counterproductive to use.

You need stuff to fight with from day one, but you also need flexible infrastructure, r&d and training pipelines that can deliver what you come to realise what you need in a timely manner when you realise you need it.

 

[swerve]

It's fustrating how nothing is ever apples for apples. It's difficult to compare budgets because of different inclusions, the above just being one of them. I also don't think our military assistance to Ukraine has been included in the Defence allocation, nor has Border Force and AFP (to the extent they can support defence).

With the pressure the Government is under to increase defence spending, it is surprising that it has not made this all in expenditure argument earlier to enable fair comparison. A 2% GDP Australian spend is not the same as a 3.5% GDP NATO spend.

I assume the Americans follow the NATO model.

NATO countries don't necessarily use the NATO definition internally (though I think most do), but they all report it to NATO, & NATO publishes the figures. If in doubt, check the NATO numbers.

NATO defence expenditure 2014-24

SIPRI tries to put together comparable figures for non-NATO countries. I'm not sure if they use the NATO definition for their comparisons.

SIPRI defence spending database

 

[Bluey 006]

I think Ukraine is a good example of how quickly things can change.

Old gear, suitably modified and upgraded is doing well, when supported buy new, but other gear has proven less successful, even counterproductive to use.

You need stuff to fight with from day one, but you also need flexible infrastructure, r&d and training pipelines that can deliver what you come to realise what you need in a timely manner when you realise you need it.

You're right; a state needs the agility to adapt to the circumstances it faces, learn from real-world combat experience, and have a framework in place to pivot quickly. However, the recent conflict between Israel and Iran highlights just how swiftly a well-trained, well-organised, and well-equipped military can overpower a force that is unprepared, poorly equipped, and inadequately resourced.

The drawn-out war of attrition between Ukraine and Russia may prove to be the exception rather than the rule, not because prolonged conflicts between peers don't happen, but because in this case, both sides were relatively evenly matched in certain domains, the doctrine and tactics that have been employed, the terrain, and notably, the external support from Western nations that helped sustain Ukraine’s resilience. Had Russia leveraged its air power more effectively in the early stages, and had the Ukrainian people lost their resolve, the conflict could have played out very differently.

In other scenarios, especially where there is a sharp disparity in capability, conflicts may be more one-sided and resolved quickly. We don’t want to risk being incapacitated in the opening phases of a future Indo-Pacific conflict —caught unprepared, outgunned, and overmatched.

 

[ADMk2]

One also needs to remember that any new or expanded orders for kit will also require that the personnel to operate and maintain the new/additional kit will also be required (unless of course the kit is to immediately placed into some sort of mothball or stockpile) and that expansions of base facilities and infrastructure will also be required. All of which will not only require funding (and could count towards increasing the Defence budget as a % of GDP target) but also time.

Hypothetically, if the ADF were to quadruple the size of missile warstocks for things like AIM-120, RIM-162, RIM-67/RIM-174 and AGM-158, would Australia have enough secure ordnance storage to safely hold more munitions? Similarly, is there enough munitions storage facilities which are relatively accessible to the distributed ADF bases? If not, then this might be another way to both increase the Defence spend as a % of GDP, keep the spend 'local' as well as increasing the security and resiliency of the ADF. To be fair IMO the same would likely apply to fuel storage facilities as well as establishing domestic storage for a strategic national fuel reserve. Storing fuel in Japan is all well and good, unless/until the facilities in Japan get damaged and/or the SLOC between Australia and Japan get threatened or cut.

GWEO is addressing storage and distribution requirements for our soon to be expanded EO holdings. We’ve in fact budgeted $1.85b on in, across the whole country…

https://www.tenders.gov.au/Atm/Show/55b2e1b9-8f86-4f41-a850-d01dddcdbd77