NZDF General discussion thread

[ngatimozart]

The 2016 NZ Budget was released at 1400 NZST and NZ$300.9 million in increased operational spending has been allocated to NZDF. This spending is spread over four years. The budget estimates for the Ministry of Defence and NZDF have also been released. I have not yet had the time to go through them.

Note please. The links were provided in the above post, so no need to keep reposting them.

Minister Brownlee's release is below. Looks like a modest increase, and all classified as 'Operational' rather than 'Capital'.

Yes, it was already stated in my post that it was operational expenditure, cref above.

Very little detail on what the additional CapEx entails (see page 3 table: Total Departmental Capital Expenditure - no detail). (Also from page 3 the 2015/16 budget was $439m budgeted, but only $323m estimated actual).

Although for 2016/17 this document (see table - page 14) outlines around $215 million of expenditure on capabilities already in the public domain (eg Maritime Helicopter Capability, Frigate Systems Upgrade, Network Enabled Army Programme, Special Operations Vehicles Replacement Project and Individual Weapons Replacement Project).

Which suggests perhaps another approx. $530 million (as part of this year's budget allocation) to go towards any new acquisition projects that will be announced in due course?

Edit: the first linked doc talks about NZDF "Total Departmental Capital Expenditure" of $747m. The second linked doc (MoD) talks about $260m for "Total Non-Departmental Capital Expenditure". Does the latter form part of the former ... surely not (or does the former also include some of the Capital Charge component) - can anyone explain the difference?

The long gestating 2015(6) DWP hasn't been released yet so I think that budget wouldn't necessarily signal any changes in defence spending until the DWP is approved and released. I would think that any necessary changes, if required, to the defence budget for the 2016/17 financial year could be made by Cabinet and included in the supplementary estimates for 2016/17 in the 2017/18 Budget.

 

[recce.k1]

The long gestating 2015(6) DWP hasn't been released yet so I think that budget wouldn't necessarily signal any changes in defence spending until the DWP is approved and released. I would think that any necessary changes, if required, to the defence budget for the 2016/17 financial year could be made by Cabinet and included in the supplementary estimates for 2016/17 in the 2017/18 Budget.

That makes sense. I guess the MOD's $260m is for projects already but approved and currently under way (which they project manage). If I read the other part right then is the NZDF potentially looking at up to $747m to put towards new assets this financial year if approved or (a lesser amount) which as well includes the funding (for the on-going payments) towards existing assets (recently acquired) which are on their books, not the MoD's anymore perhaps?

 

[Gracie1234]

Budget

Hi All, so with a forecast surplus of 5 Billion per year by 2020, it is pretty clear that money is not an issue with funding the NZDF. The issue is political will and how they interpret the world around them.
Does anyone have an idea when the white paper will be released. I wonder what impact the surplus will have?
At least track one of the rebalancing will be confirmed as funded but that does not indicate any increase in capability but just replacing like with like essentially.

 

[chis73]

Hi All, so with a forecast surplus of 5 Billion per year by 2020, it is pretty clear that money is not an issue with funding the NZDF. The issue is political will and how they interpret the world around them.
Does anyone have an idea when the white paper will be released. I wonder what impact the surplus will have?
At least track one of the rebalancing will be confirmed as funded but that does not indicate any increase in capability but just replacing like with like essentially.

The head of Victoria University's Centre for Strategic Studies has recently tweeted that the Defence White Paper will be released on or about 8 June. Guess the govt was waiting for the budget release to make the figures look better?

https://twitter.com/davidcapie/status/735979351557054464

Regarding the budget, having digested the figures for a few days, I have to say I was fairly underwhelmed. An extra $300m over 4 years for defence is better than nothing, but doesn't seem to mesh well with the expected $11b in capital expenditure estimate required over the next decade (some say $15b by 2030, at least $2b just in infrastructure alone). I can see that a lot of projects were left out of the 2016 budget figures as they haven't been approved yet (eg. maritime sustainment capability & littoral operations support capability just for starters), but can anyone seriously think the govt will magically spend $15b for defence over now just a 10 year period? We should be spreading out that spending, not concentrating it further.

I think Gordon Campbell at Scoop (not someone I normally agree with) addresses the issue well:

The government is for example, about to release a Defence White Paper setting out replacement costs reliably estimated by overseas authorities at $11 billion over the next decade. Yet one will search in vain through the Budget projections for any sign of such costs – which threaten to blow the Budget forecasts to smithereens. The few Defence spending items cited are the relatively minor ones, to do with the residues of compliance with the 2010 White Paper and the 2014 Defence Force Assessment. Finally, hidden at p.73 of the Budget Economic and Fiscal Update footnotes (on “ Specific Fiscal Risks”) is this deceptively bland paragraph :

A Defence White Paper is being developed to ensure the NZ Defence Force is structured and equipped to meet the government’s defence policy requirements out to 2030 and beyond. Changes to NZDF operating and/or capital funding may be made over the forecast period to achieve the Defence White Paper settings.”

Right. That 2016 Defence White Paper is only weeks away, if that. That fact alone not only renders these Budget forecasts and projections virtually obsolete on delivery, but – in the light of the massive expenditures involved – it also makes any talk of tax cuts in 2017 seem even more irresponsible than usual.

Gordon Campbell » Blog Archive » Gordon Campbell on yesterday’s Budget

I also tend to agree with the Westpac Bank's chief economist when he says that the Treasury forecasts of an increasing govt surplus look exceedingly optimistic (especially the forecast decline in govt expenditure). If they are looking for a name for this budget (eg. "the broccoli budget", "the get-stuffed budget") I reckon "the BS budget" sounds about right.

 

[kiwipatriot69]

The head of Victoria University's Centre for Strategic Studies has recently tweeted that the Defence White Paper will be released on or about 8 June. Guess the govt was waiting for the budget release to make the figures look better?

https://twitter.com/davidcapie/status/735979351557054464

Regarding the budget, having digested the figures for a few days, I have to say I was fairly underwhelmed. An extra $300m over 4 years for defence is better than nothing, but doesn't seem to mesh well with the expected $11b in capital expenditure estimate required over the next decade (some say $15b by 2030, at least $2b just in infrastructure alone). I can see that a lot of projects were left out of the 2016 budget figures as they haven't been approved yet (eg. maritime sustainment capability & littoral operations support capability just for starters), but can anyone seriously think the govt will magically spend $15b for defence over now just a 10 year period? We should be spreading out that spending, not concentrating it further.

I think Gordon Campbell at Scoop (not someone I normally agree with) addresses the issue well:



Gordon Campbell » Blog Archive » Gordon Campbell on yesterday’s Budget

I also tend to agree with the Westpac Bank's chief economist when he says that the Treasury forecasts of an increasing govt surplus look exceedingly optimistic (especially the forecast decline in govt expenditure). If they are looking for a name for this budget (eg. "the broccoli budget", "the get-stuffed budget") I reckon "the BS budget" sounds about right.

I wonder how all of this will affect NZDF having to be fiscally responsible and will this be seen as a failure to make projected annual savings asked of it? Hopefully this 'extra' money can go towards crewing our EEZ patrols and get those IPV out to sea again.

 

[40 deg south]

Spies and soldiers big Budget winners - National - NZ Herald News

A NZ Herald journo's piece suggests defence and intelligence have done well out of the budget, although the claimed Defence increase for the coming year is only 1.6%, rising to 4.4% in each of the three following years.

New Zealand announces 8.8% rise in annual defence spend | IHS Jane's 360

Janes, meanwhile, estimate NZ has increased Defence spending by 8.8%. Unfortunately, how they reached this number isn't available in the free sample. Posted here in it's entirety.

New Zealand has announced a defence budget of NZD3.7 billion (USD2.5 billion) for 2016/17, representing an 8.8% increase over the previous financial year. A further NZD301 million of new funding was also announced for defence, which will be allocated over the four years between 2016/17 and 2019/20.

The funding for defence is comprised of two main allocations administered by the Minister of Defence. The majority of funding is provided under the Defence Force vote for which NZD3,280 million was allocated under the 2016/17 budget. Under the appropriation the air force will receive NZD770 million, the army NZD809 million, and the navy USD459 million, with NZD446 million provided for defence-wide functions.

 

[40 deg south]

Hi All, so with a forecast surplus of 5 Billion per year by 2020, it is pretty clear that money is not an issue with funding the NZDF. The issue is political will and how they interpret the world around them.

Political will is certainly an issue (perhaps THE issue for NZ defence?), but I wouldn't get carried away with the idea that the NZ gov't will soon be rolling in cash.

Total annual government expenditure is approx $75 billion from memory. That means the projected $700 million surplus this year is little more than a rounding error. If the surpluses continue to grow they will become more significant by the end of the decade.

But that's a big 'IF'. Look at the projections from a few years back and we were predicted to be running solid surpluses (2 billion plus) from about 2015. That hasn't happened, and there is no guarantee the latest set of projections will prove to be more accurate.

Given the big hit to dairy prices, NZ is doing pretty well. But there is huge pressure for more infrastructure spending to cope with the growing population, and Health, Welfare and Education are basically bottomless pits into which unlimited amounts of money can be tipped.

 

[Ocean1Curse]

Political will is certainly an issue (perhaps THE issue for NZ defence?), but I wouldn't get carried away with the idea that the NZ gov't will soon be rolling in cash.

Total annual government expenditure is approx $75 billion from memory. That means the projected $700 million surplus this year is little more than a rounding error. If the surpluses continue to grow they will become more significant by the end of the decade.

But that's a big 'IF'. Look at the projections from a few years back and we were predicted to be running solid surpluses (2 billion plus) from about 2015. That hasn't happened, and there is no guarantee the latest set of projections will prove to be more accurate.

Given the big hit to dairy prices, NZ is doing pretty well. But there is huge pressure for more infrastructure spending to cope with the growing population, and Health, Welfare and Education are basically bottomless pits into which unlimited amounts of money can be tipped.

The assumption underlying the surplus is dairy prices being priced at $1200 a ton. So when dairy finds its unicorn. Then NZDF can have its DWP

 

[ngatimozart]

The assumption underlying the surplus is dairy prices being priced at $1200 a ton. So when dairy finds its unicorn. Then NZDF can have its DWP

Meaning?

 

[MrConservative]

The assumption underlying the surplus is dairy prices being priced at $1200 a ton. So when dairy finds its unicorn. Then NZDF can have its DWP

"Wholemilk powder prices, which are the key component of Fonterra's farmgate milk price, have been below the important US$3000 a tonne mark for the last 21 months.

In the previous downturn in 2012, prices were under US$3000 a tonne for just four months and in the 2008-9, it took 13 months for prices to claw their way back. Rabobank expects prices to average just US$2500 a tonne over the next months, against the last GlobalDairyTrade price of US$2176 a tonne."

Dairy 'super downcycle' now on, says Rabobank

I was talking to a major NZ dairy farmer last night (5 Farms) who said that the with 2017/18 season he expects the average break even point of $5.25 a kg payout of milksolids to be surpassed. As he holds little or low debt his BEP is even lower. According to him anything north of $5.50 a kg payout of milksolids from Fonterra was where profits begin to kick in very nicely. He has cash at hand and is now looking for bargains.

Though there is a bit of spending required due to the country growing faster than expected I think there should be positive signs for small surpluses in NZ in the medium term and increased funding available for Defence. The dairy downturn in the last 2 years has thrown a spanner into what would have been some of the best economic years we have had for decades.

The relative issue from a government management side of the equation is that they should have strong armed the Auckland Council earlier to control housing prices and the downstream effects by free up land on the city limits.

A strong defence can only be paid for via a strong economy. At least when global dairy payouts pick up beyond $5.25 for milk solids per kg then improved defence funding should be possible. The irony is that a strong economy needs to be in part anchored by well funded Defence Force.

 

[ngatimozart]

The other thing to remember are the Christchurch earthquakes which have put a large dent in the govt finances. IIRC the last figure was around $20 billion for the govt and the costs to the economy around $40 billion. I agree with Mr C about the Auckland land availability for housing and the council over time has created a situation that has made Auckland a very expensive place to have property in. If the housing market their crashes, it will have a major negative impact on the NZ economy. Total NZG debt is 38% of GDP with "Only Australia, Estonia and Luxembourg have a lower government debt/ GDP ratio than New Zealand while the combined OECD ratio is 111 per cent." This was from last year, but at the end of the day it all still comes down to political will with regard to defence spending.

 

[MrConservative]

NG

Things have improved on the GDP debt front since last June.

Budget 2016 forecasts confirm the Government is on track and its books are in good shape.

We’re continuing to manage our spending carefully. This means government expenditure falls to 29.7 per cent of GDP this year and stays under 30 per cent thereafter.

Modest OBEGAL surpluses are forecast for this year and the next, before rising strongly from 2017/18.

Cash surpluses are forecast from 2018/19, which means the Government will start paying down debt in dollar terms.

Net debt is expected to peak at 25.6 per cent of GDP next year and to fall to 19.3 per cent of GDP in 2020/21.

https://www.beehive.govt.nz/speech/budget-speech-4

We are now under 30% of GDP for Govt expenditure which is good and well done. I am all for fiscal responsibility. It is certainly better than most other places and our GDP debt is better paced. Personally, though I would rather Bill English not be so strictly target driven about getting the GDP debt under 20% by 2020. A few Billion borrowed out of a quarter trillion dollar economy for Defence and Infrastructure would be welcome by me.

 

[ngatimozart]

An interesting and excellent question was posted in the ADF thread and I'm reposting it here because it raises exactly the same question for the NZG and the NZDF.

If Donald Trump were to win the American election and become the next President, and he were to follow through on stated plans to withdraw American forces from the Asia Pacific region, how would that move effect the Australian Defence Forces? Would we have to spend up big to enhance our defence forces?

My own thought is that a Trump White House will substantially exacerbate the tensions that already exist globally by a unilateral withdrawal of US forces back to the US. Will this be enough to give the pollies in Wellington a sufficient enough scare in order for them to seriously fund NZDF?

 

[RegR]

An interesting and excellent question was posted in the ADF thread and I'm reposting it here because it raises exactly the same question for the NZG and the NZDF.

My own thought is that a Trump White House will substantially exacerbate the tensions that already exist globally by a unilateral withdrawal of US forces back to the US. Will this be enough to give the pollies in Wellington a sufficient enough scare in order for them to seriously fund NZDF?

I think if Donald Trump becomes president of the United States we will be on our own as they will have enough problems of their own to take care of around the world and at home, will be turbulant times to say the least. Diplomacy is not one of his election policy strengths that's for sure and don't think it will improve with a bigger stick.

We may well get that wake up call we need in the near future, good or bad...

 

[John Fedup]

I think if Donald Trump becomes president of the United States we will be on our own as they will have enough problems of their own to take care of around the world and at home, will be turbulant times to say the least. Diplomacy is not one of his election policy strengths that's for sure and don't think it will improve with a bigger stick.

We may well get that wake up call we need in the near future, good or bad...

What is the first thing pollies do when they get elected? They ditch any inconvenient promises by any means necessary. I don't expect either US presidential candidate to be any different.

 

[ngatimozart]

If we could please leave specific candidates out of the discussion, and instead focus on the potential impact on the ADF if the US were to adopt a more isolationist policy.

I don't want to see this or any other thread descend into the morass that is the current US political scene. Having a discussion involving specific candidates are likely to attract the 'wrong' kind of participants.
-Preceptor

Preceptor recently posted this in the ADF thread so let's follow his guidelines whilst discussing this here with respect to the NZDF.

 

[ngatimozart]

What is the first thing pollies do when they get elected? They ditch any inconvenient promises by any means necessary. I don't expect either US presidential candidate to be any different.

I don't know. One is not political establishment so operates to a different dialectic. This person seems to have struck a note with the public and if given a mandate could effect some unexpected changes. The thing to remember they are not a professional politician and are not acting like one, so you cannot assess them like one. Whereas the other potential candidate is a professional politician thoroughly political royalty with a long political history within the establishment. There is a distinct choice between two candidates not seen for years and if the non political outsider wins, then the ramifications on the international stage could be many.

 

[John Fedup]

I guess time will tell. It seems to me running for public office switches on a dormant lying gene or stupid gene (sometimes both) in many candidates. Neither candidate will win by much and the polarized US Congress will make any significant changes very difficult.

 

[ngatimozart]

I think if the business tycoon becomes president of the United States we will be on our own as they will have enough problems of their own to take care of around the world and at home, will be turbulent times to say the least. Diplomacy is not one of his election policy strengths that's for sure and don't think it will improve with a bigger stick.

We may well get that wake up call we need in the near future, good or bad...

I would agree and I think Australia and the rest of the Asia Pacific will be in the same boat. The PRC will make most of the isolationism and up the ante big time because the ability for foreign devil push back will have significantly diminished. We will have to look elsewhere and we may have to strengthen ties with non traditional allies such as Japan, South Korea, Indonesia and India. I will also throw Vietnam into that mix. IMHO the big change for NZ will be significant increase in defence expenditure and resourcing, possibly to 3% GDP initially, in order to bring NZDF back up to speed and scale. How the kiwi pollies react if the US returns to isolationism will be interesting. We no longer have the pommy empire to cling to.

 

[KiwiRob]

My own thought is that a Trump White House will substantially exacerbate the tensions that already exist globally by a unilateral withdrawal of US forces back to the US. Will this be enough to give the pollies in Wellington a sufficient enough scare in order for them to seriously fund NZDF?

You say that like it's a bad thing. I'm surprised more US politicians haven't jumped on this bandwagon, why should the US taxpayer foot the bill for defending Japan, Europe and where ever else. If I was a US taxpayer I'd be questioning why my tax dollars are going towards European defence when my education, health and infrastructure is heading south. When the US retrenching starts it's going to cause a lot of govts to break out their chequebooks and start spending, it might even cause ours to do the same.