There's more missing from the defence department's budget than dollars.

The Australian Strategic Policy Institute (ASPI) has recently published a paper by Mark Thompson, its Budget and Management Program Director, Sinews of War: The Defence Budget in 2003 and How We Got There (pdf, 909kb). The paper is basically an assessment of how well the defence budget is spent and how likely it is that forward military capability plans already committed to can be delivered on time and on budget.

It identifies three principal "imperatives":

1. to deliver new capabilities on time (significantly, it says little about delivery on-budget).
2. "to continue to improve" Defence management (though it freely admits that previous attempts to change course have shown Defence to have the inertia of a "ponderous luxury cruise liner").
3. to "sort out" the Defence Capability Plan - the forward planning for acquiring new equipment and other military materiel - and the strategic policy that underpins it.

There are some issues worth considering in these imperatives. Particularly revealing are their odd ordering and the absence of any possible variations to strategic policy which could relieve the overstressed Defence budget.

Plans for future military equipment acquisitions and other projects naturally arise from the strategic outlook, the available resources and the priorities and preferences of governments. Logically, then, strategic policy should be the first and not the last thing to be addressed when considering budgetary issues.

ASPI measures perceived shortfalls in Defence spending against announced plans. In terms of calling a government to account on what it said it would do, this is reasonable. But there is a wider issue. Are the strategic policies and objectives set by government, and the plans they generate, appropriate? What alternative plans might be possible if policy were adjusted in one way or another? Readers of the ASPI paper will find little consideration of these issues. However, given its dependence on Defence Department funding, and its control by a Government-appointed Council, one should perhaps not expect that ASPI can comfortably consider a wide range of strategic options, including those which a government or the Defence bureaucracy might find unacceptable.

This said, one can evaluate ASPI's imperatives in a more logical order.

It is our strategic policy which drives the Defence budget's demands for resources. Present strategic policy requires us to operate obsolescent tanks and spend millions "upgrading" them. It requires us to contemplate acquiring or building fantastically expensive Air Warfare Destroyers; it requires us to adopt unproven American solutions for the woes of the Collins submarine combat system; it requires huge investments in the "Joint Strike Fighter". Vast resources are expended in pursuit of these and other advanced capabilities.

At the same time, we are under pressure to do more on the ground in our region. Many would agree that it is necessary for us to respond effectively. We have just deployed to rescue the Solomons from anarchy and criminal domination; if East Timor gets into trouble after the UN force withdraws, we will probably have to help. Surveillance and patrolling of the approaches to Australia remains very important. Counter-terrorism, both on our own soil and in our immediate region, is a highly relevant issue.

All these necessary things require resources. It is the combination of these with the Government's elaborate major force dreams - dreams often partly shared by the uniformed and civilian elements of Defence - which is creating intolerable pressure on the Defence budget. Some significant adjustments to strategic policy would result in more sustainable demands for resources. Yet ASPI no more than hints at a need to look seriously at strategic policy.

ASPI is entirely right, though, about the need to improve Defence management. The doleful history of major projects blown out in time and budget requires no elaboration here. The failure of repeated attempts at reform was well documented by a Senate Committee report earlier this year. ASPI rightly characterises Defence as a "ponderous luxury cruise liner". Substantial improvements in corporate culture, accountability and transparency are urgently needed if Defence is not to remain an insatiable fiscal black hole. Projects need to complete more or less on time, as ASPI says, and also more or less within budget, as it does not.

ASPI's imperatives can thus be rewritten to be more effective at containing pressures for increased Defence spending.

First, and of critical importance, set realistic and relevant strategic policy objectives. In an environment where terrorism is the main offensive threat and regional security assistance the main relevant operational requirement, why are we considering Air Warfare Destroyers and the rest? The answer is that we are pandering to a government's ideological hang-up about cooperating with the United States no matter what the security and dollar costs.

Second, make Defence accountable for the resources it receives. Let there be clear lines of responsibility and accountability with both penalties and rewards for responsible individuals. Let there be at least the same level of scrutiny of Defence by the Department of Finance and Administration (DOFA) as is exercised over other Departments. The exemption of Defence from DOFA scrutiny only helps perpetuate a culture which can be characterised by two famous Dickensian phrases: "something will turn up" (to fix the latest failing project) and, "please Sir, may I have some more?"