Minister for Defence - Address to the American Chamber of Commerce in Australia - QT Hotel, Canberra

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Introduction

Distinguished guests, ladies and gentlemen, it is a great pleasure to speak with you today about the alliance between Australia and the United States, in the context of the forthcoming 2015 Defence White Paper.

This is a timely discussion and you are an important audience to me, as you embody both our Alliance with the United States, and our partnership with industry.

2015 Defence White Paper

The Defence White Paper, which the Prime Minister and I will launch later this year, will make clear just how important these two things are to this Government.

Furthermore, the White Paper will set out the Government’s long term vision for Defence; aligning strategy, capability and resources.

And it will pull together the transformational defence reform agenda that the Government is currently putting into place.

The White Paper is being developed with the support of an external Expert Panel and with broad consultation with the Australian community, industry and with the United States and other international partners.

It will be the most robust Defence White Paper in our history. The underlying analysis, assessments and planning have been methodical and thorough.

Importantly it will also be the first White Paper to be externally cost assured to ensure our plans are affordable and achievable.

The White Paper will look out to 2035 and describe the complexity of the future strategic challenges, and determine the capabilities Defence will need to respond to a more uncertain environment.

To meet future challenges, the Government will ensure we maintain an Australian Defence Force with the highest levels of military capability and technological sophistication, while ensuring we can attract and retain the people we need to make that capability a reality.

Delivering this high technology future force will depend on our capacity to partner with industry, including the United States industrial base, as we are doing now.

The Government is committed to giving better support to industry and the research community to promote, harness and translate innovative ideas into practical capability.

In the past, not enough has been done to recognise the importance of industry’s contribution to Defence and national security more broadly.

However, with this White Paper, the Defence Industry Policy Statement and ten-year integrated investment plan that will accompany it, the Government will set a new partnership with industry, and highlight the role that industry has in helping the Government implement its reforms.

Defence Funding

When the Government was elected in September 2013, the budget for Defence had fallen to the lowest level of expenditure as percentage of Gross Domestic Product (GDP) since before the Second World War.

Important decisions worth billions of dollars to maintain the Australian Defence Force capabilities had been postponed or cancelled.

Six years of prolonged under-investment in Defence, especially in critical enabling capabilities, was placing Australia’s security in jeopardy, and frustrating industry’s need for clarity and certainty.

To deliver the capabilities set out in this White Paper, the Government’s long-term funding commitment will see the Defence budget grow to just above two per cent of GDP by 2023-24.

We have already demonstrated in our first two budgets our determination to deliver this commitment.

Our Defence plans to be set out in the White Paper, with the funding to achieve them, will provide the certainty that industry needs to invest in the people and infrastructure required to achieve our long term defence objectives.

This White Paper will deliver a future Australian Defence Force that is potent, agile and ready to respond whenever our interests are engaged across the world.

The Indo-Pacific Region

The White Paper will underline the importance of the Indo-Pacific region to Australia’s national security and economic prosperity.

It will also emphasise the Government’s direction that Australia has the capability and responsibility to engage in the world to defend our interests, and that we should have the confidence that our contribution will make a difference.

• underlining the importance of a stable rules-based global order to Australia’s economic prosperity and way of life;
• and recognising that we must be prepared to tackle global security challenges before they become direct threats to Australia.

Economic growth in the Indo-Pacific region remains strong and over time we expect world economic and military power to continue its shift to the Indo-Pacific.

While China is poised to overtake the United States as the world’s largest economy, by some measures, other powers such as India and Indonesia are also growing remarkably.

But growth in the region will be uneven and competition to exert more influence could generate instability.

Also, competing claims for territory and natural resources in the South China Sea will continue to be a source of tension in the region.

Combined with growth in military capability, this backdrop has the potential to destabilise the region and threaten Australia’s interests.

US Rebalance

Through this White Paper, the Government will seek to broaden and deepen our Alliance with the United States, recognising that the US Alliance will remain fundamental to our security and defence planning and the highest priority for our international cooperation.

Australia welcomes the United States’ strategic rebalance to the Indo-Pacific - it is a positive response to the continued rise of this region as the world’s strategic centre of gravity and one that reflects the ongoing shift of the world’s strategic centre of gravity to our region.

I would like to acknowledge the personal commitment of US Defense Secretary Ash Carter, to the success of the rebalance, which will deepen and diversify US engagement in the region.

We recognise and value the tangible steps the United States has taken in support of its rebalance policy.

The United States has modernised and enhanced its regional alliances, including:

• updating its defence Guidelines with Japan to reflect a more modern partnership;
• signing an agreement with the Philippines to permit a rotational US military presence in that country; and,
• revising cost sharing arrangements with the Republic of Korea.

Force Posture Initiatives

From Australia’s perspective, the United States force posture initiatives, which are an important component of the US rebalance, present a unique opportunity to:

• enhance our military interoperability with the United States;
• exercise our joint collective capabilities; and,
• demonstrate our mutual resolve in maintaining force readiness under the Alliance.

We are pleased at the benefits and opportunities we have seen from the growing Marine Rotational Force in Darwin thus far.

We are also continuing to develop enhanced cooperation between the Royal Australian Air Force and the United States Air Force. And we are examining a range of practical options to enhance naval cooperation.

US Reform

I note that the 2014 US Quadrennial Defense Review – our Defence White Paper equivalent – reiterated the strong US commitment towards enhancing collaboration with its allies and partners.

This commitment is echoed in the “Defense Innovation Initiative”, the ambitious reform programme announced late last year and now championed by Secretary Carter.

The Review and Reform program alike will pursue innovative ways to sustain and advance US military superiority for the 21st Century, by finding new and creative ways to sustain and expand military advantages within a resource constrained environment.

Given the scale of the US military, there’s no doubt that pursuit of this initiative will be a complex and challenging task.

But as Secretary Carter has already made clear, it is a task the US won’t shy away from – he knows how critical it is to ensure the US can make every dollar stretch to achieve its greatest output.

Alongside this whole-of-organisation reform programme, the US is also pursuing ambitious efforts to reform its acquisition processes.

Australia strongly supports the enduring US commitment to pursuing innovation and reforms within its defence organisation.

We know just how challenging the road to reform can be, but also recognise just how important it is to enhance the efficiency and effectiveness of every dollar spent on Defence.

First Principles Review

The Government will deliver, through the White Paper, an Australian Defence Force that can meet the challenges of the more complex strategic environment we will face in the years ahead.

But not all of our challenges are global or far from home.

Despite Defence’s outstanding operational record, it is clear that there needs to be a better balance between operational excellence and organisational effectiveness.

To achieve this better balance the Abbott Government has begun one of the most significant reform efforts to the way Defence supports Government decision making and delivers the military capabilities we need to ensure a safe and secure Australia.

The First Principles Review of Defence delivers on a Coalition election commitment to ensure that Defence is appropriately structured and organised, and has the right business practices in place to support the Australian Defence Force in the 21st Century.

These reforms are the biggest since the Howard Government’s Defence Efficiency Review in 1997 and the Tange reforms of the early 1970s.

Given the scale of reforms being implemented I believe it’s worth setting out briefly why these changes are necessary.

The first responsibility of a national government is the safety and security of its citizens and central to this – for all governments no matter the persuasion – is a compact with Defence.

This compact is the proper alignment between the Government’s strategic aspiration with the tasks Government asks Defence to undertake. Completing the ‘trinity’ of this compact is the resources Defence requires to develop the capabilities to perform the tasks.

Under the previous government this compact had been broken.

The Review found a proliferation of structures, processes and systems with unclear accountabilities, which in turn cause institutionalised waste, delayed decisions, flawed execution, duplication, over-escalation of issues for decision and low engagement levels amongst employees in parts of the organisation.

At its most basic, the Review found that Defence must move from the current inefficient, federated approach into a single, integrated organisation that delivers enhanced joint capability.

Implementation of the Review formally began on 1 July this year, and already some significant change has occurred with 18 of the 75 agreed recommendations having been completed.

For the Government to fulfil its commitments, these reforms are necessary to ensure Defence is fit for purpose and able to deliver and implement the Defence White Paper. But it’s also important to demonstrate that any additional public money invested in Defence will be well spent, especially in a fiscally constrained environment,

The Review also identified some key areas of necessary reform regarding Defence’s relationship with industry.

We have begun by disestablishing the Defence Materiel Organisation and creating a new group called the Capability Acquisition and Sustainment Group, headed by Kim Gillis – a leader with strong industry and public service experience.

Capability acquisition and sustainment will now be conducted on a single, end-to-end basis, where integration and interoperability will be fully and properly considered.

Defence is also creating a new capability development life cycle, increasing the degree and level of contestability, streamlining tendering and contracting processes, and creating more opportunities to be a smart buyer and tailor and fast track projects.

Naval Shipbuilding

In the past few weeks the Government has announced the bringing forward of two major projects.

Over the next few decades, the biggest regeneration of the Royal Australian Navy since the Second World War will take place. As part of delivering and sustaining that capability to the ADF the government is fundamentally reforming the way Australia acquires its critical naval vessels.

The Abbott Government will now implement an unprecedented continuous build of surface warships in Australia, meaning that Australia’s world-class shipbuilding workforce have been given the certainty that they will be building Navy’s Future Frigates and Offshore Patrol Vessels for decades to come.

This strategy will transform Australia’s naval shipbuilding industry and put an end to the boom-bust cycle that has afflicted the industry, which has led to the current shipbuilding ‘valley of death’ left to the nation by the previous Labor government.

But Australia cannot afford a naval shipbuilding industry at any price. In return for our confidence, the Government has an expectation that, and the ADF has a critical need for, the shipbuilding industry to become more productive and cost-effective – we cannot accept an unaffordable domestic build premium.

Ultimately, the Australian taxpayer, and the men and women of the ADF cannot accept lower levels of capability than we might acquire offshore, or suffer the delays and cost overruns that have plagued recent shipbuilding programs in Australia.

A continuous build program will mean will mean unparalleled reform of the industry focussed on significant improvements in productivity.

The strategy we are committing to now will ensure Australia has a sustainable naval shipbuilding industry that delivers to the navy the right capability, at the right time and for the right price. But equally important this strategy supports shipbuilding jobs remaining in Australia.

RAND principles

In developing its naval shipbuilding plan, the Government has been fundamentally guided by the key principles laid out by the RAND Corporation, which we commissioned to conduct a detailed review of the Australian naval shipbuilding industry.

RAND found that Australia could sustain a naval shipbuilding industry by carefully managing a continuous ship building strategy, which the Government has now committed to. But it also requires significant improvements in industry productivity, and major changes to the way Defence manages projects, in particular:

• the necessity for a well-integrated designer, builder and supplier team
• preferencing mature designs of vessels rather than choosing to design a new class of vessel from scratch or undertaking large scale modification of existing designs
• thoroughly testing the ADF’s capability requirement against more readily available military platforms and systems
• limiting the amount of changes to the design selected for ‘unique’ Australian requirements, and spending more time at the beginning of the project on planning the design and build program.

RAND’s work for the Australian Government is a critical input into the Defence White Paper, Naval Shipbuilding Plan, and the broader reform of the way Defence acquires its capabilities.

Defence White Paper – A New Partnership with Industry

All of these reforms will be critical to delivering on our plans in the White Paper – as will Defence’s partnership with industry.

The Government recognises the critical contribution industry will make to achieving the future force, not least the critical direct and supporting services that deliver, operate and sustain our Defence capabilities.

Additionally, industry provides our national Defence support base, delivering logistics services, health support, fuel, energy and other support to enable the ADF to operate effectively.

Through the White Paper and the accompanying Defence Industry Policy Statement, the Government will re-set the foundations for how industry engages with Defence.

For the first time, the Government will recognise the vital role of Australian industry as a fundamental input to Defence capability.

This means that it will be mandatory for Defence to consider Australian industry in the formal capability development process ensuring Defence better understands and identifies its needs for industrial support, and is able to better advise industry on its future needs.

This new way of doing business will also require industry to step up. While tailoring procurement approaches is important, value for money will always be a critical factor.

In conjunction with the release of the White Paper, all elements of Defence’s major investments will be made public for the first time in the fully-costed ten-year capability investment plan.

This plan will bring together the detailed capability investment activities for the future force covering all of its major elements.

It will also include our major acquisitions of new weapons, platforms and systems; and our investment in information and communications technology; infrastructure; and in the enabling workforce.

Industry can have confidence that this Government will stand by its investment plans.

This will give industry what it has been asking for – clarity, certainty and efficiency when partnering with Defence to deliver capability for the ADF.

Australia-United States Defence Trade Cooperation Treaty

The Australia-United States Defence Trade Cooperation Treaty represents a significant contribution to our bilateral relationship in achieving and sustaining interoperable forces, and also represents significant opportunities for an enduring partnership between our respective industries and defence organisations.

The Treaty is a complex high-level arrangement and much work has been done by Defence and the United States Department of State to bed-down the Treaty’s implementation and administration.

Since the Treaty came into effect in mid-2013, defence industry membership of the Australian Community has steadily grown, with over 50 companies currently approved.

Now is the time to move to the next phase of implementation and look at opportunities to enhance the operation of the Treaty.

I welcome AmCham’s proposal to bring forward suggestions to possibly broaden the Treaty’s utility and, importantly, encourage industry participation.

Defence will work with AmCham, other industry associations and our United States partners to establish what might be achievable for the benefit of Australian Community members.

Materiel Cooperation

The Alliance will be vital to achieving the Government’s capability plans in the White Paper and ensuring that we can both defend Australia’s interests and work together with the United States in combined operations wherever our interests are engaged.

Mutual benefits will continue to flow from the deep levels of materiel cooperation in systems development and capability acquisition between Australia and the United States.

Access to the most advanced technology and equipment from the United States and maintaining interoperability with the United States is central to maintaining the ADF’s potency.

We source the majority of our most important combat equipment from the United States.

Only a few weeks ago, the first of twelve new Australian EA-18 Growler airborne electronic attack aircraft rolled out from Boeing’s production facility in Missouri.

To date, Australia is the only country approved to acquire and operate both the Super Hornet and Growler – two aircraft that are at the absolute forefront of the United States’ air power capabilities, reflecting Australia’s position as a trusted capability partner.

In the coming months, assembly will commence on Australia’s first P-8A Poseidon maritime surveillance aircraft.

Australia’s partner status in the F-35A Joint Strike Fighter (JSF) programme gives Australian industry access to development, production, sustainment and follow-on development aspects of the programme.

And under Defence’s industry programmes, US prime companies like Boeing, Lockheed Martin, Northrop Grumman and Raytheon have been identifying international opportunities and awarding contracts to some of Australia’s most innovative companies.

We will continue to improve our materiel cooperation and Defence’s industry initiatives to ensure we can find more export opportunities for Australian industry.

The enduring outcome is for Australian industry to become more internationally competitive, leading to both direct and indirect cost and capability benefits for our defence forces.

Need for new partnerships

I spoke earlier about our aim to deliver a high technology future force, an aim that is arguably even more important to the US.

As Secretary Ash Carter said recently, technology alone - however advanced - cannot sustain our military’s superiority, just as important is a ruthless focus on operational excellence. He went on to say that this means using our existing forces and capabilities in new, creative and fiscally prudent ways to achieve our objectives.

But we also both need to recognise that a commitment to acquiring high technology military platforms, and systems and staying ahead of our potential competitors and adversaries, also comes at some cost. And we need to work closely with industry to manage those costs.

Developing ever more complex and costly systems to replace existing capabilities dictates that we can only afford to purchase them in lesser numbers. And no matter how capable or networked, one platform can only be in one place at the one time.

Moreover, compared to the past, our defence industrial base is no longer structured or managed to provide major platforms in a timely manner, especially during times of conflict or crisis

• whether in terms of replacing platforms from attrition,
• or replenishing stocks of costly precision munitions which history dictates will be used up very quickly in the opening shots of any conflict.

A number of the technologies being proposed by the Pentagon’s Offset Strategy, such as unmanned systems and directed energy weapons have some potential to get us back into the game of developing larger quantities of cheaper, yet still very capable weapons.

That’s where adherence to principles such as proposed by RAND become so important, to ensure that we don’t laden systems down with so many capability requirements as to price ourselves out of any current or future military competition.

But it also goes to one of Secretary Carter’s key priorities, to build an even closer partnership between Government and industry, and from Australia’s perspective, particularly when it comes to helping spur more affordable war winning technology and innovation.

Conclusion

The Government recognises that defence industry has faced major challenges as a result of underinvestment in Defence and the accompanying volatility in Defence funding.

The White Paper will provide a clear and transparent framework to establish a new Defence – industry partnership.

This partnership will be crucial for Australia’s long-term security through the development and acquisition of capability, infrastructure and skills for the future.

And the White Paper will reinforce the fundamental importance of the Alliance with the United States to Australia’s security and defence.

Australia will face complex security challenges over the next twenty years.

To meet these challenges, the Government will ensure we maintain an Australian Defence Force with the highest levels of military capability and technological sophistication.

With the 2015 Defence White Paper, we will deliver a strong, affordable and achievable plan to deliver the defence force Australia needs.

The Government will meet its commitment to the Australian people to rebuild Defence.

I look forward to your questions and discussion.