Too much of Defence's $122 million a day budget is being wasted on contractors, leaving insufficient funds for essential wartime acquisitions, a new report highlights.
The cost of Defence's reliance on contractors is a "looming iceberg", warns the nation's top security think tank.
The sense of urgency pressed in the government's own strategic update is not found in the actual spending on capability that the Australian Strategic Policy Institute could identify, which fell about $1 billion short of the government's expectations.
Defence's $1.5 billion external workforce is now its biggest "service", ahead of the Army, but that cost is hidden in growing capability spending, and not transparent in rosy budget projections.
Using Defence's own definitions and figures, the report estimates the cost to taxpayers is approximately $1.1 billion higher than if those projects were allowed to use public servants.
Marcus Hellyer, the author of the think tank's annual Cost of Defence report, says the cost of contractors could "explode and eat deeply into Defence's acquisition budget".
Defence's acquisition and sustainment budgets are planned to double over the decade, and with that rise more contractors will join that external workforce. The local acquisition spending alone could grow from $2.6 billion to around $10 billion, the report projects.
"Defence will need a much larger workforce to run those activities, but its own workforce is capped, so it's increasingly having to turn to contractors," Dr Hellyer writes in the report.
Dr Hellyer notes that there are contractors who have been doing the same job in Defence for four or more years, and those decisions to keep a permanent contractor workforce at that cost needs to be explained.
"Defence needs to fully understand the value-for-money case for using contractors - and it needs to share that with the Australian Parliament," he adds.
Running Australia's military now costs more than $122 million a day. Dr Hellyer says it probably is not enough to meet Australia's national security needs and almost certainly not being spent on the right projects.
"There's urgency in Defence changing the way it does business, but it needs money to do that," he says.
"It's fine to have a funding model that gives you big chunks of money in five years time, but we actually need to be acquiring now the kinds of different capabilities the government says it needs in the Defence Strategic Update."
Only 0.5 per cent it of its budget is being spent on research and development, according to figures supplied by Defence. A shocking figure that Dr Hellyer notes is a fraction of what would be expected.
Ships, submarines and armoured vehicles are big projects that will tie up Defence's funding for decades, but Australia government has already recognised it needs faster, more disposable capabilities, Dr Hellyer says, like long-range missiles or autonomous systems.
"We're already seeing those systems win wars," he says.
Dr Hellyer's says Australia could learn from the clash between Armenia and Azerbaijan, the latter of which has a GDP just 3 per cent of Australia's but showed anybody who wants to master precision guided weapons can do so.
"Defence is still in that situation where it doesn't quite trust the new coming technologies of autonomous and disaggregated systems."
The government has announced it would establish a guided weapons manufacturing capability, which Dr Hellyer said was a step in the right direction.
Local defence industry is also growing to a $3.5 billion sector in its own right under the current projections as the government redirects capability spending to companies and subsidiaries based in Australia.
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