Tuesday, 23 April 2013

Defence will suffer from Labor's poor performance

Australia's financial circumstances are the responsibility of the Labor Government's dreadful mismanagement of our economy and the country's defence is paying the price, writes Peter Reith.

Get ready to feel the cold winds of Labor's self-induced austerity. But austerity will not mean just lower living standards; it also means compromising Australia's sovereignty.

The solemn responsibility of every government is to protect our country. But under Labor, Australia's ability to protect itself is likely to take another blow in this year's budget.

It was bad news yesterday on revenue and more bad news on defence is likely. In a sense Labor has no choice. It started cutting last year. As Grattan says:

Labor has so much bad news for the budget; it is trying to dump all the bad stuff before the budget so that the budget can include a few baubles for the headlines. But don't expect that anything that Labor says about the budget before the election will be an honest assessment of the true situation strategically or in regards to economics.

Yesterday's speech by Prime Minister Gillard was not to give the public an open statement about the budget, it was all about trying to minimise public reaction to the budget. Labor's only plan is not to fix the budget but to fix Labor's political problem that no-one believes what Ms Gillard or Wayne Swan say about the budget.

There are three basic contradictions in what Labor now says. Firstly, how can a revenue decline of $12 billion be the problem when the extra spending since Howard left office in 2007 is now nearly $100 billion more than Howard's last year? Secondly, Gillard says, since October 2012, there has been a $12 billion fall in revenue but revenue this year is still $25 billion more than last year? Thirdly, if the revenue 'fall' is such a problem why has Gillard not announced that the budget will have to match the revenue drop with a corresponding cut to spending? So Gillard can't say revenue is the problem, the problem is more spending and Gillard has again pledged more spending.

There is a fourth contradiction. Gillard says the underlying reasons for the revenue situation are the high dollar and softening commodity prices. But this is not new. This describes Australia's circumstances for the last three years. The real reason that the numbers have been so wrong is because Labor has been spinning a line that it would get the budget back into surplus this year. Labor's figures have been adopted to meet the political objective, not to inform the public.

And don't kid yourself that Australia's burgeoning debts and falling living standards are somehow also the Coalition's fault. Australia's financial circumstances are very much the responsibility of the Rudd-Gillard Government's dreadful mismanagement of our economy for the last seven years. And it follows a pattern.

In the 1970s, after three years of Whitlam's economic chaos and massive spending, the Coalition under Malcolm Fraser had to clean up the mess. Initially Hawke was a better manager but Keating, as PM, dumped his fiscal credentials and left another round of massive debts. From 1996 to 2007, the Howard government had to clean up for the second time since 1945. Howard's challenge was not easy; when he came to office the budget had not been in surplus since 1989, our region was hit hard by the Asian financial crisis, living standards were stifled by an antiquated labour market and the unions were constantly dictating government policy and attacking key parts of the economy like the wharves and resources. Howard left office with no debts.

In 2007 Labor took over a budget in surplus and a strong economy. That record has been squandered with serious consequences for our Defence.

Under Hawke Labor, Defence had a mixed record. It gave higher priority to the Navy and the Air Force. As a result the Army was under pressure due to lack of resources. But the decision to build Collins Class submarines was problematic and we never got the capability that we paid for. All that changed with the Howard government because its reforms improved the economy and thus revenues and Howard had the political will to rebuild Australia's military capacity.

When Rudd took office, his 2009 white paper promised a strong position on Defence. But he was soon spending on a grand scale and priority for Defence was slipping. It slipped further under Gillard. At least Rudd wanted to upgrade the submarine fleet. The objective for 12 new submarines was kept alive under Gillard although with the proviso that the option of nuclear powered vessels was disallowed for political reasons.

Unfortunately, the underlying financial mismanagement of the economy and the federal budget is quite rapidly denying Australia's ability to defend itself. This came to public attention in last year's budget when the Defence budget was cut by $5.5 billion and thereby dragging Defence's percentage of spending as a proportion of GDP to 1.56 per cent. This is the lowest since 1938 and much of the spending cuts have occurred in capital items thereby directly undermining military capability to defend Australia. Australia should be seriously considering the purchase of US nuclear powered submarines. There is no excuse that when it comes to Australia's security we should have the best that money can buy. Sadly, Labor has neither the money nor the political will to protect our country in the future.

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