Defence Capability Plan hits mark in form and substance

In this comprehensive analysis of Defence Capability Plan 2019 and Budget 2019, Hon Dr Wayne Mapp, writes that a consensus DCP delivers on a New Zealand First promise while gaining Greens support.

Ron Mark has reason to feel proud about his term as Minister of Defence. In his first two years in office he has made two major significant purchases in replacing the P3 Orions and C130H Hercules. Although both decisions had been signaled for several years, the credit will go to Ron Mark for making the actual purchase decisions.

Both of the replacement aircraft, the P8 Poseidon and the C130J, were the logical choice. There is good sense for a small defence force to play it safe in buying what is already well-proven in service with our partners.

Hon Dr Wayne Mapp QSO was New Zealand’s Minister of Defence and Minister of Science and Innovation from 2008 to 2011.

On the day of the C130J purchase decision, the Government also released the Defence Capability Plan 2019. As Minister for the 2010 Defence Review and a member of ministerial advisory panel for the 2016 Defence Review, all of the planned capabilities set out in Defence Capability Plan 2019 were no surprise. They pretty much follow what has been planned for several years.

One of the major differences to previous capability plans is the articulation of the purpose and role of the Defence Force. I imagine this was necessary to offset some of the blunt language about China in the 2018 Strategic Defence Policy Statement.

Chapter Two has a section about the World. There is much discussion about working with our partners in furtherance of peace, contributing to an international rules-based order, and supporting peace and security in the Asia Pacific region. The confrontational language about China is gone.

A notable change is the extensive discussion on “the climate crisis”. While there had been discussion about climate change in previous plans, it is much more fully covered in this document.

This has helped gain the support of the Green Party, with their defence spokesperson Golriz Ghahraman noting that the increased focus on disaster relief, especially in the Pacific, is something the Green Party had been advocating for years. Her statement probably says more about how well the Minister has engaged with the Greens, rather than an actual substantive change in how the Defence Force operates.

Given the bow wave of future costs, there are some changes in timing in the purchase of replacement and new capabilities.

There are three big purchases in defence that attract the most attention. They are the air transport aircraft, the maritime surveillance aircraft, and the frigates. The government has announced the replacement of the first two. Unusually they have done this within a single term of government.

However, the frigate replacement has been pushed out to beyond 2030. This makes sense. Both frigates are already in the process of a very expensive mid-life upgrade, which will surely add another 15 years to the lives of the two ships.

The replacement ships to the ANZAC frigates need to be coming into service around 2035, when the current ships will be nearly 40 years old. That means the actual purchase decision will need to be made in the late 2020’s, with the detailed planning taking place from 2025 onward.

The Southern Ocean patrol vessel has also been extended to 2023 for the actual purchase decision, with an inservice date of 2027.

The Air Force will finally get a medium ocean surveillance capability, either as drones or as traditional fixed wing aircraft. The request for tenders occurs in 2020, so there is a possibility a purchase decision may be made before the next election.

In the near term, the Army will continue to build up its networked capability and will replace the inadequate Pinzguaer.

There will be a modest increase in the size of the Defence Force, though this will take place over the next fifteen years. It is likely that Defence Force numbers will continue to decline as a percentage of the total population. Technology will increasingly enhance the capability of the people in the Defence Force.

The main decisions of the Capability Plan were foreshadowed in the 2019 Budget. The Budget confirmed the coalition government’s commitment to defence. Notwithstanding the sensationalist news headlines about tanks over teachers, this commitment would have surprised no-one familiar with the budget process and the make-up of the coalition.

Source: New Zealand Government

It is pretty clear that New Zealand First has control of defence policy, and therefore is able to set the budgetary expectations.

Defence, as is clearly indicated in the Capability Plan, is not an area that is likely to suffer budget cuts, at least not while the economy is going reasonably well. In fact, in terms of the ongoing operating budget for the Defence Force, there has been a seven percent increase in the appropriation from $2.155 billion to $2.316 billion.

This is enough to increase levels of recruitment and to deal with upgrading or replacing the many substandard buildings in the various camps and bases.

The Budget gave a clear signal that New Zealand would be completing its Iraq commitment during the coming financial year. The budget for peace support operations is only half that of the peace support operations in last year’s Budget. This was confirmed by the announcement on June 10 that the Iraq commitment would be progressively downsized during the rest of the year, with the final troops being withdrawn in June 2020.

The most notable part of the budget, at least from the point of view of the news headlines, was the $1.1 billion appropriation for new equipment. There is considerable misunderstanding of how the Defence Force pays for new capital equipment. It is done out of the depreciation allowance, and if necessary, by new capital appropriations.

The amount of the depreciation allowance is fairly consistent from year to year. It is derived from all the capital equipment of the Defence Force, that is the aircraft, the ships and various major items of equipment of the Army. Old capital items generate relatively low amounts of depreciation while new equipment generates higher levels of depreciation.

In recent years the amount of depreciation has been around $700 million. This is a sufficient sum to cover many new purchases, particularly for the Army, where the individual items of equipment tend not to be overly expensive. For instance, the infantry rifles were able to be fully replaced for $59 million.

However, the acquisition of major capital equipment, such as the purchase of the P8 Poseidon aircraft, requires an injection of new capital in addition to the depreciation allowance. The Budget provided that there will be $568 million of new capital transferred to Defence.

Over the next fifteen years there will $20 billion in capital expenditure.

Around $12 to $14 billion will come from depreciation, since the expensive new assets being purchased will generate greater levels of annual depreciation. The balance of $6 to $8 billion will come from new capital injections. It means that virtually every year over the next fifteen years there will be around $500 million new capital required.

That is the price that New Zealand has to pay as a result of keeping its major defence assets for 40 to 50 years. The existing C130 Hercules and the P3 Orions were purchased over 50 years ago. The Iroquois helicopters lasted 40 years. The ANZAC frigates are expected to last 40 years. Not surprisingly, the replacement assets are vastly more expensive than the book value of the existing assets.

The 2019 Capability Plan is a well thought through document. Although it builds on the plans articulated over the last decade, it has taken the defence debate to a new and more thoughtful level. The fact that there is almost universal consensus about the overall shape and purpose of the Defence Force says much about the consensus building about defence that has occurred in New Zealand over recent years. Bringing the Greens on board is a reflection of both the Minister’s persuasive abilities, and the realities of the Green Party being in government.