Nervous Wait for NZ Defence

The next few weeks and months will be a nervous time for those in the New Zealand Ministry of Defence and Defence Force. Civilian contractors in our defence industry will, likewise, be waiting to see what the first signals will be from the new Government with regard to future defence policy and expenditure.

During the election campaign, Heather Roy and I wrote a piece for the National Business Review comparing the defence policies of the various political parties. A truncated version of the summary chart is below:

2017 NZ Party Defence Policies Table truncated

In the NBR piece, we noted the impossibility of reconciling the defence policies of Labour, NZ First and the Greens. That reality is now upon us and the process of agreeing a way forward will be a huge test for the new Defence Minister, Hon Ron Mark. No doubt, his job would have been far more straightforward in a National – NZ First coalition.

There are two main problems for Defence created by this coalition Government. The first is ideological. The trajectory of the last two defence White Papers (2010 and 2016) has been roughly similar i.e. maintain current capabilities and alliances and make minor enhancements (eg cyber battlespace). Labour has broadly agreed with that trajectory.

NZ First is a ‘hawk’ in policy terms but that doesn’t mean that Defence would necessarily welcome their approach. If their policy is to be believed, the NZDF is to become a Marine Corps with its own air combat force (the latter unlikely under a Labour Government given they got rid of this capability) and an armed Coastguard. That is a huge and costly change to undertake. When you consider the various unsuccessful attempts by the NZ Army, in the past, to divest itself of the corps and regiments in favour of ‘mounted rifles’ or a US Marine Corps approach, it would be a fool’s errand to try again, even if the logic is sound.

Then there are the Green ‘doves’ who want out of all alliances, including intelligence sharing, and to get rid of the naval combat fleet and anti-submarine capability. Under their policy, the NZDF would become a niche peace-keeping force. The memo about the spectrum of conflict clearly never reached them but they can’t be ignored in this minority Government as, without their vote, nothing passes. On the upside, they are talking about growing the Reserve Force which is a useful addition to the debate. The Green policy is essentially one of armed neutrality which, if the Swiss experience is anything to go by, costs plenty.

That brings me to the second major cause for nervousness – money. The Defence Force is just setting off down the path of replacing a range of platforms that are 40 – 60 years old. These were laid out in the Defence White Paper of 2016 (see summary below):

NZ Defence White Paper 2016 Infographic

NZ First’s policy is to spend more – much more. Greens intend to spend less – much less. The Labour Government has come to power on a social spending agenda and, even prior to the election, had declared their intention to re-examine the ‘value for money’ of the proposals in the 2016 White Paper. The last time a value for money exercise was carried out was in 2010 by Dr Roderick Deane (at the behest of Treasury) and it was a disaster for Defence.

Labour has an ambitious 100-day programme and the cost of their policies far exceed the few billion of surplus they have inherited on the Government books. It is inevitable that they will look for savings elsewhere and Defence expenditure is an easy target. What could be affected? Probably not the new auxiliary ship, HMNZS Aotearoa, as that is already signed up with construction beginning in 2018. However, if they did, it wouldn’t be the first Labour Government to axe a defence deal (eg the F16 fighters in 1999). In favour of going ahead with this ship is the fact that the existing tanker (HMNZS Endeavour) no longer meets international construction standards (twin hull) for a tanker.

The ANZAC frigates are part-way through their mid-life upgrade so, unless the Greens tried to strong-arm this one, they should be safe for now. Of greater concern is the replacements for the P3K Orion air surveillance aircraft and C130 Hercules tactical airlift aircraft. Both of these might be ‘delayed’. The replacement for the two B757 aircraft should be the easiest mark for this Government since it could easily civilianise this role… BUT…it is astounding how quickly politicians of all colours learn to love having their own private jet courtesy of the RNZAF!

Although tenders have been called for to replace HMNZS Manawanui and Resolution, these might easily be delayed and the new ice-strengthened offshore patrol vessel proposed in the White Paper is equally easily halted.

All of this adds up to a nightmare for former army officer, Ron Mark. The measure of the success of any Minister is how well they can convince Cabinet to approve and fund their plans. Minister Mark is probably going to be spending much of the next three years simply trying to slow down financial attacks on Defence. The major player behind the scenes is Treasury, represented by the Minister of Finance in Cabinet. Other key influencers beyond the Prime Minister are the Foreign Affairs, Police, Trade, Customs and Fisheries Ministers as they all have a heavy reliance on NZDF platforms. So lobbying Ardern, Peters, Nash, Parker and Whaitiri will be Mark’s first and most important task between now and May’s budget next year. With the exception of possibly Stuart Nash, there’s little in the way of pro-defence in that grouping.

The PM will need to make a mini-budget statement before Parliament rises in December. This could include the first signs of any roll-back for Defence. There will be more costings done over summer so we can expect more numbers when Parliament resumes in February 2018 and then the budget in May which will lock it all in.

Thankfully, due to the general agreement on health and especially mental health improvements, Veterans Affairs should not be negatively affected and this might well be the only area where Minister Mark has a chance of leaving any sort of legacy in the term.