Tail Wagging the Dog - Treasury versus Defence

Dog This is Tail Over

There’s no denying that the nation’s defence is an expensive business. However, without it, all the social investment in the world will be irrelevant. There are long lead-up periods required to build defence capability i.e. the platforms, people, logistics and training. Advance notice of hostilities is very short – Pearl Harbour for instance. Take the maritime patrol aircraft announcement made recently. We will not see the first P-8A Poseidon aircraft for about four years. Then, the basic conversion training followed by operational evaluation of the crews has to take place. Logistics systems must be put in place. All while simultaneously keeping the same capability going for the P-3K2 Orions. The entire length of WWII in one acquisition.

As anyone who has followed my work over thirty years knows, I am unashamedly hawkish about NZ’s defence. There are only a few who advocate in public for breaking the malaise on defence spending. That’s largely because most commentators have some government money in their food chain.

The Treasury recently released heavily redacted budget 2018 advice documents. After requesting unredacted versions (still waiting) I’ve spent some time going through the Defence papers in detail. What I read concerned me and confirms long held views that the tail is wagging the dog when it come to Treasury and Defence.

Budget 2018 Treasury Advice on Defence – Zip File

The Treasury is New Zealand’s lead advisor to the Government on economic and financial policy.

The New Zealand Defence Force is the organisation, in partnership with the Ministry of Defence, responsible for defending New Zealand. From the NZDF website:

The Defence Force provides essential support to the delivery of the Government’s national security interests.  Contingent military capabilities are held for unforeseen emergencies or to reinforce existing operations.  This could include New Zealand contributions to multinational operations or United Nations mandated missions, however, the forces are held principally to allow the Defence Force to respond to security events in which New Zealand acts alone to protect national interests.

These are two very different roles. While it is legitimate for Treasury to suggest innovative ways for the Government to fund Defence, it is not legitimate for them to state, insinuate or manoeuvre in opposition to a capability that Defence has determined is required to deliver the political imperatives of the day. Unfortunately, exactly that is happening.

A very disturbing thing happened in Budget 2018. The Minister of Defence, Ron Mark, had to argue his case not to the Minister of Finance, Grant Robertson as is the norm but to one of the Associate Finance Ministers, David Clark. There will be some saying “nothing to see here, just distributing the workload.” They may be right but I doubt it. It shows how low down the pecking order the Defence portfolio is viewed. With all his problems in Vote Health, how could Clark not be a little envious of the massive amount of money required for platform replacement and new capabilities? Is it any wonder that Mark didn’t send Clark a bill for the NZDF nurses who provided ED coverage during the recent nurse’s strike?

Here’s an example of how Treasury wags the dog.

Treasury Advice Defence Budget 2018 - NGOs

The translated version of this is “We managed to stall for so long with more medical reviews into Vietnam veterans and Agent Orange that they’re dying off quite fast now. So let’s just shift that money over to the current tranche of veterans with PTSI and other problems.”

While I live in hope of them finding their brave pants soon, is it any wonder that the RNZRSA doesn’t make a lot of noise politically? Their funding is contingent on a whim.

Here’s another example:

Treasury Advice Defence Budget 2018 - LSVs

Treasury Advice Defence Budget 2018 - LSVs2

‘Let’s have a review’ is an old Treasury gag. Make the funding conditional on a study which will be designed to trash the programme or rip money out of somewhere else. The worst, recent Defence example is the “Value for Money” review conducted by outside consultants more than a year after the Defence Assessment had begun and AFTER the funding pathway for the 2010 Defence White Paper had been agreed by the stakeholders. One consequence was the civilianisation of many posts and forced retirement (IMPing) for many long serving personnel. Morale was very badly damaged and the supposed $400 million in projected savings over ten years was a unicorn. Many of the initiatives suggested were already part of Defence’s own Transformation Programme. Some made no sense. Worst of all was the tone of the report.

Defence VFM Extract 1

The “size of the prize” – as though the defence of the country and service lives were some sort of sick gameshow. Congratulations! You’ve saved $6 million in ammunition so your soldiers have won…ballistic body armour! Come on audience – let’s give it up for defence!

The low, medium and high pathways referred to were another Treasury construct based on whether we replaced worn out platforms or not. One was a straw man i.e. do nothing. The other two were variations on a theme of replacing platforms with like for like versus improved capability. I annotated the draft of these as “pure unadulterated BS.” Some politicians and media got very excited that a ministerial advisor had sworn on a briefing document. I stand by the comment. My view has been proven over time. Only regret? I should have written BS in full.

One critical outcome from DWP 2010 was the decision made largely on financial grounds to reduce army capability from being able to deploy AND sustain a battalion group on operations (as we did in East Timor with 6 battalions rotating through). The reduction to a ‘one shot’ battalion group or two sustainable company groups being available for deployment will take years to redress. Riddle me this…CDF is currently under pressure from government for being over headcount. Our line units are hollow. But the DWP 2016 projected 930 new personnel by 2030 (see below).

This next extract raises several points:

Treasury Advice Defence Budget 2018 - OPEX CAPEX

The first point, headcount, is a complex one. In subsequent articles, I’m going to demonstrate how and why we need an NZDF of 30,000. Capital charge (cost of capital) and depreciation are fine in theory but have no place in organisations like Defence which must be asset heavy. They can’t ‘trade’ or do any of the other activities that a commercial entity can. It’s long past time to do away with them for Defence and any other agency that has to be asset heavy and can’t diversify commercially.

Treasury Advice Defence Budget 2018 - DWP funding

As you can see, a big chunk of the extra operational funding announced for Defence simply goes back to the Crown in the form of depreciation and capital charge. Wasteful churn.

Over the years, Defence has tried to work with Treasury on its needs – to little gain. Any NZDF officer seconded to Treasury is usually ‘captured’ by the heady discussions that one former Treasury analyst told me is like a school staff room but with more purpose.

The ‘Whisperatti’ – that class of political animal who fancies themselves as smarter than everyone else in the game spend hours ‘socialising’ ideas with each other before anything goes on paper and is therefore discoverable. I came out of an evening Cabinet Briefing regarding the DWP 2010 at the same time as the Treasury official. He laughed and said “Where are you going to find all that money? I know where but you’ll have to work it out for yourself.” Another chickenhawk.

Ron Mark presented nine initiatives for the last budget. Only three ended up in the briefings. Who nobbled the other six?

The path to defence funding should be simple. Secretary of Defence does a Defence Assessment. The Review of what’s needed is agreed to by the ministers and departmental heads of the Domestic and External Security group. The Minister for National Security, Finance and Defence meet with the SecDef, CDF and the Treasury Secretary. The only topic? This is what we intend to do. How do you suggest we fund it Treasury Secretary?

This may seem a bit hard on Treasury. Some might say they’re just trying to do their job. I might have been more reasonable if I could find just one reference in all their papers to the value of a Kiwi serviceperson’s life.