Defence Review Consultation Summary of Submissions
Responses to Submissions Form Questions (continued)
Q10: What are the best financial management procedures to meet long-term defence funding requirements?
Defence funding
Most submitters responded in terms of the overall funding for the Defence Force and how this might be enhanced. Eighty two submitters wished to see a significant increase in the level of defence spending, with most suggesting that the Defence Force's budget should be a fixed proportion of New Zealand's GDP. While the current budget is estimated to be around 1% of GDP, most prefer to see it rise into the 1.5 – 3% range. Some noted that the world average for defence expenditure is around 2% of GDP. Some submitters recommended a level of GDP funding that is similar to Australia and other coalition partners. Only a handful of submitters suggested keeping funding at current levels or reducing it.
A wide variety of mechanisms to supplement the cost of defence funding were suggested across submissions. The New Zealand Returned Services Association, as well as submitters from the public and Defence Force, believed that the Government's capital charge should not be applied to the Defence Force and that such a practice did not occur overseas. Although not as prominent as support for Public Private Partnerships discussed in Question 9, other options provided by submitters included:
- Providing additional funds for deployments, additional outputs and unforeseen contingencies;
- Sharing costs for acquisitions that have a civilian application;
- Issuing government defence bonds;
- Establishing some form of Defence Capital Reserve Fund;
- Introducing a military tax;
- Allowing the Defence Force to keep its savings.
"Potentially large benefits to be had from Public Private Partnerships (PPPs) between defence and NZ industry. Unfortunately the Public Finance Act makes it difficult if not impossible to advance many of these. Changes to this area will be needed if we are to exploit opportunities to financially benefit NZ as a whole."
"The accrual-based accounting that the public service is subjected to through the Public Finance Act means that when compared with other countries nZ defence buying power is effectively 30% less, once GST, depreciation and the capital charge are taken into account."
Long-term planning
Twenty eight submitters commented directly on the importance of long- term planning processes. Comments included using longer term time frames, making annual updates to the current plans, securing the necessary financing to support the planning and ensuring that planning was well prioritised. Only a small number of submitters mentioned the Defence Force's Long-Term Development Plan specifically.
"The rapidly increasing complexity and cost of military hardware means that there will always be capital injections required."
"Given that the through life operating costs of modern capabilities can significantly out-pace the capital acquisition costs, a rethink may be needed to manage their financing."
Other suggestions made in submissions include:
- whole-of-project multi-year appropriations that are locked in
- capital injections to supplement depreciation-based funding as this is insufficient to cover the through-life costs of maintaining capabilities
- flexible financial management procedures that permit the Defence Force to shift money between financial years and between capital and operating funds
- being realistic about the output of capability and trying to absorb new tasks into existing funding baselines
- managing exchange rate fluctuations and their impact on purchasing power.
