Reece

Basically speaking, the Australian dollar has lost around two-thirds of its buying power compared with the US dollar over the past five years. It doesn’t matter whether you are buying Chevrolets or F-18 Hornets, you will be paying around sixty to seventy per cent more Australian dollars for the same item now (in constant dollars) than you would have back in 1980! To make matters worse, the dollar slid again by as much as 20% earlier this year against both the greenback and most European and Asian currencies. Up till that time Australia had been faring well against the non-US currencies in relative terms but now even that advantage has evaporated.

What does this mean in real terms?

For starters, projects like the RAN FFG helicopter programme have soared from $A368m to almost $A500m, the F-18 could eventually top $A6,000m, the 10 new P-3C Orions would also have risen by $A100m or so in the past eighteen months while the RAN FFG frigate programme has also doubled against late seventies’ estimates.

For the Department of Defence, the problem is two-tiered. The erosion of buying power in our dollar is bad enough but _ this has been coupled with a considerable increase in the per unit cost of replacement items over the past decade or two. Consider the cost of one F-18 (flyaway) against a CA-27 Sabre of the mid-fifties. No comparison in capability certainly but the Sabre was purchased at the time for the same basic mission as the Hornet. Other units for unit comparisons are the P-2V Neptune against P-3C Orion, FFG frigates against the River Class destroyer escorts, Leopard tank against the Centurion and the Oberon submarines against their eventual replacements.

Even setting aside the ravaging effects of three decades of inflation, the cost per unit is many times what it was during the fifties. Defence Minister Kim Beazley recently pointed out that the cost of replacing all our equipment would more than double in real terms over the next thirty years. Where that leaves Defence with a deflated dollar is certainly cause for concern in the longer term.

Over the next ten years a considerable number of major reequipment programmes will have to be funded. These include the RAAF Iroquois helicopter replacement, new bases for Northern Australia, a new primary trainer, F-111 capability upgrade, Boeing 707 tanker conversion, an AEW capability, enhancement of Jindalee OTH-B radar and the culmination of the P-3C and F-18A programmes. The Navy is in a similarly dismal position with its ongoing FFG programme, new mine hunters, submarines, additional Seahawk helicopters and an eventual Wessex replacement while the Army fortunately can locally source much of its hardware to an extent greater than the other services.

While Defence has a significant problem in this area, as Defence budgeting is hardly likely to ever exceed 3% of GDP in the absence of a major threat, the one winner in the longer term is the Australian industry.

Driven by high technology capabilities developed by Australian industry as a result of the Government’s Offsets Programme, the Australian industry is now better equipped than ever to deliver a greater share of the equipment required by our armed forces. The old 20% premium that was generally paid for local sourcing now sounds a bargain in the light of international currency wars. Indeed, Australia is looking good in terms of winning a larger proportion of international work packages, particularly in aerospace, as our dollar immediately gives us a significant discount effect in the international marketplace.

The effect of this will be a boost for employment in the aerospace industries in addition to the ability of companies such as CAC/HdH and GAF to market more aggressively in a manner never envisaged during the seventies. Additionally to this, is the fact that Defence is now much closer to Australian industry now that the old Department of Defence Support has been neatly merged with DoD itself. Local sourcing from now on will be more than a mere catch-cry through the halls of Russell Hill.

For Australia, the low value of our dollar provides us with both major problems and a gilt-edged opportunity to re-establish what was once a very considerable aerospace manufacturing and support capability. If we build on this now then in the decades to come perhaps a drop in our currency will not present the problems that it presently does.