Mr McCLELLAND (Barton) (4.20 p.m.)—This government lauds itself on its national security credentials. Indeed, I think it fair to say that the Australian defence forces are the favourite backdrop for ministerial photos. They are probably the most commonly featured backdrop for the Prime Minister, the Minister for Defence and others. The reality is, however, that a cursory examination of the Defence annual report for 2004-05 shows that our Defence Force is in a state of financial crisis. The mismanagement has now gone on for four years. For four years Defence have produced only qualified accounts; indeed, the mismanagement is now to the point of being illegal. This is the second year in a row that the Auditor-General has found that the Department of Defence are in breach of section 48 of the Financial Management and Accountability Act 1997. We will wait to see whether they get a hat-trick. The financial management of the Department of Defence is a disgrace.

In fact, those inaccuracies and errors and the complete incompetence total some $7.4 billion of unaccounted matters in the report. That is $675 million in addition to the inventory. It is $675 million in terms of a question about the value of explosive ordnance, $2.722 billion with respect to repairable specialist military equipment and $896 million with respect to the value of accrued ADF and Public Service annual leave entitlements.

That is $7.4 billion out of a budget of $17 billion. In terms of the massive Commonwealth expenditure that the Department of Defence absorbs, it is equivalent to 5.7 per cent of total government expenditure. The government lauds itself on its national security and financial management credentials. We are talking about a $7.4 billion black hole in one department. That is 5.7 per cent of the government’s expenditure unaccounted for and, indeed, the subject of illegality—as the Auditor-General has found.

The inadequacies of financial management are shown by the annual report. In terms of the staffing issue—accounting for annual leave—they are reflected, concerningly, in the rates of recruitment and retention. This is in the context of media reports that suggest that the government is likely in the coming week to announce an intention to increase our defence forces by some 2,500 personnel. All I can say is that, if you read the last few annual reports, unless they fundamentally change their practices they have my hope and Buckley’s of achieving that. For instance, the annual report shows that last year there were 4,934 personnel enlisted in the ADF. That sounds all very well and all quite pleasing. The reality is that that is 658 fewer than in the previous year. In terms of reserves, the enlistment declined from 22,154 to 21,968. In fact, as against the target for recruitment by 2010, last year was only 77 per cent of the target—a nine per cent reduction on the previous year. It is actually going backwards.

At the other end of the equation, in terms of separations, we are again seeing unacceptable figures. There is a separation rate—that is, people leaving the armed forces—of 12 per cent in the Navy; 13 per cent in the Army and eight per cent in the Air Force. In the ADF overall it was 11 per cent. Concerningly, we are losing officer-level members of all forces. In the Navy we lost 178, in the Army we lost 349 and in the Air Force we lost 277. This is effectively the middle-management capability. If there was a corporation that lost that middle-management capability—the capability that we are losing from the ADF—that corporation would be in real trouble.

We are in a situation where our responsible officers are increasingly having their tasks diverted to try and address the financial mismanagement that has occurred. We have seen the operational tempo increase in circumstances where they are likely to confront additional training responsibilities, with the government intending to recruit more members. They are going to be under tremendous pressure, and unless the government recognises and does something about that we may very well lose that high-class middle management of our officer level within the Defence Force—and we probably will lose them unless there is a reversal in strategy and policy. This mismanagement, both financially and in respect of recruiting shortfalls, is having an effect on capability. If anyone is in any doubt of that, all they need to do is have a look at chapter 4 of the annual report. Time and again we see performance outcomes only partially achieved because of deficiencies in equipment and personnel numbers, particularly in the skilled trades.

For instance, we can take an example of the object of capacity for medium combined arms operation—one would think this was pretty well the core of the traditional Australian digger. In terms of the benchmark of 12 months warning and 90 days readiness, we found—as the annual report shows—that the medium combined arms operation capability was unable to meet all allocated preparedness requirements for military response options in this reporting period. Deficiencies in equipment, personnel numbers in key trades and commitments to operations affected preparedness levels for the same option. In respect of training, core skills and professional standards, again we see personnel shortages in a number of key trades, and equipment deficiencies continuing to affect the achievement of some core skills. In terms of ground based air defence capability, we found that ammunition deficiencies and personnel shortfalls in critical trades affected levels of preparedness for sustaining all military response operations. In terms of protective operations that have a role in domestic security, we again saw a failure to achieve targets ‘due to deficiencies in equipment and personnel shortages in all trades’.

It is a shame that the professionalism and capacity of our service men and women, which I think is universally regarded—it is certainly internationally regarded; indeed, the comment is often made that our service men and women play well above their weight—is not reflected in any assessment of government policy. If you want an objective analysis of that, you have to go to our closest ally, the United States. The United States Department of Defense each year presents to Congress a document entitled Allied contributions to common defence—in other words, the significance of the alliance. The document measures the United States’ assessment of a country’s share of total contributions to military operations relative to its ability to continue to contribute. That figure is then expressed as a ratio. A ratio of between 0.8 and 1.19 indicates that a country’s contribution is roughly in balance with its ability to contribute. A ratio of 1.2 or greater indicates ‘substantial contributions’ relative to a country’s ability to contribute. Ratios below 0.8 indicate ‘a very low effort’ relative to a country’s ability to contribute.

Given the government’s claims that it is a prime ally of the United States and is devoted to the United States alliance, where do you think we would rate? Would we rate 1.2 or greater—that is, ‘substantial contributions’ to the alliance? With the exception of one criterion, Australia’s contribution was rated by the United States as being ‘a very low effort’. For personnel provided for military operations, we were rated at 0.56. For on-ground combat capability, including tanks, artillery and attack helicopters, we were rated at 0.33—less than half the measure of ‘a very low effort’. For air warfare contribution, we were rated at 0.74. For naval supply transport and support ships, we were rated at 0.57. For the provision of transport aircraft, we were rated at 0.45. For tanker aircraft fuel offload capacity, which includes fixed-wing air-to-air refuelling aircraft, we again received less than half—just 0.38. The only area where we achieved more than ‘a very low effort’ was the funding share of our defence compared to gross domestic product. Here we were rated at just 0.87—that is, 0.7 above the minimum criteria. The inescapable reality is that, if Australia were being chosen on the basis of its military contribution to the overall alliance, it would be left on the bench every time. There is much to be done to rebuild the military capability of our defence forces, and that will not occur until we address the mismanagement and recruitment difficulties that are being experienced.

I want to make a few comments about these figures and how the United States assesses Australia in terms of our military capability. As Mark Thomson from the Australian Strategic Policy Institute has mentioned, given the assessment by the United States of our military contribution, one has to wonder whether the significance of our participation in Iraq has more to do with political imagery than with actual military contribution. Let us look at the government’s strategy in Iraq. The Minister for Foreign Affairs gets up here every second day in question time and accuses us of having various points of view on Iraq. But the fundamental thing is that, from the point of view of service men and women—the personnel—they are entitled to know the estimated time of their return to Australia. That is commonsense; that is fair play. Whatever the difference in political views, any basic military exercise requires a mission statement and the identification of benchmarks for measuring when that mission is going to be achieved.

So much was said about this by the United States Senate that the Republican majority called on the United States administration to set some benchmarks and to report on measures to achieve those benchmarks. Why? So that the Iraqi administration—the ‘brave Iraqi administration’ that was referred to by the Prime Minister today—know that they have not got an open chequebook and that they have not got an open-ended time line. It is so that they know that they have to get their own house in order, resolve the internecine factional fighting that is occurring in the country, accept responsibility for their own administration, get their act in order and accept responsibility for their own security. This is what the United States Senate is saying.

The reason the government is not setting a mission statement or benchmarks for Iraq is that—and we are being unavoidably led to this conclusion—the government’s mission is to satisfy the domestic political audience of the current administration, because they cannot satisfy the military requirements of a decent alliance partner. And they will continue to fail to satisfy the requirements of a decent and competent alliance partner until they sort out the financial mess. (Time expired)