Defence: Operating Costs

Senator Chris Evans asked the Minister for Defence, upon notice, on 23 May 2002:

With reference to the response to question No.13 asked in the February 2002 estimates hearing of the Foreign Affairs, Defence and Trade Legislation Committee, which provided the daily full cost at sea for HMAS Manoora, Kanimbla and Tobruk:

1. Can the same daily full cost at sea be provided for: (a) the Anzac and FFG frigates; (b) the Success and Westralia; (c) the Fremantle class patrol boats.
2. Can the equivalent average full cost for operating F/A-18s, B707s and P-3Cs. That is, the average daily full cost of these aircraft when deployed on an operation.

Senator Hill - The answer to the honourable senator's question is as follows:

Past practice in answering questions of this nature has been for Defence to provide the daily, or hourly, full-cost recovery rate for ADF assets.

The full-cost recovery rate methodology is used to calculate the recovery or waiver costs of using a particular asset, usually when Defence is asked to perform a non-Defence activity. A comprehensive set of cost factors, including management overheads, capital costs and depreciation, salaries and accrued superannuation, is used to calculate the recovery rate. In other words, the rate includes all the embedded costs that Defence would be paying whether or not the assets had been deployed on operations.

The underlying assumption in recent questions and debate, that the full cost recovery rate can be extrapolated to estimate the costs of operations is, quite simply, misleading.

The true cost to the taxpayer of undertaking additional operations is the net additional cost. The net additional cost of a particular asset in an operation, in terms of extra fuel, rations and allowances, would depend on the particular operation. It also would take account of the offsets within its overall budget Defence would make in absorbing some of that cost; for example, cancelling or postponing exercises or seeking additional efficiencies to help offset the additional costs.

The net additional cost approach outlined above is consistent with the approach taken by successive Governments in providing supplementation to the Defence budget for operations – for example, the Gulf War and peacekeeping operations in Somalia and Rwanda. It is the method that this Government intends to continue to use for its own costings and to employ when answering questions about the costs of operations for purposes of more accurate debate.

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