TOPICS: Afghanistan; Bushmasters; Defence Budget.
LYNDAL CURTIS: Stephen Smith, you've told Parliament you're cautiously optimistic about the outlook in Afghanistan. Why?
STEPHEN SMITH: Well I've said before when I've reported to the house that I believe we were making progress and this is the first time I've returned from Afghanistan with a sense of optimism.
Now I've governed that in two respects. It's cautious optimism, firstly and secondly, we know the Taliban will fight back both to recover ground in Uruzgan and elsewhere and also with high-profile suicide bomb attacks. But it's quite clear now that we've made very considerable progress in the last year, in the last fighting season and consolidated that in the winter months. But-
LYNDAL CURTIS: So you think it will be harder for the Taliban, for the insurgents, to try and wind back the gains you've made during the winter.
STEPHEN SMITH: We believe so, but we know that that will be tough and we do have to steel ourselves for casualties and fatalities and that's not just in Uruzgan where we are, but across Afghanistan itself. Particularly, if you like, the Taliban heartland Helmand and Kandahar which of course to the south of Uruzgan and what occurs there has implications for us in Uruzgan.
LYNDAL CURTIS: The end game in Afghanistan is to train up the Afghan army and security forces to allow them to take care of their own security. Are you optimistic about the progress in that sense?
STEPHEN SMITH: Yes, we believe we are very much on track. We're training the Kandaks in the 4th Battalion. We believe we will make our target, if you like, of being able to hand over lead security responsibility to the Afghan National Army and the Afghan police by the end of 2014.
We are not yet one of the provinces or districts that are being looked upon for transition but that doesn't trouble us in anyway. We believe we are on track and as we become more successful in the training and mentoring and responsibility goes to for example patrol bases, to the Afghan police or army, it frees up for other tasks including more specialised and niche training like artillery, which we're doing very successfully.
LYNDAL CURTIS: You've announced the purchase of extra Bushmaster vehicles, but the decision on a separate vehicle, the Bushmaster Ute, is still awaiting decision. That was due in December. When are we going to hear about that?
STEPHEN SMITH: Well two things, firstly, this morning as part of my ministerial statement I've detailed a number of what we call force protection measures that announce that we will purchase an additional 101 Bushmasters. This has been a lifesaver in Afghanistan; A very effective protector of our troops as it transports them around. And as you always do there are losses, there are attritions, so we've lost about 31 from attrition purposes, including from IEDs in Afghanistan, so we're replacing those, but adding another 70 to the fleet to make sure that we've got sufficient for Afghanistan and other purposes.
So far as what's colloquially known as the Bushmaster Ute, we're in the middle of effective consideration of a couple of tenders. We're working through that very carefully, the Defence Materiel Minister and I. As is the case with all of these projects, we won't be rushed. We'll make what we believe is the best decision for the Commonwealth, for our national security interest; So that one is down the track.
But the purchase of 101 Bushmasters I think will be well received by our troops, but also well received by the manufacturer which of course is in Bendigo.
LYNDAL CURTIS: You've also had an issue unrelated to Afghanistan with procurement of amphibious ships. We're buying one from the UK. How's that progressing?
STEPHEN SMITH: Well we've won the tender for the purchase of the Largs Bay a couple of months ago, $100 million Australian. We've made two one-third payments. We've done some sea trials. It's all been very successful. We are very much on track for that to be in Australia by the end of this year to start its real work hopefully next year.
We've got some modifications that we'll need to do essentially transition it to an Australian ship and we'll work our way through that diligently, but picking up a heavy lift amphibious ship which was five or six years old, with all the documentation, puts us in a much better position than a few decades ago when we picked up the Manoora and the Kanimbla both which were then into their second decade.
LYNDAL CURTIS: Your statement on Afghanistan, your announcement about the Bushmaster vehicles comes after you've handed the Government, the Treasurer, and the Finance Minister about $2.5 billion of budget savings from Defence. Is that money that should have stayed in Defence for it to gear up to be able to do the things it has to do?
STEPHEN SMITH: No, the Budget - it's a very good outcome in my view for Defence and for the Government because what we found in doing a very careful examination of our forward estimates was that we had a large underspend in the 2010-2011 financial year. So we looked at the reasons for that.
We discovered that on our, if you like, our operating expenses we were being much more successful in - the Strategic Reform Program - than we expected in our early years and so we've been able to reduce the number of civilian employees, and reduce our estimates of cost into the future.
That's about half of the 2.7 that we returned to the Budget. The other half is essentially the usual slippage and adjustments that you find in a range of projects, some of which comes from a failure or an inability of industry to produce on the anticipated timetable. But none of the changes or adjustments that are made in the forward estimate years are fatal for any of those projects. And so it's about half and half.
LYNDAL CURTIS: So it's effectively money you thought you were going to have to spend now, you don't have to spend now but you will have to spend later.
STEPHEN SMITH: That's right. It will be spent in future years. So, that the timetable has a couple of important points. None of the projects that we are referring to here are what you regard as any of the big projects out of the white paper, all of which are, you know, to be constructed, somewhere, from 2020 through to 2040 and so some people are erroneously suggesting that that has implications for the big bills in the white paper. It doesn't. All of those are in their preliminary or planning stages.
Secondly, what we've discovered now with the implementation of some significant reforms - the Kinnaird reforms, the Mortimer reforms, the Pappas reforms - we're getting much better outcomes on our procurement and capability projects which are subject to that rigour than in the past - in terms of time slippage it's about 20 - 25 per cent. So as our reforms bite and apply to all projects, I'm expecting to see improvements.
Having said that we've got a long way to go and I will in the next couple of months announce a further wave of reform to improve and sharpen and focus our personal and institutional accountability in Defence generally.
LYNDAL CURTIS: Will the Government be looking again to Defence to save more money? Because without the savings that you have found, the quantum of savings the Treasurer delivered in the Budget would have been much smaller.
STEPHEN SMITH: Well the Secretary of the Department and I have agreed that we've got to take a very careful look at our estimation process.
We've had an underspend in the 10-11 year of $1.6 billion and that's after you take out $100 million for the Largs Bay and $200 million for a C-17, which we've bought forward. So that's nearly a $2 billion underspend.
There were some especial factors - an eight-week caretaker period, the floods and the like. But it doesn't explain such a large underspend.
We've got to do a very careful examination about whether we're getting our estimates right for the future. What that caused us to do was to also analyse that the Strategic Reform Program was being more effective which enabled us to continue the Strategic Reform Program but return additional proceeds for the Budget.
The key important imperatives so far as the finances of Defence are concerned; we have our white paper, 2009 Budget rules. We have our force 2030 capability projects. But we've got to do - achieve, to deliver that, we've got to achieve our Strategic Reform Program which is $20 billion worth of savings to be reinvested in Defence.
We've got to continue that program and that will be very much a focus for the next financial year and the next Budget, but we've got to continue to drive value for money - value for effort - and to be able to return the proceeds of reform to Defence and then make sure that our capability is done in a manner which is much better than it's traditionally and historically been done.
LYNDAL CURTIS: Stephen Smith, thank you very much for your time.
STEPHEN SMITH: Thank you. Thanks very much.