Defence Connect Budget Lunch, Canberra 17 May

Department of Defence

Good afternoon ladies and gentlemen.

It’s great to be here today for the Defence Connect Budget Lunch…

After my good friend and colleague the Treasurer delivered yet another historic Budget to drive our economic recovery.

It really is the Budget for our times.

And can I tell you when I attended those functions on Tuesday night…

The feedback from those in defence industry on our Defence Budget was “geez it’s great – it hasn’t reduced”.

We’re still investing $270 billion in our Defence capabilities over the next decade, it hasn’t changed…

And you will see that this has been baked into the Budget.

With changes across the board that support Australia’s defence industry.

Such as the extension of the Instant Asset Write-off.

Over 99 per cent of businesses, employing over 11 million workers, can write off the full value of any eligible asset they purchase.

This has seen their spending on machinery and equipment increase at the fastest rate in nearly seven years.

And I know many in the defence industry have taken advantage of this much-needed tax relief.

That’s why our Government has gone further and extended these measures for a further year until 30 June 2023, so a manufacturer can expand their production line.

So I encourage any eligible business in this room to take advantage of this opportunity.

We are living in increasingly uncertain times, both at home and abroad.

Australia continues to face threats from foreign espionage and interference, especially to our defence industry.

We know our primes are at risk of security breaches.

Thankfully primes have the resources to tighten up and secure this information, which is critical to the Defence of our nation and this Government requires that they will.

However, the potential weakness is in our defence SME ecosystem.

And this is something we must all tackle together.

The prospect of military conflict in our region has not gone away.

Traditionally, Australia’s way of dealing with conflict was sending in the Army, Air Force and Navy.

Today, of course, they remain the central lever of government in the defence of our nation.

But we are now confronting new and modern ways that others would use to do us and our neighbours harm.

I am talking about cyber attacks, debt-trap diplomacy, coercive behaviour, and disinformation campaigns – the grey zone.

Regional instability has increased the speculation of these types of activities.

We want to make sure that there is peace in our region.

Australia is not looking for a fight.

But we must be ready for what could eventuate.

Australia should and must always act in its own interests, in accordance with its own values and principles.

We should always be careful with our language and tone when expressing what is in our best defence interests.

But it’s not enough just to talk tough about the Defence of our nation.

You also need to back it up. You need a plan and you need to execute that plan.

As the Minister for Defence Industry, that’s exactly what I am doing.

And it’s a timely reminder that our Government’s strategic approach to the defence of our nation was clearly spelt out in black and white in the 2020 Strategic Update and the Force Structure Plan.

However, our $270 billion investment in our Defence capabilities must give us more than just the tools we need to confront aggression in our region.

COVID-19 has rammed home our need to build a sovereign defence industry that can withstand threats to human security and deliver essential capability for our troops.

We need the right skills, know-how and know-why in our defence industry.

We need to be more adaptable and constantly stay on our toes, so that we can…

Shape our strategic environment – the first plank of the 2020 strategic update.

Australia must be an active and assertive advocate for stability, security and sovereignty in our immediate region.

Being a good neighbour has never been more important.

That’s why we’re constructing the 21 Pacific Patrol Boats at Henderson for our Pacific neighbours.

But we must also deter action against Australia’s interest.

Those who would do us harm should think twice.

The nature of our current and future threats requires Defence to develop a different set of capabilities.

These must be able to hold potential adversarial forces at bay and protect infrastructure at risk from a greater distance.

That’s why we must also be willing and able to respond with lethal and credible military force, when required.

Being the third and final plank of the 2020 strategy.

Our ADF must be better prepared for such conflict if deterrence measures fail…

Or to support our allies where Australia’s national interests are threatened.

As the Minister for Defence Industry, I’m determined to see Australia has the capacity to build at home what it needs to defend our nation.

But why do we bother with this pursuit?

Why don’t we just buy everything off the shelf?

I think during COVID-19 Australians have been compelled to stop and think about all the things that we buy overseas.

Anyone who bought online at the height of the pandemic will know what it was like to wait months for that new gadget, or in my case, those much needed shoes.

That’s the small scale stuff, sure, but it applies right across the economy.

And I have no doubt that Australians are now looking much closer to home for everything that they need.

And thinking a little bit more about, well, what is it that we ought to be making at home.

Of course, our strategic partners are important, but I’m very focused on our local partners.

And we are going to talk more about this going forward, because we need everyone on Team Australia.

The reality is that many of the fine people of Queanbeyan or Geelong would give me a blank stare if I mentioned the words ‘sovereign industrial capability’.

But if I were to say to them, ‘what should we be good at and make at home?’, then they’d know what I was talking about, and they’d no doubt give me some good answers.

For people in this room, you have such a key role to play in this.

That’s why I’m tough on the primes and my own department.

We are going to expect more of them and tolerate less.

When I came into this portfolio, I was determined to identify and remove the barriers that were preventing Australian defence SMEs from getting a fair go when vying for Defence work.

But I also wanted to ensure that we had the right levers in place to enable greater access to Defence opportunities.

It’s not enough just to get rid of the barriers; you’ve also got to work out what the levers are, and what the enablers are.

So we set out to identify those, and the result of that was my five pillars approach to supporting our growing defence industry.

Firstly, I have delivered a new and enhanced contractual framework for AIC.

Primes must deliver specific and enforceable commitments for Australian industry capability, IP transfer, skills transfer, research and development, and spend in Australia.

We are guaranteeing capability opportunities for Australian SMEs in contracts.

And I don’t mind telling you that I have and will continue to hold the primes to account on their AIC commitments.

It’s not enough to say you’re going to do something, to make promises to the Australian taxpayer; you have to follow through.

And if you don’t, there will be consequences.

But it’s also not just enough to mindlessly follow and celebrate AIC percentage compliance, and I think we all understand that.

Some would have us focus just on raw percentages – 50 per cent, 60 per cent, whatever it may be – because it makes for a pretty easy story.

But we actually need to focus on the capability. What is the capability we must have?

And we need more than just the low-hanging, Australian-made “fruit” to be contracted.

It’s not enough to merely have a dollar amount that you comply with as a box ticking exercise.

We have to keep focusing on the gaps and what it is that we need to build at home to keep our nation safe.

And there is no cookie cutter approach to filling those gaps – it needs a full-court press of investing significantly in innovation, skilling and capability improvement…

And occasionally picking and working with a sole source will be required.

The unprecedented and ever-changing circumstances we face compels us to do this.

And large prime contractors are our essential partners in this.

But it doesn’t mean the primes are going to get an easy ride from me, I can assure you of that.

That brings me to my second pillar, the independent AIC audit program.

We are independently and forensically examining whether prime contractors are meeting their AIC contractual obligations.

There are primes being audited as we speak.

We will take a carrot and stick approach to ensure there is AIC compliance across the board.

But let me tell you, I won’t be afraid to use the big stick if those larger organisations are not meeting their obligations.

The third pillar is the changes we’ve introduced to Commonwealth Procurement Rules.

Normally when I utter the words Commonwealth Procurement Rules, everyone in the audience nods off.

But stay with me, because I need to tell you how critical these changes have been.

They have meant that when a procurement specialist within Defence considers value for money, they must consider the benefit of an investment from an Australian SME.

Now, the development of sovereign capability must also be a value-for-money consideration.

So, with these changes to the Commonwealth Procurement Rules, there is now much more clarity for Defence procurement decision-makers – and one less excuse.

The fourth pillar was our review of what I call the shop-front to Defence work, the CDIC.

We are now implementing the recommendations from the CDIC review.

But don’t get use to the name CDIC, it is changing.

And I look forward to unveiling the new organisation in the next couple of months.

The final pillar is the review into ASDEFCON and Defence procurement.

From my perspective as a construction lawyer, I am determined to cut the burdensome red tape that Australian businesses too often face when tendering for Defence work.

We are going to make significant changes to the way that Defence procures so that the needs of industry are balanced equally with those of Defence.

We will reduce the cost and time of tendering.

This will ensure the interests of Australian SMEs are placed front and centre of Defence procurement.

This review is not just about contracts and the words on the document.

It’s also about procurement processes, it’s about culture, and it’s about people.

It won’t happen overnight, but at least we are identifying the blockers and how we need to improve our processes.

And we’re well on the way.

One of the enablers, or levers, that I’m very pleased about is a program I recently launched, called the Defence Industry Secondment Program.

This secondment program is about getting Defence APS and Defence Force personnel out of Russell, out of Canberra and into industry.

It’s about developing and building those commercial skills and expertise.

When I launched this program in Sydney a couple of weeks ago, I did so with Major Mark Vermeer, who is the first ADF officer to take part.

Mark has started his secondment at Sydney company Jenkins Engineering, or JEDS as they’re known, and I have to say is pretty excited about it.

Reflecting on his first few days, Mark’s feedback on that day really did blow me away.

Already he’d learned so much about the hoops that Australian businesses must jump through to win Defence work.

And he said that when his secondment finished, he would return to Defence and change his own processes and the way that he conducts procurement.

I was pretty amazed, and delighted.

Mark had only been there for a couple of days and it had already been so beneficial.

Imagine what he’s going to bring back to Defence after six weeks.

So, let me finish today by reminding you all of one important point – the most important point of all.

Everything that I have done, everything that I am doing, is about the defence of this wonderful country of ours.

And it is an incredible privilege to be the Minister for Defence Industry.

Now, no one can predict the future – COVID has shown us that.

But it should be clear to everyone that there is no greater priority for the Morrison Government than the defence of Australia.

And Tuesday’s budget reinforces that.

Through our strategic and well-considered actions by working in partnership with our defence industry, let me assure you, we’ve got this.

Thank you again for having me here today.

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