Australia to support defence industry as Covid-19 produces lasting effects

April 8, 2020

The Covid-19 pandemic brings a series of challenges to the Australian Government, facing an almost inevitable downturn into recession like most other countries.

The Australian GDP is set to contract by 0.5% in 2020 as travel-exposed sectors such as higher education and tourism are severely affected according to GlobalData. The Morrison government will follow stimulus measures similar to those taken by the Rudd government during the 2008 global financial crisis.

As things stand, two stimulus packages and A$90bn ($61.2bn) from the Reserve Bank add up to a total cash injection of A$189bn ($128.6bn), approximately 10% of the Australian economy. To combat rising unemployment, the government will also subsidise wages by setting aside A$130bn ($88.4bn). Injecting stimulus packages into the ailing economy is the Morrison government’s solution to mitigate the impacts of Covid-19, although the rate of success will largely depend on the duration of the pandemic.

In a joint media release on 27 March, the Australian Ministry of Defense outlined its commitment to keep the defence industry afloat. Minister for Defence Linda Reynolds explained that the industry was a priority for Australia, stating that it formed ‘an important contribution to our economy, our security posture and our safety’.

Measures to fast-track payments to defence contractors will act as immediate offsets to Covid-19 impact. More than A$500m ($340.1m) worth of payments will be accelerated up to two weeks earlier than the originally contracted payment terms for some suppliers, once their invoice is approved by the ministry. The authorities will also work to ensure prompt payments by strategic prime contractors to their sub-contractors along the defence supply chain.

Although stimulus measures address immediate pressures on the domestic defence industry, Covid-19 will also have lasting effects on Australia’s security environment. Regional security in the Indo-Pacific will shift to address a recovering China as the United States may turn inwards to alleviate the Covid-19 shock on the economy and prioritise the upcoming November elections. The US Government has delayed the deployment of approximately 2,500 marines, part of the Marine Rotational Force-Darwin 2020, to Katherine in the Northern Territory scheduled for April due to Covid-19 travel restrictions. US power projection in the Indo-Pacific will be affected as international contingencies stop operations in order to isolate because of the outbreak. An example is the docking of aircraft carrier USS Theodore Roosevelt in Guam, which carries out Freedom of Navigation operations in the South China Sea.

On the contrary, the Chinese military is already recovering from Covid-19 disruptions, carrying out an anti-submarine joint exercise with Cambodia on March 15. In response, Australian may take the initiative to establish deeper security relationships with the other regional security partners, members of the Quadrilateral Security Dialogue such as India and Japan. India has begun a substantial restructuring of its service branches toward a more unified command system, which increases its effectiveness as a security partner. Interests between the remaining members will coincide in maintaining a regional security status-quo as China expands its influence in the region and the US presence diminishes as its government prioritizes combatting Covid-19.

Date: 08 April 2020

Source: Army Technology