Lifting sovereign defence spend could add billions to GDP

Bringing even a small proportion more defence spending onshore could add billions to Australia’s GDP and allow the creation of up to 43,205 high-value jobs, according to a report prepared by DeltaPearl Partners.

Economic modelling conducted for the report found that awarding a greater share of Australian Defence procurement to homegrown prime contractors would provide a significant boost to the local economy, while strengthening Australia’s sovereign capability and therefore potentially its national security.

The report was commissioned by the Sovereign Australian Prime Alliance, a group of Australian defence and technology companies including NIOA, DroneShield, Austal, Macquarie Technology Group, and Gilmour Space. It found that coupling a 5% of defence spending away from imports with a 10% shift from foreign-owned companies to Australian primes would increase Australia’s GDP by $5 billion to $8.2 billion and generate up to 43,205 full-time equivalent jobs within Australia annually.

Leveraging local industry would also ensure valuable IP, strategic control and decision-making capabilities are retained in Australia, the report states. This modelling was conducted based on existing defence spending levels, so if defence spending increases the benefits could be even greater.

The report recommends that the Australian government redefine value for money to include sovereign capabilities, economic multipliers, supply chain resilience, innovation, and long-term national benefit. It also suggests the government adopt a sovereign dividend scorecard for assessing broader national benefits of in-house spending.

Other recommendations include strengthening the definition of an Australian business to prioritise those with majority Australian ownership and leadership, supply chain commitments and Australian control of critical IP, as well as developing clearer guidelines and decision making tools for procurement officers to allow them to prioritise sovereign outcomes.

DeltaPearl Partners Lead Researcher Craig Wilson said while conducting the analysis, the firm modelled only modest changes. He said the results show that with improved procurement criteria, government defence spending, which makes up 56% of the value of total federal government procurement, could generate a 'defence dividend' for the local economy.

“This confirms what Australian industry has been saying for years, that who we award defence contracts to matters enormously for Australia’s long-term resilience,” he said. “The economic behaviour of fully Australian primes versus foreign subsidiaries differs. Australian primes reinvest here, hire here, and build capability here. Decisions about intellectual property, taxation, dividends and management between foreign and domestic primes vary greatly. When we strengthen sovereign industry, we strengthen the economy and national security.”

The analysis echoes arguments raised recently by Defence leaders and the Australian National Audit Office that current procurement practices do not maximise Australian industry participation.

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