Defence Estate Regeneration Plan 2016-2030 Cover Page Picture - Source NZDF

Mal d’État

The Defence Estate is the land, buildings and infrastructure which the NZ Defence Force utilises to operate from. It has seen a lot of action with many buildings dating back to WWII and very little in the way of new construction. Everyone, it seems, is aware of the problem.

In December, the Minister of Defence, Ron Mark was reported saying that the Defence Estate was a top priority for him but it would have to wait until the review of Defence capabilities was complete. That would be the Capability Review that was going to be out by the end of 2018 – the delay quietly slipped into the same column in Defsec media’s Line of Defence Summer edition. This despite replies to OIA requests assuring that the review would be released in 2018.

The Minister goes on to reiterate his sense of urgency in January 2019 adding that he believed the previous Government had not fully funded its Defence Estate Regeneration Plan ($1.7 billion Capital Expenditure [CAPEX] plus $2.5B Operational Expenditure [OPEX]) over 15 years until 2030) and that’s why he had put it on hold. That statement is at odds with a 2016 media release by then Defence Minister, Gerry Brownlee, stating that the Government had approved the first four years of capital funding out to 2019-2020 fiscal year. Minister Mark recounts finding the barracks he joined up in unchanged. Clearly, the trip down memory lane wasn’t enough to transform a sense of urgency into action.

If we are to believe the Minister, it’s the fault of former National Party Defence Ministers Coleman, Brownlee or Mitchell. National’s Defence spokesman, Mark Mitchell doesn’t believe Labour was “fully committed to the plan” as historically, they always looked to make cuts in defence.

The Defence Force itself must also take some responsibility for the situation. When was the last time officials dug in and really told a Minister that they couldn’t do any more with the resources available? Perhaps a Defence Association could have put the case better if the Chiefs aren’t up for it?

Defence Estate NZDF Response to OIA Jan 2019
Defence Estate NZDF Response to OIA Jan 2019

According to a response to an OIA request I made recently, the Defence Estate is worth $2.684B as at 30 June 2018 (see table above). This was surprising given that the Defence estate, according to NZDF’s own Regeneration Plan (2016 public document) puts the entire estate value at $4.2B. To compare apples with apples – in 2016, the estate value provided in the OIA response was $2.347B. Why the difference of over $300M? My initial thought was that the OIA response failed to account for both land ($1.5B) and buildings/infrastructure (2.8B) which together make up $4.3B – very close to the 2016 figure.

However, the answer to my follow-up question about the gap clarified things. The figures tabulated above show net book value i.e. the original purchase cost less depreciation over the life of the asset, adjusted for any revaluations. The figure in the infographic below, taken from the Defence Estate Regeneration Plan in 2016 shows the indicative cost of full replacement of Defence Estate buildings.

This is interesting in itself and credit to Defence for a fast turnaround (9 days) on my follow-up request. Fundamentally though, this article is about addressing the Defence Estate at a political level.

NZ Defence Estate Infographic 2016
Source: NZDF Defence Estate Regeneration Plan 2016 – 2030

Based on the most recently supplied figures, the estate appears to have been revalued in 2016 by about half a billion dollars. Granted, real estate values have jumped but Vote Defence Force has not. In the period from 2012 to 2018, the NZDF spent $30m less (presumably that’s CAPEX) on additions and improvements to land and buildings than it paid the Government in depreciation charge for the estate. That means they are not even keeping up let alone improving significantly. What is causing the NZDF to spend less than the depreciation on the estate when the situation is so dire and the previous government funded a four-year CAPEX programme in 2016? Has the Labour/NZ First/Green Government frozen the improvements perhaps?

One of the great shames of Defence funding is highlighted, yet again, in the OIA response – Capital Charge. Between 2012 and 2018, the Government ‘churned’ over a billion dollars in capital charge through the Defence Estate. New Zealand is, according to a 2010 State Services Commission paper, the only country in the world to apply capital charge to central Government. What purpose is served in allocating money to Defence each budget then arbitrarily taking a percentage back in capital charge to teach the lesson that money isn’t free and inputs/outputs must be balanced? If politicians truly believed this, they wouldn’t be buying votes with tax-free student loans and free tertiary education.

Taxpayers must fund a horde of officials to manage this churn. However, core government services like Defence, Police, Education and Health must have large asset bases to deliver their outputs. They cannot behave like a trading entity and put up prices or have a sale to improve ROI. This ideological thinking produces perverse incentives and is, I believe, a direct contributor to the fact NZ has no war reserve of equipment.

The main reason for the current delay from Ron Mark over this and other defence initiatives is likely to be the drawn-out negotiations for Budget 2019. So, here’s a get-out-of-jail free card. If the new money needed for the Defence Estate and other initiatives is proving hard to find, do the taxpayer (and the nation) a favour and exempt the NZDF from Capital Charge and Depreciation.

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