COMMONWEALTH OF AUSTRALIA Proof Committee Hansard SENATE FOREIGN AFFAIRS, DEFENCE AND TRADE LEGISLATION COMMITTEE Consideration of Budget Estimates TUESDAY, 4 JUNE 2002 CANBERRA CORRECTIONS TO PROOF ISSUE This is a PROOF ISSUE. Suggested corrections for the Bound Volumes should be lodged in writing with the Committee Secretary (Facsimile (02) 6277 5818), as soon as possible but no later than: Tuesday, 18 June 2002 BY AUTHORITY OF THE SENATE [PROOF COPY] INTERNET The Proof and Official Hansard transcripts of Senate committee hearings, some House of Representatives committee hearings and some joint com- mittee hearings are available on the Internet. Some House of Representa- tives committees and some joint committees make available only Official Hansard transcripts. The Internet address is: http://www.aph.gov.au/hansard To search the parliamentary database, go to: http://search.aph.gov.au Tuesday, 4 June 2002 SENATE-Legislation FAD&T 123 SENATE FOREIGN AFFAIRS, DEFENCE AND TRADE LEGISLATION COMMITTEE Tuesday, 4 June 2002 Members: Senator Sandy Macdonald (Chair), Senator Hogg (Deputy Chair), Senators Bourne, Chris Evans, Ferguson and Payne Senators in attendance: Senators Bartlett, Bishop, Calvert, Cooney, Evans, Faulkner, Ferguson, Hogg, Macdonald, McKiernan, Payne and West Committee met at 9.02 a.m. DEFENCE PORTFOLIO Consideration resumed from 3 June 2002. In Attendance Senator Hill, Minister for Defence Department of Defence Portfolio overview and major corporate issues Portfolio overview (including implementation of White Paper) Dr Allan Hawke, Secretary of the Department of Defence Admiral Chris Barrie, AC, Chief of the Defence Force Lieutenant General Des Mueller, AO, Vice Chief of the Defence Force Mr Lloyd Bennett, Chief Finance Officer Budget summary and financial statements Improvement initiatives (efficiencies, Commercial Support Program, customer­supplier arrangements) Mr Lloyd Bennett, Chief Finance Officer Mr Rick Martin, Acting First Assistant Secretary Financial Services Division Mr Joe Roach, Acting First Assistant Secretary Business Strategy Division Capital budget: major capital equipment and major capital facilities projects (questions on Defence Materiel, including on materiel reform, and infrastructure projects) Mr Mick Roche, Under Secretary Defence Materiel Mr Shane Carmody, Deputy Secretary Corporate Services Major General Peter Haddad, AM, Commander Joint Logistics Rear Admiral Kevin Scarce, CSC, RAN, Head Maritime Systems Dr Ian Williams, Head Land Systems Air Vice Marshal Ray Conroy, AM, Head Aerospace Systems Mr David Learmonth, Head Industry Division Ms Shireane McKinnie, Head Electronic Systems Air Vice Marshal Norman Gray, AM, Head Airborne Surveillance and Control Ms Ann Thorpe, Head Materiel Finance Mr Michael Pezzullo, Acting Head Infrastructure Responses to questions on notice from 2001­02 additional estimates hearing. Defence outputs Output 1-Defence operations Rear Admiral Chris Ritchie, AO, Commander Australian Theatre Mr Kevin Pippard, Director Business Management Headquarters Australian Theatre Output 2-Navy capabilities (Navy Group issues) Rear Admiral Brian Adams, AM, RAN, Deputy Chief of Navy Mr Les Wallace, Director General, Navy Business Management Rear Admiral Kevin Scarce, CSC, RAN, Head Maritime Systems, Defence Materiel Organisation Mr Mark Gairey, Director General Submarines Output 3-Army capabilities (Army Group issues) Lieutenant General Peter Cosgrove, AC MC, Chief of Army Mr Lance Williamson, Director General Corporate Management and Planning­Army Output 4-Air Force capabilities (Air Force Group issues) Air Marshal Angus Houston, AM, Chief of Air Force FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 124 SENATE-Legislation Tuesday, 4 June 2002 Mr George Veitch, Assistant Secretary Resources Planning Air Force Air Vice Marshal Ray Conroy, AM, Head Aerospace Systems Output 5-Strategic policy (including Defence Cooperation Program) Dr Richard Brabin­Smith, AO, Deputy Secretary Strategic Policy Air Vice Marshal Alan Titheridge, AO, Head Strategic Command Ms Myra Rowling, First Assistant Secretary Strategic International Policy Output 6-Intelligence (including Defence Security Authority) Mr Ron Bonighton, Acting Deputy Secretary Intelligence and Security Mr Stephen Merchant, Acting Director Defence Signals Directorate Ms Margot McCarthy, Head Defence Security Authority Business processes Defence Science Dr Roger Lough, Acting Chief Defence Scientist Dr Tim McKenna, CSM, First Assistant Secretary Science Policy Ms Chris Bee, Assistant Secretary Science Corporate Management Inspector General (including portfolio evaluations) Mr Claude Neumann, Inspector General Public Affairs Ms Jennifer McKenry, Head Public Affairs and Corporate Communication Mr David Spouse, Acting Director-General Communication and Public Affairs Corporate Services (including management decision support (information systems)) Mr Shane Carmody, Deputy Secretary Corporate Services Mr David Kenny, Head Information Systems Division Mr Ken Moore, Head Service Delivery Division Mr Michael Pezzullo, Acting Head Infrastructure Mr Ian Clarke, General Council Defence Legal Service Mr Patrick Hannan, Chief Information Officer People Defence Personnel (recruitment and retention, recruiting advertising) Rear Admiral Russ Shalders, Head Defence Personnel Executive Mr Felix Bleeser, Deputy Head Defence Personnel Executive Commodore Louis Rago, Director­General Peronnel Plans Ms Bronwen Grey, CSM, Director Equity Organisation Defence Housing Authority Mr Bear, General Manager, Development and Sales Mr Jon Brocklehurst, Manager Resources and Financial Policy Department of Veterans' Affairs Portfolio overview Corporate and general matters Outcome 1: Eligible veterans, their war widows and widowers and dependents have access to appropriate compensation and income support in recognition of the effects of war service. 1.1-Means tested income support, pension and allowances 1.2-Compensation pensions, allowances etc 1.3-Veterans' Review Board 1.4-Defence Home Loans Scheme. Mr Bill Maxwell, Division Head, Compensation and Support Mr Geoff Stonehouse, Division Head, Health Mr Mike O'Meara, Branch Head, Defence Liaison, Compensation and Support Ms Helen Devlin, Director, Medical and Allied Health Policy Dr Keith Horsley, Senior Medical Adviser Mr Mark Johnson, Branch Head, Disability Compensation, Compensation and Support Mr Roger Winzenberg, Branch Head, Income Support, Compensation and Support Mr Bruce Topperwien, Executive Officer, Veterans' Review Board Outcome 2: Eligible veterans, their war widows and widowers and dependents have access to health and other care services that promote and maintain self-sufficiency, wellbeing and quality of life. 2.1-Arrangement for delivery of services FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 125 2.2-Counselling and referral services. Mr Geoff Stonehouse, Division Head, Health Ms Narelle Hohnke, Branch Head, Health Services, Health Mr Wes Kilham, Branch Head, Younger Veterans and VVCS, Health Mr Chris Harding, Specialist Business Adviser, Business Analysis and Development Unit, Health Dr Graeme Killer, AO, Principal Medical Adviser Ms Josephine Schumann, Branch Head, Health e­business, Health Mr Barry Telford, Branch Head, Housing and Aged Care, Health Mrs Olivia Witkowski, Acting Branch Head, Housing and Aged Care, Health Outcome 3: The achievements and sacrifice of those men and women who served Australia and its allies in war, defence and peacekeeping services are acknowledged and commemorated. 3.1-Commemorative activities 3.2-War cemeteries, memorials and post­war commemorations Output group 6-Services to the Parliament, Ministerial services and the development of policy and internal operating regulations-attributed to outcome 3. Air Vice Marshal (Rt'd) Gary Beck, AO, Director, Office of Australian War Graves Ms Kerry Blackburn, Branch Head, Commemorations, Corporate Development Ms Katherine Upton, Assistant Director (Administration), Office of Australian War Graves. Outcome 4: The needs of the veteran community are identified, they are well informed of community and specific services and they are able to access such services. 4.1-Communication and community support .... to the provider and veteran community. Mr Geoff Stonehouse, Division Head, Health Ms Carolyn Spiers, Branch Head, Employee Relations Development Ms Carol Bates, Branch Head, Parliamentary and Corporate Affairs, Corporate Development Mr Bob Hay, Branch Head Strategic support Branch, Corporate Development Mr Barry Telford, Branch Head, Housing and Aged Care, Health Mrs Olivia Witkowski, Acting Branch Head, Housing and Aged Care, Health Mr Mark Le Dieu, Director, Workplace Relations and Policy Outcome 5: Current and former members of the Australian Defence Force who suffer an injury or disease which is causally related to employment in the ADF are provided with compensation and rehabilitation benefits and services. 5.1-Incapacity payments, non­economic lump sums 5.2-Medical, rehabilitation and other related services 5.3-Individual Merits Review 5.4-Advisory and information services. Mr Bill Maxwell, Division Head, Compensation and Support Mr Mark Johnson, Branch Head, Disability Compensation, Compensation and Support Output group 6-Services to the Parliament, Ministerial services and the development of policy and internal operating regulations-attributed to outcomes 1-4. Dr Neil Johnston, Secretary Dr Graeme Killer, AO, Principal Medical Adviser Ms Felicity Barr, Division Head, Corporate Development Mr Murray Harrison, Manager, Information Management, Compensation and Support Mr Sean Farrelly, Branch Head, Resources Branch, Corporate Development Ms Karin Malmberg, Director, Budgets, Resources Branch, Corporate Development Australian War Memorial Outcome 1: Australians remember, interpret and understand the Australian experience of war and its enduring impact on Australian society ... General questions Major General Steve Gower (Rt'd), Director Mr Mark Dawes, Assistant Director, Corporate Services Mr Mark Whitmore, Assistant Director, National Collection Ms Helen Withnell, Assistant Director Public Programs Dr Peter Stanley, Principal Historian Ms Rhonda Adler, Manager Finance section FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 126 SENATE-Legislation Tuesday, 4 June 2002 CHAIR-I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I will shortly welcome back Senator Robert Hill. I do welcome back Dr Hawke and officers of the Defence organisation. Today the committee will hear the Defence Housing Authority before the dinner break and the Department of Veterans' Affairs from the resumption until 11 p.m. this evening. Last night the committee adjourned on the consideration of the capital budget, which was partially heard, and today the committee will continue its consideration and will move through the outputs when we get to them. The committee has resolved that the deadline for provision of answers to questions taken on notice at these hearings is Thursday, 11 July 2002. I may have said 11 June 2002 yesterday, and I now correct the record. Witnesses are reminded that the evidence given to the committee is protected by parliamentary privilege and I also remind witnesses that the giving of false or misleading evidence to the committee may constitute a contempt of the Senate. The Senate has resolved that there are no areas in connection with the expenditure of public funds where any person has a discretion to withhold details or explanations from the parliament or its committees unless the parliament has expressly provided otherwise. An officer of a department of the Commonwealth shall not be asked to give opinions on matters of policy; however, they may be asked to explain government policy, describe how it differs from alternative policies and provide information on the process by which a particular policy was selected. An officer shall be given every opportunity to refer questions asked of that officer to a superior officer or to a minister. I might just give a further explanation of the agreed program for today. It has been agreed that we shall have questions on Defence all day until approximately 5 p.m. Defence will resume on Wednesday morning. This evening before dinner for approximately an hour we will have some questions Senator Evans has indicated he has on the DHA. After dinner we have the Department of Veterans' Affairs from after the dinner break until 11 p.m. [9.05 a.m.] Department of Defence Senator CHRIS EVANS-I thought it might be useful if we started with a discussion about the war on terrorism and an update. I do not know whether officers would prefer us to just ask questions or whether someone would like to give us a five-minute overview of where we are at. That might be a better way of handling things. If it is going to be you, Admiral Ritchie, you might want to introduce some stuff that we might not otherwise ask you about. Rear Adm. Ritchie-The war on terrorism at the moment continues pretty much as it has, in terms of the forces assigned for the last couple of months. There are three ships operating in the north Arabian Gulf under the tactical command of an Australian officer and staff. They are enforcing UN sanctions against Iraq. They are doing that very successfully and that end of the gulf is fairly tightly sewn up by the forces that are there- three Australian ships, a couple of American ships and a British ship are involved in that activity. In Kyrgyzstan, in a place called Bishkek, there is a civilian airfield which is hosting fighter aircraft. Those fighter aircraft provide strike support into Afghanistan. The Royal Australian Air Force has two Boeing B707 tankers operating out of that airfield. Again, that is a successful operation and proceeds well. In Afghanistan we have elements of the Special Air Service Squadron who are operating in the eastern provinces of Afghanistan, mostly engaged in reconnaissance. They are supported by the Australian National Command Element which is headquartered in Kuwait but floats between Kuwait and Afghanistan in terms of the commander of that organisation. A logistic support element also exists in Kuwait and an enable logistic support element exists in Bahrain to support the forces in the north Arabian Gulf. The Navy and the SAS are into their second rotation. This is the second group of people that have been engaged. The Air Force is in its first rotation. Decisions as to further rotations are a matter for government consideration. As you would know, the F18s that had been based in Diego Garcia have been withdrawn and are back in Australia. That was a matter of the task coming to an end. Senator CHRIS EVANS-Reports of their role have been clarified? Rear Adm. Ritchie-Reports of their role were greatly exaggerated in certain parts of the press. Senator CHRIS EVANS-Thank you, Admiral. I take it there has been no decision on a third rotation of SAS troops into Afghanistan-is that right? Rear Adm. Ritchie-No decision has been taken by the government. Senator CHRIS EVANS-When are the second rotation due to end their tour of duty? Rear Adm. Ritchie-That rotation will go on until late August. Senator CHRIS EVANS-But it would be considered operationally necessary to pull them out about then? They could go a bit longer but not necessarily too much longer? Rear Adm. Ritchie-That is about right. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 127 Senator CHRIS EVANS-Is the same true for the Air Force rotation? Rear Adm. Ritchie-The Air Force rotation at the moment is limited to one six-month stint. That is to do with the maintenance of those particular aircraft. The people within that organisation will rotate, though, very shortly. Senator CHRIS EVANS-Who are they actually refuelling in Kyrgyzstan? I gather there is a compatibil- ity issue between our tankers and some of the US aircraft. Rear Adm. Ritchie-No, there are two nationalities of aircraft and they fuel both. There is no issue with that. Senator CHRIS EVANS-They are American and French? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-Are they doing that refueling as a regular thing or is it a stand-by thing? Rear Adm. Ritchie-They are flying every day. Dr Hawke-The government will, as the Prime Minister said recently, consider whether there is a further rotation before the August time frame when the present group comes out of Afghanistan. The Prime Minister has already indicated that they will give it consideration and make a decision before that time. Senator CHRIS EVANS-No doubt the SAS are having to prepare on the basis that they might have to- Dr Hawke-They would not be preparing now because they would be awaiting the government's decision as to whether there will be a further rotation or an extension of the present group. Senator CHRIS EVANS-We have seen the briefings on the SAS involvement. They have obviously been involved in some pretty nasty incidents and there is some suggestion that they are doing a bit more than reconnaissance. Primarily that is supposed to be their role, isn't it? Is it just bad luck, if you like, that they have been involved in what seem to have been fairly serious battles? Or has there been a change in the nature of their role? Rear Adm. Ritchie-It is not a change in the nature of their role. Where they have been involved it stems directly from that particular role. Operation Anaconda, which is probably the one you refer to, was the last really major action in Afghanistan. Their part in that was reconnaissance and it was as a result of the reconnaissance that they were able to bring down other forces to engage the enemy. Senator CHRIS EVANS-But in theory they are not supposed to be involved in pitched battles or efforts to root out enemy troops. Rear Adm. Ritchie-They are engaged in reconnaissance and at times that reconnaissance turns into a contact and they have to do what they have to do to get out of that. Senator CHRIS EVANS-Illness issues have affected the British troops. Is there any suggestion or sign of our troops being exposed? Rear Adm. Ritchie-None at all among our people. Senator CHRIS EVANS-Does the funding provided in the budget sustain the deployment of the SAS for the full 2002-03 year? Or is it only until the end of this rotation? Rear Adm. Ritchie-It is my belief that the budget estimate is based on the fact that people might be there for the whole 12 months, although that decision, as the secretary said, has not been made. Dr Hawke-I am not sure that is entirely correct. Mr Bennett-The funding covers the period until the end of the calendar year. Senator CHRIS EVANS-Why have we chosen the end of the calendar year? Dr Hawke-That is because the government has not made a decision yet about a further rotation. As part of the budget framework they decided that they would provide a sum of money to maintain likely operations until the end of December. In the event that the government decides it will continue its efforts, then the funding would flow through the additional estimates process. Senator CHRIS EVANS-We have formally committed to August and the budget has provided enough funding to support the deployment until December. But if we were to extend we would effectively have a third rotation. We are going to need extra money in the additional estimates to fund it. Dr Hawke-If additional money is required then that would be dealt with in the additional estimates process. Senator CHRIS EVANS-Is that true for the other deployments as well? Dr Hawke-No, and my recollection is that it applies only to the war on terrorism. Senator CHRIS EVANS-I meant in terms of the Air Force. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 128 SENATE-Legislation Tuesday, 4 June 2002 Dr Hawke-We have a monetary provision to cover the cost of present and likely operations until the end of December. Senator CHRIS EVANS-That would cover the Air Force and SAS but not the Navy involvement? Dr Hawke-It covers the Navy involvement. If it actually costs less money than what has been provided for we would return that to consolidated revenue as part of the additional estimates process. If it costs more, that would be considered as part of the additional estimates process. Senator CHRIS EVANS-It is the principle of reimbursement, which you seek to reinforce at every occasion, Dr Hawke. I sometimes get confused here because the Navy contribution to the blockade on Iraq preceded the war on terrorism and the two seem to get rolled in together now, for understandable reasons. Are you saying that we are funding the blockade in the same way? Dr Hawke-It is all covered under the same financial head, yes. Senator CHRIS EVANS-There is little likelihood, I would have thought, of that ending. It is a separate decision making process, isn't it, to the effort in Afghanistan? Rear Adm. Ritchie-It is associated with the effort in Afghanistan. What Australia was doing prior to the war against terrorism was making an occasional contribution to that blockade so we were going once every two years for six months, or something like that. It just happened to be that we were there when the war on terrorism commenced. That is no guarantee that the government will continue that post the war on terrorism. That is a decision for the government to make. Senator CHRIS EVANS-Our contribution to that effort was increased substantially as part of the broader effort to allow the United States to deploy elsewhere. So you now tend to treat them as the one item for budgetary purposes? Dr Hawke-Yes. Senator CHRIS EVANS-There is no separate budget allocation for the Navy operations in Iraq, apart from the war on terrorism funding? Dr Hawke-That is my understanding. Senator HOGG-The funding for that operation runs out at the end of the calendar year as well? Dr Hawke-That is correct. Senator CHRIS EVANS-Do we have any other troops or personnel on the ground in Afghanistan apart from the SAS? Rear Adm. Ritchie-Not really. As I said, we will have a forward element of the Australian National Command Element, which is based in Kuwait. Some three or four of those people will go forward into Afghanistan. That is really in line with a change in command and control that the Americans have put forward in Afghanistan and our need to stay close to that command and control mechanism. Senator CHRIS EVANS-They could be from any of the services? Rear Adm. Ritchie-They will not be SAS; they will mostly be Army. Senator CHRIS EVANS-Are they likely to be permanently stationed in Afghanistan now or are they likely to flip between Kuwait and Afghanistan? Rear Adm. Ritchie-They will go forward and they will stay there as long as we have the forces committed to Afghanistan. If that commitment were to withdraw there would be no point in us being there. Senator CHRIS EVANS-Where will they be based? Rear Adm. Ritchie-They will be based in Bagram. Senator CHRIS EVANS-How many personnel have we got in Kyrgyzstan supporting the air refuelling operations? Rear Adm. Ritchie-We have 68. Senator CHRIS EVANS-Is that largely aircrew or maintenance? Rear Adm. Ritchie-It is mostly the maintenance staff-the support people for running those two aircraft. Senator CHRIS EVANS-That is quite a big commitment. What sort of protection capability is there around the 707s when they are flying operations? Rear Adm. Ritchie-I know the answer to the question; I am just not sure what I might say publicly. I can assure you that the way in which the 707 operations are carried out is done to minimise the risk to the 707. Senator CHRIS EVANS-I presume the protection is provided by Allied airforces-not by Australia? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 129 Rear Adm. Ritchie-The threat to aircraft in Afghanistan is only from the ground. There is no air threat, so the sorts of things that you might do are to protect yourself against things fired at you from the ground. Senator CHRIS EVANS-What is the expectation about the need for the 707s and remaining in the re- gion? I know this is a decision for government but, in terms of operational need, is the amount of activity by the fighters they are refuelling decreasing? Rear Adm. Ritchie-It is pretty constant at the moment, but it clearly depends on the ground war in Afghanistan. As the ground war waxes and wanes, so does the demand for aircraft to support it. That is what they are doing: supporting the ground war, as I said; there is no air-to-air war or anything like that. As long as there are ground forces in Afghanistan, as long as Afghanistan is considered a dangerous place to be, there will be a requirement for air support. Senator CHRIS EVANS-Are we able to get a breakdown of the $199 million for the war on terrorism as to what that is funding among the various operations? Rear Adm. Ritchie-I would refer again to the CFO. Mr Roach-I can give you a basic breakdown by group in terms of what is being funded. For Army there are essentially allowances for the personnel involved in Operation Slipper. For Navy there are allowances and provision for fuel, logistics and depreciation. For the RAAF, again, there are allowances for the personnel deployed, amounts for maintenance-some of which has been brought forward-items for language instruction, and some capital costs associated with the provision of equipment specific for the operation. In the Defence Materiel Organisation, there is money for additional maintenance. For COMAST, there is additional money for the additional charter flights required to support the operations and for communications and satellite links. In the Defence Personnel Executive there is additional money for the additional health checks and medical costs associated with the operation. There is a small amount in the Strategy group for supporting attaché involvement in Operation Slipper. Senator CHRIS EVANS-Are you able to provide a breakdown between Army, Navy and RAAF in terms of cost? Mr Roach-I could take it on notice and give you a detailed breakdown. Senator CHRIS EVANS-I would appreciate it if you would take that on notice. I would like to get a sense of what is driving the costs in general terms: is it the SAS deployment or the RAAF deployment? Mr Roach-In general terms, the most significant costs out of the $199 million are the naval costs, including the maintenance support for the ships. Senator CHRIS EVANS-That is the cost of keeping those ships at sea on duty? Mr Roach-Yes. Of course, the allowances are a significant part and, for example, there is a significant component for additional fuel. Senator CHRIS EVANS-I would appreciate it if you would take that on notice. While we are on the question of the allowances: I know the SAS are on the war-like service allowance. Is that what it is called- war-like service? Is it $200 a day? Are the Air Force in Kyrgyzstan, for instance, on that same allowance or is there a separate rate? Rear Adm. Ritchie-There is a separate rate for anybody not on the ground in Afghanistan but inside the theatre, and that is $125 a day. Senator CHRIS EVANS-Is it the same as the Timor rate was? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-Does the $125 rate apply to the people in Kyrgyzstan? Rear Adm. Ritchie-Yes; people in the gulf. Senator CHRIS EVANS-Is that the same across all the services? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-There is $30 million to be spent on equipment as part of that $199 million. Is that right, Mr Roach? Mr Roach-Do you want a breakdown of that $30 million? Senator CHRIS EVANS-Yes. I just wondered what that is going on, basically. Mr Roach-I will take that on notice. I do know that, for example, there are night vision goggles for the Air Force but, in terms of the other specific items, I will take it on notice and get back to you. Senator CHRIS EVANS-Thanks for that. Have we got a total cost for this operation since September 2001? Is there a ballpark figure of what the war on terrorism has cost us so far, say, for the financial year? I FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 130 SENATE-Legislation Tuesday, 4 June 2002 am interested in a total cost. Because of all these offset questions I am just trying to get a feel for what the war on terrorism has cost us so far. Senator Hill-It depends on how you want it defined. It is an easy question to ask but it is not a straight- forward question to answer, because obviously the forces are being paid for as part of our national security investment. In any event, a number of exercises have been cancelled or postponed to help contribute to the cost. Other internal efficiencies have enabled us to keep a minimum pressure on the need for additional funds from government, and what we genuinely do need as supplementation we have been able to receive. So I would need you to inform us of how you want us to make the calculation. Do you want us to include a depre- ciation of the ships that are involved? Do you want us to include anticipated future additional maintenance? Senator CHRIS EVANS-You have actually refused to provide us with that information so far, Minister. Senator Hill-It is not that I have refused to provide it; if you tell us exactly what you want- Senator CHRIS EVANS-I did that last time and you refused to provide it. Senator Hill-You could say `refuse' if you like. It is not that I do not want to be helpful, but the answer has to be meaningful. I have seen a range of different answers on the costs of the ships in the gulf, depending on how you want to define the input. We possess the ships in the first instance, but in some of your questions you seemingly want us to include the capital costs of the ships as a contribution to the multilateral interception force. Senator CHRIS EVANS-How you frame the answer is up to you, but I think the threshold question is whether you are going to provide that information to the committee and to the Australian public. At the moment, you have refused to. In the last answer I got for the question you took on notice, when you would see what you could provide, you gave-if I could use the term-a smart alec response, by saying that full figures for the year were not yet available. Therefore you declined to answer the question. That clearly was not the tenor of the understanding of the discussion we had at the previous estimates. It really comes down to the question: are you going to provide the information or aren't you? You obviously have the ability to frame the answer in terms of which costs you think are relevant and which caveats need to be put in et cetera. That is within your power. I cannot frame the answer for you. But the key question- Senator Hill-What I have tended to do is to frame the answer in terms of the additional costs, but that has not been satisfactory to you. Senator CHRIS EVANS-Because it gives us no indication of what the real costs are. Senator Hill-It is not a question of being smart alec. I have provided hundreds of pages of answers to you and to your colleagues. We write volumes to assist you in the fulfilment of your obligations. Senator CHRIS EVANS-You have been very helpful, and that is why the contrast between that answer and the others was so stark. Senator Hill-Then I would answer it in terms of the additional costs. But you are dissatisfied with my answer. If you are inviting me to frame the answer in the terms that I think are most meaningful, I will answer it in terms of additional costs, and I have provided that. Senator CHRIS EVANS-To say that the war on terrorism cost us a net $90 million doesn't tell us anything, does it? Senator Hill-Well, it does. It tells you the additional burden to the taxpayer of the commitment that has been made by government over and above the burden to the taxpayer of maintaining the Defence Force for the security of Australia. Senator CHRIS EVANS-You can hardly take offence at people coming up with what you consider to be unrealistic responses at costs of operations when you refuse to supply the information. Senator Hill-I am not refusing to supply anything. You tell me exactly what you want and I will seek to get you an answer. Senator CHRIS EVANS-I put the questions on notice last time, Minister. Your last reply was that the information was not available for the full year. Do I take it then that once that information is available for the full finance year, you are going to make it available to the committee? Senator Hill-I will answer any question that I interpret to be meaningful but not misleading. You and I think somebody else asked for a figure on the utilisation of ships and they asked specifically for the full costs, which takes into account the capital costs of the ship, and if that is what you want to know you will get an answer in those terms. But until I am requested in that way, what I will provide is the additional costs, because I actually think that, in terms of the public interest, that is the figure that is most useful. Senator CHRIS EVANS-Minister, I did ask you those detailed questions following the last hearing. We had this discussion. I asked you those questions. The answer given to me was, to use another term, a fairly FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 131 cute answer, which was to say that those figures weren't available. What I am asking you-putting aside the bulldust-is: will you or will you not be providing those answers to the specific questions? It seems to me quite unreasonable to include the capital costs of ships we have purchased in any assessment of operational costs. Senator Hill-You think they should be included? Senator CHRIS EVANS-I said that it seems to me to be reasonable for that to be discounted, in the sense that- Senator Hill-That is helpful to me. Senator CHRIS EVANS-But because we paid for those ships, the capital cost is being met by us anyway. What we are talking about is the operational costs- Senator Hill-With the SAS, should all the support that they receive from their headquarters in Australia and so forth be included-the infrastructure, their training? Senator CHRIS EVANS-Well- Senator Hill-This is the problem. That is why it is much more constructive if you talk about the additional costs of the deployment. Senator CHRIS EVANS-I think it is if you actually say- Senator Hill-Unless you are wanting to mislead people. Senator CHRIS EVANS-No, I want to understand how much this is costing us. That is a reasonable thing to do. I do not think one should have one's motive impugned if one wants to know how much military commitments, which you say cost a lot of money and which obviously do cost a lot of money, actually cost the Australian taxpayer. All I want is a reasonable and rational explanation of how much those cost. This is the place to ask for that. At the moment you are refusing to provide it. I want to know why, and why the community cannot have access to that information. Senator Hill-It is a semantic argument. I think the committee is entitled to full information that will enable the Australian people to adequately understand what is the cost of our deployments. Senator CHRIS EVANS-Why won't you provide it? Senator Hill-You introduced a helpful element this morning by saying that you are not wanting the cost of the capital that has already been invested included within the cost of the operation. Senator CHRIS EVANS-I want to have a realistic understanding of what the deployments cost us. Clearly, in global terms, that includes all of the infrastructure and all of the investment in it, but really all you have given us is what you say the net cost to the Australian taxpayer is and `don't you worry your simple heads about the details'. Senator Hill-No, what I have given you is the additional cost to Defence for which we have sought and received supplementation. I have said that I do not believe that covers all of the additional costs and that to some extent we have had to absorb additional costs from within. We talked yesterday about various further efficiency cuts and the like that are being required to help us to do that. We have had some discussion about what exercises have been cancelled or postponed, also, to help us to do that. I am quite happy to seek an answer that looks in greater depth at what are the additional costs for which we have not received supplementation. Senator CHRIS EVANS-With respect, Minister, that is the assurance you gave me on 21 February. Senator Hill-If I gave that assurance and I have not delivered I will try again, now that I am more confident that that is what you are seeking. Senator CHRIS EVANS-I gave you the questions in writing so that you were clear about what I was seeking, and you chose not to answer them. I do not want you to redefine my question for me, and I will not redefine your answer. What I am seeking is the cost of the operations-the full cost. If you want to make an argument about some of those costs that are already being borne in terms of the capital costs, the ships et cetera, that is perfectly reasonable to do; no-one is looking to mislead on those issues. Equally, to say to us and to the Australian taxpayers, `Oh well, it is just a couple of hundred million dollars and don't you worry about the detail,' is just not satisfactory. We do have the right to ask for a proper explanation. Senator Hill-We are not trying to be unhelpful; we are, despite what you say, trying to be helpful. If, for example, we bring forward the purchase of equipment that is designed to register the presence of chemical, biological or radiological weapons and affix the equipment to our ships-equipment that would have been ultimately purchased but we have brought it forward because we think it is a necessary tool for the security of FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 132 SENATE-Legislation Tuesday, 4 June 2002 the ships in the circumstances of the war-is that part of the cost of the war or is it just part of our ongoing capital program? Senator CHRIS EVANS-I would have thought the Australian community, and even perhaps the senators present, would have had enough intelligence to be able to digest a footnote that explained that-in the same way you generally do in budget papers. If you explain that this is part of the program for the next couple of years-expenditure that has been brought forward-I think people would understand that. The Australian community is sophisticated enough to deal with that sort of information. Why could you not explain it in the same way as you are explaining the other budget measures? Senator Hill-On that basis, I will make another attempt to answer the question, but I will be answering it in terms of what I believe are the additional costs that have been incurred in fighting the war. I therefore will not be including embedded capital and embedded training. I will try to give you a reasonable calculation of what would be the transport costs that would be incurred by the various forces et cetera-the logistical costs if they were not engaged in war. I will try to distinguish. It is not straightforward-and that is what you are not prepared to acknowledge-to determine the additional costs of an operation or deployment over and above an exercise. But we will make another attempt to do it. As I have said, in the same way in which we have provided hundreds of pages of answers to very, very detailed questions to assist you in your task, we will make another attempt in this instance. Senator CHRIS EVANS-I appreciate that, Minister. I think it is important. As I say, I make the point that I do appreciate the work that has been done in answering questions on notice, and that is why the contrast between that answer and the others was so stark. I do not think there was genuine information to help the committee and to provide answers. But I do think, as I say, that it is important in a public debate that we have an understanding of the cost of the war on terrorism. That requires you to provide fuller information than some net cost to Defence, which does not reveal what it is really costing us, particularly if the effort is to be ongoing and/or expanded. People need to understand what that means-and what that means for decisions inside the Australian community in terms of the total budget. So I would appreciate it if you could have another look at that question. To assist you in your research, I will submit some questions on notice with the sort of detail that we are after. Senator HOGG-I turn to page 29 of the PBS. There is a statement there on which I would like further elaboration. It is about the loss of skills and interoperability with regional partners. In particular, the statement says: ... the loss of structured training activities with allies and regional partners risks the degradation of some operational skills and loss of interoperability. That is a concern, and I want to know what the risks are. What are the skills and the interoperability that are being lost, and how do we overcome it? Rear Adm. Ritchie-It is referring to the fact, as has just been mentioned, that some things have been cancelled in order to be able to conduct the business of the war on terrorism and other operations that are all concurrent. We have a problem of concurrency. We have lots of things to do and we are starting to run out of people and assets to do it. To give you an example, Exercise RIMPAC, which has been for the Navy, is run out of Hawaii by the Pacific Command every two years. It has normally involved a considerable contribution of Australian ships, aircraft and that sort of thing. Exercise RIMPAC is to be held this year. The American contribution to Exercise RIMPAC is smaller, but the Australian contribution is very small. The reason is that the Navy is engaged in other places. Therefore, the war-fighting experience that is gained through major exercises such as RIMPAC will not be with us in this two-year period. We are going to miss it because we are off doing other things. What we have to do, to make sure that that does not become detrimental to the overall effectiveness of the force, is take every opportunity that we can to supplement, perhaps by smaller efforts, so that we do not lose those core war-fighting skills. There was a great discussion here last night about antisubmarine warfare which almost caused me to either walk out or come to the front. I am not sure which. Senator HOGG-You are always welcome. Rear Adm. Ritchie-It is not a place you volunteer too often. Senator CHRIS EVANS-The minister does not like volunteers. Rear Adm. Ritchie-Antisubmarine warfare, for example, is something which there is not much of in the Persian Gulf. There would be in RIMPAC. That is the sort of skill that we have to husband and find other ways to do. That is what the PBS is referring to. Over the page there is something about how we are going to mitigate that risk. It says `Defence has instigated more rigorous capability reporting'. That means that we have to be really careful about watching those particular skills. If we detect that they are deteriorating to a FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 133 point where we would need to do something about it, then we would need to put our hands up and come back to CDF and say, `We really must do some of these things.' Senator HOGG-I did read the response. That is why I raised the matter-because I did not get much comfort out of it. I am not inferring for one moment that you would not look at that. Rear Adm. Ritchie-It is something we are acutely aware of and we will keep a very keen eye on those sorts of things. Senator HOGG-Given that the rate of tempo has been lifted in places like the Persian Gulf, how will you be able to address the issue of operational skills and the loss of interoperability when you have the critical issue of platforms elsewhere and the crewing of those platforms? Rear Adm. Ritchie-I have just been to the Persian Gulf. One of the things I asked the people there to do is to get together with the other ships and try to devote some time to maintaining the war-fighting skills. You can do that in that sort of environment. It is not the same as going to Exercise RIMPAC, but it is something you can do. There are smaller exercises in our program that, in the normal course of events, might get overlooked for certain reasons. It is important that they do not get overlooked when we are in this sort of situation because we are not doing the big exercises. Senator HOGG-You have referred to the big exercises. What about the other part of the issue that is raised at page 29-that is, our regional partners and our interaction with them? How is that suffering as a result? Rear Adm. Ritchie-Again, it is primarily affecting the Navy and those regional exercises that we might normally have been engaged in. A good example is the Five Power Defence Arrangement and exercises that are run from Malaysia and Singapore under the auspices of that organisation. Our contribution to those since the commencement of the war on terrorism has been smaller than it normally would be and therefore our interaction with the navies of Singapore and Malaysia is less than it was prior to the commencement of the war on terrorism. It is something that needs to be managed quite carefully. People need to be acutely aware that those sorts of things are falling by the wayside. Where opportunities present, we have to be able to go back and do something. We recently had the opportunity to send a ship to Singapore and Malaysia and that was done, in order to keep that contact. Senator HOGG-So it is not necessarily a funding or budgetary issue? Rear Adm. Ritchie-It is concurrency. Senator HOGG-I thought that was the case, but I thought it was worth pursuing. The other question I want to raise concerns not a large exercise that you are involved in but one that has appeared over a period of time-Operation Coracle, which was the de-mining program in Mozambique. It has always been subject to review. It has been there since 1994. It was in last year's PBS and last year's annual report, always under review. I am just wondering what happened. Has the de-mining finished? Rear Adm. Ritchie-It was finally reviewed, and the government decided to withdraw from that operation. It is finished. Senator HOGG-Does that mean that the de-mining has finished? Rear Adm. Ritchie-No, it means that Australian participation in that operation has finished. Senator HOGG-What was the cost of our role in that particular operation each year? It could not have been a terribly significant cost. Rear Adm. Ritchie-I would have to take that on notice. I have no idea at all. Senator HOGG-But it could not have been a terribly significant cost. Rear Adm. Ritchie-A handful of people were there over all those years and they rotated in and out, so it would not have been a significant cost. We can provide that on notice. Senator HOGG-If the de-mining has not finished, was there a reason for ceasing the operation? Were personnel placed elsewhere, or was it just a government decision? Rear Adm. Ritchie-Again, I really cannot answer the question off the top of my head, but I think it was deemed that the effectiveness of the operation and our particular contribution to it had come to an end. Senator HOGG-Could you take that on notice for me and seek a reason for this? Rear Adm. Ritchie-Certainly. Senator HOGG-Because I think that is a worthwhile sort of operation to be involved in. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 134 SENATE-Legislation Tuesday, 4 June 2002 Senator WEST-Just on how you came to a decision to withdraw: what is the level of the incidence of mines still in Mozambique? My understanding is that it is still pretty high. Just how much reduction did take place with our assistance? Who is left there to continue this de-mining? Rear Adm. Ritchie-All of those points can be covered in the answer to Senator Hogg's question, but I do not have them off the top of my head. Senator WEST-I am interested to know because, having been there, it is still an issue. How well were the Mozambique defence people trained up so that they could continue this role, or were they not trained up at all so that they are still dependent upon international assistance to complete the clearing? What is the time frame in which the United Nations or whoever is responsible expects to have the bulk of the clearing completed? Rear Adm. Ritchie-We will put together an answer on those questions. Senator BARTLETT-I missed some of yesterday's evidence, having to go backwards and forwards between different committees, so if I ask questions that were raised yesterday just tell me to go read the Hansard. Was the issue of the new detention facility in south-east Queensland that is detailed in the PBS covered yesterday at all? Rear Adm. Ritchie-No. Senator HOGG-I raised that yesterday, but it was more in terms of the asset sale and the line in the budget that said `not for publication'. Yes, I did raise it. Senator BARTLETT-The PBS says: A final decision on the location will be taken following the completion of community consultation processes. But it also says you have selected 22 hectares of land at Pinkenba in Brisbane. Does that mean that that is where it is going to go? You say the final decision is still to be taken. Dr Hawke-I think that is more a matter for Immigration than for us, but when we come to the corporate part of the program we would be happy to tell you what we know about that. Senator CHRIS EVANS-Some of the evidence yesterday was that the decision lay with the minister for immigration, Mr Ruddock, and they had not advised. Senator BARTLETT-I did ask some questions of Immigration last week, but I wanted it from your angle as well. The additional funding for increased coastal surveillance is $22 million-odd this year on top of around $19 million last year. Would the activities of Operation Relex come under that pool of money? Rear Adm. Ritchie-Yes, they would. Senator BARTLETT-Can that amount be broken down any further as to where it goes in the additional deployment? Is it all for Navy and the air surveillance in the north-west, or is it for other activities as well? Rear Adm. Ritchie-We will defer to Mr Roach. Mr Roach-Yes, that money is for Operation Relex and Operation Gaberdine; we consider the two together. I can give you a basic breakdown, and if you would like something more than that we may be able to do that. Essentially, there is money for Air Force for additional effort to do with the surveillance flights. There is money associated with particular bits of equipment for Navy ships to permit them to undertake these sorts of operations, which are out of their normal ship role. There are some costs associated with the personnel executive to do with health and casualty treatment. Senator BARTLETT-The amounts are only for the upcoming financial year. How does that impact on long-term planning when you do not have any idea of how much money will be made available beyond the next 12 months? Is there an assumption that that range of activities may be discontinued in 12 months time? Mr Roach-Current planning and funding assumes the operation will go in the 2002-03 financial year, and it will be reviewed in terms of any requirement after that. Senator CHRIS EVANS-So that makes it up to the last whole financial year for these operations? Mr Roach-Correct. Senator BARTLETT-There are extra resources being provided, which is obviously handy. This might be a question more for the Navy outputs, except that we do not seem to be getting to them, so I thought I would ask it now: has the use of Navy resources in this type of activity meant that you need to reshape your planning for the activities of Navy as a whole, having to have vessels dedicated to surveillance. Rear Adm. Ritchie-The answer to that has already been covered in reply to the question Senator Hogg asked about exercises and those sorts of things; it is a matter of concurrence. It is a matter of you have to do this and you have to do Operation Slipper, and you have to balance enough exercises in there to make sure FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 135 that you do not lose effectiveness as a naval force. The Navy is quite capable, within the constraints I spoke of earlier, of doing that, and it is doing that. Senator BARTLETT-If you were not doing Relex, what else would you be doing? Rear Adm. Ritchie-You would be doing other exercises. You would be doing regional visits into South- East Asia. You would be spending more time at home with mum and the kids. Senator CHRIS EVANS-While we are on Relex, I would like to follow up a couple of questions that Senator Bartlett asked. Mr Roach, on notice, can we get a breakdown of those figures you were providing on the $20 million? Mr Roach-Yes, I think so. Senator CHRIS EVANS-Why is it now Relex II? Is it the sequel? Rear Adm. Ritchie-Because Relex I, which had a certain classification to it, was declassified for the purposes of the Senate inquiry. Senator CHRIS EVANS-I am sorry; I do not understand that, Admiral Ritchie. Rear Adm. Ritchie-Operation Relex I had a security classification put on it. A lot of the information contained in that compartment was declassified in order to make it available to the Senate inquiry; therefore, the rules and things that pertained to Relex I no longer apply because we have changed them. So it is now Relex II. Senator WEST-So there is a lot of classified stuff again but back in Relex II? Rear Adm. Ritchie-That is a fair summation. Senator CHRIS EVANS-You are telling me that Relex II has the same security classification- Rear Adm. Ritchie-Exactly the same concept of operations and security classification. It is just that we made a lot of stuff available that we somehow had to separate from current operations. Senator CHRIS EVANS-In my view, the sequel is never as good as the original, Admiral Ritchie, but we will see. Rear Adm. Ritchie-We can hope that that is the case. Senator CHRIS EVANS-Relex II is effective from 14 March? Rear Adm. Ritchie-I believe it is around that time. But it does not signify any significant difference in what we are doing. Senator CHRIS EVANS-I get the point. What resources are currently deployed on this operation? Rear Adm. Ritchie-For Relex? The Air Force rotates two P3s through Darwin and they fly into the area of operations. There is one frigate on task, one amphibious ship, one survey ship that is configured for operations, three RAN patrol boats, and three Army transit security elements. They are groups of 52 people who are used not in the initial boarding of a vessel but in the securing of the vessel as it transits to wherever it is taken. The Australian Customs Service provides a Coastwatch aerial surveillance effort and three Australian Customs vessels that work in support of Operation Relex. Senator CHRIS EVANS-So it is still maintaining a fairly high level of operational activity, then? Rear Adm. Ritchie-Our tempo of operations remains exactly as it was. Senator CHRIS EVANS-Which regiment are the three Army transit security elements-no doubt they will be referred to as TSEs within weeks, and I like to understand these acronyms-drawn from? Rear Adm. Ritchie-They have been drawn mostly from Army units in the north, but increasingly they will be drawn from other Army units around the country. We might even get to the point where we draw one from the RAAF Airfield Defence Organisation. Senator CHRIS EVANS-Are they permanent units now? Rear Adm. Ritchie-No. It is a rotational duty. People are selected and then trained for about 12 days, and then they do three months. I could be corrected on the time, but it is that sort of thing. Senator CHRIS EVANS-And then they go back to their own unit. So you are in running three, with a strength of 52 in each of them? Rear Adm. Ritchie-Yes. There are two at sea and one on stand-by in Darwin. Senator CHRIS EVANS-They are at sea on the patrol boats? Rear Adm. Ritchie-No, they are at sea on the frigate and the survey ship. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 136 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-You had two survey ships out before, didn't you? Has one of them returned survey work? Rear Adm. Ritchie-No. There are two survey ships of the particular class we are talking about, and those ships have since about last Christmas been rotating through this particular duty; and so there is only one on the task at any one time. Senator CHRIS EVANS-Has the other gone back to survey work? Rear Adm. Ritchie-The other has not yet gone back to survey work. It would be preparing for, or resting from, its tour of duty. Senator CHRIS EVANS-Is it likely to return to survey work or has the survey work been postponed? Rear Adm. Ritchie-It is a matter for the Navy to decide how they are going to contribute to this, but it would be fair to say that we would like to get one back to survey work, yes. Senator CHRIS EVANS-But if you have got one at sea all the time on this operation, you are unlikely to get the other one back- Rear Adm. Ritchie-Currently there are one or two- Senator CHRIS EVANS-with rotation, repairs and so on. How long have the survey ships been on this task? Rear Adm. Ritchie-Since Christmas, I think. I could stand corrected, and I could tell you that on notice. Senator CHRIS EVANS-Thanks for that. You say that you have done some alterations to the configuration of the ship, to make it more suitable for this work. Rear Adm. Ritchie-Yes. The sorts of things that are meant by that, particularly in the case of the survey vessels, is that they needed to have fitted the sort of boat that could be used for boarding operations. These are rigid, inflatable boats and they needed different launching arrangements to be able to do that. So those changes were made. I have something here which might give you the answer as to when they were employed-but it does not. I will get back to you on that. Senator HOGG-Was the tempo of this operation run down over the cyclone season in the north? Rear Adm. Ritchie-No, it was not. There is a lot of mythology about the cyclone season; a lot of it has appeared in the press. If there are two routes in this operation and one is down in the western edge of the AOs down through Christmas Island and the other is in the eastern edge down through Ashmore, historically the pattern in Ashmore has never changed in the cyclone season. In fact, in some years it has gone up. The reason for that is that it does change in the western side and so people are less likely to come out of the Sunda Strait, out of the western end of Java and Sumatra and down into the open Indian Ocean in the cyclone season and, therefore, it has all tended to move across to the eastern part of the area. So there was no change in the tempo of the assets committed to the operation. We may have changed the way in which we employed the assets inside that AO in order to cope with the expected difference in the way that people arrived, but traditionally- not this year of course, but traditionally-people continue to arrive during the cyclone season. Senator CHRIS EVANS-What allowances are being paid to personnel involved in Relex II? Rear Adm. Ritchie-There are no allowances other than those that are normally paid to seagoing personnel in non-warlike operations. There is no specific allowance struck for Relex II. Senator CHRIS EVANS-Are the Army getting a seagoing allowance as well? Rear Adm. Ritchie-They are probably getting some sort of allowance for the benefit of being able to live on one of Her Majesty's Australian ships, yes. It used to be called hard-lying allowance; I am not sure what is called anymore. Dr Hawke-I understand that they do get an allowance. Senator CHRIS EVANS-Can somebody tell me what that is? Rear Adm. Ritchie-Rear Admiral Russ Shalders may be able to help us on this. Senator CHRIS EVANS-He is not looking all that confident. Rear Adm. Ritchie-It is something called hard-lying allowance, and that is for the living conditions which are not the norm. I could not tell you what the rate is, but again we can find that out. Senator CHRIS EVANS-If you would not mind taking that on notice, I would appreciate that. So the sailors themselves are not in receipt of any warlike or other type of zonal allowance? Rear Adm. Ritchie-No. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 137 Senator CHRIS EVANS-I gather there was a proposition that they get an allowance. Did that not proceed? Rear Adm. Ritchie-Clearly the sailors who are employed there would like to have an allowance, but that proposition has not succeeded in gaining any credibility and, indeed, it is not allowed for under the current regulations. Senator CHRIS EVANS-It is not allowed for? Rear Adm. Ritchie-Because the service is neither warlike nor operational but non-warlike. Senator CHRIS EVANS-I am glad that Senator Hill has returned to the room. I read a press report that Senator Hill was to take a proposition to cabinet to include the payment of allowances for those involved in Relex. You say that you have received some sort of legal advice that it is outside the guidelines. Rear Adm. Ritchie-I am not saying that I have particular legal advice; I am saying that it is outside the guidelines. I am not sure what Senator Hill has. Senator CHRIS EVANS-We were discussing the question of whether allowances were paid in Relex at all, Minister. Senator Hill-There is a definitional issue here as to whether forces deployed on various missions are being treated equitably in terms of allowances. I stressed at the time that I was not quarrelling about those who were receiving allowances associated with warlike conditions. But I made specific mention of certain other missions which I believed, either because of the dangers involved in them or because of particularly difficult or unpleasant work, were not being adequately encompassed within the existing definitions, and a process of investigation has been instituted. Coincidentally, it started within Defence before I had made those comments, I was pleased in a way to learn. That process is being progressed at the moment through development of a discussion paper and there will be a wide input into it. Out of that will be consideration as to whether the various definitions associated with allowance should be modified. Senator CHRIS EVANS-Is that discussion process going to be a public process in the sense of the various interest groups in defence areas being involved or are you talking about just inside the department? Senator Hill-I am talking about inside the defence community, which in effect is a public process. Senator CHRIS EVANS-So the various defence organisations will be involved in that discussion? Senator Hill-Yes. Like all these things, it is not straightforward and would benefit from input from all of those who have particular experience or an interest in the subject. Senator CHRIS EVANS-I have certainly run into two views: a very strong view about payment of allowances and, from others, a very strong view that no allowances should ever be paid, on the basis that that is what they are trained and employed to do and it ought to be recognised as part of the salary package more generally. Obviously, they are two quite conflicting views. I share a similar view to you, Senator Hill. The issues of Relex and a few other anomalies that seem to be around the place have been raised with me on a number of occasions, and there does not necessarily seem to be a sustainable logic about some of the decisions. So I take it that the whole thing is under review? Senator Hill-Obviously the categories were determined before various missions. Thereafter there is an effort to fit the mission within the categories, and you find that the categories are not necessarily well defined in terms of our new and emerging experiences. Senator CHRIS EVANS-Is that true of Afghanistan? It was a cabinet decision, wasn't it, on the Afghanistan allowance? Senator Hill-The allowances that get paid is a separate process again. They are two different processes. One is determining the various categories and the other is determining the allowance that will apply to any particular mission within a category. As I understand it, Afghanistan is warlike conditions, but the allowance that is going to be paid is not necessarily the same for all warlike conditions; it is determined according to the particular operation. Senator CHRIS EVANS-So you could be at two different wars, as it were, but be paid a different rate? Senator Hill-That is as I understand it. Senator CHRIS EVANS-How is the rate struck on each occasion-by cabinet decision? Senator Hill-The process has been a recommendation to the minister responsible for personnel issues. I cannot remember whether it is done by regulation. I think it is set by the government through the minister who has the responsibility for that task. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 138 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-So Defence recommends that service in Afghanistan, for instance, will be category 1 but the minister then has to make a determination at what rate that is paid? Is there a band or is it just arbitrary? I do not mean `arbitrary' in a critical sense. Senator Hill-I do not think there is a band, but it is basically taken from previous experience. Defence may recommend that service in Afghanistan is so arduous or so dangerous that there should be a higher figure than might have applied to a previous conflict. It is a decision taken by government. Senator CHRIS EVANS-One of the issues in Relex is the fact that that it does not meet the definitional requirements of a form of warlike service. Is that fair? Rear Adm. Ritchie-That is exactly the point. Senator CHRIS EVANS-What is below warlike service? Senator Hill-There is a non-warlike condition. There is a series. Rear Adm. Ritchie-There are two types of operational service. One is warlike and one is non-warlike. Senator Hill-I think there are more than two actually; there are a few of them. So out of this process there may be definitional change, but there also might be a look at the second stream, whether it can be fixed through the allowances. In other words, non-warlike in Bougainville might be, in terms of the remuneration, treated differently, more akin to what is being paid under a separate determination for warlike. It seems to me there are a number of ways to approach the matter. All I have said is that it should be approached because I think there are anomalies that need to be addressed, and that examination is now taking place. Senator Hill-Air Marshall Houston, were you wanting to help us? Air Marshal Houston-Just to confirm that there are three categories: there is warlike, non-warlike, and if you do not meet either of those categories it is peacetime. You can get the situation, as we have- Senator CHRIS EVANS-Non-warlike is not peacetime, is it? Air Marshal Houston-Non-warlike is not peacetime. I have not got the exact- Senator CHRIS EVANS-It is like a gradient between the two, is it? Air Marshal Houston-It is hazardous service, but it is not war-fighting conditions. Senator HOGG-Is it more peacekeeping? Air Marshal Houston-No. It depends. For example, in Timor we have three categories. There are people who are up on the border under warlike conditions and there are people who are on specific tasks, government assistance tasks, who are on peacetime conditions. So it all depends on the task that you are doing. It is not related to the area; it is related to the tasks that you are performing. At the moment, the only people on warlike conditions are in Afghanistan, in the war on terror, and in Timor on the border. And anybody who is in the peacekeeping game, like Bougainville, is on non-warlike. But there are other people who are providing assistance to governments, like the government of East Timor, who would be on peacetime conditions because of the tasks that they are performing. Rear Adm. Ritchie-The other point is that those definitions decide on what term of recognition people qualify for-either the Australian Active Service Medal or the Australian Service Medal-and therefore the differences in veterans' entitlements and things that go on for the rest of your life. So it is not something I think you approach lightly. Senator CHRIS EVANS-No. I make the point I have had a range of approaches about these issues which I thought were serious and did seem to throw up some anomalies. I have had a number of members of the House of Representatives speak to me about it as well who have constituents who have raised Bougainville, for one. Obviously with any system like that there is going to be a range of anomalies. So basically is it fair to say the whole thing is under review, Minister? Is that a reasonable summation? Senator Hill-Yes. Senator CHRIS EVANS-Is there a time frame for that? Senator Hill-No, but we are wanting to move it along, and the goal is to see whether the existing system can be improved. Senator CHRIS EVANS-What is happening with the definition of operations in East Timor? I gather when the UN mandate was to change the allowances were to change. That has not happened, I gather. Can someone give me an update? Senator Hill-There is a new mandate. The basis of the mandate is still chapter 7-that has not changed. It is designed to operate for two years, but within the existing rules of engagement for one year. We have not at the moment changed the conditions that apply to our forces and we review it from time to time. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 139 Senator CHRIS EVANS-Will that change come when there is a change in the rules of engagement or a change in the UN mandate? Senator Hill-The UN mandate is taken into account in the decision that we make on whether war-like conditions pertain. Senator CHRIS EVANS-You have made a decision to continue the payment of the war-like allowance since independence? Senator Hill-We have on an interim basis. We have not yet considered the full consequences of the new mandate and the like. We will do that in the next few months. It is fair to say that the UN is obviously of the belief that, notwithstanding independence, robust powers for the peacekeeping force are still wise. That gives us some guidance, but we will take into account the advice from Defence also as to how they assess current conditions. Senator CHRIS EVANS-From what I saw of our operations on the border, they are still working in very trying conditions. It certainly does not look like just a peacekeeping role in the sense of how they live and what they do. Those rules of engagement have not changed? Senator Hill-There is no argument about trying conditions. That is not really the question, because you could still have trying conditions that do not attach the level of threat that you would normally associate with war-like conditions. Senator CHRIS EVANS-I can see that. Effectively, our rules of engagement in Timor have not changed since the declaration of independence. I was up there before. Those rules of engagement and the way they are operating have been maintained, have they? Senator Hill-Yes. Our rules of engagement are unlikely to change because the new mandate has been maintained pretty much in the same terms as the old one. Senator CHRIS EVANS-That was contrary to expectations, wasn't it? Senator Hill-Yes, most thought that with independence the UN would be looking for the force to assume more of a traditional peacekeeping role rather than a peace enforcement role. Senator WEST-Are they looking at an exit date? Senator Hill-Most people are hoping that the UN military presence will be concluded in this two-year period. Basically, it will be phased down over the course of the next two years. It is already being reduced. The UN force is coming down from about 6,500 to about 5,000 and the plan is for a steady reduction over the course of the next two years. If that could be achieved, it would be a very orderly way for the United Nations, at least in the peacekeeping role, to disengage. In relation to us, we will be reducing roughly in parallel with that UN guidance. As a rule of thumb, we are looking to the Australian force continuing at about one-quarter of the total force. Sometimes it will be over that, but basically that is what we are seeking to achieve. Senator WEST-Where are we now? Senator Hill-By the end of this month we should be down to 1,250. Senator WEST-That is one-quarter of 5,000. So we have actually got to our one-quarter? Senator Hill-Yes, but with the next UN reduction we may turn out to be over the one-quarter simply because of our preferred force structure in terms of self-protection and the like. Senator CHRIS EVANS-Is that argument about how we might configure our troops continuing? There was talk about a joint battalion. I gather there was some reluctance on our part to that. Senator Hill-Discussions with the UN are continuing. We have made decisions to continue our four- company battalion. The UN is still urging that we reduce that, and we are continuing a constructive dialogue with them. Senator WEST-I think I heard the Prime Minister announcing that we would be sending reserve units. Is that correct? Senator Hill-Yes, we have decided that the fourth company will be a reserve company. I think that is the first fully deployed reservist infantry company. They are very excited about that. I think it is a good thing for the reservists to be given an opportunity such as this. It is actually costing the government more, but we think there are considerable benefits flowing from that. Senator WEST-Where are they likely to be deployed? Senator Hill-They will be in the October rotation. They are coming into training now. Senator WEST-What is the cost of that training in terms of payments to employers and things like that? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 140 SENATE-Legislation Tuesday, 4 June 2002 Senator Hill-There are various programs. We can try to get you a breakdown. It will differ from employer to employer. There is no doubt that there are additional costs to the taxpayer and to employers through this decision, but we think it is a good one in the national interest. It is certainly very widely supported within the reservist community. Senator WEST-How many people will be in the reserve company that goes? Senator Hill-About 120 to 130. Senator WEST-I presume you are not going to be able to just walk up to one unit and say, `Right, you are going.' How are you going about selecting these people? Rear Adm. Ritchie-They are coming from a variety of units. I think it would be a better question for Army when General Cosgrove comes. Senator Hill-The difficulty is in the choice because a large number of reservists would jump at this opportunity. Senator CHRIS EVANS-It is also true to say that a large number of reservists have actually entered full- time service in the last couple of years and gone to East Timor. Senator Hill-There are a considerable number of reservists working as individuals integrated within the force in East Timor. They have done an excellent job. They are not just in the specialisations that we naturally think of such as the medical area but across the force. As an outsider, the way they have integrated is very encouraging on both sides of the equation. Lt Gen. Mueller-With regard to the comment the minister just made, it is perhaps salutary to remind ourselves that there have been some varying degrees of tension between permanent force and part-time force members since Federation. That would have applied from not long after Federation until the end of the Second World War-the militia-although many served commendably on active service in the south-west Pacific. Those sorts of tensions probably arose from time to time during the era of the Citizen Military Forces. Part of the reason for that was that part-time forces have long been viewed as an expansion base for a much larger force, which we may need if there were a fairly significant threat to the integrity of our sovereignty. Clearly the white paper indicates that a major invasion of Australia is not a critical contingency. A major attack on Australia is a very remote contingency, and even minor attacks on Australia in the form of harassment and raids would only be credible in the event of a significant dispute between ourselves and a regional neighbour. No such dispute exists and one is not in prospect. But the 2000 white paper changed the perspective as far as the deployment of the Reserve is concerned, in that its role now is to support the sorts of operations that the Australian Defence Force is increasingly involved in. Currently, we are involved in three major operations and about 11 minor operations. As the minister indicated, we have previously deployed substantial numbers of reservists, specialists and, of course, a significant number in units like the 6th Battalion of the Royal Australian Regiment in Timor. This has inevitably led to much tighter integration of the permanent and part-time forces. I think that, certainly for the first time in my 41½ years service, we can now generally view ourselves as a total force. The level of mutual respect between permanent force members and reservists is now very significant; in fact, when Major General Peter Abigail, the Land Commander, visited 6RAR in Timor he made the comment that it was not possible to distinguish between a permanent force infantryman and a reserve force infantryman. It has done a great deal for the status and esteem of the Reserve itself, and I would say that perhaps the bottom line is that there are young men and women in the Reserve who today wear the same ribbons as permanent force members. Mr Williamson-On the question of the employer support payment, we have estimated that for each month of service it will cost just over $100,000. So a yearly cost will be just over $1.1 million to $1.2 million in employer support payments. Senator CHRIS EVANS-That is the employer support payments for this company? Mr Williamson-Yes, for this deployment. Senator CHRIS EVANS-And is that done on the basis of the people you have recruited, or just on average costs? Mr Williamson-We have taken an estimate of the number of people we think will deploy who will be subject to some form of employer support payment. So we are not suggesting that the whole company will be fully deployed and, therefore, employer support payments would flow to everyone. We think those who would be subject to some form of payment would number around 80. Senator CHRIS EVANS-The others may have been students or unemployed? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 141 Mr Williamson-The others could have been unemployed at the time or come straight in, yes-all sorts of things. CHAIR-So you have taken the 80 and multiplied it by the formula for the average weekly earnings? Mr Williamson-Yes. CHAIR-And the period of the engagement is likely to be for how many months? Mr Williamson-We have worked on running this through to May next year because we have not only the deployment but also at the other end the run-down when they come back-when they go on leave and those sorts of things. So there is a training period, deployment period and post-deployment period cost. CHAIR-Do you have any projected resettlement or ongoing costs that reflect the conditions that have applied to these Army Reserve soldiers since they have been on active duty? Mr Williamson-I am not sure of your question. CHAIR-I am asking in relation to an ongoing education commitment or the triggering of certain obligations that regular soldiers have that the Reserve do not normally qualify for. Mr Williamson-While they are over there, they will be on full-time service; therefore, they would be subject to a range of conditions that are available to regular force personnel. As to the specifics of their resettlement, I do not have that information with me. CHAIR-No ongoing benefits once they leave their full-time service? Mr Williamson-Once they have resettled, no. Senator WEST-Will they be out of pocket in any way, shape or form? There have been occasions before when we have sent reservists with regulars and the reservists have come out financially worse off because of the impact of superannuation and other payments, as well as the taxation issue. Mr Williamson-I would not expect so, mainly because with superannuation, for example, once they come back the superannuation would then roll over, as superannuation does when you change employer. There should not be a detriment in that sense. Senator WEST-I have not had a definitive commitment. Could somebody take that on notice? Senator Hill-I do not know that you can get a totally definitive commitment, because every individual circumstance differs. Senator WEST-But the salary, the conditions and the terms of their engagement now and on this deployment are such that they will be treated exactly the same as the regulars, the permanent force that is going? Senator Hill-I do not know whether that is straightforward either. There are probably all sorts of costs and benefits in being a regular. Senator CHRIS EVANS-I am sure it is not straightforward. Senator WEST-That is why I am not getting an answer. Rear Adm. Shalders-While serving in East Timor, they will accrue the same benefits as full-time soldiers. That will include war service leave. They will have access to the military compensation scheme in the same way that full-time members accrue those benefits. Senator WEST-Will those soldiers who are sent to the border get the maximum allowances and become eligible for the DVA entitlements? Rear Adm. Shalders-That is correct. They will be treated in exactly the same way as full-time members. Senator WEST-So none of us should get any complaints from anybody saying, `This is actually costing me money'? Senator Hill-What we should or should not get is in the realm of uncertainty. Senator WEST-Not what they would have got from their private employer or their business but when they take into account what they get in reserve pay as opposed to permanent pay. Rear Adm. Shalders-They will be paid at full-time rates whilst serving. They will also receive the $125 a day East Timor peace enforcement allowance. They will be treated exactly the same way as full-time members. Senator WEST-I had complaints from some people in Bougainville, who went up as reservists, that they were getting different rates at some stage. I do not want that to be happening. It was resolved, but I want to make sure that it does not happen here. You assure me it is not. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 142 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-Minister, I presume Defence would have thought of this, but as this is the first time we have done this for a while it would be very useful to have at the end of the process a summary report of the experience and some idea of the debrief of the experiences of the reservists involved. I am interested in a report on how it went, what the problems were, what the reservists' experiences were, what issues Defence took from it and what issues the reservists took from it. General Meuller made a very useful contribution about the importance of the change in the approach. It would be useful if, at the end of the process, we had a proper assessment not only of the successes or failures but also of the implications for Defence and for reservists. I throw that in as a suggestion. I am sure others have come up with it. Senator WEST-It could include things like how you maintain the corporate knowledge that those re- servists have, because they move back out into civvy street for most of the time after they come back. CHAIR-If your statements are framed as questions, I am sure that will be done. If there are no further questions on that, we will take a short break. Proceedings suspended from 10.40 a.m. to 10.57 a.m. CHAIR-Do you want to say something, Admiral Ritchie? Rear Adm. Ritchie-I now have the answers to two of the questions on notice. CHAIR-Please give them now. Rear Adm. Ritchie-The first question was: what is the rate of hard lying allowance that is paid to members of the transit security elements in Operation Relex? The answer to that is $21.98 per day. The second question is: when did hydrographic ships first take part in Operation Relex? The first ship was HMAS Leeuwin, which commenced operations on 14 November last year. CHAIR-Thank you. Senator WEST-Can I continue with the UN, East Timor and so on. There was a recent Audit Office report into the deployment which found that Australia is not claiming its full entitlement from the UN. Can Defence confirm how much we were entitled to claim from the UN in 1999-2000, 2000-01 and this financial year? Dr Hawke-We will have to take that one on notice. We will get an answer for you on that. Senator WEST-What did we actually claim in each of those years? Dr Hawke-I do not know- Senator WEST-You do not know that either? Dr Hawke-I do not have the person here who could answer that. It is quite technical and detailed information, but we will get you an answer. Senator CHRIS EVANS-There is a more general question- Senator WEST-As to why? Senator CHRIS EVANS-Sorry, just in relation to that, I have noticed this. Do I have it wrong or is there not separate identified funding for East Timor in this budget like there was in the last ones? Senator Hill-For Senator West's benefit, I can say that I have now been assured that we are making full claim-that we are now fully claimant upon our entitlements. I took her question to be historical, and we will see what information we can get on what may not have been claimed. Senator WEST-And why not. Senator CHRIS EVANS-We are all interested to see what proportion of our costs are actually reclaimable. I know we are not able to claim it all. There are set rates from the UN et cetera. Senator Hill-We are into the forward costs of deployment argument again, aren't we? Senator CHRIS EVANS-No, we are not, actually. Senator Hill-It is easier for us to say what we are entitled to claim and whether we have claimed it. On the historical question of why we did not, I suspect the answer will be that it was overlooked but I will ask the relevant officials and see what response we get. Senator WEST-Whose head rolled for it being overlooked? Does this money that is claimed go back to Defence or does it go into consolidated revenue? Mr Roach-It goes back to the central budget. It is not retained by Defence. Senator CHRIS EVANS-Is that why there was not such a keenness to get it back? Senator WEST-It did not really make any difference to you people. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 143 Dr Hawke-It does because it affects our credibility with the central agencies. We do go to some lengths to make all of this material quite transparent to them so that they can be reassured that we are not pocketing any of this or siphoning off any of the money ourselves. Senator WEST-While you are getting me the figures for the previous years, can you also give us some indication, on notice, of the amount we will be entitled to claim for 2002-03? Dr Hawke-We will not know that until after we have done it. That is the problem. Senator WEST-It is all post facto. Dr Hawke-Yes, it is all post facto. It is fair to say there have been delays between when we submit the claim and when the UN reimburses us. The Australian government and the taxpayer have to pick up that difference, of course. Senator Hill-There also may be an issue as to what the difference would be if, for our own internal reasons, we decide to keep a force other than in the structure and of the size recommended by the UN. Senator CHRIS EVANS-Might they play hardball over that? Senator Hill-I am expecting that if we keep a force over the size they recommend, we will not get the benefits for the additional persons. If that is what the rules are, we will cop that. Keeping the force that we think is necessary for our own protection in our view outweighs that loss of revenue from the UN. I am only saying that in the context of predicting that the money for next year is not straightforward. Senator WEST-What sort of delays are we talking about, Dr Hawke? Dr Hawke-It varies with each of the individual claims. It depends a bit on the verification measures that the UN goes through to ensure that what we are providing to them is correct weight. Senator WEST-Are we talking days, weeks, months or years? Dr Hawke-Sometimes it can be months. Senator WEST-So we do not just put in one claim? Dr Hawke-My understanding is that we put them in in a series. What we will do is get the person who is involved in this to come across with the answers to your questions and to any further issues. Senator WEST-I am happy for it to go on notice, but that is the sort of issue I am trying to flesh out. Senator Hill-We will get you an answer. Senator CHRIS EVANS-I wanted to follow up a related issue. In trying to get to the cost of Timor, Senator West raised one of those issues about UN reimbursement. In previous budget papers we had separate identification for funding for East Timor. Is it still there and I cannot find it, or is it not there? Mr Roach-No, it is not there. You will recall that the East Timor funding was really in two buckets, if you like: one associated with the deployment costs and the second one associated with the additional forces that we generated in Army and in Air Force to be able to sustain the operation. As part of the white paper, we were able to keep that money because government wanted us to maintain those forces, irrespective of whether they were in East Timor or not. The force generation costs are now simply part of our normal budget and we do not distinguish between the additional battalions and the increase in Air Force's operational support group from the rest of Air Force or from the rest of Army. They are simply part of our base. Senator CHRIS EVANS-I understand that about the force generation argument, but that does not apply to the costs of the deployment to East Timor, surely? Mr Roach-No. Senator CHRIS EVANS-Where do I find them in the budget? Mr Roach-They are not in the PBS, but we will be required to report on those at the end of the year. Senator CHRIS EVANS-I understand your argument about the cost of the force generation because the government said you could maintain the forces beyond 2004-05, as I recall, when they were otherwise due to- Mr Roach-Yes, 2003-04 is the last year that we have budgeted for deployment costs in support of forces in East Timor. Senator CHRIS EVANS-How do we track the budgeted costs of deployment in East Timor in the PBS now? Mr Roach-In this PBS you cannot. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 144 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-Why not? Mr Roach-I am not aware of why we did not put in that table on deployment. Senator CHRIS EVANS-Can you tell us how much the deployment in East Timor is going to cost in this financial year? Senator Hill-Calculated on what basis-additional costs? Senator CHRIS EVANS-This is getting beyond a joke. You are not prepared to let us know how much the deployment in East Timor costs? Senator Hill-I will let you know the additional costs to government. Senator CHRIS EVANS-This has been in the budget papers for the last two years. This information was provided in the past and now you are not providing it. Why? Senator Hill-I will let you know our estimate of additional costs in deployment in East Timor-the additional costs associated with the operation. Senator CHRIS EVANS-Quite frankly, Senator, that is not satisfactory. Why doesn't the PBS include the information about the costs of deployment to East Timor, as has been provided in the last two budget documents? Senator Hill-I do not know the answer to that. Why did we not include it this year? Is it because it has been absorbed within ongoing costs rather than treated as a separate item? Mr Roach-We had one table which addressed both deployment and force generation. The force generation is no longer linked to the operation in East Timor; it is simply part of Defence's funding for capability. We can provide the deployment costs on budget estimate. Senator CHRIS EVANS-So you are telling me that the PBS contains no information at all on the cost of operations in East Timor? Mr Roach-The net additional costs are included as part of output 1. Senator CHRIS EVANS-Where do I find them in output 1? Mr Roach-We do not have that element in the PBS this year. We need to provide it. Senator CHRIS EVANS-So this year's defence budget provides us with no information at all on the costs of our operation in East Timor? Mr Roach-Not as a specific line item, no. Senator CHRIS EVANS-At the risk of repeating myself, why not? It seems like a fairly large oversight. Senator Hill-From listening to the official, I think it is because it is now a mature responsibility. It is an ongoing commitment and, on the basis of the information that has been previously provided, honourable senators would have a fair indication of the additional costs involved to government. But, always wanting to be helpful, if the committee wants us to attempt to calculate the additional costs for the budget year as a separate item, then we will seek to do that and provide the information. Senator CHRIS EVANS-I make the point that the other mature ongoing costs of defence are generally included in this budget for the year. We just do not say that, because we spent money on it for the last couple of years, we do not have to put it in the budget anymore. It seems a remarkable omission that East Timor suddenly fits that category. Dr Hawke-It is in the budget, it is just not identified as a separate line item in the same way as the other items in table 2.1 are not identified as separate line items. The point that Mr Roach was making was that the costs associated with the generation of the forces to go to East Timor are now actually in the baseline and so they are not separately identified; they are just part of the ongoing force. When the government raised the additional forces for East Timor, they raised them as a temporary measure which, in the white paper context, they turned into a permanent addition to the Australian Defence Force. So that money was then reflected, following the white paper, in the base funding for the ADF. Senator CHRIS EVANS-I have already indicated that I accept that explanation for those, but we have had a debate about the allowances paid, about all the other commitments. You cannot tell us what we are getting back from the UN- Dr Hawke-We can, we will be telling you that. The other issue is that it goes to the net additional costs, but since we have not finished this financial year, we will only be able to calculate what those costs are on completion of the financial year. So we will be doing that in the July-August time frame. Senator CHRIS EVANS-Those were the questions from the last round of estimates. Dr Hawke-Yes. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 145 Senator CHRIS EVANS-What I was after was, in the portfolio budget statements for 2002-03, what provision has been made for East Timor? Dr Hawke-And I think the minister indicated that we would get an answer for you on that. Senator CHRIS EVANS-And for the out years as well? Dr Hawke-I am not sure that there is anything in the out years. It is just for this- Mr Roach-And 2003-04. Senator CHRIS EVANS-It was in there for 2003-04 last year, that is what I am saying. In terms of tracking it, you gave it to us last year, but this year it has disappeared. Dr Hawke-We will give it to you. Senator WEST-Is there anything there for 2004-05? Mr Roach-Not for deployment, no. Senator WEST-Are there any BAE Systems employees that are deployed to East Timor? Rear Adm. Ritchie-As in British Aerospace? Senator WEST-I cannot think of any other BAE. Senator Hill-Deployed by us? Senator WEST-Yes, to provide maintenance and repair services. Who is providing your maintenance and repair services in East Timor? Senator Hill-For what? Senator WEST-Any of your maintenance and repair services. Senator Hill-We use a lot of outside contractors. Senator WEST-Your CSPs and stuff- Rear Adm. Ritchie-Major General Haddad has an answer to that question. Major Gen. Haddad-Senator, there is a contract that we have let with British Aerospace in East Timor, so they are resident British Aerospace employees located in East Timor and it is an in-country contract providing maintenance services for vehicles and equipment. Senator WEST-Does this mean that they are providing skills that are no longer available to the ADF? What is the reason for using them and not using ADF personnel? Major Gen. Haddad-This is part of our substitution of forces in East Timor. Rather than taking additional ADF assets to East Timor, we sought to establish contracts in-country and British Aerospace had a capability in there. Part of our normal doctrine, where it is sensible to do so, is that we place contracts with local suppliers. In this case it was British Aerospace. Senator WEST-Are they supplying to any of the other forces there? Major Gen. Haddad-I could not answer that, Senator. Senator WEST-It would be interesting if they were only supplying to the Australian forces. Major Gen. Haddad-I would imagine that they would be providing services to local people as well as to other UN or coalition assets. Senator CHRIS EVANS-So what is the breadth of the in-country contracts that you have entered into- just to give me an idea of the scope? Major Gen. Haddad-I could check the figures in a second. Senator CHRIS EVANS-I did not mean financially; I just mean that there is a range of services- Senator Hill-What services do they provide for us? Major Gen. Haddad-The services they are providing for us at the moment are in the maintenance of vehicles and equipment. I can give you the value of that contract. Senator CHRIS EVANS-That is BAE. You have got other contracts as well in-country? Major Gen. Haddad-We have contracts in-country for the cleaning of equipment prior to evacuation to Australia and contracts to support formed units departing the country. We have some minor contracts for the repair of refrigeration and calibration of equipment. So there is a range of activities either done through resident in-country contracts or where we bring a contractor in to East Timor to do the work. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 146 SENATE-Legislation Tuesday, 4 June 2002 Senator WEST-In the situation where you bring contractors in, how many contractors have you brought in? Senator Hill-It is a confusing question. Senator WEST-It was a confusing answer for me. Senator Hill-Can we provide a list of the service contracts that we have entered into? Because we do not bring the contractors in as such; we are letting certain contracts to the private sector. We can give you a list of those contracts- Senator WEST-And whether they are in-country or- Senator Hill-and the work that they cover. If you like, we can attach figures to those contracts. Senator WEST-What I am interested in is the number that are actually in-country, that were indigenous services already in the area, and the number that have had to be relocated into the job. Senator Hill-Historically I suspect that very little was offered in terms of indigenous services. You are talking about building a new nation here and new capabilities. Senator WEST-Have we seen over the three years, or however long it has been going on, an increase in the use of indigenous services as well? As you say, Minister, this is a developing country. It is starting itself off basically from nothing. This would be one way of actually extending aid in a different manner to build up a level of resources and a skill base in that country. Or are we-Australia and the UN-still importing all of those resources? Maybe it is a question which should be directed to Foreign Affairs, but it has a Defence implication here. Senator Hill-Do we have any information on that? Major Gen. Haddad-I have the details of the contracts, which I can give you now. The British Aerospace one is $900,000 per annum and that is a contract for services provided in East Timor; we have put the contract with a local provider, in this case British Aerospace. BAE Systems have a separate in-country contract for the servicing of generator equipment, and that is valued at $28,000. The remainder-of which there is quite a large list-are contracts that have been let in Australia for services provided into East Timor. I can go through those if you wish. Senator CHRIS EVANS-The BAE servicing of vehicles-are they specialist vehicles? I know you have your own mechanical people supporting your trucks and other vehicles on the border. Are they doing specialist services or are they just general backup? Major Gen. Haddad-No, it is a substitution. We would have the choice of putting additional ADF assets in there to conduct these repairs, but in the nature of that operation at this stage it was sensible to allow a local contractor to do that work if we found one who was qualified to do it. Senator CHRIS EVANS-You are doing some of it in-house-I met some of your mechanics and others who were doing it at the time when I was there, so clearly you have people on the ground doing some as well. Major Gen. Haddad-There is a maintenance capability integral to our force that does some of the maintenance. The overload work we could either off-load to a local contractor, which we have done in this case, or evacuate it to Australia-so we are using British Aerospace instead of evacuating equipment. Senator WEST-So the only service that is being sourced in-country is the two BAE contracts? Major Gen. Haddad-That is by the Australian Defence Force, Senator. The United Nations- Senator WEST-I am not interested in that. I am interested in Australia. Major Gen. Haddad-That is the only one that we are doing at the moment. Senator WEST-So all of the other contracts that we are letting we are letting in Australia for people to travel to East Timor? Major Gen. Haddad-Or to provide equipment into the theatre. For example, there are contracts for floodlighting equipment which is leased out of Darwin. The equipment is placed into Timor and that comes with a support contract. Senator CHRIS EVANS-Does the Defence Force have a policy about in-country versus Australian contracting? Do you have a sort of statement of policy? Major Gen. Haddad-Yes, we do. Senator CHRIS EVANS-What is the general direction of that? Major Gen. Haddad-It depends on the level of threat, so an assessment is done. If there is the likelihood that you would be placing contractors at risk you do not do it. In the circumstances in East Timor we did not do it in the early days; as the situation stabilised it became a sensible practice. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 147 Senator CHRIS EVANS-And do you have a range of tasks that you have identified as suitable for con- tractors versus those that you regard as suitable for corps services? Major Gen. Haddad-The ultimate limit is that everything we do in a logistic support sense is a potential candidate to be done by a contractor if the circumstances allow it. Our doctrine would normally have us use our own organic assets on an initial deployment, and as time passed and the situation changed we would seek to substitute. The organic stuff that you would have seen over there, integral to the operation of the force, would always be done by ADF assets. It is the level below that that we are looking at. Senator WEST-Is there any consultation and consensus having to be arrived at between Defence and the providers of these services as to the level of risk? Are you having any disagreements about what the level of risk might be and are these contractors therefore wanting to load up the contract with additional risk money? Major Gen. Haddad-I could not give you any examples of that, but clearly we have done an evaluation and we have informed them of what we believe is the level of risk. I am sure they make their own judgments and they would bid based on their knowledge and what we have advised them. Senator WEST-Presumably the price at which you are seeking to have a certain service provided takes that into account. Is there any disagreement when you are coming to relet contracts? Are you seeing a price increase because some of them are saying, `It is riskier than we thought and we want to add in an additional loading'? Major Gen. Haddad-I have no evidence of that occurring. Senator CHRIS EVANS-Do you have a policy in terms of local employment? Do you have a policy- obviously, as you say, as things stabilise and you have a big presence there-of encouraging local in-country contracts versus out-of-country contracts? I am trying to find out what is the framework for the operations. Major Gen. Haddad-Rather than a policy there is a doctrine statement about employing contractors in the area of operations. It is something which was developed based on our initial experience in Timor. The doctrine has always been that if there is a suitable local provider you would go to that suitable local provider rather than bring assets into the country. Senator CHRIS EVANS-What about if it is a local provider versus a Darwin based provider or what have you? Is there a local content policy? Major Gen. Haddad-Not that I am aware of, other than that it would be sensible practice-and is in our doctrine as I said-to try and find a suitable source in-country, because that would be potentially a more efficient and effective way of doing business than bringing in someone from outside. Senator WEST-Do some of these contracts have a training component for the indigenous East Timorese so that you actually build up the skill base in East Timor? Or are we just importing it all in, using it, and at the end of it we will export it all and leave them with no benefit from the skills that they could have acquired by being included in some of these contracts? Major Gen. Haddad-Once again it is only my judgment, and I would suspect not, other than the British Aerospace one of course; they are providing the trained people to deliver those contracted outcomes. I know that they brought some of the work force in; whether they have a program or not of training local people I could not tell you. Senator WEST-You cannot tell us? Major Gen. Haddad-No. Senator CHRIS EVANS-Can I suggest something that you might give some thought to. It has been raised with me by a couple of people that we are going to have an ongoing large commitment in East Timor and therefore, I suspect, be quite influential in the economy. I know there is this UN argument about our footprint et cetera, but it seems to me that skills development and training and local industry development should be part of the broader responsibility. I suppose it is a Foreign Affairs responsibility at first take, but obviously Defence, being a big contributor in the local economy, is going to be quite important in the coming years to the development of East Timor. It just seems to be worth exploring the issue and what role Defence could play in that. I just put it on the record that we are interested in that issue and we might ask you again about it some time. Dr Hawke-Thank you, Senator. Senator WEST-Can I turn to some reported incidents in which it is alleged that Australian soldiers threatened an East Timorese local at gunpoint. Rear Adm. Ritchie-Do you have a specific question, Senator? Senator WEST-I am after an update on some of the reported incidents. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 148 SENATE-Legislation Tuesday, 4 June 2002 Senator Hill-The one where we reported the allegation was being investigated by the military police? Senator WEST-Yes. Senator Hill-Are we able to say anything further on that at this time without interfering with the investigation? Rear Adm. Ritchie-I think we can say that the three soldiers are undergoing disciplinary action. Senator Hill-It seems we are, so what does that mean? Senator WEST-The minister is as well briefed as we are! Senator CHRIS EVANS-I take it from that that there has been an investigation and someone has been disciplined. Senator Hill-There were incidents in relation to the flags, which was unsatisfactory but which sometimes happens at independence celebrations. The more serious allegation related to threats being made with weapons, and that was being investigated. The flags were returned and the allegation that weapons had been used was being investigated by the military police. That is the last I had heard. Since then the result of the investigation was that, in the assessment of the investigators, the allegation that there had been threats made was not sustained. `Baseless' is the word used in this briefing note. Senator CHRIS EVANS-I take it that the allegation about the flags was supported? Senator Hill-The four flags were returned and an apology was offered on behalf of those who were involved. The three soldiers are undergoing disciplinary action- Senator WEST-There, or have they come back? Senator Hill-including being charged with theft and prejudicial behaviour. Senator WEST-Are they still in East Timor or have they been repatriated back to Australia? Rear Adm. Ritchie-I think they are still in East Timor. Senator WEST-Were they armed at the time? I am not saying that they threatened with guns, but were they carrying arms at the time? Senator Hill-They are always carrying arms there. I would expect they would be armed. They are supposed to be armed. Senator CHRIS EVANS-Was this a report by our military police, Admiral Ritchie? Rear Adm. Ritchie-It is the military police who investigated the incident. Senator CHRIS EVANS-This is Australian military police? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-And they found the allegation about threatening a local at gunpoint baseless. Is that the end of the matter or are there proceedings locally? Rear Adm. Ritchie-That report from the military police will go through the relevant Army chain of command, I am sure, and be reviewed. It looks pretty much from here that, other than the disciplinary action against these people for stealing the flags, that will probably be the end of the matter with respect to the allegation that they pointed weapons. Senator CHRIS EVANS-I was checking whether there was any local police activity. Senator Hill-There does not seem to be. It looks as though the local authorities have treated it as an Australian military disciplinary matter. Senator CHRIS EVANS-Is there any indication whether the person making the allegations is satisfied with the resolution of the matter, or is that not stated? Rear Adm. Ritchie-I do not have that detail. Senator WEST-Have there been any incidents along the border in recent times, in the last three months or so? Senator Hill-What do you mean by incidents? There are incidents every day. It is a challenging environment. Do you mean contact with militias? Senator WEST-People whose behaviour is less than friendly. Rear Adm. Ritchie-In the way in which this has traditionally been reported in this committee, no, there have been no contacts since 14 June last year. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 149 Senator CHRIS EVANS-The question goes to the level of threat, I suppose, to Australian personnel. Ba- sically you are saying that there have not been any incidents that would have put them at risk, effectively, other than the general environment of the border. Rear Adm. Ritchie-The general environment remains very much under control. There have always been exceptions. It was thought that various events in East Timor's history would change that-that the militia would come back or whatever after the election, after independence-but none of that has yet proved to be true. Senator CHRIS EVANS-I have some questions about a couple of the other operations. I was given, usefully, a breakdown and a list of Australian personnel on other operations around the world, apart from the major ones of Afghanistan, Timor and Bougainville. I must admit that at the time I was quite struck by the range of commitments. There did not seem to be many places in the world where we did not have a couple of people. I wonder whether we could have an update of that, particularly as to whether there have been any major changes. You mentioned earlier the de-mining program, and I wonder whether, as a result of our commitments in the war on terrorism, there have been any major changes to our other activities. Rear Adm. Ritchie-I will run through all the operations that we have got going. We have talked about East Timor-and you are aware of the reduction down to 1,250 by the end of this month-and we have talked about Operation Slipper. We have talked about Relex II. The tempo in terms of the commitment of forces remains the same. As we have perhaps alluded to, though, we have not seen anybody since December last year. I think 16 December was the last boat. With regard to Operation Belisi, which is the peace monitoring group in Bougainville, 40 ADF personnel remain in that group of 70-odd in total. They are mostly disposed at the moment towards weapons disposal. Since the passing of the second bill on autonomy for Bougainville in the PNG parliament, that has slowed down a bit in the sense that fewer weapons are being handed in. But I think it is fair to say that, in a general sense, Belisi is going well and there is no particular cause for concern. Probably the last time we spoke we talked about an operation in the Solomon Islands, where there was an international peace monitoring team. That team is due to come out of there this month. There is only one ADF person left with that team. Senator CHRIS EVANS-So we have withdrawn the team from the Solomon Islands? Rear Adm. Ritchie-No, we have not withdrawn it yet but it will come out in the course of this month. Senator CHRIS EVANS-When was that decision made? Senator Hill-A few months ago. Senator CHRIS EVANS-Was that announced at the time? It seems to have escaped me. Senator Hill-I am not sure of the answer to that. Basically, it had been drawn down and was seen as having concluded its task. Senator CHRIS EVANS-I thought the commitment to the Solomon Islands was likely to be ongoing. Senator Hill-There is a commitment to the Solomon Islands that is ongoing but not through a military mission. Senator CHRIS EVANS-Can you help me by being a bit more precise about when the decision to withdraw the military mission was made? Senator Hill-I will get you the date, but from memory it was two to three months ago. Senator CHRIS EVANS-What does that effectively mean-that you are withdrawing the military personnel from the Solomon Islands? Rear Adm. Ritchie-We have only one military person other than those attached to the high commission. We have one adviser for the team left in the Solomon Islands. Senator CHRIS EVANS-How many did you have three months ago? Rear Adm. Ritchie-Only about four or five. Senator Hill-I was going to say there were four. It was very small at that stage. Under our Defence Cooperation Program, there will be further work to be done by the ADF in support-Solomon Islands patrol boats and the like. Concerning that specific mission, the decision was made to withdraw the last of the military forces. Senator CHRIS EVANS-So we had four to five there when the decision was made. What was their role? Rear Adm. Ritchie-They were embedded in the International Peace Monitoring Team, which is made up of DFAT and police from New Zealand, Australia and some South Pacific nations. They were in there as team leaders of the people who went out and monitored the troops and as technical advisers. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 150 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-I suppose this is not really a question for you: has the decision been made to withdraw the police and foreign affairs people as well, or just the ADF people? Senator Hill-I will get you detail of that through this committee or the foreign affairs one. I have not been as intimately involved in that peace monitoring force because it was concluding its task. I am not sure what civilian element remains, but I will get the detail. Senator CHRIS EVANS-I appreciate that, but in general terms is it the government's intention to withdraw that whole team or just the ADF component? Senator Hill-I prefer to get the details, but I think the task of that team was completing and it was a matter of then drawing down that task. There is going to be an ongoing need to support the Solomons through a difficult political, economic and security phase, but the task of that particular element, as I recall it, was completing. Senator CHRIS EVANS-Is that to say that the rest of the International Peace Monitoring Team are withdrawing as well because the task is finished or merely that the Australians- Senator Hill-I think it was just us and New Zealand. Why don't I get somebody who is well briefed on that subject to provide a report. If you want it to come to this committee, we will give it to this committee and send a copy to the foreign affairs committee. Senator CHRIS EVANS-If we get to do it, I would be happy to follow this matter up. Otherwise, I am sure that Senator Faulkner will follow it up on Thursday. When will our last ADF personnel be out of there? Rear Adm. Ritchie-This month. Senator Hill-Under the terms of that particular mission. There still may be ADF people in support of our high commission and there may be ADF people under other parts of the Defence Cooperation Program. Senator CHRIS EVANS-The last ADF person committed to the peace monitoring mission is withdrawing this month? Rear Adm. Ritchie-He is moving before the end of this month. Senator CHRIS EVANS-Has there been any increase in the level of threat to those personnel in recent times? Rear Adm. Ritchie-There has been no real increase in the level of threat directly to ADF people in the Solomon Islands. There is in the Solomon Islands a concern for the general control of law and order, which I am sure you would have read about. It is a law and order problem; it is not a military problem, a problem of factional fighting or anything like that. Senator CHRIS EVANS-Was the withdrawal of Australian personnel partly prompted by concerns about their safety? Rear Adm. Ritchie-No. It is entirely to do with the utility of the particular force that was there and what it was doing. Senator CHRIS EVANS-So that was purely because the role for which they were there, the peace monitoring process, had concluded? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-Who are the other parties to that peace monitoring presence? Rear Adm. Ritchie-It is certainly New Zealand and Australia, and I have a mind that there are a very few people from other Pacific island countries. It is primarily New Zealand and Australia and it is run by Foreign Affairs in both countries. Senator CHRIS EVANS-Are New Zealand and the other countries withdrawing from that role as well? Rear Adm. Ritchie-Yes, in the same way that we are. Senator CHRIS EVANS-We might come back to that when the witness is able to provide more information. Rear Adm. Ritchie-Do you want to keep moving through those operations? Senator CHRIS EVANS-Yes, thanks. Rear Adm. Ritchie-Operation Cranberry is the surveillance of the north, separate from Operation Relex and aimed primarily in support of the civil authorities-in particular, fishing. That continues with primarily a contribution from the RAN patrol boat force under those standing national support arrangements that have been there for many years. Operation Mazurka provides people to the multinational force of observers in the Sinai. That continues with 25 personnel. Operation Paladin contributes to the UN Truce Supervisory Organisation in the Middle East. It is primarily in Israel and Syria. There are 13 personnel allocated to that. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 151 They remain allocated to that force. You may or may not be aware that the significant change there is that there were families living in Israel. Those families have been withdrawn. Senator CHRIS EVANS-I was going to ask you about the changed security environment for those peo- ple in Paladin. Rear Adm. Ritchie-The security environment has certainly changed and, as a direct result of that, families have come back. Senator CHRIS EVANS-So we had families of serving ADF personnel based in the Middle East? Rear Adm. Ritchie-Serving ADF personnel working with the UN Truce Supervisory Organisation had their families there. Roughly speaking, about half of the 13 people had families in the area. They are no longer in the area. Senator CHRIS EVANS-Have they been repatriated back to Australia? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-Are there any other changes to the arrangements in terms of Paladin? Rear Adm. Ritchie-There are no other changes to the arrangements other than a heightened awareness amongst that particular force. Senator CHRIS EVANS-Has any thought been given to withdrawing them from the area? Rear Adm. Ritchie-No. Operation Osier has people as part of the stabilisation force in Bosnia- Herzegovina and Croatia. There are eight personnel in that force. There is no particular change. Operation Pomelo contributes to the UN peacekeeping efforts in Ethiopia and Eritrea. There are two personnel there with no particular change. Operation Husky is ADF support to the International Military Assistance Training Team in Sierra Leone. There are two personnel there. Senator CHRIS EVANS-Are all of those ongoing? Rear Adm. Ritchie-They are all ongoing. Senator CHRIS EVANS-And with no particular plans for that to be altered in the short term? Rear Adm. Ritchie-The two other operations that are of some significance are Operation Gateway, which is the P3 aerial surveillance out of Butterworth. That is ongoing. And Operation Solania, which is P3 aerial surveillance in the south-west Pacific, is ongoing but I must admit at a reduced rate of effort because of those concurrency problems that we spoke about earlier on. They are both aerial surveillance situations. Senator CHRIS EVANS-Is that because they are being required in Relex II? Rear Adm. Ritchie-Yes. Senator CHRIS EVANS-What were they doing in the South Pacific? Rear Adm. Ritchie-Generally, it is in support of the Forum Fisheries Agency, those nations in the south- west Pacific who have banded together for the purpose of protecting their fishing economic zones. It is coordinated with the Royal New Zealand Air Force. They are still doing that particular task. Senator CHRIS EVANS-I am not arguing a position here but has any thought been given to maybe drawing back some of those commitments in view of that operational pressure that the defence forces are under? I know they are all fairly small, apart from Bougainville, but no doubt they add strains in terms of personnel et cetera. Rear Adm. Ritchie-Most of those-Mazurka, Paladin, Osier, Pomelo, Husky-are very small. In total they are less than 50 personnel. They are generally all Army. And generally I think the experience that is being gained by those people is well worth the effort. Senator CHRIS EVANS-So there is no sense of reviewing the broader- Rear Adm. Ritchie-No. The only thing that would change would be changes in the situation in each of the particular countries. If the UN force changes, then clearly we would change. Senator CHRIS EVANS-Thanks for that. Senator FAULKNER-Admiral Ritchie, I have some questions that properly go to this output on operations, but there may be an interface with Navy, which is the next program. I wondered, to save time, if that is the case you might just let me know. I thought if I came at the end of this output we would probably be able to do it in a way that would cause the least problems to all concerned. Dr Hawke-That is fine by us. The Deputy Chief of the Navy is here, so we can proceed. Senator CHRIS EVANS-We have completed the rest of output 1. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 152 SENATE-Legislation Tuesday, 4 June 2002 CHAIR-We might proceed with your questions, Senator Faulkner. Senator CHRIS EVANS-Obviously if any officers are waiting for output 1 questions, they can go. Senator WEST-Unless Senator Faulkner wants them. Senator FAULKNER-No, only in relation to the matters that I am going to raise now, which would mainly concern Operation Relex. Thank you, Mr Chairman, and I thank Dr Hawke and Admiral Ritchie for assisting me in that regard. I want to briefly go to some issues that were raised in a letter that has been written by Rear Admiral Smith to the Chairman of the Senate Select Committee on A Certain Maritime Incident. I am sure you would be aware of the correspondence dated 17 May 2002. It is described as a `clarification of evidence'. It goes to some issues that Admiral Smith raised during his giving of evidence to that committee on 4 and 5 April and relates to the vessel SIEVX. That is what my questions go to. Hence, Admiral Adams, I am not sure how much of this is output 1 and how much of this is Navy, but I am sure you will be able to assist me on that. The first thing I want to ask just as background. The nomenclature SIEVX: could the Navy assist me with how that was determined? Rear Adm. Ritchie-I think that was generated by the Senate committee. It is not a SIEV, as far as we are concerned. Senator FAULKNER-I was not sure whether that came from us or came from- Rear Adm. Ritchie-I think it came from you. Senator FAULKNER-It became unclear. Everyone has adopted the terminology and I know that we started using the terminology. Rear Adm. Ritchie-It may have even come from the press. Senator FAULKNER-I do not think that is the case. I thought there were two possibilities: the Navy or our committee. I have asked that question of someone who I thought might know and they were not sure, so I thought you might know. But it is terminology or nomenclature that is used now within Navy, isn't it? Rear Adm. Ritchie-I would accept that it is the nomenclature that is used to describe this particular incident. Senator FAULKNER-The first issue I want to go to is the use in Admiral Smith's letter of a very significant number of qualifying words. For example, if you go to paragraph 3 of the clarification of evidence, the first sentence is: The intelligence reporting from Coastwatch was used as indicators of a possible SIEV arrival in an area within a probable time window. Then in the second sentence of paragraph 5 it says: An intelligence report suggested that the vessel was delayed and Coastwatch assessed that the vessel remained a potential departure ... In paragraph 6 it says: The Abu Qussey vessel in the Coastwatch's CMSP OPSUM on PM 18 October 2001 through intelligence sources was `reported' to have departed Indonesia for Christmas Island on 17 October 2001. The next sentence says: Coastwatch assessed that the vessel could `possibly' arrive at Christmas Island, late 18 October ... Then it goes on: Coastwatch CMSP OPSUM, PM 19 October 2001 reported ... the Abu Qussey vessel as a `possible' as it was reported to have departed. The next sentence says: Neither of these reports were confirmed. And so it goes on. I wondered if one of the witnesses could explain to the committee the differences in intelligence that related to the SIEVs that were intercepted and the so-called SIEVX. Rear Adm. Ritchie-I would very much like to explain that. I think, to understand what Rear Admiral Smith is talking about, you have to be very clear on the concept that sits behind Operation Relex. As I explained in here earlier this morning, at the time we are talking about, back in October, there were two main channels of arrival that we were concerned about: the channel which came from Sumatra, the western end of Java, down through the Sunda Strait and into Christmas Island; and the channel which came, generally, through Kupang, Roti and very quickly across the intervening distance down into Ashmore Island. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 153 After the arrival of the vessel that became involved in what is now known as the Tampa incident, those in- telligence organisations that had information about smuggling organisations or possible boat movements fed their information primarily, I think, into DIMIA, and they were the people who were the basic source of in- telligence. There was a lot of analysis then applied by various other agencies, as there always is with any in- telligence. Essentially, what you were getting was intelligence that was going through various means as to the possible movement of boats. I would say to you that there were many more boats mentioned in the intelli- gence than we actually ever saw. That is the background and I cannot really say a lot more about the sources of that intelligence without saying things that I really should not be saying in an open forum. The point is that none of that intelligence is definite; none of it, in general, is specific; and much of it is continually countermanded. For example, it may be reported that a boat possibly sailed from the south coast of Sumatra on this date with this many people; the next day it might be reported that it did not sail from the south coast of Sumatra, it probably sailed from somewhere east of Jakarta and it might be going in the other direction. That was the sort of thing that was happening. So Operation Relex had to consider how best to deal with intelligence as imprecise as that. Do you look, if you could, in every nook and cranny: in every creek and every port in the archipelago? Of course you do not; you cannot do that because we have no right to take Operation Relex into Indonesian waters. In fact we were very cautious that we did not take Operation Relex across the recognised boundaries; we applied buffers. How did we do it? If you think about the Indonesian archipelago and you think about the position of Christmas Island, then anybody who is going to approach Christmas Island has to come from within a certain arc, realistically. They could come from 360 degrees, but that is unlikely; they will make direct passage from the ports that they normally come out of. So we put ourselves between the archipelago and Christmas Island and we waited for these people to come through those particular areas. All of the boats that we detected, that is how we detect them: they came through the area that we sat in. So, if you like, there is an oblong box that sits somewhere between Christmas Island and Indonesia, keeping well outside Indonesian claimed or recognised waters, and we were in that box. The ships themselves, in a general sense, because a ship has a limited visual and radar horizon, would be back near the focal point-Christmas Island. The aircraft would be more wide ranging, but those aircraft would still keep outside the sorts of areas that might be claimed by Indonesia. My understanding of the SIEVX incident is that, yes, as Admiral Smith has said in his letter to the Senate, there was a variety of this sort of intelligence that I have talked about that came, some as far back as September, where it was known that the particular organiser was trying to put together some boats. Nothing much more was heard of him until you get into October and there were various reports that he had one boat, that he had two boats, that had sailed from here, that had gone back, that had sailed from somewhere else. And most of the intelligence reporting actually came after we subsequently found out that the boat had sunk. But there was no reason, no cause, nor, indeed, no right for Admiral Smith, for Brigadier Silverstone or for myself to send ADF assets into the area where that boat subsequently foundered and disappeared. We waited for that boat to come through, if you like, the funnel that we had put together; and that was how we were going to detect them. That is how we successfully detected all the rest. I would have to say to you that we in the ADF are offended by the sorts of things that have been written about SIEVX because, as Admiral Smith said many a time, if anybody had been in possession of specific information which said, `This boat here is sinking,' then we would have certainly done all we could within our power to save those lives. Senator FAULKNER-I do appreciate, because Admiral Smith has made those points very strongly, what has been written about SIEVX. But I hope that you would accept, Admiral, that when such things are written or when issues arise, it is certainly a proper role for a parliamentary committee like this to ask questions and investigate those issues. As far as I am concerned I am asking questions about related issues. I am well aware, of course, of the differing views that Navy has in relation to some of what has been said in the public record. In my own case I have made some fairly strong statements about that also that I suspect Navy would not be uncomfortable with. Senator Hill-A newspaper this morning said that you were saying this particular incident is now your highest priority. Senator FAULKNER-I read what was said in a newspaper this morning. Newspapers can report what they like. I would have thought that I had a range of other priorities in my parliamentary duties. My role in relation to the Senate Select Committee on a Certain Maritime Incident is a mere one of them, Senator. Senator Hill-This says: Labor's Senate leader, John Faulkner, told the Herald that SIEV-X was now his top inquiry priority. Senator FAULKNER-Is that in inverted commas? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 154 SENATE-Legislation Tuesday, 4 June 2002 Senator Hill-Then it goes on, `What is going on in the navy?' et cetera. Senator FAULKNER-I did not say that. You do not want to concern yourself too much with my priorities, Senator Hill. I am the one who will set them and they will not be set by the Sydney Morning Herald or by you or by anybody else. Senator Hill-Well, apparently you told the Sydney Morning Herald it was your highest priority. Senator FAULKNER-Really? Well, take it up with the journalist. Senator CHRIS EVANS-Senator Hill, you have lectured us on a number of occasions not to believe everything we read in the papers. Senator Hill-I am confused because you have now come in here today and said it is not. Senator FAULKNER-I beg your pardon. Senator Hill-I am now confused. The article said that you said it was; today you have said it is not. Senator FAULKNER-What I said to you is I will determine my own priorities, not the Sydney Morning Herald. Senator Hill-I know you will, but it seems you told the Herald that it was your highest priority. Senator FAULKNER-That is an assumption that you make. Senator Hill-That is what the Sydney Morning Herald says. Senator FAULKNER-If it is reported in the Sydney Morning Herald it must be right. Is that what you are saying? Senator Hill-It is a good prima facie case. Senator WEST-We will remember that next time. Senator FAULKNER-Having established that, I will refer you to a number of editorials in the Sydney Morning Herald about your own performance in a range of areas. Perhaps you would care to comment on those. Let us just move on. I was making the point, however, to Admiral Ritchie, and I think it is a reasonable one, that I understand and have accepted a great deal of what Admiral Smith said and, on the public record in relation to his concerns about some statements that have been made, I do make the point and, given that you do not seem to understand it, I will reiterate it to you that it is a proper role for a parliamentary committee like this to examine these issues. Admiral Ritchie, I do thank you for that explanation because I thought it was helpful. Firstly, is intelligence that is gathered confirmed? If it is, how is it confirmed by Navy? Rear Adm. Ritchie-In the broad, it is only ever confirmed by the subsequent appearance of the vessel itself. There is no other way of confirming it. Senator FAULKNER-Therefore, understanding that, it is reasonable for me to jump to a conclusion that you do not need confirmation of intelligence before surveillance is ordered in relation to a `possible' SIEV departure? Rear Adm. Ritchie-No. The existence of intelligence will confirm your correctness, if you like, in continuing to conduct that particular surveillance. The point that I was making in my explanation is that that surveillance was continuous and ongoing and was not dependent in particular upon any particular piece of intelligence information. Senator FAULKNER-Yes, but I think the distinction you are drawing is an important one and perhaps is not well understood. At the end of the day, you say that you can really only confirm intelligence reports when a SIEV is sighted. Is that right? Rear Adm. Ritchie-When a SIEV is sighted, and you can then relate that back to any given piece of intelligence. Senator FAULKNER-Therefore, surveillance activities are not dependent on confirmed intelligence reporting? Rear Adm. Ritchie-That is true. Senator FAULKNER-Is it reasonable for me then to go to the next step and say that unconfirmed intelligence reports, for example the sort that we have that are recorded in Admiral Smith's letter and in evidence that we have received from Coastwatch, do actually trigger surveillance activity? Rear Adm. Ritchie-In the case of Relex, it does not specifically trigger surveillance activity because surveillance activity is there. The surveillance activity is ongoing against this background that says there are this many thousand people in the archipelago who are all looking for passage to Australia. What it might do to the particular ship or the aeroplane that is out there is to say be particularly careful today because today is an expected time of arrival. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 155 Senator FAULKNER-Yes. What you are saying is that you have an ongoing surveillance regime under Operation Relex? Rear Adm. Ritchie-Yes, that is correct. Senator FAULKNER-Is it also fair to say that an unconfirmed intelligence report might mean that surveillance activity may get a focus it otherwise would not have? This is layman's language, but I wanted to understand this, if I could. Rear Adm. Ritchie-My broad answer to that is no. The main intelligence on which we are working is the two routes. We know that all of the people are going to come Sunda Strait to Christmas or Roti to Ashmore. That is the main thing that decides how we are going to do the intelligence. We may in fact alter the pattern within areas that we then set up which are reasonably static. We may alter the pattern of attendance in those areas if we think we have particularly good intelligence about a vessel, but the basic, ongoing surveillance of given, predetermined areas is not based at all on evidence or intelligence of one or more departures. Senator FAULKNER-Could you explain that a little more? Understanding that there is a regime of surveillance under Operation Relex, what might an unconfirmed intelligence report about a possible SIEV departure mean for surveillance under Operation Relex? Rear Adm. Ritchie-Let me give you another broad example. In October, we may well have been sitting there and the intelligence would say to us that within seven days we might expect three boats to arrive at Christmas Island and seven boats to arrive at Ashmore. That would confirm for us that our surveillance had to be ongoing and continuous. If for any reason somebody said, `We cannot find a P3 tomorrow,' we would be looking for alternative means to make sure that we did fly and cover that area because we would be looking at three maybe within 48 hours, that sort of thing. At the moment, surveillance is ongoing and continuous and there is very little intelligence. Senator FAULKNER-But you, I think earlier in your evidence, suggested that intelligence of its nature is neither definite nor confirmed until you have a very tangible measure, which is actually a SIEV vessel under way. Is that right? Rear Adm. Ritchie-Even if I had evidence that somebody had seen a vessel depart a particular place, it still does not mean that it is going to- Senator FAULKNER-That is one of the things I have been grappling with and possibly not understanding. It does appear that some of the intelligence reporting here goes to size of the vessel, overcrowding and the like, which seems not to have the same level of qualification about it as some of the other intelligence reporting on the same vessel. Could there be a reason for that? Rear Adm. Ritchie-No. I would place such qualification on all intelligence. Size of the vessel and overloading, all those sorts of things, might cause us to say that it will take longer than normal and might arrive at a later date because they will be more cautious and slower, those sorts of things. I cannot distinguish why any qualification is placed on some things and not on others. There have been many reports that were quite definite on size of boats, names of captains and numbers, and nothing ever eventuated. Senator FAULKNER-Did I understand from you in relation to where this intelligence is sent that the principal address for receipt of this intelligence is DIMIA? Rear Adm. Ritchie-The principal provider of that intelligence is DIMIA. Senator FAULKNER-I think you made the point that there are other providers but you did not think that it was appropriate to detail those at a hearing like this. Is that right? Rear Adm. Ritchie-I do not think it is appropriate for me to go into how any of this intelligence is gained. I am just saying that that is the organisation that first puts the intelligence together. Senator FAULKNER-Let me turn again to Admiral Smith's letter. In paragraph 5 it says: Coastwatch initially reported the Abu Qussey vessel on 14 October 2001 based upon intelligence analysis in the daily Civil Maritime Surveillance Program (CMSP) Operations Summary (OPSUM). An intelligence report suggested that the vessel was delayed ... Are you able to provide for the committee's benefit any further and better details about that intelligence report? Rear Adm. Ritchie-When he refers to the vessel being delayed, I think there is a further intelligence report on the 19th which says that the vessel has not yet been sighted. I think that there is a further one on the 20th which says that the vessel perhaps did not sail from where the original report said it sailed from-that it sailed from somewhere else and moved its port of destination from Sumatra to Java. I think that, as late as the 22nd, there is an analysis of a report which says the vessel has probably gone back to the Java coast, because of the weather that was being experienced in the area. What I am saying is that you start off with an original FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 156 SENATE-Legislation Tuesday, 4 June 2002 report that has been gained from some source or other, and then you have a number of agencies who are taking that report, observing what happens thereafter and providing some degree of analysis as to what might have happened in the meantime. Senator FAULKNER-Admiral Bonser was able to provide some more detail in this. You may not have seen his evidence before the Senate select committee. He was able to say that they knew that we-in this case `we' is Coastwatch, I think, or Australian agencies, or however you prefer to determine it-knew that it (that is, SIEVX) was small and overcrowded. I asked him what `overcrowded' meant, whether it was around 400 passengers, and Admiral Bonser said that they had an indication of numbers. He was also able to talk about the willingness or unwillingness of people to be embarked. Rear Adm. Ritchie-But he did not say, importantly, that he knew where SIEVX was. Senator FAULKNER-No, he did not say that, and I understand that. That issue was canvassed with him, but in some people's minds I suppose the fact that you might have intelligence about the size of the vessel, whether it was overcrowded, whether there is an indication that people got on or off the vessel and the like might beg the question that, if you have that level of intelligence advice, it might not seem absolutely outlandish that you might know where all that was occurring. Correct me if I am wrong, but it is not a leap of faith, having some level of information as we have just been canvassing-numbers, size, overcrowding, embarking or- Rear Adm. Ritchie-But it is a leap of faith to then move from there-and I would agree that you have not yet moved there-which others have already taken, to say that if you knew that then you should have been actively looking for it in some place other than the places we were looking. Senator FAULKNER-Yes, but you have to be fair here, Admiral. That is not a jump or a leap that I intend to take. Rear Adm. Ritchie-No. I have said that you have not taken it, but others have. Senator FAULKNER-I would ask a serious question here: if intelligence reports, albeit unconfirmed intelligence reports, because of the proper qualification that you place on intelligence reports of this nature, might be able to detail that level of activity, the question in my mind-and I do not put it at any higher level than that-is why wouldn't the issue of location be stronger? That is the question I have. Rear Adm. Ritchie-Because there is no such thing as location attached to that particular report. In fact, that particular report was made available the day after that particular vessel was subsequently known to have sunk. It includes a change in the port of embarkation for these people, from one part of the archipelago to a significantly quite distant other part of the archipelago. It did say that it was probably a small vessel and that it probably had 400 people on it. That is all good information, but it is not going to help you find it. Senator FAULKNER-There is a range of intelligence reporting here, isn't there? It is not just one advice; there is a number of advices. It is fair to say that, isn't it? We know that. Rear Adm. Ritchie-Yes, it is a number of advices, but it is all coming through the one coordinating source. Senator FAULKNER-And you identify that coordinating source as DIMIA in this instance. Rear Adm. Ritchie-Yes. Senator FAULKNER-When you say DIMIA, Rear Admiral, are you able to define that a little? Can you tell me what part or what agency within DIMIA handles that? Rear Adm. Ritchie-No, I cannot. It is an agency within DIMIA that was producing then on a daily basis an intelligence report on the movement of illegal immigrants in Indonesia. I could find that out for you and give it to you on notice but, off the top of my head, I do not know what it is. Senator FAULKNER-I have talked to DIMIA officers about this and I think it is probably what they call their joint intelligence strike team. Would you mind taking it on notice to provide the name of that element of DIMIA? There are a couple of different groups that have a role. I suspect it is the strike team, but would you let us know at some point? Concentrating on this report on 14 October, because one thing no-one can argue about any report on 14 October is that this is before the SIEVX sailed. That is fair to say, isn't it? Rear Adm. Ritchie-I think it was probably a couple of days before it sailed. Senator FAULKNER-With regard to the report on 14 October, when did you say that was received by Defence in the first instance? Rear Adm. Ritchie-I did not say when it was received by Defence; I do not know when it was received by Defence. In the normal way of these things, those intelligence agencies in Defence that were looking at this would certainly have received it within 24 hours of its being originated, I guess. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 157 Senator FAULKNER-Has there been any examination at all about the intelligence reports and their interface with surveillance with SIEVX within Navy or Defence that you are aware of? Rear Adm. Ritchie-There has been a review of all the intelligence that was received in a chronological order. All it shows is that there was considerable confusion as to where this boat departed from, when it departed, how many people were in it and whatever. Senator FAULKNER-When was that review kicked off? Rear Adm. Ritchie-It is nothing that I could tell you. It was a review that formally kicked off-it is just something that has been done. Senator FAULKNER-I accept it has been done. I just wondered when. Rear Adm. Ritchie-I do not know the answer to your question as to when it was done. Senator FAULKNER-Do you know who undertook it? Rear Adm. Ritchie-I know it was done in the Maritime Command. Senator FAULKNER-Could Navy assist me in relation to that review-any detail about the basis on which that was commenced? Rear Adm. Adams-Certainly, Senator. Senator FAULKNER-Do you know at the moment? Rear Adm. Adams-No, I do not. I would have to take that on notice and provide the information separately. Senator FAULKNER-I would be interested in knowing, if you could, Admiral. Perhaps you could just indicate when that review commenced, if there was any guidance or terms of reference for it and the basis on which the decision was made to conduct the review-in other words, who instructed it, who ordered it and who conducted it. Rear Adm. Adams-Certainly, Senator. Senator FAULKNER-Coming back to this question of 14 October: it does appear that numbers of people-there might have been 400 people aboard this boat- Rear Adm. Ritchie-I do not think that was known on 14 October. You are taking the 14 October date from Rear Admiral Smith's letter. Is that correct? Senator FAULKNER-I do not know a huge amount about this- Rear Adm. Ritchie-Are you guessing or is it 14 October? Senator FAULKNER-There is no guessing. What I do have available to me at the moment is the detail of Admiral Smith's letter and Admiral Bonser's evidence. Beyond that you will be pleased to know that, whilst any other conspiracy theories or outlandish conclusions may be available to me, I am certainly not depending on them or using them. Rear Adm. Ritchie-I say that because it might be timely to correct the notion of the 14th. In accordance with information I have, there was a departure, or report, of a boat belonging to this particular smuggler on the 10th. On the 11th there was a report that said, `No, the departure has been delayed.' Senator FAULKNER-But these were not reported to you by Coastwatch, were they? Rear Adm. Ritchie-I am talking about the same material. There may well be a difference in interpretation, which we can come to in a tick. With regard to the 14th, which you referred to, I think the intelligence is saying to us that that boat did not depart, but it reports nine other potential sailings. Senator FAULKNER-So you have reports on the 10th and the 11th. Is that what you are saying? Rear Adm. Ritchie-I am saying that, in the period of the 10th, 11th, 12th, 14th and 15th, there were various reports, starting on the 10th, that a boat belonging to this particular person had sailed. Then there was a report saying, `No, it's been delayed,' and then another report saying, `No, it hasn't sailed at all but here are nine other boats that might have sailed.' Senator FAULKNER-Maybe I am missing something here. Let us go back to Admiral Smith's letter, paragraph 5, which says: Coastwatch initially reported the Abu Qussey vessel on 14 October 2001 ... Rear Adm. Ritchie-Did it report that it had sailed or that it had been initially reported? Senator FAULKNER-I am quoting the letter. Paragraph 5, first sentence- Rear Adm. Ritchie-I do not have that letter. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 158 SENATE-Legislation Tuesday, 4 June 2002 Senator FAULKNER-I am sorry; I did not appreciate that you did not have the letter in front of you. Rear Adm. Ritchie-I have just read it and it is not inconsistent with what I have just said. The letter says: An intelligence report suggested that the vessel was delayed and Coastwatch assessed that the vessel remained a potential departure from Pelabuhan Ratu (06059 South 106033 East) for Christmas Island from Indonesia. He did not say that it had sailed. He said that on the 14th Coastwatch said that Abu Qussey had a vessel, that it had been perhaps delayed and remained a potential departure from that particular place. Then in paragraph 6 he gave the first assessment of departure. Senator FAULKNER-Yes, I know. What I am asking about is in relation to the beginning of paragraph 5. It says: Coastwatch initially reported the Abu Qussey vessel on 14 October 2001 ... You have talked about reporting on the 10th, 11th, 12th and then the 14th just to kick off. Rear Adm. Ritchie-I am saying that you can go back as far as 5 September and start talking about Abu Qussey preparing two blokes to go to Christmas Island. Admiral Smith has chosen there to start a little later in the chronology. Perhaps he is really talking about what he thinks is relevant to the sailing of the vessel. I do not know why he did not say anything earlier than that. Senator FAULKNER-I do not either, and that is what I am trying to understand. It seems to me that there is an inconsistency with the letter and what you are saying, because it says `Coastwatch initially reported the Abu Qussey vessel'. Could the reason for the possible difference in the evidence be that the reports of the 10th, 11th and 12th did not come via Coastwatch? Rear Adm. Ritchie-They could have come straight out of DIMIA. Senator FAULKNER-Yes, but can you tell me whether they have come via Coastwatch? Rear Adm. Ritchie-No. Senator FAULKNER-We are going to break in exactly one minute and 10 seconds, so it might be possible for someone to check that over the lunch break. Rear Adm. Ritchie-I am dancing around some of the intelligence, I admit, because of what it says. I cannot tell you that in this forum. Senator FAULKNER-I have not asked you to and I never have. I have never asked any witness to talk about those sorts of things. Rear Adm. Ritchie-I understand that. That is why I am approaching it in the way I am. Senator Hill-Aren't the questions appropriately put respectively to DIMIA and Coastwatch through Justice? I do not know that it is Admiral Ritchie's job to answer questions about matters that are not in his immediate knowledge. Senator FAULKNER-These questions arise from a letter from the Maritime Commander. They are important. Frankly, I think it is important from both Navy's and Defence's perspective, too, because there are questions that have been asked in relation to this. I stress to you that I am not drawing conclusions; I am asking questions. I had not intended to ask a question about the initial reporting, but when the Maritime Commander Australia says `Coastwatch initially reported the Abu Qussey vessel on 14 October 2001' and Rear Admiral Ritchie tells me today that there was reporting on the 10th, 11th and 12th I am only trying to nail it down. It is not an apparent inconsistency; it is an inconsistency. We are now 21 seconds over the time for our lunch break-there will be a riot! Could someone please check it out over the lunch break and we will come back to it. CHAIR-Thank you, Senator Faulkner. The committee will adjourn for lunch. Proceedings suspended from 12.30 p.m. to 1.33 p.m. CHAIR-Dr Hawke, have you got an answer that you wish to give? Dr Hawke-Senator Hogg will recall asking a question last night about expenditure for the 2002-03 financial year on the Jindalee Operational Radar Network. The current planned expenditure for JORN for the next financial year is $62.6 million. That plan was developed following a review of expenditure proposals which was conducted over the last month or so. The reason JORN is not in the top 20 table on page 77 of the portfolio budget statements is that at the time that document was put together the 2002-03 expenditure plan for JORN was $38.6 million. The additional expenditure now planned for 2002-03 is due primarily to slippage of payments to the prime contractor, which were previously planned to be paid in the 2001-02 financial year. That is a sum of $20 million, and the remaining $4 million is due to increases and decreases- it is a net figure-across other expenditure elements of the project. I think that provides the information that Senator Hogg was requesting on that item. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 159 CHAIR-Thank you. Senator FAULKNER-Were we able to establish at all this issue about the initial report, Rear Admiral Ritchie? Rear Adm. Ritchie-What I have established in the break is that the review of the intelligence material that I referred to-you asked who was doing that-is being coordinated by the group under Rear Admiral Gates, who has been tasked to support Defence and the Senate select committee. So that is where that information comes from. It would appear that in so doing that-and that is the information that I am privy to-they have discovered sources other than Coastwatch that predate 14 October. What you have from Rear Admiral Smith is what Rear Admiral Smith believed had been reported to his headquarters when he wrote that letter, and it starts at 14 October. The other information is from other sources. It predates the 14th. It does not materially change anything. From the 14th, where Rear Admiral Smith picks up the story, the story is indeed the same, according to those intelligence sources. Senator FAULKNER-Accepting that-and I do-is Defence able to provide precise information to update the information we already have? Rear Adm. Ritchie-Could I talk to the minister and come back to you on that particular question? Senator FAULKNER-Sure. I appreciate the information you have given in relation to Rear Admiral Gates conducting that review. Do you know who tasked Rear Admiral Gates for this? Rear Adm. Ritchie-No, I don't. Senator FAULKNER-Would you be able to find that out too, please? Rear Adm. Ritchie-We can find that out. Senator FAULKNER-Would you mind finding out, if it is possible, when he was tasked and what the parameters of the review are and why it was determined to have the review? Rear Adm. Ritchie-We can find that out. Senator FAULKNER-Thank you for that, I appreciate it. I go to the general issue that is canvassed in Rear Admiral Smith's letter, if you like, of the communication between Coastwatch on the one hand and Defence on the other. Is it fair to say that not all the reports came from Coastwatch that Defence responded to in relation to the SIEVs? Rear Adm. Ritchie-It is not fair to say `that Defence responded to', because I think I tried to go to some pains earlier on to say that we did not particularly respond on individual instances; we responded on a collection and a pattern of information. Coastwatch was providing reports, and it is referred to in Rear Admiral Smith's letter in what he calls their CMSP OPSUM-it is an operational summary. So they have taken and distilled other elements of information that they have got. At the same time, Defence also, in some cases, had access in the intelligence organisations to product that was coming out of DIMIA and those sorts of things and would have made its own assessments of what was happening in the archipelago. Senator FAULKNER-Have you been able to establish what links there were between Defence and the joint People Smuggling Strike Team? Rear Adm. Ritchie-In the break, no. Regarding those links, I would expect them to be through Coastwatch or through the Strategic Command here in Canberra. Senator FAULKNER-Is the only effective line of communication between Coastwatch and Defence the operational summaries-the `OPSUMs' as they are described? Rear Adm. Ritchie-The operational summary is where Coastwatch formally reports to other agencies what it is doing, what its intentions are and what it thinks the picture is. There would be quite a deal of interaction between Coastwatch and the various Defence agencies on a personal level. Senator FAULKNER-What is the interface between Defence and the DIMIA operation that is so important? One of the things I have been struggling with for a long time is to try to establish which is the lead agency. Which is it-the AFP, DIMIA, Defence? Everyone seems to pass the buck. The buck is not passed between Defence and the other two agencies; it is passed between those two agencies, AFP and DIMIA, to be fair. You have almost said to us this morning that from Defence's perspective DIMIA appears to be the lead agency here. Rear Adm. Ritchie-From Defence's perspective, in the conduct of Operation Relex, Defence is the lead agency. There is no doubt about that. Defence was responsible for mounting that surveillance operation and for interdicting vessels as they were seen. The policy that sits behind that is a whole-of-government thing with probably DIMIA being the lead agency. In terms of intelligence that is gathered in other places, that was coming out of other agencies. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 160 SENATE-Legislation Tuesday, 4 June 2002 Senator FAULKNER-Yes, I know. But it is the intelligence that is gathered in other places, particularly what occurs onshore in Indonesia, that is of particular interest to me. Rear Adm. Ritchie-That is not a Defence thing. Senator FAULKNER-That is right. There may be other agencies that have not been identified, but certainly at a committee like this last week AFP and DIMIA were identified and particularly the joint People Smuggling Strike Team located in DIMIA. I am interested-and this may not be your bailiwick, Admiral, and I accept that-in any interface with the joint People Smuggling Strike Team that Defence had. The first issue is: has there been any interface with them? Secondly, if there has, how has that been handled from a Defence perspective? Rear Adm. Ritchie-I do not know the answer to that. Senator FAULKNER-Can I toss that one to you, Dr Hawke? Dr Hawke-I do not know the answer either. Rear Adm. Ritchie-The answer would be that, if there were, the Head of Strategic Command would know that answer, but he is not here. Dr Hawke-In output 5 we will have Head of Strategic Command and we will ask him to address that issue when he arrives. Senator FAULKNER-Thank you. I do accept, by the way, that there is a threshold issue here-which I tried to make clear in my question- and that is: has there been any interface? I am not suggesting there has; I do not have any knowledge of it. Questions may flow from that, if there has been, as to how it was handled from a Defence perspective. But it is quite clear, absolutely clear, that Defence in relation to this particular exercise is not a major player. That is very unusual, I am sure you would accept, Dr Hawke. Dr Hawke-We understand where you are coming from, Senator. Senator FAULKNER-It was the practice, was it not, that Coastwatch would provide at least its operations summaries to both the Australian Theatre Joint Intelligence Centre and NORCOM. That is correct, is it not? Rear Adm. Ritchie-That is correct. Senator FAULKNER-Could you explain to the committee, please, why that was the case? Rear Adm. Ritchie-Coastwatch is very much a part of Operation Relex. The position we are in with Relex reverses the normal interaction we have with Coastwatch. In Operation Cranberry, the ongoing surveillance operation in the north, Coastwatch is the lead agency and Defence, through NORCOM, works for Coastwatch, if you like. In this particular operation it was decreed that Defence would lead and therefore Coastwatch acts in support. Coastwatch have people in Headquarters Northern Command. Coastwatch would join with us in a VTC every morning that was run from my headquarters. Maritime Command, Air Command and Coastwatch would be present and we would talk about Operation Relex at nine o'clock five or six days of the week, depending on what was going on. We were sharing our views on the background to this particular issue. It is as simple as that. Coastwatch has better access into some of the other agencies that you would need than we have. Senator FAULKNER-Sure. The point of my question is why the two reporting streams-one to Australian Theatre Joint Intelligence Centre and one to NORCOM. I am just trying to understand why it goes both ways. Rear Adm. Ritchie-Now that you make that point, it might go through ATJIC to NORCOM, I am not exactly sure, but if it does it is because they are both closely involved. For example, if I were to send a theatre headquarters summary of what I had done for the day, I would not send it to just one address; I would send it to all of those addresses that have some involvement in the business I am engaged in. I think Coastwatch was merely doing the same thing. Senator FAULKNER-Let us move from the general to the specific. Rear Admiral Bonser in his evidence to the Senate select committee talked in his opening statement about the telephone advice received from the AFP that the Abu Qussey vessel that we have been speaking of, SIEVX, was reported to have departed from the west coast of Java the previous day. He went on: The information included advice that the vessel was reportedly small and overcrowded. The full detail of the advice is classified. This information was passed by telephone from Coastwatch to the Australian Theatre Joint Intelligence Centre and to Headquarters Northern Command. The Australian Theatre Joint Intelligence Centre and Headquarters Northern Command included this information in classified intelligence reports, both of which were issued to Defence operational authorities on 20 October 2001. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 161 My question goes to whether that procedure, effectively for Defence in the broad, was standard operating procedure. Was that the ordinary information flow or was it exceptional? That is what I am trying to under- stand. Rear Adm. Ritchie-I would not say that that was exceptional. Senator FAULKNER-Would you say it was standard operating procedure? Rear Adm. Ritchie-I would say that that is more than often the norm. Senator FAULKNER-The last paragraph of Admiral Bonser's opening statement includes this sentence: On Tuesday, 23 October 2001, advice was received from the Australian Theatre Joint Intelligence Centre that a SIEV had sunk. I think it is appropriate to ask you this question. I wanted to get the background to that advice that went from the Australian Theatre Joint Intelligence Centre to Coastwatch on 23 October. What information leads were there? Rear Adm. Ritchie-I will check this. I would stand corrected. I think that that information comes from a cable that came out of the embassy in Jakarta that reported that this incident had become known through the press or whatever in Indonesia. You can see there that the ATJIC passed that information on to people who would not normally be privy to that sort of cable traffic. Senator FAULKNER-What was that last sentence? Rear Adm. Ritchie-To people who would not be privy to that cable traffic. Cables that come into the Australian Theatre Joint Intelligence Centre do not necessarily go to Coastwatch or other places. So all they were saying, on a matter that they had both been aware of, was that this Abu Qussey vessel was around but that nobody knew where it was. All of a sudden, in comes a cable from Jakarta saying it has been reported that a vessel has sunk and those people have drowned. He was closing a loop on that information. Senator FAULKNER-I accept it was the source of the advice-no doubt you will tell us if it is not the case-but could you indicate when that cable was received from the embassy, when the advice was passed on from the Australian theatre to Coastwatch that the SIEV had sunk and the mechanism by which that was done. I do not expect you to have that information at your fingertips, but if you would not mind taking that on notice I would appreciate it. Rear Admiral Bonser makes the point, just to complete the story, that CNN reported later in the day the sinking of the SIEV and the rescuing of the survivors. Does the Australian Theatre Joint Intelligence Centre have a special role in Operation Relex? Is there any special tasking there that you might explain to the committee? Rear Adm. Ritchie-The Australian Theatre Joint Intelligence Centre exists to provide operational level information for those operations that the ADF conducts. When we came to Operation Relex, we started talking about people-smuggling and all those particular issues. The Australian Theatre Joint Intelligence Centre had no expertise in that sort of issue-because it was not something that we had followed at ADF- but it took on the role of coordinating information from all of those other government sources who do this as a matter of normal business and providing it to us who were running Operation Relex, to the Maritime Commander and indeed to NORCOM. We found in fact that NORCOM had a better handle on those sorts of issues because, being geographically proximately placed, it had taken an interest in that in the past. Indeed, we then passed to NORCOM the analysis responsibility from a Defence point of view, at the operational level, and we took it away from the Australian Theatre Joint Intelligence Centre. Whether we did that before or after-I suspect it was after-we did change that. Rather than having two people trying to focus on it and one not doing it particularly well, we gave it all to NORCOM. It is now NORCOM, every morning at nine o'clock, who stand up and tell us their view of the intelligence picture with respect to Operation Relex. We do not try and generate that out of the ATJIC. Senator FAULKNER-Did you have people from other agencies working in the joint intelligence centre itself? Rear Adm. Ritchie-No, not to my knowledge. Senator FAULKNER-I still do not quite understand how this all fits in with the joint People Smuggling Strike Team. Obviously, there are a lot of agencies and groups undertaking similar roles. Rear Adm. Ritchie-From our point of view, I am not sure that it needs to fit in, as long as whatever the intelligence product that they see we see. As long as we are not looking at two different intelligence pictures, in the context of the rest of Relex and what we have to do, we would only then come in contact with that organisation inasmuch as it had anything to do with setting policy as to what we do with illegal immigrants once they are detained-that sort of thing. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 162 SENATE-Legislation Tuesday, 4 June 2002 Senator FAULKNER-Someone there, or perhaps yourself in your role as Commander Australian Thea- tre, made what seems like a sensible decision that there might be another- Rear Adm. Ritchie-We made a decision in our case that there was a better way of doing it. Senator FAULKNER-Yes, someone else who could do that in a more effective way. Just going back to the specific issue in relation to the SIEVX, Admiral Smith, in his letter, in paragraph 15 of his summary, says: Intelligence reports via Coastwatch's CMSP OPSUM advised Navy of the Abu Qussey vessel's `possible' departure from Indonesia on 18 October 2001. I wondered in relation to that report specifically, or in relation to any others, whether we can be clear on this. I think you have said this before, but I think it is important to nail this down. Did any of either that particular intelligence report, or operational summary of intelligence reporting, or any other material that came from Coastwatch or other agencies cause Defence to change in any way the surveillance regime that had been established? Rear Adm. Ritchie-No. Senator FAULKNER-Can you say, if I asked you in relation to SIEV6 or SIEV7, whether that situation- Rear Adm. Ritchie-The surveillance regime has not changed other than when we think something is different, other than the approaches down the two axes that I have already talked about might be going to happen, we would change the surveillance regime. So we have had cause to change it, but not for vessels on the archipelago Christmas or archipelago Ashmore route. Senator FAULKNER-But you can say when your surveillance operation picked up SIEV6, for example. I have heard evidence about that before. Rear Adm. Ritchie-SIEV6 was intercepted 67 nautical miles north of Christmas Island on the exact day we are talking about. Senator FAULKNER-Yes, that is right. I am just wondering how stretched resources might be on this very day. Is it an issue because it is not as if- Rear Adm. Ritchie-And that goes back to the concept. The concept says people are going to come down this axis and they are going to come down that axis and I only have this many resources with which to detect them; therefore, I am not going to go looking for them at their point of origin or in any other place other than to put something-put an overlay-over the places through which I know they must come if they are to get to their destination and achieve success. So you concentrate the force, if you like, in the focal area. That is what surveillance really is all about when you have got limited resources. Senator FAULKNER-I am not suggesting that a people smuggler might decide to send off an armada of boats on the one day, but because of the date-there is clearly, at a minimum, utilisation of resources, which I am not saying are stretched but which we know are certainly being utilised, and we know what is occurring, for example, in relation to SIEVX-I am asking the question that I suspect people may well ask at a later stage: could that have had any impact, in your view, in relation to the surveillance task that may have affected the opportunity of identifying SIEVX? Rear Adm. Ritchie-SIEVX, to my knowledge, never ever came within our search area, and we did not change our search area specifically to look for SIEVX. Senator FAULKNER-I understand that, but did you change the search area to look for any of the other SIEVs? Rear Adm. Ritchie-No. We very cunningly put the search areas in the right places in the first instance so that we knew people who were going to get to those destinations would come through them. That is the thrust of my concern with all of this. There was never, ever any reason, even if we had known there had been 10 SIEVXs, for us to change the pattern of searching. For those 10 SIEVXs to get to Christmas Island, they had to come through the area that we were surveilling. The one SIEVX that we know about never did. Senator FAULKNER-I understand that point you make, and I suppose some might then pose the question: does intelligence reporting in some way impact on or affect decisions made about aerial surveillance? Rear Adm. Ritchie-It does to the extent that, if the intelligence reporting indicates that the pattern is changing, we clearly would be silly if we did not change the pattern of our surveillance. But the sorts of intel- ligence reporting that we are talking about here-that this vessel may have sailed from here on such and such a date and within three or four days could be in Christmas Island-gives you no course to change anything. If they had said, `It could be on the Kimberley coast, because that is where it is going to go to, rather than Christmas Island,' yes, we would. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 163 Senator FAULKNER-Anyway, we can be definitive that the intelligence reports on 18 October do not trigger any special action from Navy? Rear Adm. Ritchie-No, 18 October triggers no special action that I am aware of. Senator FAULKNER-And the reason for that is? Rear Adm. Ritchie-We have established search patterns through which these people must come. Senator FAULKNER-Because that is your standard operating procedure? Rear Adm. Ritchie-I am not saying to you that Brigadier Silverstone might not have said to the captain of Arunta, `Make sure you are awake in the next 24 hours because someone is going to come through your area.' But we have not changed the areas or the pattern of our surveillance because of it. Senator FAULKNER-Dr Hawke, are you in a position to be able to talk about the Defence flow of information into and out of the People Smuggling Task Force? That of course is a different- Dr Hawke-I am actually not, Senator. This would have been handled by the head of Strategic Command. It is an ADF operation, so it is handled in the chain of command from CDF, and my recollection is that the head of Strategic Command was doing this- Senator FAULKNER-I thought you would say that, but I was not sure whether you would point me in Strategic Command's direction. They determined representation on the task force, didn't they? Dr Hawke-CDF would have determined that. Senator FAULKNER-Fair enough. Strategic Command was the point of contact between the task force and Defence-that is a better way of putting it. Dr Hawke-That is my understanding. Senator FAULKNER-I can deal with that when Strategic Command are before us. Dr Hawke-CDF will be here at the same time. Senator FAULKNER-I did want to follow up, if I could, on another thing. I had asked Rear Admiral Bonser about surveillance photographs-I refer you to page 1639. There has been a little bit of public discussion about this issue. I had asked him whether there were any RAAF surveillance photographs in relation to SIEVX-in other words, of SIEVX or in any way related to that incident. Rear Admiral Bonser responded that he did not have any such knowledge and that it was a question better put to Defence. Just to be clear on that issue, I wondered if- Rear Adm. Ritchie-There are no RAAF surveillance photographs of SIEVX. Senator FAULKNER-Are there any surveillance photos at all of SIEVX? Rear Adm. Ritchie-We have never been anywhere near SIEVX. What period of time are you talking about-after it has sailed and it is at sea? Senator FAULKNER-I did not qualify my question; I just asked whether there were any photographs of SIEVX. Rear Adm. Ritchie-There are no photographs of SIEVX that I know of, and there is certainly- definitely-none in transit anywhere. I say that because it could well be that some of the intelligence sources have taken photographs of it. Senator FAULKNER-As you know, some of the surveillance task is undertaken by Coastwatch and some is undertaken by RAAF, and then of course there is also in relation to some of these SIEVs, and in one infamous case, a great deal of photography that we all know about. So I wanted my question to be broad enough for me to be confident. Just because Rear Admiral Bonser said that he felt, for absolute certainty, this question ought to be directed to Defence, I thought it appropriate to ask you. But can you assure us? Rear Adm. Ritchie-If the question concerns whether there are any photographs taken from an RAAF aircraft of SIEVX, the answer is no. Senator FAULKNER-Are there any photographs taken by the Royal Australian Navy? Rear Adm. Ritchie-The answer is no. Senator FAULKNER-I think you have actually gone further than that and said that you are not aware of any surveillance photographs? Rear Adm. Ritchie-I am not aware, no. Senator FAULKNER-In relation to Operation Relex in the broad, how and where did you handle your point of contact with the department of immigration? Was that done at the task force level or was that done elsewhere, to your knowledge? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 164 SENATE-Legislation Tuesday, 4 June 2002 Rear Adm. Ritchie-There is no contact at my level with the department of immigration, as far as I am aware-and I will come back to one small qualification. As far as I am aware, that has been done through this interdepartmental committee that we have heard so much about in other hearings. Defence's representative in all of that has been Strategic Command Division. I say that there might be some qualification because I do believe that on the ground in the Northern Territory there is a relationship between the department of immigration and the Northern Command. That has primarily been in respect of Project Gaberdine, about the use of detention facilities and those sorts of things. So there is clearly some relationship there, but it has no direct impact on the conduct of Relex as such. Dr Hawke-On the same issue, there would have been some contact with the corporate services area of the organisation, the civilian side, in relation to facilities in precisely the same way that Admiral Ritchie is talking about. Senator FAULKNER-Thank you for that. I suppose the only thing that perhaps surprises me-I perhaps expected those answers-is that there may have been some contact at the military attache level. Rear Adm. Ritchie-That is possible. Do you mean in Jakarta? Senator FAULKNER-Yes. Rear Adm. Ritchie-That is possible. I have no direct knowledge of it, but it is possible. Senator FAULKNER-How are the activities of the military attaches handled, Dr Hawke? Dr Hawke-Military attaches are responsible to the International Policy Division, which comes under the Deputy Secretary, Strategic Policy. I think he is due to answer questions tomorrow. That is Dr Richard Brabin-Smith. Senator FAULKNER-Would it be better dealt with there? Rear Adm. Ritchie-I think so. They would know. He and Myra Rowling, who is the division head, would be the best people to address those questions to. As I mentioned yesterday in relation to another question you asked, military attaches are responsible to the head of mission, who is of course a Department of Foreign Affairs and Trade person. Senator FAULKNER-It is the only other contact I could imagine that might have taken place between Defence and DIMIA. I am not clear really on the role that the joint People Smuggling Strike Team and some of the other operations that hang off it have, but Admiral Ritchie is going to follow through for me on any Defence involvement of whatever nature. I suppose we could deal with that under the International Policy Division, could we? Dr Hawke-That would be fine by us. Senator CHRIS EVANS-Are we doing Navy? CHAIR-We are doing Navy. Just before we do, Senator Payne, do you want to ask your questions on East Timor now? Senator PAYNE-Mr Chairman, I want to ask a question about the chapter 6 versus chapter 7 mandate in East Timor, but I am in your hands as to whether that is appropriate for now or whether you want me to wait. Dr Hawke-It is appropriate for now, Mr Chairman. Senator PAYNE-Admiral Ritchie, the discussion through the UN Security Council debate on about 17 May canvassed the question of whether the continuing mandate would be chapter 6, split 6/7 or chapter 7. I think it resolved on chapter 7 with a review after 12 months. Is that right? Rear Adm. Ritchie-It is certainly chapter 7 now, although the review after 12 months does not ring an immediate bell with me. Certainly the new mandate post independence remains chapter 7, with unchanged rules of engagement. Senator PAYNE-Does that have an impact, significant or otherwise, on our planning with regard to East Timor? Rear Adm. Ritchie-Not really. It means that we will continue to do the same sorts of things that we have done and will continue to need the same sort of force protection. Senator PAYNE-Our other commitments elsewhere that have been discussed around the table over the past few days-I am sure we will have further discussion-does not make that process any more difficult? Rear Adm. Ritchie-No. Senator PAYNE-Thank you. Senator HOGG-If I can turn to page 41 of the PBS, there you list a number of key risks and limitations for Navy. I want to go briefly through each of those. The first one on personnel states: FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 165 Shortages of uniformed personnel, particularly in some primary employment qualifications and categories, represent one of the most significant risks to the delivery of Navy capabilities. What are some of the primary employment qualifications and categories that present this significant risk? Rear Adm. Adams-We have split the categories into officers and sailors. In the seamen branch, principal warfare officers, service warfare officers by another name- Senator HOGG-Can you give me the category, your expected level and where you are actually at so that we can get an idea of the deficiencies? Rear Adm. Adams-I can give you here and now an indication of the subspecialists, the qualifications we are missing, but I would have to take specific details of the numbers we are short on notice. Senator HOGG-By category then, in the officers? Rear Adm. Adams-Essentially it is seamen: principal warfare officers, pilot and observer, by which I mean airborne tactical operator. Senator HOGG-How many categories are there? Rear Adm. Adams-There are three primary qualifications. I should add that there would be an ongoing shortage of medical officers also. Senator HOGG-Take me through those first three categories so that I have them correct. Rear Adm. Adams-Principal warfare officer, pilot and observer. Senator HOGG-Concerning those three categories, as you know, the references committee-the mirror image of this committee-conducted an inquiry last year into retention and recruitment. My recollection is that those categories which you have mentioned were brought up in that inquiry. You are not able to tell me the numeric deficiencies in those areas at this stage? Rear Adm. Adams-No, not at this stage. Senator HOGG-Are you able to tell me the retention and recruitment rates in those areas? Rear Adm. Adams-In fact, I have the opposite; I have the separation rates. Senator WEST-That is a good start. Senator HOGG-A very good start. What are the separation rates in the principal warfare officer category? Rear Adm. Adams-I would have to give them to you as an aggregated figure. The separation rate I have for seamen officers, which would include a term encompassing those three categories, is 13.7 per cent. Senator WEST-Presumably, those three categories are all males. There would not be many female principal warfare officers, pilots or observers. Rear Adm. Adams-No, there would be a number of females in all those categories. Senator WEST-You do not have that broken down by gender? Rear Adm. Adams-Not at hand, no. Senator WEST-Again, that can go on notice. Senator HOGG-That 13.7 per cent separation rate is to what month? Rear Adm. Adams-That figure is over the last three years. Senator HOGG-Are you in a position to say whether that separation rate is higher for what you have of this financial year, compared with the two previous financial years? Rear Adm. Adams-I will ask Admiral Shalders to answer. I think we already gave this answer yesterday. Rear Adm. Shalders-The figures for the last 12 months are dramatically reduced on the rolling three- year average. I know we are talking officers, but the overall separation rate on a 12-month basis is currently 11.6 per cent. The three-year average has been 13 per cent. There has been a dramatic reduction in the separation rate in the last 12 months. Senator WEST-How does that go in relation to the gender break up? Rear Adm. Shalders-I have those details; it will take me a moment to track them down. Senator FAULKNER-What are the shortages in those three particular primary employment qualifications that you have given to me? Rear Adm. Adams-I do not have specific numbers available to me now. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 166 SENATE-Legislation Tuesday, 4 June 2002 Senator HOGG-How are the shortages in those areas impacting upon your capacity to keep up the tempo rates that are required? Rear Adm. Adams-We say separately in the PBS that it has forced us to make choices between filling shore positions in naval bases ashore, or in headquarters, and in filling a position at sea, in which case we have set the priority as being filling positions at sea. If, for example, in the case of seaman officer, there was a demand for a position ashore in Navy headquarters and one at sea, we would of course fill the one at sea. The impact of that means that some positions ashore are not filled. Senator HOGG-Is the increased tempo and the need to fill those positions at sea causing personnel, when they find that they do not have the shore relief that they thought might be there, to resign? Is there anything to indicate the trend there? Rear Adm. Adams-There is no doubt that most people are working very hard, and we acknowledge that. Is it a factor in their decision to resign? We do exit surveys. At this stage I do not have any information that suggests that the operational tempo involved in current operations is a specific contributor to the separation rate. Rear Adm. Shalders-The answer to the question on notice you asked at the additional estimates about numbers has been passed back to the committee. That has significant detail on numbers by way of target and numbers by way of what we currently have on the books. It is question W36. Senator HOGG-As a matter of fact, I have question W36 marked. Rear Adm. Shalders-The answer to Senator West's question about gender breakdown is that there is no significant difference between males and females in terms of separation behaviour. Senator WEST-You are telling me that has actually changed in the last couple of years? Rear Adm. Shalders-It has reduced along with the overall reduction I mentioned a moment ago. Senator WEST-But at one stage Navy was up to about a 20 per cent separation rate for some categories of females. Rear Adm. Shalders-That is true. Some categories of males are at that high level as well. The critical trades that we have been speaking about are much higher than the overall 11.6 per cent that I have cited. Senator WEST-Are the females that are separating coming out of particular areas or are they coming out across the board? Rear Adm. Shalders-There is no discernible critical area that the females are separating from. As I say, the separation behaviour for females is not distinctly different from male separation rates. Senator WEST-Meaning the same numbers all in? Rear Adm. Shalders-The gender balance is remaining the same, if that helps with your question. Senator WEST-The gender balance can be remaining the same because you are actually importing more females in recruitment. Rear Adm. Shalders-That is correct. Senator WEST-And, if you are importing more females-you maintain the same gender balance but you are having to import more females in through recruitment-then they must be going out the other end. Rear Adm. Shalders-No, that is not true. There is no difference between the separation behaviour of females and males. Senator WEST-So the overall number of females in the Navy is increasing? Rear Adm. Shalders-No, it is static and has been for several years. Senator WEST-So are we recruiting more females or not? Rear Adm. Shalders-We would like to recruit more of everything, of course, but the ratio depends on the particular category of entry that we are pursuing. Senator HOGG-Going to the answer that was supplied on question W36, I note that that the 2001-02 figures are as at 7 March this year. Looking through those figures, it shows that in aviation the numbers are well down on the target, as is the case for seamen, and I see that there is a note attached to that particular spreadsheet. There is a substantial deficit in almost in every category. Has that been maintained until now? Rear Adm. Shalders-The figures I can give you as of today in the three categories are: seaman officers 283 short, pilots 41 short, and observers 25 short. Senator HOGG-What about in the medical area? Rear Adm. Shalders-I do not have that detail as of today. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 167 Senator HOGG-Perhaps you would take that on notice. Based on those figures, there are still substantial shortages that are occurring. How targeted is the recruitment that is taking place to fill those gaps? I would suspect that some of those gaps would not be filled in the short term that there would be quite a lead time between the recruitment and the capacity to fill the gap. Can you give us, firstly, some idea of how the recruitment is going to fill those positions and, secondly, some idea of the lead time before those people that have been recruited will be able to competently fill the positions? Rear Adm. Shalders-If I could take that in reverse order, it might be easier. For example, in terms of a seaman officer, from the point of recruitment until when that officer is awarded his primary qualification- which in that case would be a bridge watch-keeping certificate-could be of the order of five years. So there is about a five-year lead time for a seaman officer, for example. Similarly with pilots and observers, for an Australian Defence Force Academy graduate heading off to do a pilots course or an observers course, it could be five years before they achieve their primary qualification. In terms of targeting the critical trades or categories, our recruiting advertising is very targeted, very focused. We know what the critical trades are, we know where we are short-witness the answer we gave to the question on notice last time-and we try and focus our recruiting effort on those critical categories as well as all the others that we need to recruit. Senator HOGG-I accept that, Admiral, but given that the difficulties in this area have been known for some time I am now seeking your advice as to whether the recruitment is now starting to plug the gaps that were there. I am seeking some sort of assurance from you, if I can get it, some sort of evidence in particular if you have it. Rear Adm. Shalders-I believe I can give you that confidence, Senator. In fact, our recruiting achievement is much better. As I have indicated, our separation rates are much lower. The net result of that is that the ADF is growing for the first time in 3½ years. Senator HOGG-Is this the ADF, or Navy in particular? Rear Adm. Shalders-This is the ADF. The figures I am giving you are ADF. I can break those down in a moment. As a general point, the ADF has grown by about 750 over the last three months; so a rate of 250 a month. That takes into account the recruiting achievement and reduced separation rates. Senator HOGG-When you say it has grown at the rate of 750 over the last three months, does that necessarily imply that the critical areas across ADF that you are seeking to recruit to are the areas being filled or are those areas just being filled at the margins rather than to quotas that you desire? Rear Adm. Shalders-I wish I could say that that growth rate was all in the critical areas. Of course it is not. That is a general figure across the ADF. So those shortage areas, in whatever service, will take some time to overcome. Senator HOGG-What about particularly the shortages in Navy? Rear Adm. Shalders-I will leave that to DCN, but I would like to note on the figure I gave you a moment ago-250 net growth per month-that the contribution of the Navy to that figure is 70. So the Navy is currently growing at 70 per month. Rear Adm. Adams-In the context of overall improvement-a very useful and satisfying improvement- in terms of seamen officers it has improved over the years. However, in terms of pilots and observers, that is still a significant concern for us. Senator HOGG-As you said in the PBS, they are all critical areas for your capability to man your platforms. Are there any platforms that are being stood aside because of your inability to man them currently? Rear Adm. Adams-There are no platforms that have been stood aside. There is one area where, certainly last year, we did have to take measures such as leaving a patrol boat alongside-that is in a patrol boat force. There was a very distinct shortage of people of the seniority and the skill required to fill the position of navigator on patrol boats. So on a couple of occasions we did. I am talking about a matter of days here before we got a replacement in. We have employed suitably qualified reserves to very good effect in the patrol boat force; but, to get back to your question, no, there have been no ships set up or laid up alongside a wharf because of shortages in any particular officer or sailor category. Rear Adm. Shalders-I have an update to some figures that I gave you a moment ago. The 12-month separation rate for those critical categories we were speaking of are all below the overall 11.6. Senator HOGG-They are below? Rear Adm. Shalders-Yes, they are below. The principal warfare officers separation rate over the last 12 months has been six per cent, for pilots it has been 10 per cent and for observers 10 per cent. Senator HOGG-I thank you for that and I understand the context in which you put it. You are coming from a weakened position anyway, and one would hope that you are going to retain the staff that are there. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 168 SENATE-Legislation Tuesday, 4 June 2002 What have you done to address the desire for people to separate in those categories? Have you put some strategy in place that is lessening the separation rate in those categories? Rear Adm. Shalders-There is no particular strategy that we are using there. It is obviously a complex equation: people have to consider what will make them stay or leave. There are a number of retention initiatives, which the Senate inquiry was advised on. They appear to be working. There is no particular retention bonus, for example, for the categories we are talking about. Senator HOGG-That is what I am heading to. Rear Adm. Shalders- I am pleased to say the package of retention initiatives that we have been putting in place for the last two years seems to be making some impact, as evidenced by the overall separation rate reducing since the Senate inquiry into retention and recruiting. Senator HOGG-One of the criticisms that was levelled during that Senate inquiry-not just at Navy, so we are not picking on Navy-was the issue of career management, particularly in the officer areas. In fairness to those who appeared before the inquiry, I think you could sum up their comments as saying it was not very well done by ADF in general but also by the particular services. Has that in any way been addressed as a primary cause of concern which motivated people to leave the forces? Rear Adm. Shalders-Do you want a general answer? Senator HOGG-I would like a general and a specific, if I can get it. Rear Adm. Shalders-I will give you the general answer and then DCN will give the Navy-specific. Among the top 10 reasons that people cite for leaving the ADF, career management is within those top 10. It varies across the services. It varies across geographic location. Certainly, dissatisfaction with the career management process is one of the top 10 reasons. That has been hoisted on board by the career managers across the three services. We are looking, for example, at increasing the number of people in the career management cells across the three services. Deputy Chief of Navy will comment on what Navy is doing. It is very clearly on the radar screen as something that we have to do something about. It is part of a larger package of retention initiatives that we are looking at. Rear Adm. Adams-One thing I should say that has gone a long way to improve the conditions, certainly for those serving at sea, is the decision by the Remuneration Tribunal to award very significant increases in submarine service allowance and seagoing allowance. That was certainly something we worked hard for and something that appears to have been very well received. Although I cannot sit here and say I have factual data to make the link, anecdotally we believe that is contributing to improvement in attitude and an increased desire to stay. I should go on to say the very fact that we are working very hard-there is a high-op tempo-while it might produce difficulties, some short-term difficulties at least, does give people the chance to use the skills which they have been trained for. Right now we see people deriving a lot of satisfaction from having the opportunity to do so. That does not justify any operations, but I am just saying you certainly see that, particularly amongst the youngsters like pilots who are actually getting to fly a great deal. In terms of career management, we have taken on board the criticisms that have been made in various surveys. Some of the criticisms are simple things like the way they are spoken to, the way the career managers speak to them. We have increased the number-not as much as we would like-but we have devoted more people to the task. We have put the money back in to allow career managers to get out of their offices in Canberra and go around and consult and talk. That is working. I do not think we are going to be in a situation where everybody is going to love the career managers, but I think we are seeing a beneficial effect of that. Senator HOGG-In the PBS it says: ... the effect on retention and recruiting caused by the current high operational tempo and the extended periods that personnel are away from home is yet to become apparent. When do think the effects of those two things will become apparent? Rear Adm. Adams-From my perspective, we are only getting towards the end of the second rotation of the LPA in the gulf and the additional frigate. Our perception-not based on fact but based upon visits and discussions with the people serving in those ships-would be that the impact is not likely to be felt for some time. I guess when we invite people who have done one rotation through the gulf-who have got the very generous allowance, who are wearing the medals-to go back for their second that would the time we expect there would be an impact. We acknowledge we have to make sure that, between the point where they come back from one rotation and go back for another, they get access to leave et cetera and get time with their family. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 169 Senator HOGG-That was one of the major criticisms that was raised in the inquiry-the sea to shore ratio in terms of their service. They were getting very little by way of shore leave. Some were saying that they were virtually coming back, turning round and going straight back out to sea. I presume that has been arrested to some extent. Rear Adm. Adams-It would be wrong of me to sit here and say that people who are spending a long time in the gulf are not accruing leave. Of course they are. But, quite apart from that, within Maritime Command it is a specific goal of the Maritime Commander. He has placed the onus on the commanding officers to ensure that people take every opportunity to take the leave to which they are entitled, that middle level supervisors are in fact encouraging and indeed demanding that their people take the leave and not let bureaucratic or institutional difficulties get in the way or, indeed, people's own views that they are so indispensable that they cannot afford to go on leave. Senator CHRIS EVANS-The operational tempo must be mitigating against that-just the fact that you do not have too many of your ships tied up along dock at the moment, from what I can see. Rear Adm. Adams-Yes. As I said, there is an increase in accrued leave. That is natural. Our challenge is to make sure that we do whatever we can when the ships are back to get people off on leave. It is something that you have to work very hard at. We know just sending out a message to commanding officers saying, `Tell people to take leave,' does not work; we have done that before. It takes more focused and personalised attention to the problem to get results. Senator WEST-But what is happening to the ship-shore ratio of length of time they are spending at sea as opposed to the time that they are having postings on land? We were certainly given evidence that people who were having their ATS on land time were down to about a 12-month period if they were lucky, if they were in those short-supply areas. In 12 or 18 months they were back at sea again. What is happening to those? It is not a matter of whether they take their leave or not. That is not the issue. It is the issue of when they are getting a posting that is on dry land. Senator HOGG-And the nature of the posting on dry land as well. Rear Adm. Adams-Clearly, from what you just said, it is a much larger problem than can be solved by short-term measures. In the one sense it does rely heavily upon the success of our recruiting. We do see the fact that the Navy is growing. Net growth in size will be-not immediately because we have to train these people before we get them into the trained force where they can contribute to a solution to the problem and that will take time-part of the solution. Senator WEST-How many have you got sitting there in billets, having done their initial training but still waiting to be posted for their specialty training? Rear Adm. Adams-Senator, I could not sit here and give you a finite number, but there is a problem there. One of the problems of being successful in recruiting is that it does put more demands on your training pipeline and it is a challenge to get people to bunks in ships at sea. We are actively flying people to join crews in the gulf. We are flying back to give people reliefs. We have looked into our training system to see whether we can expose people to life at sea earlier, and we are using contracted ships through Defence Maritime Services to try to do that. As I said, there is no easy solution to a long-term sea to shore ratio problem, but the principal solution to the problem will be through increased recruiting and a growing Navy. Senator HOGG-I wish to briefly deal with the other ranks. We have had the critical positions in terms of officers. Could you give me those for the other ranks and, if you have got the data on the separation rates for those, that would be helpful. Rear Adm. Adams-In terms of the broad specialisations, there is nothing new here. I think they are the same ones that you would have heard previously: combat systems operator, communication information systems operators, electronic technical and marine technical. They are the main ones. There are also shortages in medical branch, in health services and in cooks and stewards. Senator HOGG-Do we have a separation rate for those? Rear Adm. Adams-Not by category. Senator HOGG-Overall? Rear Adm. Shalders-Senator, while DCN is finding that, you asked a question about the impact of the op tempo on retention and recruiting. Again, I can give an overall answer there, if that would be helpful. Senator HOGG-Yes. Rear Adm. Shalders-In terms of recruiting, there is some evidence to suggest that the increased op tempo has contributed to our increased targets. People are aware of what we are doing out there in an operational sense, and there is some evidence to suggest that that increases the inquiry rate. In terms of FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 170 SENATE-Legislation Tuesday, 4 June 2002 retention, I can give you some more scientific advice there. We do conduct attitude surveys every four months. In the attitude survey conducted over 10 per cent of the ADF last November and then again in April this year, the increased op tempo was a significant factor in people's perception of how they felt about the ADF. So the increased activity was improving their morale, simply put. And there was a discernible difference in the survey before November and then between November and April. So that is probably a short- term thing, as DCN has indicated. There may be a honeymoon period associated with this feeling, but right now the statistics suggest that it has been a positive for us in terms of recruiting and retention. Senator HOGG-Do you have the numbers for how below target you are in the four categories that I have just been given: combat systems operator, communications technician, electronics technician and marine technician? Rear Adm. Shalders-We have the historical data in question W36. Senator HOGG-I understand that. I meant the up-to-date figures. Rear Adm. Shalders-I do not have that with me, Senator. Rear Adm. Adams-Senator, I have it here. For communication information systems operator, the shortfall is 18 per cent. I am afraid these are all in percentage terms, not raw numbers. Senator HOGG-That is fine. Rear Adm. Adams-For combat systems operator, it is 14 per cent. This is disaggregated, actually. The shortfalls are as follows: combat systems operator (mine warfare), 20 per cent; electronic technical, 22 per cent; and marine technical, 19 per cent. There are a number of other categories here which I did not actually give you in my first response. I can go through the lot. Senator HOGG-If you want to table those, I would be quite happy to accept that rather than take the time of the committee. Are there any specific strategies, other than the recruitment strategies in those areas, that you are applying to fast-track people in to fill the vacancies? Rear Adm. Adams-They do internal recruiting in the branches, but of course that is not an overall solution. That is just robbing Peter to pay Paul, in one sense. So I have to say that the longer term structural solution to this is in sustained improved recruiting rates which will, in due course-as I said, not immediately-produce the right numbers of appropriately trained people. Senator HOGG-Moving on to the accumulated logistic shortfalls, how long has the accumulation been taking place in the logistic support area? I am quoting straight from the PBS, under the heading `Logistic Support'. Rear Adm. Adams-I will defer to Admiral Scarce on this one. He is much more involved in the day-to- day logistics of the Navy. Rear Adm. Scarce-The logistic shortfall has been accumulating over the last five to six years. Senator HOGG-Why is that? Rear Adm. Scarce-It is a combination of issues. Firstly it is increased maintenance due to the age of the platforms. We are seeing more obsolescence now with some of our American platforms; the Americans are not supporting to the same state that we are. We are seeing a combination of impacts on the budget through multiplicity of sources of supply as we buy our platforms. We currently have five or six suppliers around the world. Clearly price and currency fluctuations also increase the logistic shortfall. Senator HOGG-What is being done to address the shortfalls, given that you have just told us that the shortfalls have been there for five to six years? Rear Adm. Scarce-The shortfall is based upon costing extant policy and comparing that against guidance. The two principal cost drivers in our logistic shortfall are maintenance and inventory. In terms of maintenance, we are looking at the way that we maintain our ships, to see whether the extant policy is appropriate and to see whether there are other ways of maintaining the ship at a lesser cost whilst maintaining both safety and availability. That clearly impacts upon the amount of inventory that you would purchase. That is for the in-service support ships. In terms of future capability- Senator HOGG-Could I stop you there for a moment. Looking at the in-service ships, are you saying that you are not doing it the most efficient way currently? Or are you saying that you are looking for different ways as these ships head down the path of being obsolete? Which is the problem? Rear Adm. Scarce-The significant problem is looking at the way that we maintain the ship and seeing if there is a more cost-effective way of doing it. I would not sit here and say that my organisation of 1,000 people is doing everything as efficiently as they should and so there are- FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 171 Senator HOGG-It is not the obsolescence so much; it is the way in which they are currently being maintained? Rear Adm. Scarce-It is a combination of those. Senator HOGG-What combination? Rear Adm. Scarce-When we buy a ship, we develop a maintenance policy for that ship. As the ship ages, we need to look at that maintenance philosophy to see whether it is still applicable for the ship and the way it is operated. Senator HOGG-But there is nothing really that will stem the tide in terms of the shortfalls that are occurring now in the longer term because the obsolescence is growing closer. The problem in getting parts, I would imagine, is getting worse. Rear Adm. Scarce-I do not imagine that we will significantly impact the current in-service ship logistics shortfall by fiddling around with the maintenance cycles. I think the issue for us is to look to the future as we get new capability to make sure that when we develop that new capability we get as much commonality in equipment between the various classes of ships so that we can build on economies of scale and repatriate as much of that maintenance and inventory into Australia as is possible. Senator HOGG-The PBS says: Accumulated logistic shortfalls hinder Navy's ability to support the current force structure, operational commitments and preparedness requirements. I know the difficulties going down the path of talking about preparedness requirements, so we won't do that. But how does it hinder the force structure and the operational commitments? Are there any significant, tangible ways in which that happens? Rear Adm. Adams-In the current force structure I think you could use the patrol boat force as an example of that. We do meet our obligations to government for days availability, but the fact is they are getting old and you find that when a ship goes into a maintenance period, its time in there can be extended by emergent work. That means you will find another ship will pick up the slack. There are work-arounds but that is an example of what we are saying. Senator HOGG-So there is no short-term solution to that problem other than the acquisition of new platform? Rear Adm. Scarce-The short-term solution is to make ourselves more efficient and to ensure that the maintenance that we are doing is appropriate to the age of the platform and to the operating profile. But I do not believe that will significantly impact on the shortfall that we have at the moment. Senator HOGG-I would like to move to the next heading, `Operations and Reconstitution of Forces on Completion'. It says: Some individual and collective skills have eroded as a result of commitments to operations during 2001-02. Could you comment on that, please? Rear Adm. Adams-We have touched on this twice-once yesterday. I think Admiral Ritchie probably put it fairly succinctly this morning in saying that when you are employing ships predominantly, as we are now, in surveillance operations, you will become very good at that. You will become very good at other mariner skills and things like damage control et cetera, but because you are not devoting a lot of effort, for example, to antisubmarine warfare skills, your knowledge and skill levels in that area will decay over time. That is simply what we are saying there. We acknowledge that at some stage we will need to find ways to ensure that that skill degradation or knowledge lost does not go to such a low level that it is lost forever. We certainly are not in that position now, but that is what we have to be very careful of and we are very conscious of that. Someone asked Admiral Ritchie this morning: `How would you know that?' There are various ways, and simply talking to your people is probably a good one, and asking them what they think. You can look to your allies. Admiral Ritchie mentioned the importance-and these are my words, not his-of having access to an exercise in which a very competent ally was able to look at the way you do business and you were able to look at the way that they do business and make judgments about your levels of operational efficiency. So what that short section is meant to say is simply that we acknowledge there are risks there. We are identifying those risks and we are looking ahead to see what we will, at some stage, need to do to mitigate those risks. Senator HOGG-What sort of timeframe is one looking at there in terms of doing something? How long can you let this continue without trying to arrest it and redress the situation that is emerging? Rear Adm. Adams-I would have a great deal of difficulty in putting a time, a date, a month or a year on that. What I would look at- FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 172 SENATE-Legislation Tuesday, 4 June 2002 Senator HOGG-We are not talking about a matter of months here; I understand that. Are we talking about a two-year period or a five-year period? Rear Adm. Adams-I would be looking more at what sort of people we have, what experience they have had, how long they have been around and how long they are going to stay. I would look at ensuring that we do what it takes to retain people with that knowledge and that they are in a position where they can be employed in the training force to impart that knowledge and those skills to others in due course. Senator HOGG-I will move on to the next heading, `Air warfare capability'. It says there: The Navy's ability to conduct air warfare operations is limited with the current force structure. Could you elaborate on that for me, please? Rear Adm. Adams-The limitations on our air warfare capability are fairly well borne out in other areas. One is in the white paper, where the government has announced its intention to get an air warfare destroyer. Recently, in October last year, we decommissioned our last guided missile destroyer, HMAS Brisbane, which had a particular level of air warfare capability. We have the FFG upgrade program starting soon, and some parts of the work done there, particularly with regard to radar, are intended to improve air warfare capability directly. Where that section mentions the A4 reduction in fast jet support, it is simply saying that, upon the New Zealand government's decision to withdraw the A4, where once we had been getting a very high level of service, we were left to find another solution to provide that service. We simply have not found it yet. A number of bodies in industry have approached us and expressed interest in providing a similar service previously provided by the New Zealand Skyhawks, but neither we nor they are yet in a position where we know precisely what we want or how it might best be provided. It is a work in progress, for which we see ourselves having to find a solution in due course. Senator HOGG-That is another example of the erosion of your current warfare skills, isn't it-not having that access to the A4s that you previously had? Rear Adm. Adams-We have to find alternative means of providing that service, which was with us until last year. There are solutions there. Senator HOGG-I was a bit worried when I read that section of the PBS. I was reading as code the words `aircraft carrier', but I have not heard those words mentioned. I am sure the minister is a bit relieved, and we all are. Senator Hill-I am sorry, I was thinking of something else. Rear Adm. Adams-Senator, on your behalf I will assure the senator that the words `aircraft carrier' were not in our minds as we wrote this paragraph of the PBS. Senator HOGG-I was just saying, Minister, that it might have been code for that, but it obviously is not. Senator CHRIS EVANS-All the Air Force and Army blokes at the back pricked up their ears when you raised that. Senator Hill-Aircraft carriers are becoming popular again. Senator CHRIS EVANS-Yes, they have always been popular with the Navy. Senator Hill-Now, with vertical take-off aircraft, you can have smaller ones. They would go well, wouldn't they? Rear Adm. Adams-Aircraft carriers, or things that carry aircraft, come in various shapes and sizes these days. Senator WEST-The most stable bit is what we are sitting on right at present, of course. Senator CHRIS EVANS-Do we take it that you have committed to two, Minister, or is it three? Senator Hill-It depends what sort of a deal we can get. Senator HOGG-I refer to the last heading there, `Submarine capability', where it says: Deficiencies in the Collins-class submarines currently limit their operational effectiveness. Without getting into classified areas, how serious is that and how significant? They did not put it in the PBS. As I said, I am not asking to get into classified areas; I just want some expansion on what is there. It talks of deficiencies in the Collins class submarines currently limiting their operational effectiveness. Senator Hill-For what they are required to do at the moment, they are able to do it and doing it very capably. Senator HOGG-Yes, but that is not what that says, Minister. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 173 Senator Hill-As you know, we are developing a new combat system which will be more capable than the previous combat system. We talked last night about the purchase of a new generation torpedo which will be more capable than the old generation torpedo. Senator HOGG-I accept what you are saying. If that is the explanation that is to be read in conjunction with that, that is fine. I just thought putting the descriptor that was in there did not necessarily serve a reasonable purpose. It would have helped if there could have been a more expansive description. Senator Hill-Either more expansive or less expansive. Senator HOGG-Less expansive would have seen it deleted completely, Minister. Senator Hill-I know; that is what I mean. That was a compromise. Senator HOGG-If that was the compromise, that is why I am asking what the deficiencies are, without trying to get into- Senator Hill-I do not think we would want to say any more than what is there, in a public forum. But it would be a grave mistake for anyone to underestimate the capability of those boats. Senator HOGG-All right. Senator CHRIS EVANS-I wonder if we can get an update on the various investigations and inquiries into the alleged assault involving Arunta crewmen that we discussed last time. Are you in charge of that, Admiral Adams? Rear Adm. Adams-Yes, Senator. I can confirm that the investigations and the resultant disciplinary action under the DFDA is nearing conclusion. And I am talking about within a matter of days. Senator CHRIS EVANS-At last count I had about four investigations and inquiries, so I think for the record it would be useful for us to be clear which one we are talking about. Perhaps you could help me there by giving me a fuller description of which inquiry is about to conclude. Rear Adm. Adams-Yes. I am talking entirely about HMAS Arunta and the allegations made about conduct of members of its ship's company in Christmas Island. I will try and avoid a long-winded explanation. When allegations were made that certain people had conducted themselves inappropriately, the following morning the service policeman on the ship, a chief petty officer naval police coxswain, conducted normal investigations that a service policeman would conduct. Though in the case of a number of allegations those inquiries were taken through to a conclusion, in a number of other allegations they were not finished. Separately, and following allegations made in the press, the Chief of Navy, under the Defence (Inquiry) Regulations, appointed an Army colonel, out of the Navy's command chain, to conduct an inquiry into certain of those allegations made in the press. That report, made under the Defence (Inquiry) Regulations, was passed to the Chief of Navy, who then directed that, in relation to a number of the allegations, service police-and in this case not naval policemen but Air Force and Army policemen-investigate specific matters referred to in the colonel's inquiry done under the Defence (Inquiry) Regulations. We are now at the point where those subsequent service police investigations- Senator CHRIS EVANS-I am sorry to interrupt. These are the investigations under the Defence Force Discipline Act? Rear Adm. Adams-Correct. We are now at the point where we are concluding Defence Force Discipline Act action in response to those service police investigations. Senator CHRIS EVANS-Do you mean action or inquiries? Rear Adm. Adams-I mean action-action where action was considered appropriate after consideration by prosecution lawyers and the command chain. In answer to your question: in relation to Christmas Island there have been three levels of investigation, to use that word in the generic sense. There were the initial investigations conducted by the ship's chief petty officer naval coxswain; an investigation was conducted under the Defence (Inquiry) Regulations by an army colonel; and there were subsequent investigations conducted by Army and Air Force service police. Senator CHRIS EVANS-So that is why we have got three layers. Where are we at in the process, then? The inquiry under the Defence (Inquiry) Regulations has gone to the Chief of Navy-when did he receive that? Rear Adm. Adams-I am not able to recall as I sit here. It would have been in March. Senator CHRIS EVANS-And on the basis of that he ordered the Defence Force disciplinary inquiries? Rear Adm. Adams-Yes, he asked the service police, in this case Army and Air Force service police, to investigate specific matters referred to in the report of the colonel's inquiry. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 174 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-And that has gone back to police investigations under the Defence Force Discipline Act. Could you take me through the process of those? Do they go to the equivalent of a DPP type person, is it a chain of command issue, or what? Rear Adm. Adams-After the service police have conducted their investigations they have made recommendations as to whether they consider a charge should be laid. Their reports have then gone to the ADF prosecution office, which is staffed by service legal officers who then review all the evidence provided and make an assessment as to whether they agree that a charge is warranted and whether a conviction would be likely if it was proceeded with. In this case, in addition to having the ADF prosecution office do that we have had two separate reviews: one by the most senior legal officer serving in the Defence Force and his staff and one by a reserve legal officer who is a magistrate in his civilian occupation. Senator CHRIS EVANS-These are reviews of what? Rear Adm. Adams-They are reviews of the police investigations. Senator CHRIS EVANS-Is that in addition to the ADF prosecution branch inquiry? I was not clear what the leap there was. You said that the police inquiries are then referred to the ADF prosecution office who determine whether or not to prosecute, the likelihood of success et cetera. Then you introduced the subject of two reviews and I was not quite clear what the leap was. Rear Adm. Adams-The decision on whether to prosecute or not in a particular number of the allegations has become very complex, and it was simply seeking, as it turned out, two levels of more senior legal advice to ascertain whether a charge should or should not be laid. Senator CHRIS EVANS-So they were providing advice to the ADF prosecution office about the prospects for success? Rear Adm. Adams-They were essentially providing advice to the command chain. In the end it is the duty of the command chain, the commanding officer or the commander, to make the decision on whether to proceed with a charge or not. The legal advice is simply that: legal advice on which the command can make a decision whether or not they should proceed to charge. Senator CHRIS EVANS-So the ADF prosecution office does not have the final say on these things? Rear Adm. Adams-No. Senator CHRIS EVANS-In effect they sought advice from two other legal sources in forming their advice-is that a fair description? Rear Adm. Adams-In addition to seeking advice from the ADF prosecution office, the command chain sought two additional sources of legal advice. Senator CHRIS EVANS-The command chain sought that advice. Rear Adm. Adams-Yes. Senator CHRIS EVANS-Was that before or after they had received the ADF prosecution office advice? Rear Adm. Adams-It was after. Senator CHRIS EVANS-The command chain is a bit like the royal we, I suspect, but who is the command chain in this instance? Is it the Chief of Navy? In the end does the buck stop with the Chief of Navy? Rear Adm. Adams-It does, but it is not as simple as the Chief of Navy directing that someone charge someone else with an offence. In this case, it is the maritime commander's responsibility to proceed to charge. Senator CHRIS EVANS-So the maritime commander is the officer under your chain of command who has the decision on this matter? Rear Adm. Adams-In naval parlance, the ship HMAS Arunta is within his command. He is the administrative authority for that ship. It is his responsibility to progress this. Senator CHRIS EVANS-But he has already made a decision. Senator Hill-It is quite complicated. We are a bit reluctant to help, but that is what we are here for. If we work on the basis that, in effect, the final decision is that of the Chief of Navy, two matters had been dealt with administratively and the Chief of Navy accepted that that was an appropriate process. Concerning a third incident of alleged indecent assault, about which we spoke at the previous estimates committee, the Chief of Navy indicated to this committee that he was requiring a further investigation, which was referred to here today and which has been carried out. That investigation was completed. Internal legal advice was taken on it which assisted the Chief of Navy. Ultimately, advice of an outside, senior counsel-a reservist-was taken as well, which assisted the Chief of Navy. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 175 Senator CHRIS EVANS-That advice went only to the question of the prospect of successful prosecution. Senator Hill-Yes, reviewing the evidence and applying the law to the evidence to assist the Chief of Navy as to whether a prosecution should be launched. Taking into account the advice of the investigators and all of the legal advice, the Chief of Navy has now decided that a prosecution in this particular circumstance will not be launched, which I can say is consistent and which I have reviewed. I do not have any particular role to review except that I am accountable to this committee and expect to be asked the hard questions. In my view, for what it is worth, on the basis of the investigation and the legal advice, the decision the chief has taken is soundly based. Senator CHRIS EVANS-I want to be clear, Minister. The initial advice from Rear Admiral Adams was that a decision was to be made in the next few days. Senator Hill-There are more matters; that is why I am trying to separate them. Senator CHRIS EVANS-So the decision in terms of the indecent or sexual assault allegation is that there will be no prosecution on that matter? Senator Hill-Correct. That is the decision he has taken on the one that was reinvestigated. There are allegations of another assault- Senator CHRIS EVANS-The one on 3 December or the one on 4 December? Rear Adm. Adams-They all occurred on the same day. There are three allegations. Senator Hill-I am talking about the incidents at the Golden Bosun Tavern on Christmas Island. Senator CHRIS EVANS-Yes. There was some suggestion that there was an incident on 3 December and one on 4 December in a couple of reports. I just want to be clear for the record. Senator Hill-Maybe midnight intervened. Rear Adm. Adams-It was late at night. Senator Hill-We understand it was the night of 3 December. Senator HOGG-If the decision has been made not to prosecute because there would be no likelihood of success in proceeding, is there a lesser charge that can be brought as a result of the conduct or behaviour that would succeed? Senator Hill-I have not been worried about lesser matters; I have been worried about what I think are the more serious allegations- Senator HOGG-I accept that. Senator Hill-but I do not think it is intended to take any further action on that particular matter in terms of a lesser action. Two incidents were dealt with administratively. One has been investigated in full-which seemed to be the more serious of the three allegations-and, after a comprehensive investigation and a great deal of legal advice, it has been decided not to pursue that further. There was, in technical terms, the possibility of another assault charge but that is not going to be progressed. I think that anyone who reviewed the file would say that that was soundly based. Senator HOGG-Is that on the same advice from the same QC? Senator Hill-They are all associated matters. Senator HOGG-It is all in the one piece of advice? Senator Hill-Yes. They are all associated matters. I think it was a senior counsel not a Queen's Counsel. His advice primarily related to the more complex issue, which is the one that I have been talking about. There are, however, a number of lesser incidents that occurred during that period-and that might be what is being referred to in relation to the fourth-which have been investigated and with which I have not concerned myself. They were behavioural type incidents. Senator CHRIS EVANS-Is this the skinny-dipping and whatever? Senator Hill-Those sorts of things. I am quite confident the Navy can sort those things out themselves. Senator CHRIS EVANS-I am not going to make that my highest priority, Minister. Senator Hill-Lastly, there was an allegation relating to the disposal of a video, which could be a serious matter. I understand that the investigation of that matter has been completed and that the Chief of the Navy is still to make a decision upon that. Rear Adm. Adams-Correct, Minister. As of this morning, the final decision as to whether to lay a charge or not has not yet been made in relation to allegations of evidence mishandling. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 176 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-So the two assault charges have been investigated and there is no prosecution to be launched on those but, on the destruction of evidence matter, there has been no decision made by the Chief of the Navy? Senator Hill-I am not going to say any more. Rear Adm. Adams-If I could just go from the top. There were two allegations of indecent assault, which were handled administratively. They are complete. There was a third charge of indecent assault, which has been, as the minister said, reviewed and reviewed, and the decision was taken not to proceed with that. There was a fourth issue, which is not indecent assault, it is common assault-punching. As the minister said, a decision has been made not to proceed with that. An allegation of evidence mishandling is not yet complete, as of this morning. There are a number of minor issues-three or four here-of exposure and skinny-dipping. The expectation is that charges have been laid, perhaps as we speak, or will be laid. Senator CHRIS EVANS-This reinforces my concern in some ways. I went back over the Hansard of the discussion we had last time, and the advice that was given about how these matters were to be handled seemed to be contrary to the instructions for how questions of indecent or sexual assault were handled. I had this discussion with your legal advice et cetera. This suggestion that indecent or sexual assault can be handled administratively seems to totally counter anything contained in your own regulations. Rear Adm. Adams-No allegation of sexual assault has ever been made in relation to Arunta at Christmas Island. Allegations of indecent assault were and they have been dealt with. Two of them were dealt with administratively at the request of the young woman and they are complete. As I said, in relation to the third incident of indecent assault and a later one of common assault, a decision has been made on legal advice not to proceed further. Senator Hill-If you want to get into this overlap and inconsistency et cetera between civilian law and military law, perhaps we should get Commodore Smith back again. But for what it is worth, the allegations, in terms of definitions in the defence law, were best characterised as indecent assault and not sexual assault. There is different guidance under the administrative directions as to how each of those two categories are to be dealt with. In broad terms, that guidance is that an allegation of indecent assault can be dealt with through the Defence Force regulations; an allegation of sexual assault would be referred to the civilian police. Senator CHRIS EVANS-Does that logic follow then that the question of indecent assault is one for the commander of the ship to resolve? Is that what you are saying to me? Senator Hill-It follows that a legitimate process for it to be resolved in terms of defence law and administration is for it to be dealt with through the naval chain of command process. Then there are different sub rules as to who has what authority within that chain to deal with particular matters. In relation to the first two lesser allegations-I hesitate to use that expression as any allegation of indecent assault is obviously taken very seriously-the two incidents that would be generally interpreted as less serious were dealt with administratively, and that was a proper way in which they were able to be dealt with. Senator CHRIS EVANS-Where will we stand if the Chief of Navy decides not to proceed with a prosecution on that charge? Senator Hill-On which charge? Senator CHRIS EVANS-The incidents involved the alleged destruction of video evidence. Senator Hill-I think it would be better for him to make a decision and then we debate that rather than speak hypothetically about what might be the consequences of any decision that he takes. Senator CHRIS EVANS-I do not think it is all that hard. If he decides not to lay charges, as it were, then no charges would be laid arising from this incident of any sort. Is that right? Rear Adm. Adams-That is correct. Senator Hill-Certainly, if we are talking about the videotape, which is a different issue entirely. But if he decides not to prosecute on an allegation against a different person for a different activity-if that is the advice and he accepts that advice, and that has not been taken-then there will be no further action taken on that matter from within the naval chain of command. Senator CHRIS EVANS-Does that mean that the outcome of all of this would be consistent with the correction that Admiral Shackleton made to the record when he wrote to the committee on 6 March? At the last hearing he said that three personnel were disciplined as a result of the trial. He wrote to correct the record and said that his statements referring to a trial conducted by the commanding officer were incorrect. His letter states: The facts are that the Commanding Officer directed an investigation under the Defence Force Disciplinary Act into the indecent assault. Based on the recommendation of the investigation report and the wishes of the complainant not to proceed with the Defence Force Disciplinary Act action, the Commanding Officer decided to pursue administrative FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 177 action under Defence Instructions. The outcome of that action was a formal Caution for Unacceptable Behaviour for one sailor and counselling for another. Do I take it that you feel that, rather than having hypotheticals-putting the video issue to one side-the total outcome of all of this is a formal caution to one sailor for unacceptable behaviour and counselling for another? Senator Hill-In relation to the incidents of alleged indecent behaviour-the indecency allegations-yes. Senator CHRIS EVANS-Will there be any summary of all this? I am not particularly arguing anything in particular but, given the interest in this, I can accept from Navy's point of view that this is a bit of a problem in terms of justice being seen to be done. We always have it in the civil area too; when the DPP or someone decides not to proceed with charges, it is always a bit fraught. But there will be no further public statement or explanation? I know you said you would call for reports earlier in the piece. What else will be made available to explain what has happened here? Senator Hill-What I was intending to do was to make a statement. You might recall that I previously-I think it was prior to the last estimates hearing-made a statement saying that action was being further taken in relation to two of the matters. One was what seemed to be the more serious allegation of indecent assault, and the second was the matters relating to disposal of the video. It has been in only the last few days that the first of those matters has been finally settled. In relation to the video, it has not been quite settled. I was hoping that both of those would be settled by this time and I would have been able to make a statement on those. In terms of providing the materials upon which those decisions were made, that becomes quite awkward. I would speak to the Chief of the Navy-it is his documentation-but it might be possible to provide some of that material on an in camera basis. I do not think it would necessarily be in the interests of all parties that it be put on the public record. It might give pleasure to some, on an inside column of a tabloid, but I do not believe it would add to justice or be in the public interest. CHAIR-Senator Evans, do you have further questions on this matter? Senator CHRIS EVANS-Yes, but I will wait until after the break. Senator Hill-In conclusion, I want to make it clear that it has been a long and complex and in some ways a quite awkward process of inquiry. I think that is something for the Defence Force disciplinary process to have a look at and see whether there are ways in which the processes can be improved. Senator WEST-Go and re-read. Senator Hill-Further improved. Senator WEST-Yes, that is right. Senator Hill-The second point is that, in relation to the more serious allegation, I am satisfied that it has been thoroughly investigated, that good legal advice has been taken on it and that the decision of the Chief of Navy is sound. I and this government are very concerned about any allegation of indecency-in particular, indecent assault-particularly if it includes a gender aspect. We want women in the Navy to know that when they join, they can be confident that they are going to be properly protected in relation to any allegations of misbehaviour. Senator CHRIS EVANS-That is the problem isn't it, Minister? We are left with a situation that after six months and four or five different investigations-a fairly tortured route-internally the Navy decides there is no case to answer. It is a question of whether justice has been seen to be done and whether those interests which you espouse have been protected. Senator Hill-No, it is more than that. It has gone up the chain of command to the top of the Navy and it has been given months of attention there-including a reinvestigation, of which we are aware. I have taken a personal interest in the matter, whereas some might think that is meddling unduly, because I think I have a public interest and responsibility as well. I am accountable to the parliament and the parliament might demand more of me. If that is the desire of the parliament, then we will see how we can accommodate that while protecting the interests of innocent people. Actually, it is a great deal of accountability when you start to think about it. Proceedings suspended from 3.38 p.m. to 3.59 p.m. Senator CHRIS EVANS-Mr Chairman, I want to finish on the Arunta issue. I tried to think over the break about what was said to us today. I suppose I was not prepared for that. I am uneasy about leaving it at that. I appreciate Navy's difficulty. I am not making any comment on the appropriateness or otherwise of the decision making processes; I want to make that clear. I simply do not know so I am not making a comment. From a public perspective, we have had a highly public case about what seemed to be a fairly serious assault on a female sailor. To be frank, we have had a very unsatisfactory series of investigations and reports on those FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 178 SENATE-Legislation Tuesday, 4 June 2002 investigations, including at an estimates hearing where we were given wrong information and the record had to be corrected. This has all led to heightened public concern about the process and about the incident. Certainly it is one that has concerned me, and the minister has made the point that it concerned him. My concern is that I am left with this unease that it will be seen publicly as there having been an incident that the Navy dealt with internally. Someone then raised concerns publicly-the military police or whoever it was who made that report available-and the thing blew up. The Navy has had another four investigations and they have found themselves innocent and it was left at that. As I say, I am not making a judgment on that but it does concern me that that would be a public perception. So I wonder whether there is anything further that could be said about the legal advice and about why the decision was taken not to proceed with charges. I appreciate that one cannot give the ins and outs of the case, but I would be interested in whether Admiral Adams or the minister are able to provide any further information as to what underpinned the decision not to lay charges-whether it was a question of the chances of success or whether it was believed that the assault had not taken place. At the moment we are left with no charges to be laid, end of story, which does not give us any information or understanding of what has occurred. I understand the legal difficulties but I want to know what else you might be able to say about that reasoning that might help. Senator Hill-I think what I will do is discuss with the Chief of Navy whether there might be some way in which the final legal advice can be made available to you. The trouble is that it would have to be on a confidential basis and you might well say, `If I can't use it there is not much point in me having it.' Senator CHRIS EVANS-I am always a bit reluctant, Minister, to receive briefings. I would want to think about that if you made the offer. Senator Hill-I understand that. I will speak to the Chief of Navy as to whether that offer can be made to you and then you will have to consider whether you want to accept it. Senator CHRIS EVANS-As I said, there were a couple of things I thought about in the break as to how we might respond to this. As I say, I express my unease about how this was to be resolved. Firstly, I thought to ask whether or not there was more information about the reasoning behind the decision not to proceed with prosecutions and whether or not that could be made available to the committee-and, in effect, made publicly available. Secondly, I thought to ask whether or not you, Minister, would consider making a statement that attempted to provide as much information as possible on these matters-a statement that would go to both the actual incident and the processes. That may be difficult but I suppose I am saying that I think things are a little unsatisfactory at the moment and that I am a little uneasy at leaving it there. Senator Hill-Beyond what I have said I will do, I will consider the matters further. The only other thing that I should have said before the break and that is relevant is that the Chief of Navy has taken a process matter which I think is a good decision in relation to dealing with these matters administratively. At the moment, as I understand it, if there is an allegation of indecent assault the commander of the ship has a discretion as to whether he deals with that allegation pursuant to an administrative direction; alternatively, he deals with it under the Defence Force Discipline Act. In this instance, the commander of the ship decided to deal with it under the administrative directions- Rear Adm. Adams-At the request of the young woman. Senator Hill-That is relevant, because I think the guidance is that if that request is made then he has to. The Chief of Navy has decided to change that process for the future, in that the commander of the ship will no longer have that discretion, but in the case of an allegation of indecent assault will have to deal with it under the Defence Force Discipline Act, whether or not that is the wish of the complainant. Senator CHRIS EVANS-I must say that at first blush I thought that was what was required of them. I did not realise they had the choice. We had this debate last time and we got caught up on arguments about the definition of sexual and indecent assault. On re-reading the Hansard I think it was not just that we were confused at the time; even in writing it was confusing. But that is one of my major concerns, that a young female sailor would be in the position of having to take responsibility for how those matters were proceeded with, when dealing with her commanding officer and offences may be committed by crew with which she is serving. That just seems to me to be totally unsatisfactory. Senator Hill-I think that what has been done is a procedural improvement in that regard. Senator CHRIS EVANS-How will that be progressed? Senator Hill-The order has been given. Senator CHRIS EVANS-That would have to be an amendment of some sort to the regulations, would it? Senator Hill-To the administrative directions, I understand. Rear Adm. Adams-The form we promulgated was simply a directive from the Chief of Navy to all commanders and commanding officers that they no longer had the discretion to make that choice in favour of FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 179 administrative action. They were to handle it under the Defence Force Discipline Act. That applies to Navy, but it is not across Defence. Senator CHRIS EVANS-And that is in relation to indecent assault? Rear Adm. Adams-Indecent assault. Senator CHRIS EVANS-So that is a directive that then goes into your handbooks and instruction manuals. Is that the way it works? Rear Adm. Adams-It is in force throughout the Navy right now. It is something that we will now take up with our colleagues in Defence, and endeavour to have that incorporated in the Defence Instructions. Senator WEST-My next question to the minister is: Navy is not the only one where there are issues of sexual harassment and sexual assault. If it is only in force for Navy, what are you doing to bring the other two forces up to Navy's standard? Senator Hill-I did not know that there was exactly the same procedure in each of the three services. I have been concentrating on a particular naval incident. But certainly in my view the principle is correct as it applies to any of the three services. If I am being told today that that discretion still exists in relation to the other two services, then that is something I will take up with the Chief of Defence Force. Senator CHRIS EVANS-The other point I would make there, Minister, is that I would be very keen to make sure that that instruction was, if you like, consistent and complementary, because having looked at some of these instructions, and even from getting some legal advice on what they meant, it was not at all clear that they were necessarily easily read and understood as a body of instructions in terms of indecent assault, sexual assault et cetera. While I am encouraged by the suggestion that we ought to deal with what I thought was a particularly inappropriate measure in the sense of having that discretion about an indecent assault, I am also, I suppose, urging some caution that whatever we do does not create another set of anomalies or inconsistencies in dealing with assault matters. Senator Hill-I think the decision that has been made is a step in the right direction. I personally think that an examination should be made of the definitions as well. I am a little out of date with these things but I am not sure that the way in which indecent assault and sexual assault are distinguished within military law represents how it is done in civilian law. I think civilian law is a little more progressive in this regard. I think it would be a good idea. I am satisfied with the arguments that have been put to me that the decisions that were made were sound within the military law as it exists at the moment, including the directions, but I am not sure whether that distinction is appropriate and meets what most people in the community would regard as well-understood definitions of these particular actions. Senator CHRIS EVANS-I think you are picking up the same concern that I had in the broader sense that, while I appreciate what you have said will happen in terms of the Chief of Navy's direction, it seems to me there are broader issues, having looked at this case and having looked at the instructions et cetera. We had that debate about definition of sexual assault, which at the time I was quite concerned about because we got to the stage, by error, of talking about serious sexual assault versus sexual assault, and that certainly concerned me. There is also the fact that there seemed to be some confusion and some contradictory instructions in the various sets of regulations and directives. I would have thought that, for a serving commanding officer, it would not have been easy to work their way through, even with a law degree, let alone if they did not have any legal background and were trying to deal with it on the spot. I was just concerned that whatever we did while attempting to fix this problem did not actually create further problems but also addressed the concern that you expressed relating to definitions of assault. It seems to me that that requires a bit more of a fundamental review of the way Defence handles these matters than just a directive from the Chief of Navy on that one issue. Senator Hill-That is correct. That would require changes to the law rather than just the administration, but I think that should be reviewed. I will see that it is reviewed. There may be some strong arguments for the definitions that they use but they strike me as out of touch with contemporary standards. Senator CHRIS EVANS-I think we ought to flag that the committee will be taking a keen interest in that as well. I take it that you are of the view that no more should be said about the decision publicly as to why charges were not proceeded with? Senator Hill-Certainly, at this stage, I said to you that I would think about whether there was something further that could be said on the public record, but I would want to think about it. Senator CHRIS EVANS-How will we know what the Chief of Navy's decision is in relation to the other matter of the video tampering allegations? Senator Hill-He or I will make a public statement. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 180 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-Thank you for that assurance. We might as well get all of this out of the way at once. Do you want to deal with Diego Garcia while we are here? As you are not having a very good time, Admiral Adams, we might as well get it all done with at once. Rear Adm. Adams-I should say at the outset that, in relation to Diego Garcia, there never has been any suggestion of sexual assault or indecent assault. These matters are entirely related to minor acts of foolish behaviour involving alcohol. I am talking about urinating in public, nudity, doing a streak in a public bus, verbally abusing a foreign military person, being drunk, and indecent exposure. Senator CHRIS EVANS-Why was it that Admiral Shackleton saw it as being necessary to then invoke the Defence Force disciplinary activity? He seemed to be treating it with a fair degree of seriousness at the last estimates hearing. Rear Adm. Adams-Yes, he did. He simply was unaware that any incidents had occurred until advised by some of the more senior officers in the Defence Force who had heard about it by way of incidental conversation, or it had been reported to them. He was very concerned that allegations were being made about the behaviour of Navy people in a foreign port that he was not aware of. He had no idea whether there was any substance to the allegations, and he had done what is called a quick assessment. In this case, an Air Force group captain was sent to Diego Garcia to find out what went on and whether there was substance to these allegations. I hate to go back to where we were before, but that officer did a report of his quick assessment. He said that, yes, there appeared to be evidence that some people had conducted themselves inappropriately along the lines I discussed. He handed it to Army military police, they investigated and they recommended that a number of charges be laid against people. They recommended, in the case of some of the allegations, that no offence was actually committed or that there was insufficient evidence to proceed. At this stage, we are expecting there to be two charges laid for exposing themselves in public. The other charges were so minor that they were not backed up by the evidence collected by the group captain or the police sent to Diego Garcia, and sent to the gulf to interview the naval personnel. Senator CHRIS EVANS-The upshot of it is that you expect two sailors to be charged with exposing themselves? Rear Adm. Adams-With minor acts. Senator CHRIS EVANS-That will be handled, in disciplinary terms, by whom? Rear Adm. Adams-By the ships' commanding officers, as these minor acts would be handled. Senator CHRIS EVANS-Had there been any action taken in regard to these matters previously? Rear Adm. Adams-No Defence Force disciplinary action, no. Senator CHRIS EVANS-Had they been brought to the ships' commanding officers' attention beforehand? Rear Adm. Adams-No. There is no similarity between the discussion we have just had and the handling of the alleged incidents at Diego Garcia. Senator CHRIS EVANS-When do you expect those- Rear Adm. Adams-I am simply unable to sit here and tell you exactly, but I would expect and hope that if they are not already completed, they will be done in the very near future. Senator CHRIS EVANS-Thank you. Can I ask about crossing the line? Rear Adm. Adams-What would you like to ask? Senator CHRIS EVANS-I notice that Admiral Shackleton suspended the ceremonies pending a review. Can you give me an update on what has happened there? Rear Adm. Adams-I know there is an unfortunate history to crossing the line ceremonies, which I do not intend to flagellate myself by going through. We were surprised when we saw this. The events as depicted in the video release by Channel 7 did occur. They were in a Fremantle class patrol boat. What you see there did occur. The people who participated in it were entirely volunteers. The ship's executive officer ran the traditional crossing the line ceremony in a manner that was acceptable to all members who were in ship's company. When it appeared on television, clearly it was very hard to stand there and explain some of that behaviour. The chief's approach was simply to take time out and to ask people in the Navy whether they thought the way crossing the line ceremonies were being conducted was what they wanted or what they wished to participate in. The maritime commander and the systems commander who is responsible for shore establishment were tasked to canvass opinion and I did some of my own. That meeting, which I was to chair at 1400 this afternoon, was to consider the feedback from that and to recommend to the chief whether we should proceed FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 181 with crossing the line ceremonies and, if we do, under what procedural guidelines. That is simply where we are now. Senator CHRIS EVANS-Thanks for that, Admiral. But as I understand it, you had been through that process before. Didn't you go through that sort of process last time that this was a problem? I must point out that I know that footage was old. I think it was two or three years old. Without going through the detail of the past history, I thought that the guidelines for crossing the line ceremonies were issued originally following concern about what activities were or were not appropriate and that you had been through that assessment. Is that not right? Rear Adm. Adams-You are correct. With the submarine Otama incident, there were guidelines issued. This most recently televised incident was entirely in accordance with those guidelines. What the chief has done is simply said, `Okay, we've put the guidelines out there. We're still getting video like this even though it was conducted with no criminality, no abuse or whatever. There were no suggestions of it. We will simply sit down and ask ourselves whether, notwithstanding those revised guidelines, they are still appropriate in this day and age.' Senator CHRIS EVANS-What is the time line on that? Rear Adm. Adams-As I said, it was supposed to be today. It will be delayed a little. I would expect that, before the end of this month, we should be able to get revised guidelines out. I would envisage us getting some guidelines together and putting them back out there into the fleet to the young men and women who may or may not wish to participate in future. We will have a look at them through a consultative process and make sure that if we do continue with these-and quite frankly, in my personal view, it is such an old tradition that there is likely to be some form of it go on-we will just make sure that there is no humiliation, abuse or injuries and that whatever we do can be filmed by any television company in the world and we can afford to have it all over the television sets. Senator CHRIS EVANS-I think that was my concern. I remember doing crossing the line ceremonies as a child, Admiral Adams, and dressing up as King Neptune, as I recall, and running around the ship. But they were fairly innocent. I do not remember the dead fish or the whacking stuff. I want to make clear that I do not think any of the senators on the committee or anyone wants to stop the observance of a ceremony. But I think there was concern about a video about aspects of humiliation, particularly of a young female sailor, that I think were disturbing. I know, in some sense, you are a victim of video and those sorts of things. But I think there was some concern also about how it might undermine the Navy's efforts to promote themselves as an equal opportunity employer and a safe employer of choice. We had a discussion yesterday about the advertising budget. It was a real countermeasure, I suppose. Rear Adm. Adams-I understand your concerns. Could I just put on the record that the young woman involved was a young officer and, on the advice I personally received from the executive officer, that young woman was a completely happy participant, a volunteer. So while it might not look good it was completely voluntary on her part. Senator CHRIS EVANS-All right; I appreciate that. So the most likely outcome is that they will be recommenced at some stage or be allowed but under revised guidelines. Is that a fair summary? Rear Adm. Adams-I am speculating, but that is my personal view. I do not see us actually dispensing with an ancient tradition which we should be capable of running in a completely acceptable manner. Senator CHRIS EVANS-Okay. Thanks for that. Rear Adm. Adams-Mr Chairman, at this stage it might be convenient to give some answers we have to questions asked previously. Admiral Scarce has one on lightweight torpedoes and I have some numbers to do with shortages of medical staff. CHAIR-Thank you. Rear Adm. Adams-I have this answer on medical staff. In relation to medical administrators, the Navy has three above our requirement; in terms of doctors we are 10 below our requirement; and in terms of nurses we are two above our requirement. So our shortage is specifically doctors. Senator WEST-Are they all the answers? Rear Adm. Adams-That is my answer. Admiral Scarce has answers on lightweight torpedoes. Rear Adm. Scarce-I have answers to three questions posed yesterday. The first from Senator Hogg was about the Audit Office report of Collins and the $2 billion. In fact, Senator Evans asked that question at the previous hearings-it is question W2. In essence, the figures of $860 million and $840 million are a mixture of current and future dollars and a mixture of new capability and rectification of Collins deficiencies. The figure for rectification of deficiencies is about 75 per cent of the $860 million. The remainder of the money that had been identified by the Audit Office is capability improvements. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 182 SENATE-Legislation Tuesday, 4 June 2002 Senator CHRIS EVANS-I knew it sounded like a good question! Rear Adm. Scarce-The second question posed by Senator Hogg was in relation to the table on page 77, Collins class submarine augmentation. As I identified yesterday, that is the augmentation of the two boats, the augmentation of the combat system and the phasing in of the fast-track improvements to improve reliability, noise-those improvements to the remainder of the six boats. The third question, from Senator Schacht, was in relation to the lightweight torpedo. He was particularly interested in opportunities for Australian industry involvement. As I mentioned yesterday, one of the alliance partners is Thales. That integration into the platforms will be conducted in Australia. The through life support for the weapon will be conducted in Australia. We expect, as I mentioned yesterday, production of the weapons also in Australia. And the level of Australian content in the current phase of the project is anticipated to be around 50 to 55 per cent. The final question from Senator Hogg was in terms of the heavyweight torpedo. The current phase we are in, phase 2, requires us to physically integrate the weapon into the submarine and to purchase initial training weapons. The price that we have for that is $238 million. I would expect to see that in the PBS for next year as we start to expend the money in that particular project. Senator HOGG-Thank you. Senator WEST-There have been some press comments about cracks in the Navy frigate keels-in the Australian of Wednesday, 17 April, page 3. How many of the Anzacs are in service and how many are under construction? Rear Adm. Scarce-We have three Anzacs in service, a further Anzac that we accepted on 31 May and three under construction. Senator WEST-Does that include the two that were going to New Zealand? Rear Adm. Scarce-No, two separate ships went to New Zealand. So there are 10 in all. Senator WEST-What is the situation with that press release? Rear Adm. Scarce-A bilge keel is attached to the bottom of the vessel above the bridge. It protrudes about 450 millimetres and it is designed to prevent excessive rolling in the ship. In our routine maintenance we have found small crack lines along the bilge keels, which are positioned on either side of the ship. We have discussed with Tenix a repair schedule, and for those boats that are still under warranty Tenix are making the necessary modifications and fixing the cracks and those ships are proceeding back to sea. For those vessels that are out of warranty, we are currently discussing the matter with Tenix and Blohm and Voss, the designer, who should have liability for those cracks. It is our view that it may well be a design fault and that the cost should not lie with the Commonwealth. Senator WEST-How many of them are out of warranty? Rear Adm. Scarce-Three, plus the New Zealand ships. Senator WEST-What is the implication in that respect? What is the possibility that the New Zealand government will want to recoup from us? Rear Adm. Scarce-I suspect they will not have an action against us; they will certainly attempt to progress the action against Tenix, the builder, and Blohm and Voss, the designer. Senator WEST-What is the likely cost in terms of productivity, lost maintenance time and sailors sitting idle while the ships are recalled for repairs? Or is it something that you would do at a normal refit? Rear Adm. Scarce-We will conduct those activities when the ship comes in for normal docking mainte- nance. There is no reason to draw them straight out of operational service. That should be just part of the normal docking cycle. From memory the cost of maintenance per ship was around $500,000 but I will need to get back and confirm that. Senator WEST-Tenix do not think they should be paying for this maintenance? Rear Adm. Scarce-Tenix are in earnest discussion with Blohm and Voss at the moment. I would not like to attribute whom Tenix thinks is responsible for the cracks. Senator WEST-But is it fair to say that Navy believes it is a design issue and not something that the government or the taxpayer should have to foot the bill for? Rear Adm. Scarce-That is entirely our view. Senator WEST-Have you been asked to pay? Rear Adm. Scarce-We have paid for those ships out of warranty but have notified Tenix that it is our intent to pursue them and Blohm and Voss for the cost to fix that. We have done that so we can have FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 183 operational ships. We have a requirement at the moment, as you would well know, and we cannot have ships alongside not operational. Tenix has paid for those ships under warranty. Senator WEST-What about the New Zealand ships? Are they being brought back in for repair or are they still roaming around? Rear Adm. Scarce-From memory, one is about to undergo a maintenance routine in Auckland and we will have those keels fixed there. Senator WEST-Are they in or out of warranty? Rear Adm. Scarce-They are out of warranty. Senator WEST-Who is Tenix thinking should pay for that-the New Zealanders or us? Rear Adm. Scarce-I think Tenix are having discussions with Blohm and Voss about that now and I know that the New Zealanders will be eagerly encouraging them to do so. Senator CHRIS EVANS-Does the warranty run out when you commission the ship? Rear Adm. Scarce-From memory, the warranty lasts three years after we take provisional acceptance of the ship. I will need to confirm that. It is about that sort of time frame. Senator CHRIS EVANS-It just seemed to be that the ships that were commissioned were out of warranty and those that were not were still in warranty. Is that the effective date or is it another- Rear Adm. Scarce-No, it is a time period after we take provisional acceptance. Senator WEST-I turn to the issue of the Military Superannuation Benefit Scheme retention benefit, I guess for everybody, but specifically for marine techs. I am thinking of a 15-year case. This is one of those areas of critical shortage. What is done to advise those sailors and officers that are coming up for eligibility for this as to the fact that they are becoming eligible and what is done to ensure that they understand very clearly what the requirements are to apply? Rear Adm. Adams-What we have done now, faced with retention, particularly in maritime command, is that we have made it a responsibility of the commanding officer to personally encourage every person to stay, particularly when they have exhibited signs of wishing to separate for any reason. I am not able to sit here and say specifically whether the MSBS re-engagement issue is a required part of that discussion. So, in short, if you do not mind, I will take that question on notice and give you an answer. Senator WEST-I am aware of a situation where at least one marine tech-and I suspect there would be more-coming up for the 15 years had been led to believe by the ship's office over the years, dating back from about 1994, that they had become eligible and it had to be submitted within 90 days of becoming eligible, interpreting that to mean 90 days after the 15 years clocked over. Upon application, six weeks after his 15 years clocked over, he was told that he was ineligible because it was deemed that it had to be submitted 90 days before the 15 years had been clocked up. I want to know what material is given to this particular group of people to ensure that they are able to comply with the situation? Is it there any flexibility? Say, in this case, he has been told, `That's it, sorry; you are six or seven weeks too late. Make up your own mind: stay or go,' I want to know what material is given. I would have thought that, if you were so desperately short of them, you would have been watching the time frame get close and have somebody there with a pen and paper saying, `I am from the Navy. What can we do to help you? I want to keep you.' In this case it seems to be that the officer was spending a lot of time at sea and he got ship's office information, but I do not know that anything was ever given to him in writing. Rear Adm. Adams-Senator, I am not aware of the detail of the particular case, but you are right: we should be encouraging every person to stay. If you are agreeable, I will make that a detailed part of my re- sponse to you. Senator WEST-In this case, what right to redress a grievance does this person have? Rear Adm. Adams-I will make that part of the answer too, Senator. Senator CHRIS EVANS-I wish to ask a couple of questions about the Australian Submarine Corporation. I think the minister mentioned it last night in a more general discussion about torpedos and the American alliance but, specifically, has the scoping study being carried out by Electronic Boat been completed? Rear Adm. Scarce-The scoping study by EB has been completed and late last week we received their report into the services that they believe they can provide to assist ASC to gradually become the sole supporter of the Australian submarines. Senator CHRIS EVANS-Are they the sole support now? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 184 SENATE-Legislation Tuesday, 4 June 2002 Rear Adm. Scarce-In terms of design, we currently use Kockums, the original designer, to provide our certification services. Our discussions with Kockums at the moment are to get access to the intellectual property so that those duties can gradually be taken over by ASC over the next two years. Senator CHRIS EVANS-So you are keen to rid yourselves of Kockums? Rear Adm. Scarce-No, I did not say that. We are keen to bring those skills back into Australia. Kockums have provided us with excellent services over the years. It is now a question of trying to build ASC into a viable in-service support unit to deliver those services in their entirety. Senator CHRIS EVANS-What is it that Kockums cannot do now to assist ASC in that regard, particularly given that they own the intellectual property? Rear Adm. Scarce-Kockums are currently providing us with design services. Our goal is to gradually replace Kockums with Australian contractors and, indeed, for ASC to do those services in the future. Senator CHRIS EVANS-I may have lost the thread there, but I thought we were talking about Electric Boat, the American company, providing those services. Rear Adm. Scarce-Electric Boat are coming to assist ASC with the delivery of those services. Senator CHRIS EVANS-How is that different from what Kockums do? Is there a distinction in what you are saying? Rear Adm. Scarce-There is a distinction in that ASC, at the present time, does not have all the requisite skills to take over those responsibilities. As we gradually take Kockums from those responsibilities, EB will assist us in developing the skills in Australia to deliver those services, as well as delivering some commercial expertise to ASC on how to deliver effective inservice support over the next decade. Senator CHRIS EVANS-This has been decided already, has it? Rear Adm. Scarce-It is a government decision to invite EB to assist ASC into the future, yes. Senator CHRIS EVANS-And now we are working out how they can assist? The scoping study was for them to tell us how they can assist us? Rear Adm. Scarce-In 1999, we invited four companies to tell us how they could assist in developing ASC from a builder to an in-service supporter. We examined those four responses and government took a decision that, as part of getting closer to the US, particularly in submarine matters, EB would be invited to be a capability partner to help ASC. Senator CHRIS EVANS-So they have done this scoping study. That was handed to the Australians last week? Rear Adm. Scarce-That is correct. Senator CHRIS EVANS-It details how they can assist us in the way of services, skills, intellectual property? Rear Adm. Scarce-Technical services and commercial services. Senator CHRIS EVANS-What is then done with this scoping study? What is the process? Rear Adm. Scarce-We will review the scoping study and put a recommendation to government on those services that we believe are necessary. We will do that jointly with ASC. Once we have government approval, we will finalise a contract with EB. Senator CHRIS EVANS-So they have told you what they can do for you and you are now going to de- cide whether you need all the assistance or whether they have been a little generous in their offer and you could perhaps manage without some of it? Rear Adm. Scarce-We are assessing the offer. Senator CHRIS EVANS-Is that in the context of there being only one bidder? They are going to get the work. It is a question of how much work they get, is it? Rear Adm. Scarce-ASC get all the work and they are looking at providing a small number of personnel-certainly under 100-to assist ASC to deliver all of the in-service support requirements for the Collins submarine. Senator CHRIS EVANS-So the nature of the relationship is that Electric Boat are likely to provide a group of 10 or so personnel who will bring specialist skills? Rear Adm. Scarce-And we would obviously also have reached back to Groton, which is their base in America, for submarine advice as well. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 185 Senator CHRIS EVANS-Obviously their experience is based on their own submarines though, which I understand are all nuclear. They do not have any particular experience with the non-nuclear technology, do they? Rear Adm. Scarce-A lot of the generic submarine skills are irrespective of whether it is nuclear or conventional. But there are certainly areas where they do not have significant skills, particularly in the areas of shock, batteries and a number of other areas where we need to supplant some experience from outside EB and ASC. Senator CHRIS EVANS-So in addition to Electric Boat expertise we will still probably require, in terms of that in-service support role, other support from people with experience in conventional submarines. Rear Adm. Scarce-We will, Senator, mostly from the original equipment manufacturers who will provide us that advice, as they do now. Senator CHRIS EVANS-Is that Kockums? Rear Adm. Scarce-No, that is the builders of the batteries. Senator CHRIS EVANS-I see. Rear Adm. Scarce-The Kockums role really is understanding the implications of changing equipment and systems within the submarine on the total impact that that change will have on all of the submarines. So Kockums bring the expertise to do that. We have some expertise in ASC and we want to supplement that with GD and gradually grow Australian expertise to take over that total role. Senator CHRIS EVANS-So, for instance, if it is something like having slightly heavier torpedoes, Kockums would provide some advice about those broader impacts on the substitute? Rear Adm. Scarce-Yes. At the moment Kockums are engaged with ASC on delivering that advice in terms of the weight implications on the submarine. Senator CHRIS EVANS-So you will make a recommendation on the services that are being offered by Electric Boat and then government will make a decision on that. Is that anticipated to be a fairly immediate thing-in the next few months? Rear Adm. Scarce-Yes, I certainly hope so. We would wish to engage EB as quickly as we can. Senator CHRIS EVANS-Is that because ASC are already in need of that assistance in terms of the in- service support role? There have been suggestions put to me that they have actually lost a bit of their skill base through loss of key personnel, et cetera. Rear Adm. Scarce-Senator, it has been reported to me from ASC senior management that they have lost some of their technical skills, but I think it is more in line with assisting ASC to move from a build mentality to an in-service support mentality. In those commercial areas and business systems, we believe EB can provide us with early advice that will enable that transition to progress quickly and smoothly. Senator CHRIS EVANS-What is left to do of their building role? Rear Adm. Scarce-Rankin is the final submarine to complete construction, and she is due I think at the end of the second quarter or the beginning of the third quarter to complete and start her trials at sea. That will be the end of the build program. Senator CHRIS EVANS-There is another one still trialling, I think, isn't there? Rear Adm. Scarce-No, that Rankin is No. six. We have a submarine in at the moment doing a full cycle docking. Senator CHRIS EVANS-I gather there is a debate about where some of the docking will occur. Has that been resolved? Rear Adm. Scarce-The Prime Minister made a commitment last year that full cycle dockings will be completed in South Australia for the foreseeable future. Senator CHRIS EVANS-I am sure that was based on good technical advice. What about the-I cannot think of the terminology. Rear Adm. Scarce-Mid-cycle dockings? Senator CHRIS EVANS-I gather there has been a bit of a live debate about those. Is that resolved? Rear Adm. Scarce-The mid-cycle docking, generally, is about three years into the seven-year cycle at about 16 to 20 weeks. They are currently conducted in Western Australia. As we move away from the build program to an in-service support program, part of our examination will need to be where we cost-effectively maintain submarines in the future. I am not trying to suggest that there is going to be a change but I am suggesting that, as we look at the totality of what we can afford into the future, we will need to look at all FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 186 SENATE-Legislation Tuesday, 4 June 2002 aspects of the maintenance of the submarine and make some strategic decisions about where we place that expertise and where we invest. Senator CHRIS EVANS-As I understand it, there is also an argument about the viability of ASC in Adelaide in terms of whether or not they get the mid-cycle docking. Rear Adm. Scarce-That is all part of the same equation of understanding the totality of the maintenance and deciding where we can afford to maintain the vessels. Clearly, that is also a decision for government once we have gone through that process of looking at our costs when the build program finishes. We have not yet commenced that examination in detail. We will certainly start that and use EB's experience in the coming months. Senator CHRIS EVANS-Are you able to help me with the financial position of the ASC? Who do I speak to about that? Rear Adm. Scarce-Is that with dollars? Senator CHRIS EVANS-Yes. Rear Adm. Scarce-No, I am a poor admiral. Perhaps you could ask the question. Senator CHRIS EVANS-I was trying to check on the financial state of the ASC and who I would direct those questions to. Rear Adm. Scarce-You would best address those through the finance element who manage the ASC at this particular time. Dr Hawke-You mean the Department of Finance and Administration? Rear Adm. Scarce-Yes, the Department of Finance and Administration. Senator CHRIS EVANS-I am seeking guidance here, Dr Hawke. Questions about the financial arrangements of ASC should be directed to the Department of Finance and Administration? Dr Hawke-That is my understanding. Rear Adm. Scarce-You have no day-to-day knowledge or control of those? Dr Hawke-No, the Department of Finance and Administration exercise the ownership responsibility on behalf of the Commonwealth, following the Commonwealth's purchase of the company. Senator CHRIS EVANS-Fine, thank you. Dr Hawke-Chair, with your indulgence, I understand we are going to DHA at 5.30 p.m. Will we be continuing with Navy until then? If we are going to Army, I could tell Air Force and other people that they need not stay. CHAIR-What do you propose, Senator Evans? Senator CHRIS EVANS-I have certainly finished examination of Navy. I assumed we were going on to Army. Dr Hawke-So Air Force colleagues can depart? CHAIR-Air Force can depart, yes. Rear Adm. Scarce-Chair, could I read in one final answer to a question? It was in relation to Senator Schacht, who asked for the unit price of the lightweight torpedo. Senator CHRIS EVANS-How many did you get for $260 million? Rear Adm. Scarce-You will be glad to know that price has gone up to $287 million. Senator CHRIS EVANS-Has it, because we were calling you `Admiral $260 million'. Senator WEST-If that was all we were calling you, you are doing well. Rear Adm. Scarce-The unit price is commercial-in-confidence. We have certainly discussed it with our supplier, who would strongly prefer not to release the unit price. Senator CHRIS EVANS-Senator Schacht was really interested in a ballpark figure. If you are able to give him something within a million, if that is the sort of price, or $10,000 if that was the sort of price, that is what he was interested in. Rear Adm. Scarce-What I can say is that the $287 million, which is the second phase of this project, will buy us an initial batch of torpedoes and integrate the weapon into those platforms that I mentioned last night. The next phase of the project, which has a year of decision of 2005-06, will be the production of the weapon, hopefully in Australia. At that stage we will get an accurate unit price. The initial stage is simply to get enough weapons so that we can test the integration. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 187 Senator CHRIS EVANS-I think that will leave him no better informed than he was at the start. Senator WEST-He is not here to worry about it. Senator HOGG-Are the test torpedoes going to be different from the ones you buy subsequently? Rear Adm. Scarce-No. The third phase of the project is merely to take the production of the weapon that we had initially in phase 2. CHAIR-Thank you. We will move on to output 3, Army capabilities. [4.56 p.m.] CHAIR-Welcome, Lieutenant General Cosgrove and Mr Williamson. Senator WEST-I want to ask about sexual harassment in Army and, in particular, in Army Aviation. What information you can provide me with as to what has been discovered and detected, and what remedial action is being put in place? Lt Gen. Cosgrove-As a result of some revelations from you and one of your colleagues in late 2001, we undertook an immediate investigation into the case of some young women in the Aviation community who were reporting incidences of harassment. That took the course of having a senior officer from Army headquarters conduct an initial, immediate investigation. Subsequently, the senior equity adviser from land headquarters-a female officer-conducted a further review into the situation as experienced by all women in the Army Aviation community. In the case of one particular servicewoman, a military police investigation has subsequently ensued. I will return to that in a moment. Perhaps I can summarise from a paper prepared by the female officer-the equity adviser-and make some general remarks. I have to be careful because it is staff- in-confidence and mentions names, et cetera, which you would understand. Senator WEST-I do not want names. I know names, but I do not want them mentioned. Lt Gen. Cosgrove-I understand that. She conducted a series of focus groups of the women in the Army Aviation community. While there were specific references to incidents of harassment or obnoxious behaviour over some period of time, I give you now a summary of what she said. This part is not staff-in-confidence, so this is safe. It says: The participants in all focus groups presented as forthright, articulate and mature soldiers who enjoyed the Army environment. They reported having faith that their chain of command would treat their complaints and concerns seriously and confidence that their unit commanders would continue to demand an appropriate workplace environment. There was a sound understanding of the equity adviser network and how it supports the chain of command in resolving equity issues. The common aspiration for focus group participants was to be fully accepted as an integral part of the team, based on their capabilities and performance. The notion of establishing additional support mechanisms specifically for females was seen as being isolationist in nature and was not endorsed. The message was clearly conveyed that servicewomen want to be managed, tasked and disciplined in the same manner as their male counterparts within the limits of their physical capabilities. Given that there was still some room for improvement, servicewomen reported a greatly improved climate within Army in recent years. It was widely mooted that the continuing education programs established in both units- the major Army and aviation units- that is unit equity briefings, DEO sponsored training sessions, have been and will continue to be, of benefit. Harassment and unacceptable behaviour where it has occurred has been predominantly in the form of inappropriate lan- guage and/or ill-considered jibing regarding female capabilities and professionalism. More serious incidents of unaccept- able behaviour where they have occurred have been appropriately dealt with by investigative action. Based on the contri- butions provided by the female members of both First Aviation Regiment and Fifth Aviation Regiment, and subsequent discussions with respective commanders, it is considered that there are no systemic problems in either unit. Specific rec- ommendations regarding remedial actions are thus considered unwarranted. To return to the issue of a particular young lady who had a separate issue, in her case-and I will again quote from a staff-in-confidence document. The specific allegations of harassment against certain individuals made by servicewoman X have been formally investigated. The investigation was initiated by the CO of that particular unit in response to matters raised by servicewoman X. SIB investigations have been initiated in respect of two members. One investigation is complete and is with Legal and the other should be completed in the next fortnight. Disciplinary action is possible against both members. That was dated 15 April. I understand that in that time that young lady might have taken discharge, and that is perhaps your information. Senator WEST-What about the situation at 171 Oakey? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 188 SENATE-Legislation Tuesday, 4 June 2002 Lt Gen. Cosgrove-That is included in one of those unit level investigations. Senator WEST-What has been the separation rate of women, particularly out of 171 Oakey, over the last, say, eight years? Lt Gen. Cosgrove-I do not have that at my fingertips, but I could provide it for you. Senator WEST-My understanding is that there have been a number of separations from that particular squadron and that it ranges not just from privates but right through to officer rank. The other issue relates to attitudes-that there is still a very blokey attitude that pervades the place and that there are still comments made to the females. If they are having a bad day, comments are made like, `Well, go and see the shrink,' and I believe the latest one coming out in the more junior areas-the training areas-is, `Well, suicide is an option.' Those sorts of throwaway comments concern me greatly. It is not actually sexual harassment, but it is a form of harassment. It is a form of putting pressure on them to conform to what the male esprit de corps is or has been within those particular units. I am wondering what is happening there to address this. Lt Gen Cosgrove-There are two points there, or three really. First, I share your concern wherever that occurs, not just in a particular part of the Army but throughout the Army. The second point is that the equity officer who conducted the survey into the Army aviation community stressed that the younger female soldiers were finding a much better environment than had been the earlier experience of some of the more mature, or longer service, female soldiers-generally and in the community. From that point of view, I am uplifted. And the last point you should perhaps note is that there is ongoing, frequent equity training in this part of the Army and in all parts of the Army. Senator WEST-What has the equity review person done to make sure that, as a result of the work that she has been doing, there has not been some backlash on the part of the male personnel? I have certainly heard of that happening-that it looks as though there has been a complaint, the blokes are being clamped down on a bit and they want to take it out on somebody-very subtle, but effective. Lt Gen. Cosgrove-We do have in place checks and balances. I think it would be fair to say that the commanding officers of those units surveyed would be hugely on their toes about this sort of issue, in that it is very much a measure of their successful command that they should have a workplace environment which is equitable in nature. The second point is that we have instituted-and there are existing in the wider defence area-hotlines and avenues for complainants or aggrieved people to voice their concerns in a way which will bring scrutiny from outside the immediate chain of command if that is warranted. Senator WEST-What has been the use of the hotlines by this particular group? Lt Gen. Cosgrove-We have had one reference to the hotline in recent times. In fact, the soldier that I referred to in particular activated the hotline in April. I have no other records at the moment as to whether any of the individuals that I am aware of have activated the hotline. Could I make a further response to you? Senator WEST-Sure. I am quite happy for that to be taken on notice. It is an interesting issue. This is something that will have to go on notice too. I am just wondering what is the incidence of referrals to the psych units from various units. I am not speaking of just around Army; Admiral Shalders can listen to this one too. What is the incidence of referrals and support from the psych units for the female members of some of these units as opposed to the corresponding males in those units? Lt Gen. Cosgrove-I imagine we have that data about the gender. Are you seeking it ADF wide? Senator WEST-Army wide and ADF wide. It is beginning to appear to me as though there is a bit of an undercurrent that, when the women are having a bad day, the support they get from some of their male peers is not as it should be-there is not the same support that the blokes would give to the blokes or, if there is, it is not appropriate to give it to the females-and that there is a bit more pressure on them. I have had it said to me, `We're told, "Oh, if you're having a bad day, go and see the shrink."' There is that encouragement or that pressure on them, even a subliminal message being delivered there. Lt Gen. Cosgrove-We may need to add comment, if that is available, from our psychologists as to whether the statistics we would give you have that nuance to them. They will know what the referrals are; they will not give us the details, and quite properly, but they may be able to say if they are the result of some kind of workplace environment. Senator WEST-Some of that workplace involvement can be very subtle and range around sexual or harassment issues-gender issues rather than sexual issues-but still impact on the enjoyment that they are getting out of work and therefore the amount of value they are able to contribute back. Lt Gen. Cosgrove-I should remark that, without the details being made available, and again quite properly, I am reliably informed that our psychologists will always wish people who are receiving some level of harassment not just to report it to the psych but to take action through the chain of command to redress that. It is not just a question of treatment of them but counselling of them to seek proper redress. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 189 Senator WEST-It is often easier said than done. Lt Gen. Cosgrove-Understood, but it is a responsible thing for the psychologists to do. Senator WEST-Very responsible. Within Army Aviation, how many of the females are posted as single female postings to particular units or particular areas. Lt Gen. Cosgrove-I do not have that data here. Again, I would be happy to look into it. Senator WEST-I think that has been a problem at Oakey-that you have, on a number of occasions, had single females sent on a posting or into an area. Lt Gen. Cosgrove-By single, do you mean females without a partner or one female to a work area? Senator WEST-When I say single I am not talking about their home life or anything like that. I am talking about one female ADF personnel being placed in a unit where there is no other female-and, if she is an NCO, if she is a private, no other private or lance corporal level-for the pair of them to actually provide support to one another. It is no use saying, `There is a captain and a private.' The disparity in power and rank means it is not appropriate for them to actually be able to support one another. That was certainly one of the findings out of Swann. I am interested to know just how many times females have been sent on single postings to units or deployed where there is no other female of somewhat similar rank there so they can support one another. Lt Gen. Cosgrove-Given the fairly involved nature of the return of that information, are we confining this to Aviation at the moment? Senator WEST-Yes, please. That will do me, and I am quite happy for it to come back on notice. I will not be here when it comes back, but I am sure my colleagues will follow it through. If they do not, I will come back and haunt you in some other guise. Lt Gen. Cosgrove-Based on the timing, you are likely to still be here. We have got to have it back to you fairly smartly these days. Senator WEST-No, it is 11 July. I will be retired by then. Lt Gen. Cosgrove-We will give it to you as a retirement present. Senator WEST-Thank you, I appreciate that. Senator McKIERNAN-Is that all you are getting in this committee? Senator WEST-Yes, that is all I am getting in this committee. Senator McKIERNAN-It is not much, considering all the service you have put in. Senator WEST-After fighting sexual harassment for eight or 10 years or whatever, I will take those answers back. Senator McKIERNAN-I notice it is an all-male table of witnesses. That has probably got something to do with it. Senator WEST-No. Defence has done a lot better. There has been a big change in the last 12 years, in that there are a number of females in the room. So there is an improvement. It could be better. I look forward to seeing the first female CDF. I hope I live that long. Senator McKIERNAN-I am glad I do not have to take my shoes off to do the count. CHAIR-We will wait for a Democrat government. Senator WEST-I will leave it at that. Senator CHRIS EVANS-I should have known that Senator McKiernan joining us would not help. Could I ask about the Army ammunition study? I think the minister made some reference to it last night. I think we had the discussion about the money in the budget, because of the war munitions stock, and, certainly on first blush, I thought that was a related matter, but obviously it is not. What is the status of the report? Lt Gen. Cosgrove-The last time I appeared before the committee, I spoke about the existence of the report. It was then in train, and I was hoping to take it, certainly before this next hearing. It was not in any way hinged upon the committee's consideration, but that was just the timing of it. I did see it a while ago, but I think you probably saw it before me. While it did speak about the need for more investment for stocks of ammunition to do with readiness and proficiency, it was incomplete in certain senses. It gave us a good indication of what might be a level of investment to improve our training stocks available, particularly in areas such as artillery and tank ammunition. Of course, there was a dollar tag to that which was extensive. Its flaw at the time I took it was the fact that it did not give me enough alternatives. It invites me to go to the government and ask for a considerable amount of extra money to achieve these higher levels of ammunition for training-for proficiency. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 190 SENATE-Legislation Tuesday, 4 June 2002 But it does not speak enough about simulation, about what I might get if, instead of investing all that money in extra ammunition, we were to spend some of that money in much more sophisticated simulation, and it did not tell me nearly enough about the benchmarking we might do in those other armies around the world which have a roughly similar order of battle, roughly similar capabilities, roughly similar practices-I guess the ones you would say we are culturally closest to. I did not get enough there so that I could go to the government and say, `I am persuaded and I seek to persuade government to invest more in training stocks of ammunition.' In summary, it told me that, at first blush, more was needed. But I was unhappy with the options it gave me for ameliorating that extra investment to give me the same outcome or whether or not that investment as it stood was actually the bottom line. Senator CHRIS EVANS-What is the status of the report? Lt Gen. Cosgrove-The report has been sent to get that extra information and we will take it again in the third quarter. Senator CHRIS EVANS-I think you described it as an interim report last time we spoke. You as Chief of Army have considered that report and you have asked for it to be redrafted-is that right? Lt Gen. Cosgrove-No. I have asked for it to be expanded. I am happy enough with the rigour of its approach to quantities and I consider that that is a good basis. I do not have, though, the cost-benefit trade- offs of investing in some dramatic simulation solutions and I do not have the confidence that on a benchmarking basis what we would propose to achieve in terms of the quality of our ability to shoot in all calibres, from 155 millimetre down through to small arms, is what we need to achieve in a benchmark sense against other culturally similar armies. Senator CHRIS EVANS-But it seems to me the budget papers confirm the basic thrust of the report, which is that there was less ammunition than was desirable. I read on page 45: ... ammunition stocks may become insufficient to meet the levels required for training and enhanced operational deployment. Significant investment could be required to align ammunition stockholdings with capability and preparedness requirements. That seems to reinforce the thrust of that report. Lt Gen. Cosgrove-It does. It certainly is a prudent comment to see in the PBS. It is the actual quantum of that significant additional investment that I think we need to be very certain about before we go to ask for more money, or to end up with a reordering of priorities to take the money from inside the portfolio outlay. Senator CHRIS EVANS-So you think that more work will be done, effectively, on what alternatives are available to you other than just expending ammunition in practice. Is that a fair way to describe it? Lt Gen. Cosgrove-Yes, it is. I will give you an example: we will spend a lot of money on tank ammunition but if we find that the United States army, which is pretty well developed in its training approach or proficiency in the firing of main tank guns, has a better approach through simulation then that is something we ought to note. We ought to measure the cost of the simulation off against the cost of buying ammunition. Senator CHRIS EVANS-Could I take you to some of the details. In particular, artillery ammunition stocks have been raised with me. Is it the case that we have a very significant problem there in terms of 105- millimetre and 150-millimetre artillery ammunition stocks? Lt Gen. Cosgrove-We had a problem with serviceability of some of the 155 ammunition, which meant that for a while we were unable to train to the right levels of capability in 155 artillery, until we started to see a technical solution to the problem with the ammunition. The inspection showed some flaws. We were able to get a deeper level of inspection which gave confidence which allowed release of some of that ammunition to put our 155-millimetre artillery training back on track. By now-certainly by next month-we will have our proficiency amongst our 155 artillery units back on track. Senator CHRIS EVANS-Are you able to tell me how much of that has been used in training in 2001-02? Lt Gen. Cosgrove-Absolutely not; but I can find out. We are talking now about how many rounds would be fired. We fire hundreds. I would not mislead you with a figure at the moment. Senator CHRIS EVANS-I just wondered whether one of your officers had those figures available. Lt Gen. Cosgrove-I would like to put on the record that just having the number will not be as instructive as having an indication on the proficiency of the unit. Senator CHRIS EVANS-You say there was a particular inspection issue with the 155s which affected that, so I am interested in that. You say that is now resolved and therefore you would expect the ability to access that ammunition to improve and therefore people's ability to practise to improve? Lt Gen. Cosgrove-I will give you some data. Again, the numbers themselves will not mean a tremendous amount. We released 600 rounds of 155 ammunition to 8/12 Medium Regiment in March this FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 191 year. They fired those rounds. There were no problems reported. These were some of the ones that had to go through a deeper level of inspection to ensure that they were right to be fired. So that regiment would be approaching its highest directed level of capability. Senator CHRIS EVANS-Just by the by, was that incident in Townsville the other day, the one that injured the soldiers, unrelated? Lt Gen. Cosgrove-That is right. Senator HOGG-That was 105-millimetre round? Lt Gen. Cosgrove-That is right. And we do not know the reason for that. That is under a significant investigation. I might remark here that the soldiers were all tremendously lucky to survive. We had two early read-outs on this. One was that perhaps the round did not leave the barrel and did not detonate. There is subsequent information which suggests it did detonate. Either way, there was a catastrophic explosion in the barrel of the gun which basically destroyed the gun and sent very large pieces of it flying around, some of which missed people, who were nonetheless wounded, by a very small distance. If any of those larger pieces had hit a soldier there would have been dead soldiers. Senator CHRIS EVANS-What is the latest update on the current health of those six soldiers? Lt Gen. Cosgrove-None of the injuries were life threatening. The last time I was able to check, only one was still in hospital, and in a general ward at Townsville general hospital. Senator CHRIS EVANS-A much better outcome than otherwise might have been expected. Lt Gen. Cosgrove-Yes. Senator CHRIS EVANS-That is good. Does that mean that you have put a halt to use of the 105- millimetre rounds in the meantime? Lt Gen. Cosgrove-Absolutely. Until further notice. Senator CHRIS EVANS-And you have some form of investigation under way? Lt Gen. Cosgrove-Yes, the Joint Ammunition Logistic Organisation and our own experts collaborating will have a full investigation into the cause of it. Until we know the reason there will be no resumption of artillery live fire practices in the 105 calibre. Senator CHRIS EVANS-I have a question on the situation of hand grenades. Has that been an area of shortage as well? Lt Gen. Cosgrove-Not especially. It is an area of feast and famine. If you were to ask a soldier in an RDF battalion how many he wanted it would always be twice what we gave him. It is a very popular ordnance. But really, having thrown one or two, you do not actually need to throw them like a man with no arms to keep proficiency. So again, if somebody tells me nominally that an infantry soldier would like to throw 10 a year, it might be that older soldiers say `but two is plenty'. Senator CHRIS EVANS-But there was that Audit Office report on the East Timor deployment which highlighted concerns of commanders over the competence of troops in the use of hand grenades. That obviously must have raised concern about whether or not you were getting enough training with hand grenades? Lt Gen. Cosgrove-We will never simply ignore a valid representation by commanders whom after all we put in there to be responsible for proficiency. But I would be the first to say that they must be persuasive in their bids. I will always respect audit reports and the valid representations of commanding officers but I am not about to ask for a very large amount of money for Army until I am persuaded that there is no better way of doing what it is we have to do to train. Senator CHRIS EVANS-Was the decision taken not to issue hand grenades to troops going to East Timor because of those concerns about the lack of practice? Lt Gen. Cosgrove-No, it is more closely to do with the environment in East Timor. Senator CHRIS EVANS-Could you expand on that, please? Lt Gen. Cosgrove-Yes. While chapter 7 is quite rightly the guiding part of the UN charter that frames the rules of engagement in East Timor and we remain extraordinarily alert there, it is not an environment where the rules of engagement would readily see hand grenades thrown all over the shop. There is a reduced need for hand grenades. Senator CHRIS EVANS-But was that always the case, though, or are you talking about currently? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 192 SENATE-Legislation Tuesday, 4 June 2002 Lt Gen. Cosgrove-No, during INTERFET days and for some time thereafter, it was considered to be very reasonable and necessary that there be no restrictions on the sort of infantry weapons that might be employed. Senator CHRIS EVANS-So you had hand grenades issued during INTERFET days? Lt Gen. Cosgrove-Routinely. It is not actually a deliberate policy to have troops who go to East Timor non-proficient in hand grenades but I am much more concerned about accurate shooting in going to East Timor than I am about people having armloads of hand grenades. Senator CHRIS EVANS-So when was the decision taken not to issue hand grenades to those troops? Lt Gen. Cosgrove-That might have been an internal decision. I am telling you about my concerns for proficiency. If there was a decision taken at a lower level not to issue them, then I will get back to you on that. I am framing my remarks around the notion of how concerned I am that troops in Timor do or do not have hand grenades. Senator CHRIS EVANS-The information given to me was that a decision had been taken not to issue hand grenades and it was argued that it was because of the concern highlighted in the audit report about commanders' concerns about the competence of their troops in their use because of their failure to get access to them during training. Lt Gen. Cosgrove-No direction was given along those lines. I think my return to you, Senator, would be a comment on that perception that a direction had been given and it was because of lack of proficiency. It is not my take at all on the battalions that have been sent to Timor. They are magnificently well prepared and they perform very well. So that seems at odds with every other notion we have towards our troops there. Senator CHRIS EVANS-Yes, although, as you said, that notion was one that came from their own commanders. Lt Gen. Cosgrove-Yes, I understand that. Senator CHRIS EVANS-I just wanted to make it clear. I was not making any criticism of the troops; this is what your own commanders have told the auditors. Lt Gen. Cosgrove-I am sure that they are not criticising the troops either. If they are, they will not be in their jobs for long. Senator CHRIS EVANS-As I say, they were expressing a concern which you said you would obviously take seriously. Lt Gen. Cosgrove-I think the auditors were expressing the concern. I will chase that up. CHAIR-Senator Evans, you indicated you wanted an hour for DHA. Senator CHRIS EVANS-I am happy to adjourn there, Chair. CHAIR-Thank you, General Cosgrove. Lt Gen. Cosgrove-May I make one correction? I promised I would make this correction on the issue of the Incident Response Regiment. Yesterday when I was at the table briefly, I mentioned a figure of 302. It is actually 309 and I apologise to the committee. Senator Hill-I take it we still have not finished Army. CHAIR-We have not finished Army. Senator CHRIS EVANS-Chair, my outstanding Army issues are very few and would probably go on notice just as happily. They go more to detailed questions. We can spare Army the inconvenience of coming back. CHAIR-I am in the hands of the committee. Senator HOGG-I would like to put one quick question on notice. You will not be able to give me an answer now, I am sure. I have been advised by one of my colleagues of a fairly eager army person in Queensland-I do not know their identity-who apparently has made comments to the effect that Army has underspent on last year's budget and has apparently been encouraging people to spend up; otherwise, they might lose. If I had a name, I would give it to you, Lieutenant General Cosgrove, I can assure you. The report is that, for example, in south-east Queensland alone, over $1 million has been spent on gymnasium equipment, and in Rockhampton money has been spent on similar equipment, but not such a large amount- $100,000 that I know of at this stage. That is the report to one of my colleagues. I have no tangible evidence for it. I thought this mentality had died within the Defence Force. Senator Hill-We should ask Mr Williamson whether there is something extraordinary in this year's funding profile. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 193 Mr Williamson-The budget for Army for this current financial year is about on track. If there is a notion of `We have plenty of money and let's spend it,' I do not know where it is coming from. Senator HOGG-That is what concerned me. Mr Williamson-I have to make the observation that we normally have an authority to draw more from store. The amount of actual cash we have for such activities is very small. I do not know where this notion comes from. Senator HOGG-As I said, a colleague raised it with me. They gave me no names, no pack drill, to my disadvantage. It seemed rather odd. I thought I would raise it with you here to satisfy my colleague. I put it on no higher priority than that. CHAIR-Thank you, Lieutenant General Cosgrove. [5.36 p.m.] Defence Housing Authority Senator HOGG-Firstly, could I go the PBS. I understand that the DHA will be borrowing $100 million in 2002, $100 million in 2003, and there will be total debt of $425 million. Is that true? Mr Brocklehurst-We are committed to drawing down debts of $100 million in June-this month-and a further $100 million in June 2003. The total facility we have is $425 million but we have no plans at this point in time to draw down on the remainder of that facility. Senator HOGG-What are these loans for? Mr Brocklehurst-The authority is a government business enterprise, and under corporate governance arrangements for GBEs there is a requirement to operate with a commercial capital structure. A review was carried out into that last year and it recommended that DHA should move to a capital structure that incorporates a mixture of debt and equity; the introduction of debt into the balance sheet follows that review. Senator HOGG-Is there anything specifically that the borrowings are earmarked for or is it part of the basis on which you are making yourself look like any other commercial operation? Mr Brocklehurst-It is part of the total funding requirement for the organisation. There is not a specific expenditure outlay that will be met by the loan draw-downs that we have. However, we have a very large capital program in the next two to three years and it is part of the funding requirements that we have to meet that capital program. Senator HOGG-How will these loans be serviced over that period of time? Is that part of the PBS? Can that be seen within the out years? Mr Brocklehurst-Obviously, there is an obligation to pay interest on that debt. Senator HOGG-Are they interest only loans or are you expected to repay part of the capital as well? Mr Brocklehurst-They are interest only loans with fixed maturity dates. We have a spread of maturity dates going out three, five and seven years on the first $100 million draw-down. Senator HOGG-So the first $100 million will mature in three years time? Mr Brocklehurst-Yes. Senator HOGG-And the second $100 million in five years time? Mr Brocklehurst-Could I just correct that. The $100 million draw-down will mature in three parts: $35 million in three years, $35 million in five years and the balance of $30 million in seven years time. Senator HOGG-That is the $100 million for this year? Mr Brocklehurst-Yes. Senator HOGG-And I presume the $100 million for next year will be progressed one year on from that. Is that the way to read this? Mr Brocklehurst-That is correct. Senator HOGG-But in each of the next two years you will have to meet the interest payments and then in the third year you will meet an interest plus the principal repayment. Mr Brocklehurst-That is right-or we may have the option to roll the debt for a further period. Senator HOGG-What interest rates are being charged on the amounts that have been borrowed? Mr Brocklehurst-I do not have the exact interest rates here in front of me. However, they are based on the relevant period's swap rates in relation to the period of time that the maturity goes out for, plus an agreed FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 194 SENATE-Legislation Tuesday, 4 June 2002 margin which ranges from 0.12 per cent for the shorter term debts out to 0.25 per cent for the longer term debts. The all-up interest rates vary, but they are in the region of six to 6½ per cent. Senator HOGG-Six to 6½ per cent? Mr Brocklehurst-Yes. And that is fixed. Senator HOGG-That was my next question. That is a fixed interest rate? Mr Brocklehurst-Yes. Senator HOGG-So you have beaten any interest rate increases that have come out? Mr Brocklehurst-Yes, that is right. Senator HOGG-You are required to pay back the first $100 million over seven years, yet I note also in the PBS that there is $800 million which you have returned to the government-over a period of time I presume? Mr Brocklehurst-Over the last two years. Senator HOGG-It raises a question in my mind: if you have returned $800 million, why are you then needing to take out $100 million this year and $100 million next year? It also begs the question, if one looks into table 1, why you are returning an annual dividend which I presume is to government- Mr Brocklehurst-Yes. Senator HOGG-starting out at $32 million for the 2002-03 budget year but decreasing to $28.9 million in the 2005-06 year. Could you explain that to me? Mr Brocklehurst-The capital structure the DHA is looking to implement is a commercial capital structure that a business in the private sector or operating in a commercial manner would seek to put in place. It is essentially one of optimising the cost of total funds to the organisation between equity, which is generally more expensive, and debt, which is generally cheaper, while still maintaining a capital structure that is conservative and enables us to meet our future obligations. The funds that we have been returning to the government are essentially surplus funds that DHA does not have a requirement to use to meet its obligations to provide housing to the Defence Force. Senator HOGG-Does that annual dividend that you return include the interest payment? Mr Brocklehurst-No. The interest cost is taken account of, however, in the profit and loss statements. Senator HOGG-I am trying to get the flavour of the way your accounts operate. I do not think this committee has taken the time to go through your accounts for a substantial period, so pardon me for now taking just a little bit of time. Why would the dividend not be counted as an interest repayment? Mr Brocklehurst-As I said before, we are a government business enterprise and we operate along commercial lines. In the commercial sector, you essentially have two forms of capital type funding to the organisation. One is debt type arrangements and the other is equity. With regard to debt arrangements, you obviously pay interest on the debt, and that is one of the expenses of running the business, if you like. The dividend is a payment to the owner of the business-the equity holder of the business-and is essentially a payment out of funds that have been earned during the year after you have taken account of any interest payments and also any tax payments. Senator HOGG-I accept that, but it would be quite feasible for the government not to ask you for a dividend, wouldn't it? Mr Brocklehurst-It would be. And there are sections within our enabling legislation that basically say that we should pay a dividend, only to the extent that it does not impact on our ability to meet our obligations and our future funding requirements. So there certainly is flexibility as to the amounts of dividend that can be paid. Senator HOGG-How is the dividend fixed? Mr Brocklehurst-The board of DHA, as part of their corporate plan, establish a dividend policy. They will refer to their act and they will refer to the corporate governance arrangements for GBEs in determining what that policy is. That will go forward in our corporate plan and is then subject to negotiation or otherwise with the ministers of DHA. Senator HOGG-Given the context of the budget, is it a fixed percentage of your expected operating profit after tax or before tax? Mr Brocklehurst-Yes. Senator HOGG-Is there a formula by which it is established? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 195 Mr Brocklehurst-Yes. The policy that we have in place at the moment is that 60 per cent of profit after tax is the dividend payment. Senator HOGG-So it is 60 per cent of the operating profit after tax. I refer you to table 1. I note that the interest and dividends is $472,000 in 2002-03, increasing to $720,000. That is a fair increase. Mr Brocklehurst-I point out that that is interest received. Senator HOGG-Yes, that is interest received. Mr Brocklehurst-So that is on funds that we invest. We have working capital that we invest in bank bills-that is all we need-and we earn interest on those funds. Senator HOGG-Where do you invest your funds? Mr Brocklehurst-We either invest it on overnight deposit- Senator HOGG-With the Reserve Bank? Mr Brocklehurst-No, we invest with commercial banks. Senator HOGG-Commercial banks, merchant banks-which? Mr Brocklehurst-Mostly trading banks-say, the Commonwealth Bank, the ANZ or whoever is giving the best rate at the time. Senator HOGG-All right. And you would hold a number of deposits, I presume, which cover a range of periods-three months, six months, 12 months and so on? Mr Brocklehurst-Yes. Generally less than 90 days. We obviously seek to hold funds on hand that will be required to meet our working capital requirements, so we do not have anything longer than 90 days in terms of investments. Senator HOGG-The interest and dividend amount there, I presume, would be predominantly interest, would it-you would have no dividends coming? Mr Brocklehurst-It is solely interest. Senator HOGG-So we could really leave `and dividends' off? Mr Brocklehurst-Yes. Senator HOGG-Firstly, if one looked at the estimated actual for 2001-02 in table 1, it is $3.105 million. The estimated in 2002-03 drops down to $472,000. What accounts for that and then the increase to the out years where it is static for the next three out years? Mr Brocklehurst-The cash that we have had on hand during the current year is greater than the forecast that we have for the cash-on-hand throughout the year in the 2002-03 year. Senator HOGG-So could I assume that there has been a substantial return to Finance or to the government? Mr Brocklehurst-Yes, $323 million will be returned in the current financial year. Senator HOGG-What will be the return to the government next year? Mr Brocklehurst-In our corporate plan, we are proposing a further return of $150 million. Senator HOGG-That would account for that drop in the interest. You obviously do not have the funds to invest that you otherwise would have had. Mr Brocklehurst-That is right. Senator HOGG-I note also that the basis on which table 1 has been compared varies from the previous PBS. Is there a reason for that? Mr Brocklehurst-The format that we have in here is one that is considered to be more informative for the nature of the business that the DHA is in. Senator HOGG-That is fair enough. The 2002-03 estimated in last year's PBS and the 2002-03 estimated-that is, for both revenue and expenses-seem to be pretty much what you expected. Is that correct? Mr Brocklehurst-In respect to the 2002-03 year? Senator HOGG-In the 2002-03 out year for last year, it was $360 million-I will just give round figures-and the estimated 2002-03 revenue for the forthcoming financial year is $360 million, so the figures are roughly the same, even though you have changed the presentation. Mr Brocklehurst-Yes. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 196 SENATE-Legislation Tuesday, 4 June 2002 Senator HOGG-The total expenses for the out year 2002-03 in last year's PBS are $282.5 million and the expenses expected in 2002-03 are $284.2 million. There is much of a muchness there. But when I turn to the liabilities in table 2 I note that, if one does the same exercise there, the total assets in 2002-03 in last year's PBS is about $1.55 billion, yet in this year's PBS for 2002-03 you now have a figure of $1.677 billion. The net assets estimated for 2002-03 last year were $1.138 billion, but now you are up to $1.338 billion for 2002-03. Can you explain why both the assets and the liabilities have increased over what you had expected they would be in this forthcoming budget year? Mr Brocklehurst-I do not have those comparisons in front of me. Senator HOGG-I accept that. Mr Brocklehurst-I would need to look at the detailed statement to be able to do a comparison. Senator HOGG-Could you take that on notice and get back to me? It just seems to me that there is an extra $120 million in total assets, and there seems to be about an extra $120 million in net assets. I am just trying to work out what is the extra $120 million in assets that you have reflected in the 2002-03 budget over what was projected in the previous PBS for the out year 2002-03. It is not a trick question. I am just trying to work through the figures. Can I take you to table 3, particularly `Investing Activities', which are listed as `Proceeds from sales of property, plant and equipment and intangibles'. The estimated actual figure for 2001-02 is $313 million, and the estimated figure for this coming financial year, 2002-03, is $484 million. That is a substantial jump indeed. In the out years it tapers off to $228 million. Can you explain why, please? Mr Brocklehurst-The proceeds from the sale of property, plant and equipment essentially represent the sale of properties. We have two different types of sale of properties: the first is the sale of surplus properties that are no longer required by DHA to meet the Defence requirements for housing; the other part of our sales relates to the sale and lease-back program that DHA operates. This is where we sell properties for which we have a continuing requirement to meet Defence housing needs and we sell them to a private investor on a lease-back style arrangement. The significant increase in the next two years is mirrored by the increase in the capital expenditure program, and there are reasons behind why we are looking to spend a lot more in- Senator HOGG-Just let me stop you there, if you do not mind. Where is that reflected? Mr Brocklehurst-That is under `Cash used' in the `Purchase of property, plant and equipment and intangibles' item. As we build and acquire new houses, DHA seeks to move a lot of those off on the sale and lease-back program and sell them to private investors which provides a significant part of DHA's funding requirements. As we have a very large capital program in the next two years in particular, that is also reflected in the increased asset sales that we have in these statements. Senator HOGG-For that increased capital program over the next two years, have you received any injection of funds or do you have to take that out of existing reserves? Mr Brocklehurst-No, that is completely funded by a combination of sources of funds. There is the cash that we generate from operations, which is essentially the money that we receive from Defence for the rental of the houses that we provide to them; there is the sale of properties, particularly on the sale and lease-back program, that generates substantial funding requirements for us; and the debts that we are drawing down as well that we talked about earlier. Senator HOGG-If I could assume, let us take the actual figure as being reasonable. The budget estimate is $315 million, so in rough terms you want an extra $160 million; $100 million of that you will fund from the borrowing. Is that a reasonable way to look at it? The other $60 million will be taken from within your internal funds anyway. Mr Brocklehurst-I think that is a reasonable way of looking at it. Senator HOGG-I am not going to die in a ditch over this. I am just trying to get a feel for the flavour of what you are doing. That explains why, in the investing activities, the cash received has been falling off in the out years. I note also that the investment falls off in the out years. Is there any reason for that as well? Mr Brocklehurst-Yes, we have a- Senator HOGG-In property, that is. Mr Brocklehurst-In terms of the purchase of property? Senator HOGG-Yes, the cash used. Mr Brocklehurst-We rely very significantly on leasing arrangements with private investors. We have a very significant portfolio of houses in the next two years on which the leases will be expiring. Some of those we will be seeking to renegotiate and re-extend with those investors, but with quite a lot either we will not or FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 197 they will not. So in our planning we have factored in a requirement to replace a substantial number of properties in the next two years in particular. Senator HOGG-That does not quite sit with me in my mind as to how Defence will be trying to expand their forces over a period of time. Will that not place a greater demand on your need to invest in property rather than to reduce your spending, or am I reading that the wrong way? Mr Brocklehurst-The way we do our planning and the way we determine how many properties we need to provide is based on advice from Defence as to what the housing requirements are expected to be for the next four to five years. A number of factors impact on housing requirements. The Defence forecast is essentially that that requirement will stay at reasonably steady levels over the next five years, so significant growth in the housing requirements is not expected. Senator HOGG-Looking now to `Financing activities', in table No. 3, you are drawing down $100,000 this year and you are only advocating- Dr Hawke-It is $100 million. Senator HOGG-I am sorry, $100 million, and then $30 million in 2004-05. Is that correct? Mr Brocklehurst-That is correct. We have not committed to that $30 million at this point in time. Senator HOGG-But I think earlier when you were answering me you mentioned that you were going to draw another $100 million down in, as I took it, 2003-04. Mr Brocklehurst-In June 2003, which would be in the 2002-03, yes. Senator HOGG-So $100 million is being drawn down this month Mr Brocklehurst-That is right. Senator HOGG-My apologies. I misunderstood what you were saying. And $100 million is being drawn down, so that is the total of $200 million. And the other $30 million you put in there, but you are not necessarily committed to drawing that down at this stage. Mr Brocklehurst-That is correct. Senator HOGG-But you have got available to you $425 million? Mr Brocklehurst-That is the full facility we have, yes. Senator HOGG-It is the full facility? Mr Brocklehurst-Yes. Senator HOGG-That being the full facility, are you paying interest on the difference between the $100 million that you draw down and the $425 million? Mr Brocklehurst-No. There are no unutilised facility fees. We only pay for the funds that we actually draw down under that facility. Senator HOGG-And where do you draw the money down from, a commercial bank? Or is this a draw- down from government? Mr Brocklehurst-The loan agreement that we have is between ourselves and the Minister for Finance and Administration. Senator HOGG-Thank you for those answers; that has assisted. I understand that in the midyear economic finance statement it was flagged that you would require the loan from the Commonwealth. That has now been implemented? Mr Brocklehurst-That is correct. Senator HOGG-I also understand that the total number of homes owned by DHA has reduced from 19,127 on 30 June 2001 to a projected figure of 18,207 on 30 June 2002. Is that correct or near enough? Mr Brocklehurst-To clarify those numbers: I think that those numbers refer to the actual Defence housing requirements, which have reduced by that sort of number during the last 12 months. Senator HOGG-All right. I think I got that figure of 19,127 from last year's budget. Mr Brocklehurst-Yes. Senator HOGG-Last year's PBS, `Output performance indicators' showed 19,127 and this year it is 18,207. Mr Brocklehurst-That is correct. That is a statement of the housing requirements that Defence has. Senator HOGG-What were the actual figures? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 198 SENATE-Legislation Tuesday, 4 June 2002 Mr Brocklehurst-In terms of the houses that we actually provide? Senator HOGG-Yes. Mr Brocklehurst-I do not have the actual numbers in front of me. Senator HOGG-I am quite happy for you to take that on notice. Mr Brocklehurst-In essence, the way we meet those requirements is through a mixture of houses that we provide and houses that are provided through the rental market. So ADF members either receive a house through DHA or obtain rental assistance for a house through the market. Senator HOGG-Can I ask, therefore, what has caused the reduced requirement from the 19,127 in last year's PBS to the 18,207 now? Mr Brocklehurst-As I said before, there are a number of factors that influence the actual requirement for houses, but the principal factor during the last 12 months has been that a lot of ADF members have been choosing to buy their own home. Senator HOGG-During that period of time has there been a sell-down of the number of properties owned by DHA and, if so, how many? Mr Brocklehurst-DHA have reduced the number of properties that we own. We currently own about 37 per cent of the portfolio of houses that we provide. This time last year that would have been just over 40 per cent. We have a continuing program through the sale and lease-back program to reduce DHA's ownership in the housing portfolio. Senator Hill-So the DHA provided houses, but not necessarily DHA owned houses. Senator HOGG-I understand that, Minister. I am just trying to get a picture of what has happened to the housing situation in DHA over the last 12 months. It has just been explained that you have reduced the level of ownership that you have from 40 per cent to 37 per cent. Is it intended to reduce that percentage lower in the foreseeable future and, if so, is there a level below which you will not go as a business? Mr Brocklehurst-The board of DHA has established planning parameters on which the corporate plan is based and on which these financial projections here are based as well. The forward estimates included in here do reflect a further reduction in ownership of DHA houses. There is a level of 25 per cent ownership in each market in which we operate that the DHA board has established as a planning guide to be applied. Local market circumstances may cause us to vary that, but that is the level that we see is the limit to which we should go. Senator HOGG-So this will be a gradual sell-down program over a number of years. There is in the plan 25 per cent. It does not say that that is the limit, but that is the target at this stage, and there will be variations around or about that 25 per cent. Is that a fair way to assess that? Mr Brocklehurst-Yes. Dr Hawke-If you look at page 122, you will see in the third paragraph some further figures which will help what you are after in terms of acquiring and constructing new properties, selling under the sale and lease-back and getting rid of some that are no longer required. Senator HOGG-Thanks, Dr Hawke, you have probably answered my next question. How many properties do you intend to sell this year, how many do you intend to construct and will that leave you with a net loss or gain for the year? Mr Brocklehurst-Are we talking about the 2002-03 year? Senator HOGG-Yes. Mr Brocklehurst-They are the numbers that Dr Hawke just provided. Senator HOGG-They were last year's. Dr Hawke-They are for this year. Senator HOGG-For this year? Dr Hawke-Yes, 2002-03. Senator HOGG-I will be guided by- Mr Brocklehurst-They are the figures for 2002-03 Senator HOGG-So 2,100 are to be built. Dr Hawke-We are in paragraph 3 on page 122. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 199 Senator HOGG-Sorry, I am with you. There are 1,137 to be sold and leased back and 782 are no longer needed for your requirements. Mr Brocklehurst-That is correct. Senator CHRIS EVANS-You will lose about 750 or so in your total stock. Is that right? Mr Brocklehurst-No, that is not correct. We have a very large leasing portfolio-properties that were leased from the private sector-and there were movements in that as well that reflected change. There is a reduction in our total portfolio during the 2002-03 year but most of that is driven by lease expiries. Senator CHRIS EVANS-I see. Senator HOGG-You may need to take this on notice, but can you give us a breakup of the accommodation you supply by DHA ownership and by DHA lease-back arrangements? Mr Brocklehurst-We can certainly do that. Senator HOGG-Thank you. Are the properties that are to be sold readily identifiable or are they spread throughout the country? Is it a block of housing in Brisbane, for example? Mr Bear-The housing is spread across the country and at this point it is not specifically identified. We would look at the operational requirements of people moving in and moving out and decide which are the most suitable. Senator HOGG-Are you able to give us a state-by-state breakdown of the properties that will be sold? Mr Brocklehurst-We have a plan that breaks it down by location. Senator HOGG-Is that plan available to the committee? Mr Bear-We can make that available to you. Senator HOGG-Also in terms of properties to be acquired? Mr Brocklehurst-Yes. Senator HOGG-Can you give us an idea of the occupancy rates of DHA owned housing? Mr Bear-Yes. Senator HOGG-And leased properties, as well? I presume you have a number of properties that are currently unoccupied. Mr Brocklehurst-Yes, there are some unoccupied. Senator HOGG-If you could give us those figures it would be interesting. In the midyear economic forecast last year there are estimates for capital measures since the 2001-02 budget. It refers to the Defence Housing Authority accelerating sale and lease-back program. The figures are: 2001-02, $50 million; 2002-03, $150 million; 2003-04, $100 million; and 2004 -05, $100 million. Are you familiar with those figures? Mr Brocklehurst-Yes. Senator HOGG-Could you explain them to me, please? Are those figures the expected outcomes from the sale of properties? Mr Brocklehurst-Yes, they are the expected increases from the sale and lease-back program. Senator HOGG-Are those figures or something akin to them reflected in this year's budget anywhere? Mr Brocklehurst-Yes, something akin to them are. Since that time we have been through our detailed corporate planning exercise where we determined what we would need to acquire, what we would be able to sell on the sale and lease-back program and what the market could bear as well. So there is something akin to those, because there are variations to those numbers reflected now in our planning. Senator HOGG-Could you draw my attention to where that would be in the PBS? Mr Brocklehurst-Yes. The cash flow statements, in cash received in the investing activities area, show the total value of the sale of properties that we are planning to make. Senator HOGG-So part of that $484 million there was that $150 million increase that was expected back in the midyear economic forecast last year? Mr Brocklehurst-Yes. Senator HOGG-And the $100 million that is in both out years-2003-04 and 2004-05-would have worked its way into the budget as well? Mr Brocklehurst-Yes. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 200 SENATE-Legislation Tuesday, 4 June 2002 Senator HOGG-When you sell a property and lease it back, does the occupant receive the same benefits, where improvements are made, as a person who is in a DHA owned house? Mr Bear-Yes, they do. Senator HOGG-I am going to come to the issue of airconditioning in a few moments, but let's say DHA decided to aircondition every property in a place like Darwin: would it necessarily follow that because you are in a lease-back home you would get the advantage as well? Mr Bear-The authority is continually trying to improve the standard of housing. One of the projects that is under way at the present moment is airconditioning all houses in the Darwin region. Senator HOGG-I am sorry, I am just trying to use that as a general example to see if the people who occupy DHA owned houses, as opposed to those that are leased back from private owners, receive exactly the same treatment in terms of the benefits. Mr Bear-That is what we endeavour to do. Senator HOGG-Right. Is DHA being privatised at all? Mr Brocklehurst-DHA is 100 per cent owned by the government and is a government business enterprise. Senator HOGG-So there is no intention to privatise it, Minister? Senator Hill-No. Senator HOGG-That is the longest no you have scored all week! Senator CHRIS EVANS-If that was supposed to reassure people quickly, I am afraid the length it took you to get there will undermine the answer. Senator Hill-I will be even more reassuring: not that I know of. Senator HOGG-Not that you know of? Senator Hill-I paused because I was confused between that and the announcement that we made with the budget that there would be a scoping study to examine whether or not the assets of the Defence Housing Authority should be sold. Senator CHRIS EVANS-I see: you would keep the company but sell their assets? Senator Hill-That is the way it reads: The Government considers the scoping study is a prudent measure and allows it to examine the performance and ownership of its assets. Senator HOGG-What is the timetable for that, Minister? Senator Hill-It recognises the excellent job that is being done by DHA. It gives you the comfort that oversight will be in the hands of the Department of Finance and Administration-furthermore, that relevant stakeholders will be consulted and that any consideration of selling the assets of the DHA will have full regard to Defence's commitment to provide members of the ADF with high quality housing. Senator CHRIS EVANS-That is much more like a yes than a no, Minister. Senator Hill-And I have not got a timetable. Senator HOGG-Who would be the relevant stakeholders? Mr Bear-The scoping study is being undertaken by the department of finance, and we will be- Senator HOGG-Is that being undertaken now. Senator Hill-This says that Finance will be overseeing the management of the study, which is different. Is it being done by Finance? Mr Bear-They are managing the process. Senator Hill-That is what I said. Senator HOGG-So who is actually doing the scoping study? Can you tell us or can you find out? Mr Bear-That is a matter for the department of finance. Senator Hill-We could probably ask them nicely, though. Mr Bear-Yes, we could. Senator HOGG-Could you ask them nicely and give us a response, please? Also, could you tell us who are the relevant groups being consulted? I heard there was a consultation program being undertaken. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 201 Senator Hill-Do you need to know that today? Senator HOGG-No. Senator Hill-We will take that on notice. Senator HOGG-And the time frame in which the study is being undertaken. On another issue: in respect of the privately owned homes that are leased back, I presume they can be modified to meet the needs of service families where necessary, if there are special needs. Mr Bear-Absolutely. Generally a special needs case would be treated just as the name implies, as special needs, and a particular house would be acquired. Senator HOGG-Has there been any response to the move away from DHA owned housing to private ownership and lease back? Has any concern been expressed by any of the service family groups like the National Consultative Group of Service Families? Mr Bear-No, Senator. The National Consultative Group of Service Families are represented on the DHA board and are party to all discussions. Senator HOGG-Are you able to confirm that community centres at Duntroon and two centres in Darwin are in states of disrepair? Mr Bear-I have never been in them, Senator, so I cannot confirm that. Senator HOGG-The information I have is that they contain asbestos. Do you know if that is true? Mr Bear-The community centres are not buildings that are managed or under the control of the Defence Housing Authority. They are part of the Defence portfolio. Senator HOGG-So they are not yours. Mr Bear-They are not ours. Senator HOGG-Okay. Dr Hawke -You could ask those questions tomorrow when the infrastructure division people are here. Senator HOGG-All right. What was the cost of relocations within Australia for ADF personnel in 2001- 02? Mr Bear-That would depend upon the definition of cost. We could give you some information on that. Senator HOGG-Do you have an anticipated cost for the coming financial year? I understand you are now responsible for the relocation of the families. That is why I am asking. Mr Bear-The cost of the administration of the process, yes. I will provide you with a figure. Senator CHRIS EVANS-I understand it would be looming large in your minds, from what I hear about it, too. Senator HOGG-A figure for this financial year and a figure for next financial year. Do you outsource removal contracts? Mr Bear-The removal is undertaken by a contract within the Department of Defence. Senator HOGG-How is that done? Mr Bear-That is managed by the Department of Defence. Senator HOGG-Managed by the Department of Defence, not by yourselves? Mr Bear-The contract is managed by the Department of Defence. When someone comes to us for a relo- cation and they require a move, we give a notification of that requirement to the removalist. Senator HOGG-But you do not get involved in the negotiation of the tender with the contractor? Mr Bear-We do not. Senator HOGG-Last year, prior to the election, Minister Scott raised the issue of Defence homes in Darwin-the fact that they would be fully airconditioned and that the project was to cost, I think, $3 million and completed this financial year. Has that been completed? Mr Bear-The project is not yet completed. It is progressing and is well on the way to completion. Senator HOGG-What was the cost of the project, and is it within budget? Mr Bear-Rather than guess, I will let you know. Senator HOGG-You will take that on notice-thank you. Senator CHRIS EVANS-Does that mean all your homes in Darwin? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 202 SENATE-Legislation Tuesday, 4 June 2002 Mr Bear-All homes in Darwin are to be airconditioned, yes. There are some houses on the RAAF base and at Coonawarra where there are electrical supply issues that have to first be addressed, and those supply issues are, I understand, being addressed by Defence. Senator CHRIS EVANS-But, effectively, the decision has been made to aircondition everything in Darwin? Mr Bear-We have contracts under way and we are moving through that process. Senator HOGG-When do you expect the process to be completed? Mr Bear-In August. Senator HOGG-August this year. Mr Bear-With the exception of those where there may be issues associated with the supply of electricity. Senator HOGG-When you speak of the supply of airconditioning to the properties, I presume that is only airconditioning a number of specific rooms within each property. Mr Bear-It varies, but yes. Each individual house has been inspected and a decision taken as to what best suits that particular house. Senator HOGG-And the airconditioning applies to all lease properties as well as- Mr Bear-It applies to all leased properties, on-base properties and owned properties. Senator WEST-Isn't that a variation from what normally happens? The airconditioning was a standard for a couple of rooms only. I cannot remember whether it was the living area or the bedroom area. Mr Bear-There has been a variation of the policy. Lots of the older homes did not have the same extent of airconditioning that is now being installed. Senator HOGG-Were there any homes that had been airconditioned? Mr Bear-Yes, there were. Senator HOGG-Will they have replacement systems? Mr Bear-All homes built in recent years have had airconditioning as a standard fixture. It was primarily some of those that were built some time ago that needed various forms of upgrading. Senator HOGG-So some houses will get replacement systems and some houses will be airconditioned for the first time? Mr Bear-Yes. Senator HOGG-What is the maintenance budget for DHA homes for 2002-03 and where is that to be found in the PBS? Mr Brocklehurst-The maintenance budget for next year is $33.6 million. That would be part of the expenses to suppliers in table 1. Senator HOGG-So that is an Australia-wide figure and that covers both lease-back properties as well as DHA? Mr Brocklehurst-It covers all DHA owned properties, all on-base properties that we look after, and includes the sale and lease-back properties that we have sold since 1996. The ones that were sold before 1996 provide for the lessor to meet the costs of the repairs and maintenance. Senator HOGG-Is that an increase over the costs for the 2001-02 budget? Mr Brocklehurst-Yes, we are expecting to spend close to $30 million this year. Senator HOGG-So it is roughly in the order of about 10 per cent increase? Mr Brocklehurst-Yes. Senator HOGG-What would be the reasons for that increase? Mr Brocklehurst-Can I take that on notice? Senator HOGG-Yes, you can take it on notice-and we have finished 30 seconds before we need to. Thank you very much for your cooperation. Senator CHRIS EVANS-I would like to say, by way of congratulations to the department, that I visited the Lavarack barracks in Townsville the other day-the new single persons accommodation-and it is of a very high standard. I think you can be congratulated on the quality of the accommodation. Mr Bear-Thank you very much, but unfortunately singles accommodation is provided by the Department of Defence, not the authority. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 203 Dr Hawke-We will accept the compliment. Senator WEST-It was pretty grotty. Dr Hawke-It was. Senator CHRIS EVANS-You still have some terrible stuff there, as well. Dr Hawke-We are doing something about it. Proceedings suspended from 6.30 p.m. to 7.37 p.m. Department of Veterans' Affairs ACTING CHAIR (Senator Ferguson)-We now move to the consideration of particulars of proposed expenditure for the Department of Veterans' Affairs. I welcome officers from the Department of Veterans' Affairs and the Australian War Memorial. The committee will begin with a portfolio overview of the Department of Veterans' Affairs and then consider outcomes in numerical order. The committee will conclude with questions for the Australian War Memorial. When written questions on notice are received, the chair will state for the record the name of the senator who submitted the questions. The questions will be forwarded to the department for answer. The committee has resolved that the deadline for the provision of answers to questions taken on notice at these hearings is Thursday, 11 July 2002. Witnesses are reminded that the evidence given to the committee is protected by parliamentary privilege. I also remind witnesses that the giving of false or misleading evidence to the committee may constitute a contempt of the Senate. The Senate has resolved that there are no areas in connection with the expenditure of public funds where a person has a discretion to withhold details or explanations from the parliament or its committees unless the parliament has expressly provided otherwise. An officer of a department of the Commonwealth shall not be asked to give opinions on matters of policy. However, you may be asked to explain government policy, describe how it differs from alternative policies and provide information on the process by which a particular policy was selected. An officer shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. Finally, I remind everybody present that mobile phones are to be switched off in the hearing room. We will now move to questions for the portfolio overview. Senator MARK BISHOP-If it is convenient with the committee, I propose to commence my questioning on outcome 2, beginning with the PBS and concentrating on the new savings proposals. Then I propose to proceed to outcomes 1, 3 and 4 in that order. As I have already advised the secretariat, I have no questions for the War Memorial, the Veterans Review Board or the Repatriation Medical Authority. Welcome, to the officers from the Repatriation Commission and from the department. The first issue I wish to address briefly is with regard to an article that was in the Weekend Australian on 13 April. It announced a review of the PBS to be chaired by the assistant secretary of the Department of Health and Ageing, Ms Louise Morauta. Will this review include a review of the RPBS? Mr Stonehouse-Not specifically, although we are involved in the review and obviously there is a flow-on effect from the PBS to the RPBS because the prescriptions for which we pay are paid for under that scheme. Senator MARK BISHOP-What will be the role of the department? Mr Stonehouse-We have been invited to join with the review and we will be represented by one of our branch heads. Senator MARK BISHOP-Is it an IDC or is it a committee chaired by Ms Morauta? What exactly will your role be? Mr Stonehouse-I have not got all of the specifics to hand, which I apologise for, but I do not understand it is an IDC in that sense. It is a committee run by the Department of Health and Ageing and we have been invited specifically to join with that review. Senator MARK BISHOP-Was your role explained? What will be your role in participating in that review? Mr Stonehouse-To contribute to the thinking processes, to focus on the issues that affect the provision of pharmaceuticals to veterans. Senator MARK BISHOP-So, effectively, the RPBS is under review as well. Mr Stonehouse-I would not have characterised it that way. My understanding is that the RPBS is an additional list of pharmaceuticals and other medications that are provided in addition to the PBS. Senator MARK BISHOP-Yes, that is right-for clients of DVA. We have a review of the PBS and you are participating in the RPBS. Is the differential between the PBS and the RPBS going to be the subject of review? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 204 SENATE-Legislation Tuesday, 4 June 2002 Dr Johnston-As Mr Stonehouse has explained, this is a review of the PBS, and our membership of the committee will enable us to contribute views and advise the committee of possible ramifications or interactions with the RPBS. If a report goes to government, we would have the opportunity to comment on those recommendations and identify any possible implications for the Repatriation Pharmaceutical Benefits Scheme. But that scheme is a separate scheme; it has its own integrity and it is not under review. Senator MARK BISHOP-Dr Johnston, turning to page 23 of the PBS, could you just explain to me generally how the savings on the RPBS have been calculated? Are they simply extrapolated from the savings on the Pharmaceutical Benefits Scheme or is the calculation done separately and differently? Dr Johnston-I can say that with each measure we independently identify the implications for the Repatriation Pharmaceutical Benefits Scheme. I can ask Mr Stonehouse to speak generally about the approach. It may be that there are some specific questions that you have, but let us have a go at a general explanation first. Senator MARK BISHOP-I do have some very specific questions on four or five rows there, but I just wanted to get a general overview of how the savings have been calculated, firstly. Mr Stonehouse-They have been broadly calculated as a percentage of the overall savings and we have been similarly funded in a percentage way to assist in achieving those savings through increased compliance measures, through increased education and similar type measures. Senator MARK BISHOP-So it is broadly similar percentages? Mr Stonehouse-Yes. Senator MARK BISHOP-That is fine. Mr Stonehouse, does growth in the RPBS mirror growth in the PBS? Mr Stonehouse-Generally speaking, yes. Senator MARK BISHOP-So what are the causes of growth in the RPBS? Mr Stonehouse-A greater use of medications by veterans and some more expensive medications, but Dr Killer can give a more comprehensive answer to that. Dr Killer-Last year, the Department of Veterans' Affairs spent in the order of $320 million on pharmaceuticals and wound products. As you know, there is the PBS and the additional items which are on the RPBS. So, in a sense, the amount we spend on pharmaceuticals largely mirrors the PBS, but we have a discretional component that takes account of additional items plus prior approval items; but, out of the $320 million, that only accounts for about $21 million. Whatever happens when a drug is placed on the RPBS, it automatically is provided to veterans; so there is an automatic flow-on. So, in a sense, if the Department of Veterans' Affairs wants to control its budget, the only discretional part of the budget relates to the RPBS items and the prior approvals-and, as I have said, they only make up a small proportion of the amount we spend on pharmaceuticals. So, out of $320 million I think last year and maybe $360 million this year, our discretionary area which we really directly control is only of the order of $20 million-plus. Senator MARK BISHOP-But you are looking to save in the 2003 year almost $20 million? Dr Killer-But those savings would be similar savings in percentage terms to what would be occurring on the PBS because we have that common list of pharmaceuticals. Senator MARK BISHOP-So you expend in the order of $320 million on pharmacy items and you are looking to save roughly $20 million in the 2003 financial year, and you say that is broadly similar to the savings that would be expected on the PBS? Dr Killer-The savings are substantially in proportion to what would be saved on the PBS. Senator MARK BISHOP-You say the growth in the RPBS is $20 million to $25 million that is not directly related to the PBS? Dr Killer-No. I think last year our figures were of the order of-I have not got the figures in front of me-$20-plus million and I think for this year it will be about $28 million. So they are not substantial amounts in real terms, but it is a reasonable percentage growth. Senator MARK BISHOP-What is the percentage growth? Dr Killer-It would be in the order of- Senator MARK BISHOP-18 per cent? Mr Stonehouse-I do not have the figures at hand, but I think we were asked a similar question at the last committee meeting and it was in the order of 24 per cent, based on our annual report. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 205 Senator MARK BISHOP-That is a bit high. I thought it was in the order of 18 per cent to 19 per cent per annum growth outlays in the RPBS in recent years. Dr Killer-I think that is probably closer to it. Dr Johnston-On page 40-and we are just doing the percentage calculation for you-there is an actual line item there in the appropriation, and the calculation is 10 per cent year on year. Senator MARK BISHOP-That is $363 million up to $400 million. That is $40 million-a bit over 10 per cent. Dr Johnston-Just 10.9 per cent, Senator. That reflects to some extent the assumed impact of the budget measures. I am assuming that is the case. Senator MARK BISHOP-That is minus the savings? Dr Johnston-That is after the impact of the budget measures. My recollection is that, last year, the percentage growth was in the order of 19 per cent. But we will have to confirm that for you if you want that. Senator MARK BISHOP-Page 40 indicates that there are going to be increases in outlays in the order of $40 million and that, but for savings, it would be in the order of $60 million, which takes it back up to the figure of 18 per cent or 19 per cent. Dr Johnston-Of that order, yes. Senator MARK BISHOP-What are the differences between the causes of growth in the RPBS and the PBS? Dr Killer-The growth in the PBS and RPBS for the common list would be comparable. The only difference would be in the RPBS listed drugs; there we have different arrangements. We obviously have additional drugs and wound dressings that are essential for the special management of veterans. For instance, we have wound dressings because large numbers of veterans have chronic wound ulcers going back many years. So the main differences in the growth in the RPBS, the separate listing, is really looking at the drugs that are on prior approval. We prior approve drugs for cancer that are not available on the PBS, and it would also be on the additional items that we have in our listing. Dr Johnston-Adding to Dr Killer's explanation, you may have in mind the fact that the veterans' usage of PBS pharmaceuticals might have a different pattern from the rest of the community because of their age and infirmity. We would expect that per capita usage, because of the age profile of veterans, would be higher than that for the Australian community as a whole. We do not have that dissection that we can lay out for you, but some of those factors would also be influencing the growth in veterans' usage of PBS listed products as well as RPBS. Senator MARK BISHOP-So we have two reasons advanced: (1) additional or differential drugs and differential usage by veterans in the areas identified by Dr Killer and (2) Dr Johnston's suggestion that the age profile of veterans accessing the RPBS might be different from the general population accessing the PBS. Dr Johnston-I think that is a fair summary. Dr Killer-I think it is worth mentioning that, with the RPBS, we do take additional measures to deal with pharmaceutical management. Because of the Department of Veterans' Affairs pharmaceutical database, we are able to identify each veteran and determine the individual number of pharmaceuticals they are on and also their main or regular general practitioner. We look at the pharmaceuticals on a regular basis and provide feedback on those individuals who may be high users of pharmaceuticals who are at risk because of the numbers of pharmaceuticals of drug interaction. We provide this information back to their general practitioner. This is very useful information for the general practitioner because, quite often, they are not aware of all the pharmaceuticals someone might be on, for the simple reason that some of the veterans see numbers of general practitioners as well as quite a number of specialists. Many of them have chronic conditions, as you are aware, and might see up to 10 or 11 different practitioners. So sometimes the ordinary general practitioner might not be aware of all the pharmaceuticals a veteran may be on. We provide this information on a regular basis, through a number of programs, to their regular general practitioner. This has resulted in significant savings for the department and, I would have thought more importantly, reduces the risk of inadvertent outcomes because of drug interaction. Senator MARK BISHOP-So for every veteran who accesses the RPBS you effectively maintain a computer file on their usage and you can identify a whole range of useful information from that. Dr Killer-We can conduct a watching brief to look- Senator MARK BISHOP-I am not asking what you do. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 206 SENATE-Legislation Tuesday, 4 June 2002 Dr Killer-at the pharmaceutical usage. But the main thing is that it is empowering the doctor sitting in the surgery to better manage the pharmaceuticals for their patients. Mr Stonehouse-The actual material is extracted from the HIC, de-identified, reviewed by an independent body and then sent back to us when it is re-identified. That enables us to send out the letters that Dr Killer signs to general practitioners and other doctors, pointing out when the usage is abnormal. Senator MARK BISHOP-Is growth in the RPBS affected by higher levels of disability among veterans or a higher average age than the PBS? Do we have any information on that? Dr Johnston-We are having some research undertaken at the moment by the Institute of Health and Welfare to try to analyse these factors in our health expenditures, but we think your suppositions are worth testing. Senator MARK BISHOP-Is there a different age profile for veterans accessing the RPBS than for the general community accessing the PBS? Dr Johnston-There is no doubt that that is the case. We are not sure what impact that is having, in its own right, on usage and trends in usage. Senator MARK BISHOP-That job has been given to whom? Dr Johnston-The Institute of Health and Welfare are working with us at the moment on analysing those aspects of our data. Senator MARK BISHOP-When were they given that? Is that a consultancy, or a contract, or what? Dr Johnston-It is a consultancy. That work is under way at the moment and has been for a couple of months. Mr Stonehouse-Less than two months. Senator MARK BISHOP-When will they report back to the DVA? Mr Stonehouse-We are trying to get a report as quickly as possible, but we think it will realistically take about six months in total to get some meaningful information. We are initially more interested in comparing veterans with a similar age-sex cohort in the general community rather than against the broader PBS usage, which of course covers everything from paediatric use right through. We have put some pressure on, because we believe it is important to be able to identify where there are differences in the veteran community, if there are differences, and then see what is driving those and if, for example, there is more usage than there should be. Senator MARK BISHOP-We might have a discussion on that at the end of the year when you might have the report down. It sounds quite interesting. Dr Killer-We certainly have an understanding at this stage, from our surveys, of the types of conditions veterans have, but we are not in a position to compare them with a similar age non-veteran cohort. We know, for instance, how many have visual disorders, how many have hearing problems, et cetera, but we cannot compare them with a similar age non-veteran cohort. Senator MARK BISHOP-Going back to that issue you raised, Dr Killer, how many doctors, if any, does the department monitor? Dr Killer-We do not actually monitor doctors. I am sorry if I have created that impression. What we are doing is looking at the pharmaceutical profiles of patients. It is not a process of monitoring the doctor; it is looking at pharmaceuticals in terms of quality management of medicines, to reduce the risk of drug interaction or inappropriate usage. We are certainly not monitoring doctors. Senator MARK BISHOP-In a given three-month period, how many patients would you be monitoring? Dr Killer-We are now in the third year of the prescriber feedback program, which is providing helpful information back to the practitioner to achieve better outcomes. The number of patients depends on the particular program. The first program we conduct each year is usually the polypharmacy program, looking at veterans who might be on large amounts of medication. In the first year we conducted the program, I think we looked at all veterans on more than 20 separate medications. The number of veterans we wrote out to doctors about in relation to being on 20 or more separate medications was in the order of 700. Over the three years, we have progressively reduced the numbers. I think the last mail-out on so-called polypharmacy patients- people on more than 10 medications-was sent to several thousand. It is not just polypharmacy; we also look at drugs and the elderly-drugs that might be appropriate in the management of younger people but for which special care would be required in prescription for the elderly. We have looked at specific drugs like warfarin. As you are probably aware, warfarin is used to thin the blood, but as well as being a very useful drug it also has side effects. We had a mail-out on warfarin to doctors and FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 207 patients to make sure they understood the potential drug interactions. Some mail-outs have simply been to doctors; others have also been to veterans and have provided them with simple information in relation to their pharmaceuticals. Mr Stonehouse-We wrote to veterans for the first time in our last exercise, to engage them in the process. The intention is to make them partners in their medication management. Senator MARK BISHOP-And to make them aware of possible harmful consequences. Dr Killer-There is no doubt, if you want to modify the use of medicines, providing information for the doctor is one thing but empowering the patient is probably more important. As Geoff says, that has been our ongoing initiative. Senator MARK BISHOP-Is the department aware of any differences in usage patterns between veterans' use of the RPBS and the general population's use of the PBS? Has any comparison work been done? Mr Stonehouse-They are fundamentally different lists of medications, so it would be hard to make a direct comparison. Senator MARK BISHOP-Are they fundamentally different? Dr Killer said the cost differential was something in the order of $20 million out of $320 million, so there is a high degree of homogeneity. Mr Stonehouse-Items listed on the RPBS are by definition not listed on the PBS. Senator MARK BISHOP-I understand that, but 90 per cent of the RPBS is identical to the PBS in terms of the list of drugs. Dr Johnston-I do not think we can add any more to the comments we have already made on a comparison of veterans' use of the PBS compared to the community as a whole. We are currently having some work done by the Institute of Health and Welfare. We have not done any other research of note on this subject to date. Senator MARK BISHOP-The net of that is you cannot say that there are different patterns of usage between the PBS and the RPBS. That is the first point. The second point is that the list of drugs is in the order of being 90 per cent identical. The third point is that the list of savings identified in the portfolio budget statements is, in percentage terms, extrapolated from the savings for the PBS. Is that a correct summary of where we are? Dr Johnston-That is correct. It would be desirable to look in finer detail to take into account the different population that we serve, compared to the community as a whole, but we do not have a basis for that analysis. The only option that the Department of Veterans' Affairs, the Department of Finance and Administration and the Department of Health and Ageing have is to assume a proportional impact. Senator MARK BISHOP-To the extent that the veteran community is different to the general population and has different illnesses and problems and has different demands on the medical community, which are sometimes reflected in the different nature of the RPBS, is it not true then that the veteran community is more likely to be detrimentally affected by the department meeting these cost saving targets that have been designed for the general community without taking into account the special needs or the special aspects of the veteran population? Dr Johnston-That is not our expectation at this point in time but there may be some particular dimension you think might have an impact of that nature. Our examination of the measures does not suggest to us that that would be differential in impact. Senator MARK BISHOP-Why is that? Dr Johnston-We have just not been able to identify any factors that we think would need to be taken specially into account. Senator MARK BISHOP-Is that a `neither confirm nor deny' response? Dr Johnston-All that officials can do in advising government is to lay out assumptions of estimates and advise on possible impacts. At this point, with these measures, we have no reason to think that the impact will be different for veterans than for the community at large. Senator MARK BISHOP-Even though-I think it is agreed ground-the needs of the veteran community are often considerably different to the needs of the general population. Do you think there will be any differential impact? Dr Johnston-To the extent that there are safety net provisions and so on, they will still work for veterans the same as they do for the rest of the community. There might be a separate question about the acceptability of the policy or matters of that nature, but that is a question for government not for the department. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 208 SENATE-Legislation Tuesday, 4 June 2002 Senator MARK BISHOP-I want to refer to the savings identified for the 2003 financial year on page 23 of the PBS: $14 million, $11 million, $2½ million, $4 million, $½ million and almost $2 million. Are you comfortable that you will achieve those levels of savings? The reason I query that is because they have broadly been extracted from the health portfolio and the PBS. Why you are satisfied that you will achieve those savings? Dr Johnston-I will take one in particular, and that is the `increased information provision to doctors by industry'. There is no reason to expect a different impact for veterans than for the community at large. These savings assume that doctors will be better informed and more careful in the way they prescribe and this will avoid unnecessary prescriptions and so on. There is no reason to think that that is not a factor working in the day-to-day decisions by GPs treating veterans than it is a factor for GPs treating other people in the community. Senator MARK BISHOP-Are there any interactions between six measures and the savings claimed and the RPBS? Mr Stonehouse-I am not quite sure about the meaning of the question. There certainly are interactions because they directly relate to- Senator MARK BISHOP-We have six separate headings and we have identified six separate sets of savings. I wonder if they are all stand-alone savings and not related to each other? Mr Stonehouse-I personally believe there are some interrelations between some of them. There are the broad headings of `reinforcing the commitment to evidence based medicine', `reductions in pharmacy fraud' and the use of better methods of education of doctors, patients and others involved in the pharmacy provision. To my mind, there are some interrelationships in some of those things. Senator MARK BISHOP-I would have thought that there were significant interrelationships between those four that you identified. Fraud, industry education and restrictions on doctor shopping are all connected. Is that correct? Mr Stonehouse-I believe that they are a suite of measures that are, to a greater or lesser extent, interrelated. Senator MARK BISHOP-Does the department believe that realigning copayments and safety nets will reduce demand for access to these benefits in any way? Dr Johnston-You know that the basis of the estimates is an impact on the patient contribution and an impact on usage so we are assuming that that will carry over to veterans. We are not in a position to assume a different impact so we have adopted the estimates of the Department of Health and Ageing in a proportional way. Senator MARK BISHOP-What are those estimates in terms of levels of demand? Dr Johnston-I do not think we have that detail. Senator MARK BISHOP-You do not have it with you or you do not have it at all? Dr Johnston-That would probably be a question that we would have to direct to the Department of Health and Ageing. It would be a question that they would have a view on. Senator MARK BISHOP-It is savings in the RPBS, which is a function of DVA. You have identified the savings. Dr Johnston-As we have explained, we have just assumed a proportional impact. We have no reason to argue that it would have a differential impact on veterans here so we would seek an answer from the Department of Health and Ageing in advising you on any such split in the estimates. Senator MARK BISHOP-But to date they have not communicated to you reductions in the level of demand arising from the increases in the copayments? Dr Johnston-I am not aware of us having that information. Senator MARK BISHOP-Are you aware that it is costed into the savings? Dr Johnston-You are aware that the government's announcement is not just a revenue measure-it is designed to impact on the community's usage of pharmaceuticals. Senator MARK BISHOP-I certainly understand that. Dr Johnston-I cannot answer your question in terms of the estimated differential impact or whether the Department of Health and Ageing have even chanced their arm at that. But, if you wish, that could be a question we could refer to them to see if there was anything they could add. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 209 Senator MARK BISHOP-It makes the task difficult, when it is the DVA that administers these schemes, when the money is appropriated to the Repatriation Commission in the Appropriation Bill and the savings are in the PBS for the DVA. My questions are relatively straightforward and, I would have thought, predictable as to where the saving comes from and how it is identified, and your response is, `We will ask the Department of Health for advice.' Dr Johnston-I am not sure if they have a separation of the factors that you are questioning us on, but we have explained to you that we have assumed a proportional impact. We have explained to you the basis of the estimates. If you want further detail that we do not have here today, we can take that on notice. But I wish to explain that we would refer that question to the Department of Health and Ageing. Senator MARK BISHOP-If you could refer that to the Department of Health and Ageing-the effects on levels of demand for persons who utilise the RPBS-it would be appreciated. Dr Johnston-Sure. Senator MARK BISHOP-Has the department analysed the relationship at all between expenditure on pharmaceuticals and expenditure on health care? Have you done any work in that area? Dr Johnston-I think Dr Killer has already mentioned to you the work we have done with the prescriber feedback program, but, for example, in documenting that program-which, I might say, is of world standing- Senator MARK BISHOP-I understand Dr Killer's previous response. Dr Johnston-I do not think we have researched the downstream impact on the health of the veteran. I am not aware of any such research we could provide you with. Mr Stonehouse-I am not aware of any research directly. We could tell you what the proportion of pharmaceutical expenditure is to hospital expenditure, for example, but I am not sure that there is any scientific relationship that we have explored in terms of that financial relationship. Senator MARK BISHOP-All right then. Have you taken into account any reduction in demand for pharmaceuticals dispensed resulting from increased patient contributions to medicines? Dr Johnston-As I said, that is part of the government's policy. I cannot give you a break-up, but if we take that on notice will ask the Department of Health and Ageing for advice in answering that. Senator MARK BISHOP-I will just restate my position. It is the DVA that moneys are appropriated to; you are the organisation in the health area that has responsibility for health and welfare of veterans. The government are engaged in some cost savings; that is their business-I did not quarrel with that policy decision. When I ask for the impact on veterans, which is a discrete group, the department's response is that they have broadly accepted the figures from the department of health and really cannot give any concrete or specific response to what are relatively routine questions which my office and, my colleagues tell me, other offices are already starting to get from veterans and ESOs in a community. It strikes me as odd; it goes contrary to the whole raison d'etre of a separate department. ACTING CHAIR-That seems more like a statement than a question. Senator MARK BISHOP-It is a statement that I want on the record. Veterans have $320 million a year spent on their health. They have a separate program, separate needs, separate demands and separate histories. They are run by a separate department, and their own department cannot offer an explanation. ACTING CHAIR-I understand, but if you want to debate the issue I think the place is in the chamber not at an estimates committee hearing when we are here to ask questions. I understand you want to get your statement on the record. Senator MARK BISHOP-I am here to ask questions. I am not getting any response. ACTING CHAIR-Okay, but the place to complain about that is in the chamber. Senator MARK BISHOP-All right. Can we turn to page 137 of the PBS. In relation to the budget measure to `reinforce the commitment to evidence based medicine', which we have been discussing, has the department done any analysis of the number of prescriptions supplied to veterans in breach of RPBS conditions? Dr Killer-We would not be aware, as the PBS would not be aware, of prescriptions that were in breach of the specific authority laid down in the pharmaceutical schedule. The PBS and the RPBS do operate slightly differently, in that all the prescriptions for authorities that come through the RPBS go through our single unit organisation in Brisbane known as VAPAC, which is staffed by pharmacists. When a doctor rings for an authority in relation to a particular patient they are challenged in relation to the need for that drug for that particular condition. You do rely on the doctor in this scenario being honest-you will never get away from that. If a doctor is sitting there with a patient in front of them and says, `This patient has condition A for FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 210 SENATE-Legislation Tuesday, 4 June 2002 which they required drug B,' you certainly have to take it on their goodwill and honesty. But the RPBS is one step ahead of the PBS in that the phones are all manned by pharmacists in our arrangements. The people at the other end are professionally trained pharmacists and pharmacologists, so the doctors are at least challenged in a sense and it is not taken for granted that the request is for a drug for a condition for which the authority should not be given. Be that as it may, we could not say how many times or in what percentage of cases authority prescriptions are handed out outside the authority required. It would be impossible to say. All I am saying is that, within the arrangements of the RPBS, our arrangements are fairly tight already. Senator MARK BISHOP-Yes, because the doctor making the decision has access to professional advice. Dr Killer-Exactly. Senator MARK BISHOP-In terms of my specific question, the department has not done any analysis on the number of prescriptions supplied to veterans in breach of the RPBS, so you cannot really say to me that veteran abuse is zero of PBS abuse or twice PBS abuse, can you? Dr Killer-It would not be veteran abuse; it is the doctor who requests the authority. Senator MARK BISHOP-I will rephrase the question: you really cannot say that abuse of the RPBS is less than, the same as or more than abuse of the PBS, can you? Dr Killer-All I can say is that, because our arrangements involve professionals at the other end of the phone, I would be surprised if our arrangements are not better than those of the PBS for authorities. Dr Johnston-That is in respect of the RPBS component that Dr Killer is speaking about. As we have said, in respect of the PBS component we have no reason to think veterans are any different from the rest of the community. We have had no basis on which to argue or to advise government that veterans, in respect of this item and in respect of their dealings with their doctors, are in any different circumstances from the community as a whole. We have advised government that we would be satisfied that the savings measure would impact proportionately on the veteran community. Senator MARK BISHOP-Dr Killer, are there any drugs being prescribed in breach of the RPBS conditions that are a particular problem? Dr Killer-I cannot answer that. All I can say is what I have said before: you rely on the integrity of the practitioner at the end of the phone. They are clearly there. They have a list of requirements for an authority drug. Ethical practitioners would only provide that drug in accordance with those requirements. Senator MARK BISHOP-The same argument applies to the practitioners. Practitioners who are abusing the PBS, for want of a better description, are probably equally likely to abuse the RPBS. Dr Killer-Doctors are caring people, as you know. If you have a patient sitting in front of you, it is sometimes very hard to follow a hard line-or even the correct line. Senator MARK BISHOP-I am not so sure that is right. Taking the government's lead, they think there are many hundreds of millions of dollars of savings to be made from tightening up the evidence based approach to medicines. Dr Killer-There could well be. There is certainly no question that in the pharmaceutical area there is considerable wastage. It is a slightly different issue. Dr Johnston-Senator, to be careful in describing this measure from our perspective, we are not assuming it is abuse by medical practitioners; we are assuming it is ill-advised and ill-informed prescribing by medical practitioners. A better informed, evidence based approach to medicine and more active education of the medical profession by the pharmaceutical producers will, or has the capacity to, improve prescription practice. So it is not quite abuse, in the way we view it. Senator MARK BISHOP-I understand what you are saying, but I am not so sure that is the government's position. My understanding of the government's position is that doctors have been fraudulently issuing prescriptions for a range of drugs which are not designed for particular treatments. Dr Johnston-You are quite correct; there is a separate proposal in respect of fraud. At the top of page 38, that measure is listed, but in terms of the evidence based medicine measure, I think you will find it is primarily focused on better informed prescribing by medical practitioners. It is not notionally addressed to fraud. That is a separate measure. Senator MARK BISHOP-So as far as DVA is concerned you do not have any evidence that doctors are not complying with the RBPS prescription requirements? Dr Johnston-In respect of the RBPS component of their business? Senator MARK BISHOP-Yes. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 211 Dr Johnston-That is correct. Senator MARK BISHOP-What does the phrase, `the enhancement of PBS restrictions' mean? That is on page 37 of the portfolio budget statements, in line 4 of paragraph 2. Dr Killer-I think the enhancement of PBS restrictions involves making sure that doctors use the appropriate drug for the appropriate condition. I think that is what that means really. Certainly the general practitioner electronic decision support is to make sure that, if a drug is prescribed through the decision support process, there is not going to be a drug interaction. Senator MARK BISHOP-Could you say that again, Dr Killer? Dr Killer-This is my personal interpretation. The enhancement of PBS restrictions would be to make sure a particular drug is prescribed for the appropriate condition in accordance with what is required in the book. For instance, it is to make sure that, if a drug is provided for hypertension, it is used for hypertension. The general practitioner electronic decision support would work such that, if a drug were prescribed, on the support process there would also be a computer list of the other drugs the patient was on so that, if there was a drug interaction, that would appear on the screen. I think that is what the electronic decision support is all about. Because quite often when you describe a drug, if you are not aware of the other drugs the patient is on, you might actually be creating a drug interaction. In a better world, were the IT support available, when you put a patient's identifier up on the screen, all the medication they are on would come on the screen and, if you prescribed an additional drug and there was a drug interaction, that warning would come up. I think that is in relation to the electronic decision support. Senator MARK BISHOP-I was not asking about that. I was asking about the first phrase, `the enhancement of PBS restrictions'. Do we have any evidence or knowledge that existing restrictions are not being adhered to in this area? Dr Killer-I think the secretary has already responded: not that we are aware of. Senator MARK BISHOP-No, not that we are aware of. Mr Stonehouse-It is unfortunate, Senator, that the branch head responsible for this area cannot be here tonight, due to some fairly tragic circumstances. She is the lady who represents the department on this committee and she would have more detailed knowledge than some of us at this table. I apologise for that. Senator MARK BISHOP-That happens. Is there any evidence that there is a significantly greater problem with this enhancement of PBS restrictions under the RPBS than the PBS? Dr Johnston-The text refers to the PBS, Senator. Senator MARK BISHOP-It does. Dr Johnston-We have no reason to expect that we have a particular problem in respect of the RPBS component of our business, or the unique aspect of our business. Could I suggest, Senator, that, as I read this language, in effect this is indicating the way the Department of Health and Ageing administers the PBS. The PBS has triggers in prescribing various medications at which point, in effect, prior approvals are required for the further prescription of those elements. In a sense, that then equates to the extensive arrangements we have for the RPBS components that Dr Killer has outlined to you. I think you will find that, in its detail, this will be strengthening those prior approval arrangements that will be applying in respect of the Pharmaceutical Benefits Scheme. So some of the merit we see in the arrangements we have for the RPBS components will be extended to more elements of the PBS. It does not mean to say that the community will not have access to the medications; it is just that the relevant approvals will probably be strengthened so that there is appropriate scrutiny of the prescriptions. Senator MARK BISHOP-Thank you, Dr Johnston. But, with this discussion on reinforcing the commitment to evidence based medicine, there is no evidence that DVA is aware of that there is a significantly greater problem with this under the RPBS than under the PBS, is there? Dr Johnston-That is correct, Senator. Senator MARK BISHOP-I ask this question and I keep referring to it because, as a proportion of savings under the PBS, RPBS savings are consistently around six per cent of the PBS savings. There is a remarkable degree of consistency there which we have both identified. However, for this measure, `reinforcing the commitment to evidence based medicine', the savings are almost 13 per cent of the PBS savings-13 per cent as opposed to 16 per cent. The RPBS savings are $35.87 million out of PBS savings of $280.5 million, which is 12.7 per cent, almost 13 per cent. All the others are around the mark of six per cent to 6.5 per cent. I assume that there must have been more significant problems in the RPBS than in the PBS- in fact, six per cent to 13 per cent, twice as serious. Would you care to comment on that? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 212 SENATE-Legislation Tuesday, 4 June 2002 Dr Johnston-I think, Senator, it must be a scale effect, but without the technical information here I do not think we can answer that question. I think we are indicating to you that we are assuming a broadly proportional impact across all the measures, but I am afraid we will have to take your question on notice to confirm the basis of that calculation-unless there is something Mr Stonehouse can add. Mr Stonehouse-No, I cannot. Senator MARK BISHOP-I would be pleased if you could take that on notice and give us a response as to why the savings are more than double in the evidence based medicine in this area. I turn now to the next heading of `increased information provision to doctors by industry'. A large number of academic commentators have argued that the cause of the blow-out in pharmaceutical costs is the selling activities of pharmaceutical companies-the way they market their products and the activity of their reps. This measure seems to be an obvious conflict of interest for the pharmaceutical industry sales reps. How do you respond to that criticism, Dr Johnston? Dr Johnston-I think I would handle this one, Senator, in the same way as a previous question. The integrity of this measure is something that the Department of Health and Ageing is responsible for. We have assumed a proportional impact and we have explained the basis of the estimates, but your question on the integrity of the measure is one that we would seek their counsel on in providing you with an answer. Senator MARK BISHOP-Would you concede that there seems to be a degree of overlap between this provision and the previous one we were discussing, `reinforcing the commitment to evidence based medicine' and `increased information provision to doctors by industry'? Dr Johnston-As Mr Stonehouse indicated before, there are some interactions between these measures. Senator MARK BISHOP-Is there a degree of overlap between these two programs? Dr Johnston-They will have to be administered in a way that is sensible in relation to both, yes. Senator MARK BISHOP-So there is a degree of overlap between these two measures and a range of the other measures; do you know whether that degree of overlap was taken into account when the costings were prepared by the department of health? Dr Johnston-I do not think we can answer that today, Senator, but we can take it on notice. Senator MARK BISHOP-When the decision was made by government to go down this path-and it obviously had impact on your department-you took the attitude that there was no reason to think that veterans' use of pharmaceuticals and the like would be significantly different to that of the general community. Is that essentially what you are saying? Dr Johnston-I do not think you can ask me to explain what our advice to the government was, but if you ask me the question, at this point in time we cannot give you any reason to think that the impact on veterans would be different from that on the community at large. In the way the estimates have been done, we have explained to you that that is what they imply. I cannot add much more than that at this point. Senator MARK BISHOP-Perhaps I should ask the minister then. Does the government have any reason to believe that veterans' usage of the RPBS is different from or the same as the general population's use of the PBS? Senator Hill-I could take a stab, but it would probably be better if I took advice. Senator MARK BISHOP-Who would you take advice from? Senator Hill-Probably appropriate sources such as the minister I am representing here tonight. Senator MARK BISHOP-And her officials are here at this table tonight. Senator Hill-What is the answer? Dr Johnston-Minister, I can just say what I have already said to the senator: we are not aware of any factors we could put forward that would justify assuming an impact on veterans that would be different from that on the community at large. That is why the estimates in the budget assume a proportional impact. Senator MARK BISHOP-Presumably, the department of health did not send someone around to you who said, `This is what is going to occur in the RPBS; put it in your PBS; that is the end of the story.' I assume they consulted with you. Dr Johnston-We had an opportunity to comment on the basis of the estimates, and the estimates are scrutinised searchingly by the Department of Finance and Administration. In looking at the reasonable accuracy or reasonableness of the estimates, nobody has seen a reason to argue for a differential impact on veterans compared to the impact on the community at large. Senator MARK BISHOP-Did Health or DOFA ask you whether there was any reason to assume a differential impact on veterans? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 213 Dr Johnston-We were consulted on the estimates, and we had every opportunity to point to such a differential impact if we had a basis for saying that that should be taken into account. We have no such basis. Senator MARK BISHOP-And were you or were you not asked the question? Senator Hill-I do not know whether it is appropriate to ask that. That is really irrelevant, I would think. What is important is the outcome, and the answer to that has been given. Who asks whom questions- Senator MARK BISHOP-The reason I have to ask that question is that the department is engaged in lengthy savings in a discrete area that affects veterans. Their bill goes to parliament appropriating expenditures, and I ask them for the nature of the savings and the reason and they, in effect, say: `The department of health thinks that there is no reason to think that the veterans population is any different to the general population and, accordingly, we are going to adopt the savings. No further questions can be asked and we are happy to pass them on to the department of health.' It defeats the purpose of having a separate examination in this area. Senator Hill-I think you can have a separate examination. You started off by asking the opinion of these officers, but then you wanted to know whether they were consulted in the process of determining the policy and, in effect, by what means. It seems to me that that really is a matter of the internal processes of government. Senator MARK BISHOP-Why are the estimates of the savings different in the area I have already identified? Dr Johnston-As I indicated at the time, we cannot explain that difference. I am assuming it is a scale effect, but we will have to take that on notice and explain that to you. Senator MARK BISHOP-All right. Does the department have any reason to suspect that any number of pharmacies are involved in fraud of the RPBS? Mr Stonehouse-We have a fraud investigation unit that does investigate issues relating to pharmacists and other providers. I have not got the details of the individual pharmacies and I am not sure I could disclose them, to be honest. Senator MARK BISHOP-I am not interested in the detail of Mr Smith's local pharmacy; I am interested in the general question. One of the headings again is `reductions in pharmacy fraud'. As you said correctly, Mr Stonehouse, you do have a pharmacy fraud unit. So I am wondering what the reasons are for suspecting that pharmacies are involved in fraud of the RPBS? Dr Johnston-Once again, the basis of the estimates is the assumed impact on the PBS component of our business, not the unique part of the repatriation pharmaceutical benefits. The HIC has made an assessment that it sees scope to enhance its fraud detection programs which apply to our PBS business as well as the community's at large. We have got no basis for arguing that it will have a differential impact on our part of the business than from the community at large. So we have accepted the HIC's estimate of the savings it expects to be able to achieve by enhancing its fraud detection programs. Senator MARK BISHOP-I understand that. Do you have any evidence that pharmacies have been involved in fraud of that element of the RPBS which is distinct to DVA and not part of the PBS? Dr Johnston-I think Mr Stonehouse said that we would need to take that on notice. We would be pleased to do so. Senator MARK BISHOP-But Mr Stonehouse said that you have a pharmacy fraud unit. Dr Johnston-We do, and we would be pleased to look at what information we have. Senator MARK BISHOP-Who is in charge of that? Mr Stonehouse-I will take responsibility for that. But I do not have the details with me of the amount of fraud that relates to pharmacies in the broad or that fraud which is split between the RPBS component or the PBS. Senator MARK BISHOP-Are you aware of fraud of the RPBS component? Mr Stonehouse-I am not aware of fraud specifically in the RPBS component. Senator MARK BISHOP-You are not aware of specific fraud? Mr Stonehouse-But I am prepared to take the question on notice. I understand from Dr Johnston's answer that we would take the question on notice and give you a more detailed response. Senator MARK BISHOP-Let us have the organisational chart discussion here. What is your position within the department, Mr Stonehouse? Mr Stonehouse-Division Head, Health. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 214 SENATE-Legislation Tuesday, 4 June 2002 Senator MARK BISHOP-Division Head, Health. And there is an officer in charge of the pharmacy fraud unit? Mr Stonehouse-Yes, there is. It is located in Melbourne. Senator MARK BISHOP-And who is that? Mr Stonehouse-Geoff Francis. Senator MARK BISHOP-And who does Mr Francis report to? Mr Stonehouse-He reports ultimately to me, through one of the branch heads. Senator MARK BISHOP-So he reports to a branch head and that branch head comes to you? Mr Stonehouse-He actually reports to a branch head in another division. But, for the specifics we are talking about, he reports to Mr Hay in corporate services development. Senator MARK BISHOP-So he is three or four down the chain, but as far as we are concerned you are the senior person in charge of health? Mr Stonehouse-That is correct. Senator MARK BISHOP-In the last 12 months, how many reports have been brought to your attention on the nature of fraud by pharmacies in the RPBS component? Mr Stonehouse-I could not give you that figure offhand, but I will take it on notice. Senator MARK BISHOP-Thirty? Mr Stonehouse-I would really only be guessing, and I do not think that would be appropriate. Senator Hill-There is no point in guessing. Senator MARK BISHOP-Is it many, is it few, is it very isolated? Mr Stonehouse-I get a report from Mr Francis every month. The report is about eight or nine pages long, but it covers a variety of fraud activities related to health-doctors, pharmacists, nurses and other groups- and I really do not have a recollection of the number of pharmacies involved. Dr Johnston-The fraud detection unit, for most of its business activity, reacts to specific information about fraud-through whistleblowing activity and so on. Senator MARK BISHOP-Yes, complaints or advice. Dr Johnston-This measure is a quite a different approach to fraud. This is a sophisticated computer search of prescribing practice to identify cases of potential fraud for follow-up using the HIC's agents. By and large, the reports that come to Mr Stonehouse relate to the other types of fraud, which are various indications to our fraud unit that there might be some inappropriate practice and that it needs to be followed up. I think that would be correct. I am not aware of the fraud unit undertaking a systematic program in respect of pharmaceutical fraud, which is the senator's particular interest. Mr Stonehouse-No, it does not. Senator MARK BISHOP-I am interested in pharmacies engaged in fraudulent behaviour with respect to prescriptions for the RPBS component of the PBS. Dr Johnston-I think it would be fair to say, Senator-and we will have to confirm this in our response to you-that there are relatively few cases of fraud detection by the fraud unit in response to particular complaints or advice that fraud is taking place. It is quite different in its intensity and scope from that undertaken by the HIC-which, as I said, is a sophisticated computer program to analyse practice and identify potential cases of fraud. Senator MARK BISHOP-So, again, the information in this heading is really derived from Health and Ageing? Dr Johnston-That is correct. Senator MARK BISHOP-How many cases of fraud by pharmacies are currently under investigation by DVA, Mr Stonehouse? Mr Stonehouse-I will have to take that question on notice, Senator. Senator MARK BISHOP-Is it many, few, one or two? Mr Stonehouse-Very few. I thought Mrs Barr, who was at the table a moment ago, may have had some information. Senator MARK BISHOP-It is very few, isn't it? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 215 Mr Stonehouse-It is very small. Senator MARK BISHOP-In fact it is fewer than five. Dr Johnston-We are taking that question on notice; I think we have taken it as far as we can. Senator MARK BISHOP-It is not unreasonable to take questions on notice that go to provision of information that you cannot be expected to have. But I would have thought the divisional head would have had some idea as to how many fraud cases- Dr Johnston-You will need to ask him, Senator, but I think he has told you that he does not have that precise information. Senator MARK BISHOP-He has declined to answer the question. Mr Stonehouse-I am sorry, Senator, I have not. Senator MARK BISHOP-The question is: how many cases of fraud by pharmacies are currently under investigation by DVA? Senator Hill-The answer is that we do not know but we will find out. Senator MARK BISHOP-That is right: `We do not know.' Dr Johnston-But there are a small number, Senator. We have confirmed your expectation. Mr Stonehouse-As Dr Johnston said, most of it is done by the HIC. Senator MARK BISHOP-I accept that point by Dr Johnston. Going back to the information you volunteered at the outset, Dr Killer, when you were talking about the department's monitoring role in the use of pharmacies by veterans, is there any particular evidence that suggests there has been doctor shopping by clients of DVA-different from that in the general population? Dr Killer-My experience in practice and from information provided by our local medical officers, who are general practitioners, most of the veterans are in the older age group, as you are aware, and very few of them doctor shop. Senator MARK BISHOP-Very few? Dr Killer-Very few, because they develop a doctor patient relationship and tend not to break their routine. They go to see the same doctor or the same practice and the same chemist. Senator MARK BISHOP-They develop a bond and a trust? Dr Killer-They develop a bond, over many years I think. There will always be some who doctor shop but, as a general rule, I think very few veterans are doctor shoppers. I think the doctor shoppers are in a different category. They are probably younger people, doctor shopping for drugs. Veterans, in principle, are not doctor shoppers. They are 78-year-old individuals who develop a good relationship with their GP and their pharmacist and that is their support structure and they tend to stick by it. The other thing about veterans is that they are intensely loyal. The strong relationship with their providers would indicate fairly clearly that they are generally not doctor shoppers. That is certainly my experience as a practitioner, and it is supported by the advice I get from other practitioners. Senator MARK BISHOP-Would you assume then that the saving that is going to occur on doctor shopping in the RPBS is significantly different from the savings from the general population in the PBS? Dr Killer-You can see here that the savings on doctor shopping are not very large anyway. Senator MARK BISHOP-No. It is only about $1 million, but it is 6.48 per cent, which is the same percentage as all the others. Conceding that the savings are minor-$1 million out of $16 million-is it a fair comment to say that it is probably exaggerated? Dr Killer-I am relying on anecdotal evidence. Senator MARK BISHOP-And your experience of 40 years? Dr Killer-I would have thought that in our category and age group doctor shopping is not as common as it is in other age groups. Senator MARK BISHOP-Regarding facilitating the use of generic medicines, is there any guarantee that generic medicines are just as effective as the brand names, in your experience? Dr Killer-In terms of their chemistry and physiological effect, I think the generics are probably on a par with the brand preparations. Senator MARK BISHOP-What about in terms of their effect on users? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 216 SENATE-Legislation Tuesday, 4 June 2002 Dr Killer-I think we are substantially looking at the same outcomes from the generics as we are from the brand medications. Senator MARK BISHOP-I have seen a lot of press by representatives of the AMA and a range of industry doctors who suggest that, if you switch from brand name treatments to generic medicines, there can be a range of harmful consequential effects, because they are not all the same. They say that they are different in minor aspects. Dr Killer-In my view, that situation is overstated. Senator MARK BISHOP-Is that right? Dr Killer-I think in a number of preparations, you do have to be fairly careful. One preparation comes to mind. It is warfarin, which I have talked about already. That drug is used for thinning of the blood and preventing deep vein thrombosis. It is used in preventing clots developing in the heart. In this situation, it is very important to stick with the same medication. But even in this scenario a brand change could be managed adequately. If you did have a brand change, as long as you continued with the same brand and monitored the thinness of the blood, that generic could be managed, I think. So in a sense if you looked at the physiological response to the chemistry of a generic you would probably find it was very similar. Senator MARK BISHOP-You have concentrated on physiological responses by users. Are there other responses you think would have to be considered as well? Dr Killer-I would not be stepping outside the square to say that the main concern of the profession relates to the different appearance of the preparations, because the generics-drugs A, B and C-and even the brands may have a different appearance or a different capsule size. For older patients, this can be confusing. If you are going to use generics, you need to be very careful, as a practitioner, to spend extra time with your patient to make sure they understand the medication they are taking. It is incumbent on the pharmacist to do the same. I think generics can be used, even in older patients, but it is incumbent on the practitioner and the pharmacist to make sure the educative side with the patient is very carefully done. Senator MARK BISHOP-Is that the job of the doctor or the pharmacist? Dr Killer-It is the job of both. When I was in practice, my receptionist at the front desk would occasionally ring me up-particularly if there was an ethnic mix-and say: `I've just spoken to Mrs X. She's come out; she can't understand anything you've said. She doesn't understand anything.' She would send the patient back, and I would take the patient through it all again to make sure they understood. So it is the role of the doctor as much as it is of the pharmacist. We are both in this. We are a team together, and I think understanding the medication is a dual role. With older patients and patients with an ethnic background, you are clearly dealing with some additional issues in comprehension and you have to work a bit harder. If you were using a generic, you would have to be careful and make sure they understood exactly what they were taking and explain to them, `This is the drug for your blood pressure.' It is incumbent on the pharmacist to do the same. Senator MARK BISHOP-But that ethnic angle is not going to be so relevant to the veteran community's users, is it? Dr Killer-No, but many of our veterans are older, as you know-average age in their 70s-and, in the older patient, you need to be fairly careful in the use of generics. I am not saying you cannot use them but I think you have to spend a bit more time to make sure they understand the preparation. Senator MARK BISHOP-Does the department have any idea what the level of fraud of the RPBS by overseas residents is, if any? Have you done any investigation in this area? Dr Johnston-Not that I am aware of. Mr Stonehouse-By overseas residents living in Australia or Australians living overseas? Senator MARK BISHOP-This is residents in Australia obtaining drugs and medicines by prescription in Australia and remitting same for resale overseas. I am told it is common in parts of Sydney. Mr Stonehouse-We have no real evidence of that occurring. I do recall a case, a few years ago, where I think some veterans may have been taking medications to Vietnam and disposing of them. That is my recollection. I think it is a very minor issue. Senator MARK BISHOP-It has not come across your desk in more recent times? Mr Stonehouse-Not in recent times, no. Senator MARK BISHOP-So is that essentially a non-issue within the department? Mr Stonehouse-It is not on my radar screen at all. Senator MARK BISHOP-Is that the same for you, Dr Johnston? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 217 Dr Johnston-That is correct. Senator MARK BISHOP-Can I turn now to the impotence drug, Caverject. It has been reported that it has been removed from the PBS, because the government `has decided that other priorities should replace funding for erectile dysfunction'. Is there any proposal to remove Caverject from the RPBS as well? Dr Killer-My understanding is it has been removed. Senator MARK BISHOP-Can I ask you when that occurred? Dr Killer-I think the decision was made at the last meeting of the Repatriation Pharmaceutical Reference Committee. Senator MARK BISHOP-When was that? Dr Killer-It would have been about two months ago. Senator MARK BISHOP-When drugs are removed from the PBS, are they automatically removed from the RPBS or is there a separate review? Dr Killer-They are separately reviewed by our committee. If they are taken off the PBS, the Repatriation Pharmaceutical Reference Committee looks at the drugs to determine whether they should be put on our separate list. Senator MARK BISHOP-Whether they should remain on the separate list? Dr Killer-If they are taken off the PBS there is no access for veterans. We review whether we should put them on our list so veterans can keep access to them. Senator MARK BISHOP-Is Viagra still on the RPBS list? Dr Killer-Yes, it is. Senator MARK BISHOP-Are there any plans to remove Viagra from the RPBS? Dr Killer-It is not my understanding. Senator MARK BISHOP-It did not get listed on the PBS. Dr Killer-No. Senator MARK BISHOP-But there is no current intention to remove it from the RPBS? Dr Killer-As you are aware, there are very strict guidelines on the provision of Viagra for veterans. Viagra is only available to veterans who have war caused impotence. So if someone is on a gold card, for instance, but does not have war related impotence, they cannot get Viagra. It needs to be related to war service. Senator MARK BISHOP-It begs the question how you differentiate between war caused impotence and other causes. Dr Killer-There are a number of veterans who have impotence as an accepted disability. Senator MARK BISHOP-From war service? Dr Killer-Yes. Dr Johnston-But quite often impotence is related to psychological impairment and many of our veterans have difficulties of that nature-you can make the link on a reasonable basis. Senator MARK BISHOP-The answer is that there are no current plans to remove Viagra from the RPBS. Dr Killer-No, none at all. For those interested, there are new anti-impotence drugs coming on the market. Senator MARK BISHOP-Are they cheaper and quicker? Dr Killer-Well, they are more sustained. Senator MARK BISHOP-I was not aware that maintenance was a problem with Viagra. Can we now turn to page 21 of the PBS and to table 1.2.1, `Comparison of 2001-02 estimated actuals and 2002-03 budget appropriations'. The table does not show any dramatic change in any area except in outcome 2, where there is an increase in costs of $295.336 million. In summary, the bulk of that increase is: spending by GPs, $45 million; treatment by public and private hospitals, up by $146 million; and other health care, up by $35 million. This is all attributable on page 21 to `Growth in numbers and/or usage rates'-if you look over to the middle part of the table you will see that. But we also know that the treatment population is declining. Can we assume that the increase is all attributable to increased usage? Can you explain that difference to me? Mr Stonehouse-To explain it we would probably need to define each of the groups, because there are differences across general practitioners, specialists, hospitals, and so on. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 218 SENATE-Legislation Tuesday, 4 June 2002 Senator MARK BISHOP-If the treatment population is declining but the costs are going up by $295 million for a smaller population, I am interested to know why the costs are going up so significantly. At estimates in February I asked a question about the increase in additional estimates for health care, and you advised that the fault in the estimates process lay in the model being used and that the estimates difference was attributable to that cause. How do you explain this increase, given that age is not said to be a factor? Dr Johnston-Mr Farrelly will speak to that question. Mr Farrelly-There is a variety of sources of the increase. I will just run through the components of the $137 million. Subsistence accounts for a small amount: $336,000. Senator MARK BISHOP-What do you mean by `subsistence'? Mr Farrelly-When veterans travel they get a subsistence allowance for treatment. Mr Stonehouse-When veterans travel for treatment, they are sometimes paid overnight accommodation, meals and those sorts of things. Senator MARK BISHOP-Okay. Mr Farrelly-The medical component is $18.6 million and growth in public and private hospital usage is $65 million. A range of other smaller items amounts to $15.8 million; pharmaceuticals, $14.7 million; and the nursing home subsidy, $23.1 million. The growth is spread across those items. Taking the growth in the medical category as an example, there are three components to it: the LMOs themselves, specialist consultations and specialist services. The LMOs have increased by $6-odd million due to fee increases for levels B and C consultations, whereas with specialist services we found, looking more closely at the numbers, that there is a large, quite significant growth in the usage of pathology and health assessments. So there seems to be growth in that area. Dr Johnston-To come to your opening question, Senator, you are correct in your assumption that most of the change is due to a change in usage not a change in the number of veterans eligible for these services. As the table on page 21 shows, there is also an impact in the shift between high and low cost services-so a composition shift. Senator MARK BISHOP-So growth in usage rates is $137 million- Dr Johnston-I am saying that would be the predominant factor there. I think that would be reasonable, Mr Farrelly? Mr Farrelly-Yes. Senator MARK BISHOP-And $92 million for moving between high and low cost services? Dr Johnston-Primarily low to high cost but- Senator MARK BISHOP-They would be low to high. So we have a declining population but an increase of almost $295 million over $348 million. That is about 8 per cent per annum. Is that right? That is about right. Dr Johnston-Sorry, I am not sure what calculation you are doing. Senator MARK BISHOP-It is roughly 8 per cent, anyway. Dr Johnston-Yes. Senator MARK BISHOP-What will be the decline in the population base this year-how many thousands? Dr Johnston-I do not have the forecast figure, but I can give you the total treatment population for the last two years, for example: in June 1999, the treatment population was 353,840; in June 2000, the treatment population was 348,996; and in June 2001, it was 345,131. So that gives you some basis, but we can take on notice the- Senator MARK BISHOP-That is all right. That just confirms what I had read or heard elsewhere. Dr Johnston-There is a declining treatment population. Senator MARK BISHOP-There is a marginal decline in treatment population but it appears to be that, for a smaller population, there are significant cost increases associated in the health area. Dr Johnston-There is the impact of the increased coverage of the gold card, a measure that was announced in the budget and has already passed through the parliament. That will work against that but it will add- Senator MARK BISHOP-That is a fair point. Is the increased coverage of the gold card factored into outcome 2? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 219 Mr Farrelly-Yes, it is. Senator MARK BISHOP-It covers about another 4,000 people? Mr Farrelly-Yes. It comes through in 2002-03 budget measures as part of outcome 2, so it forms part of the $295 million increase. Senator MARK BISHOP-Okay, so we are going to put on about another 4,000-I think that was the figure for the extension of the gold card in 2002-so we still have marginal decline in the treatment population overall. Allied with that, we have a significant blow-out-in the order of eight or nine per cent- in real costs in health care areas in outcome 2. Is that correct? Dr Johnston-I am not sure we should be using the expression `blow-out'. There will be an estimated increase in health costs, but I am not sure that we should be using the term blow-out. That is just a small point. Senator MARK BISHOP-Why? An increase of eight per cent is significant in any man's language. Dr Johnston-I think that relates to the earlier discussion we were having, which you have an interest in too-that is, having a better understanding of the impact of ageing on the veteran population. Senator MARK BISHOP-I am making a series of simple points. The treatment population has marginally declined in recent years-a decline in the order of around three per cent-but the health care costs attached to outcome 2 in the area of health are increasing by eight or nine per cent per annum, which in the long term is a major problem. Dr Johnston-I think we need to have more analysis to use a term like `the long term' as well. It may just be the impact of the particular profile of the Second World War population working through into our health expenditures in their later years. Senator MARK BISHOP-That could be a reason. You are entitled to speculate on that. I could speculate that uncontrolled use of the gold card and free access to private hospital care may perhaps be the key drivers, and both of those are, of course, policy decisions of government. Dr Johnston-That is correct. Senator MARK BISHOP-I suppose that does lead to a discussion about what work the department is doing to analyse and then isolate what I characterise as significant increases in costs in the health area? Dr Johnston-As we were discussing earlier, an informed discussion of the trends in our health expenditures really does need some decent statistical work, and we are contracting the Australian Institute of Health and Welfare to do a study for us on that, and that might inform further discussion. Senator MARK BISHOP-When you gave that consultancy to the Australian Institute of Health and Welfare, did you draft the terms of reference internally or did you do that in consultation with DOFA? Dr Johnston-That is something we have done internally, although we will be pleased to provide those results to Finance and Administration. Senator MARK BISHOP-No, that is another step. You did not consult with any other agency in drafting the terms of reference? Dr Johnston-That is correct, Senator. Senator MARK BISHOP-While we are talking about savings proposals, in the PBS for the 2001 year under the heading of `Managing health care information', savings were identified in successive years of $4.2 million, $8.2 million, $8.4 million and $8.7 million in the 2003-04 year-a total of almost $30 million. My question is: in the past two years what actual savings were made as a result of those savings identified in the 2000-01 budget? Mr Stonehouse-This was the funding of the departmental management information system, our data warehouse. It is in Ms Schumann's area. I am not sure that we can identify savings by year but perhaps Ms Schumann would like to talk about that. Senator MARK BISHOP-In the PBS for the relevant years you did identify savings of $4 million, $8 million, $8 million and $8 million in respective years. We are now two years on. My question is: have those savings that were identified in the PBS been achieved? Ms Schumann-We are actually in the process of attempting to quantify those savings. We are not in a position to confirm for you exactly the level of savings that has been achieved at this point but we have a broad indication and we are in the process of quantifying what that level might be. Proceedings suspended from 9.18 p.m. to 9.31 p.m. Senator MARK BISHOP-Ms Schumann was about to continue her response. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 220 SENATE-Legislation Tuesday, 4 June 2002 Ms Schumann-I was about to explain that we have not quantified the level of savings. The reason for that is that we have recently totally completed two data marts, one that relates to private hospitals and the other that relates to community nursing. The rest of our data marts-pharmacy, allied health and mental health-are in progress and have not yet been completed but are anticipated to be completed during this calendar year. Senator MARK BISHOP-At this stage you cannot identify any hard savings because the systems are not yet established that deliver that information to you? Ms Schumann-Only two data marts are fully complete. Essentially, how the system works is that they build a warehouse and they transfer the warehouse to data marts, and it is the data mart information that our contract managers in the states use very actively and then use in their contract negotiations. Senator MARK BISHOP-So two data marts have not been concluded as yet? Ms Schumann-Only two data marts have been concluded. Senator MARK BISHOP-How many others are to be concluded? Ms Schumann-At the moment we have six in train. Senator MARK BISHOP-All of those six will be concluded in this calendar year? Ms Schumann-That is correct. Senator MARK BISHOP-When those eight data marts are established, you will be able to identify savings from the previous two years and the next two years? Mr Stonehouse-Perhaps I can explain, Senator. There are a total of 33 data marts planned, and each data mart is an island of data, and the system becomes more and more useful as we are able to relate those islands of data to each other. At the moment we are able to use them-and we are only able to use one at the moment, which is on private hospitals-to specifically analyse the information that we have and the data we have in relation to private hospitals. We have found that quite useful in our negotiations with private hospitals, and Mr Harding will be able to talk about that more fully. I can give you one relatively recent example, where we were negotiating with Ramsays in Queensland and we raised with them the comparison of their data for the costs on DRG99, which is intra-ocular lens implants. We were able to point out to them, by the use of the data mart, how their costs were in excess of the norm, comparing that island of data with other hospitals of similar size and complexity. It resulted in a saving and a reduction of their costs. We are using that particular island of data-that is the private hospital island-quite extensively now in our negotiations and our pricing arrangements with the private hospital area. Senator MARK BISHOP-So we have one data mart relating to private hospitals which is up and running, being used and giving savings? Mr Stonehouse-Yes. Senator MARK BISHOP-You referred to 33 data marts, Mr Stonehouse, and Ms Schumann referred to eight. Mr Stonehouse-That is her current horizon, but there will be 33. Senator MARK BISHOP-So we will have eight done at the end of this year. When will the other 25 data marts be established? Mr Stonehouse-Progressively, Senator. Senator MARK BISHOP-Do we have forward plans for them? Ms Schumann-We do. For the following two years after that, we have funds available to further that development. Senator MARK BISHOP-At the end of calendar year 2004, current plans are for the 33 data marts to be established and working. Is that correct? Ms Schumann-That is correct. Senator MARK BISHOP-And we have funds allocated in the past to allow that work to occur? Ms Schumann-We do. Senator MARK BISHOP-Okay. Mr Stonehouse-I should mention that not all of them relate to health. They are broadly across the department as well. Senator MARK BISHOP-How many of the 33 relate to health? FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 221 Ms Schumann-Our intention would be that at least 75 per cent would. Senator MARK BISHOP-I presume you started on the biggest ones first? The private hospitals would be a big one. Mr Stonehouse-The ones that we thought would give us the most bang for our bucks. Senator MARK BISHOP-Also on the 2001 PBS, on page 42 under the heading `A better medication management system', savings were identified for better prescribing practices for the RPBS and for better health outcomes. Where is that proposal at, and have the savings been realised? Dr Johnston-Which document are you referring to, Senator? Senator MARK BISHOP-I am sorry, I should have made it clear that I am referring to the 2001 PBS, where, again, savings were identified at page 42. My question is: have those forecast savings been identified and achieved? Mr Farrelly-I am sorry, Senator-the 2000-01 PBS? Senator MARK BISHOP-Yes, on page 42 of the 2000-01 PBS, under the heading `A better medication management system'. The heading `Veterans home care' is on page 38, the heading `Managing health care information' is on page 39 and the heading `A better medication management system' is on page 42. Savings were identified in each of the four years, and my question is: for each of those years-and we can do them seriatim if you like-have the savings that were identified in the 2000-01 PBS been achieved? Mr Stonehouse-I will start by talking about `A better medication management system', and I will ask Olivia Witkowski to come forward while we are talking about that to talk about `Veterans home care'. The Better Medication Management System was a joint initiative between us and the Department of Health and Aged Care. It was a medication system for all Australians that linked doctors and pharmacists together through a central database and that depended upon, amongst other things, a nationally recognised unique identifier. That did not proceed. Senator MARK BISHOP-That system did not proceed? Mr Stonehouse-It did not proceed because of wider government decisions. Senator MARK BISHOP-And will not proceed now in the future? Mr Stonehouse-I do not know the answer to that, Senator. Senator MARK BISHOP-So with reference to the savings of around $2 million, the answer to that is, no, they have not been realised at this stage? Mr Stonehouse-Yes. Senator MARK BISHOP-Perhaps we could now turn to page 39, `Managing health care information'. There were savings identified of almost $30 million-we have already had that discussion, have we not? That is in process. Mr Stonehouse-That is right. Senator MARK BISHOP-We will be able to identify next year whether we have those savings or not. What about `Veterans' home care' on page 38: savings identified of in excess of $70 million over the four- year period? Where is that at? Mrs Witkowski-The savings have not, at this stage, been measured. Senator MARK BISHOP-Have the savings been achieved? Mrs Witkowski-I cannot answer that at this stage, Senator. As Jo Schumann was mentioning earlier, one of the data marts for the departmental management information system includes the Veterans' Home Care data mart. That should be finalised within the next couple of months and the interrogation of the veterans information that will come out of that will form part of the cost savings measure. Senator MARK BISHOP-When we come back in November or December for another round of estimates, would you be able to advise me then, in terms of the Veterans' Home Care program, whether the savings for 2001 and 2002 were achieved or not? Mrs Witkowski-We would be able to give you a much better indication at that stage. Dr Johnston-Senator, I would like to add to Ms Witkowski's answer. There are some questions on notice in previous answers which outline in detail the evaluation strategy that the government resourced in funding this measure, which has been tendered out and the lead is being managed by the University of New South Wales. There is a comprehensive evaluation strategy, which we have described and discussed in answer to previous questions from Senator Schacht. I would suggest you look at those as well- Senator MARK BISHOP-I do not recall asking those questions. Was it me? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 222 SENATE-Legislation Tuesday, 4 June 2002 Dr Johnston-No, it was Senator Schacht. Senator MARK BISHOP-The issue that I am raising here is that in the 2000-01 PBS, savings of in excess of $120 million or $130 million were identified in that year and the three out years. One savings will not proceed-that was only $2 million-and for the other two we cannot yet identify any savings at all. Mr Stonehouse-The Veterans' Home Care program is under a great deal of scrutiny, as the secretary has alluded to. We have a formal evaluation process and a formal committee, which includes representatives of some of the coordinating departments, including Finance. It is a very serious issue in terms of achieving those savings. You might recall that this is the program that focuses on providing lower level care to people in their homes, like the Home and Community Care Service, but specifically for veterans. It is based on the savings premise that we will save money downstream. Senator MARK BISHOP-The reason I am pressing this is: my recollection of some of the answers you gave me was that one of the justifications for the Veterans' Home Care program, if you like, was to be instant savings, as identified in the PBS. A second justification was that there would be a significant contribution to the overall reduction in health care costs. I just remind you of the earlier discussion this evening where we have identified that heath care costs are still rising and my preliminary conclusion is that a lot of the savings that we have identified are just not, for reasons that are not yet clear, delivering as anticipated. That being the case, does that mean that you have to make savings elsewhere or do you get supplementary appropriations from the government or what? We are talking about serious amounts of money in terms of costs. What happens? Dr Johnston-These are standing appropriations. The funding is available to provide the services that are required to provide health care to veterans. Senator MARK BISHOP-So if we do not make the savings it does not really matter because they are within the parameters of the appropriations? Dr Johnston-In terms of the continued availability of all the necessary services to veterans, there is no impact. But we, of course, as public officials are accountable for the quality of the estimates which we have put before the parliament. So we expect to be examined in detail on what evidence we can table Senator MARK BISHOP-Dr Johnston, you will forgive me for saying that, on the basis of this discussion and the earlier discussion about adoption of proposals from Health, it does appear to be hit and miss in the area of previously identified savings. They do not appear to have been achieved. There are certainly still doubts in my mind about the wisdom of adopting the proposals from Health. It just appears that forecast savings from last year, the year before and this year are not being achieved. What I will say is that we will have a more detailed examination of these savings in the November estimates and the estimates in February of next year so you might factor that into your thinking. Dr Johnston-We would expect that. But could I say that on the basis of the information that is on the table there is no rigorous basis for deciding whether the savings are there yet or not. We have got a comprehensive evaluation program. We are doing further analysis of the data. You and we might be in a better position then to judge the quality of the savings and whether they have been realised or not. Senator MARK BISHOP-Yes. Dr Johnston-But on the evidence at this point, I think it would be inappropriate to conclude that the savings are not being made. We do not know that. Senator MARK BISHOP-I take that point, Dr Johnston. Are the two data marts built to date mature enough to calculate savings? Mr Stonehouse-I am just considering the question. The data marts themselves do not necessarily calculate the savings. They are used as tools to provide the savings. We would use some of the data from the data marts themselves, but it is not a calculation tool as such. Senator MARK BISHOP-No, I did not mean to say it was a calculation tool. Let me rephrase the question. The two data marts that have been established: are they sufficiently mature to assist in the process of identifying hard savings? Mr Stonehouse-Yes. Senator MARK BISHOP-They are? Mr Stonehouse-The private hospitals data mart is, and is being used on that basis. I might ask Mr Harding just to give you some examples of that, if you wish. The second data mart is in relation to community nursing and is being used now as part of our review of fees for community nurses and will provide us with a very good basis on which to calculate the appropriate level of fees and to examine the whole of our fee schedule. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 223 Senator MARK BISHOP-That is fine, that answers that question. What did the two data marts cost to build? Mr Stonehouse-I am not sure that I have to hand the exact costs for each of those data marts defined in that way. We can provide that on notice. There have been a lot of costs associated with the development of the whole infrastructure for the data warehouse. Senator MARK BISHOP-Can I also draw your attention to the initiative for 2001-02 at page 29 of the PBS concerning the output pricing review. The resourcing formula you signed up to with DOFA links your resource base to the decline in the treatment population and yet the usage rate is escalating quickly which in turn must mean that you may not have the resources to manage the health care system. Is there any provision made in the agreement with DOFA for increased usage? Dr Johnston-As you indicate, the agreement with the Department of Finance and Administration has our resourcing for variable cost components declining in line with the treatment population. In discussing and agreeing to that formula with the Department of Finance and Administration, we also referred to our own indexes, which more comprehensively measure workload and take into account different aspects of our business, the impact of ageing on some aspects of our business and so on-or at least they would reflect that-and we are satisfied that the use of the treatment population is a reasonable, simplified measure that does not do any significant injustice to our need for resourcing, given our better measures of workload. Senator MARK BISHOP-So declining population over time and increased usage are taken into account in the formula that you have with Finance? Dr Johnston-Broadly, yes. Senator MARK BISHOP-So the basis on which resources are authorised to be given to you from DOFA takes into account that situation? Dr Johnston-I will summarise the point as follows. As best we can judge workload, it is likely the workload will decline more rapidly than the treatment population on average. But you cannot be precise about these matters, so we are quite satisfied to accept the treatment population-as was the Department of Finance and Administration-as a reasonable broad indicator. But our own detailed indicators suggest that workload over the next few years may actually decline a bit more rapidly for a variety of reasons than the actual- Senator MARK BISHOP-Are gold card claims, for example, increasing in number? Dr Johnston-The measure announced in this last budget to increase the coverage of the gold card will impact on the treatment population, and that is taken into account in the way Finance resource our- Senator MARK BISHOP-Okay, but if you exclude those 4,000 additional people, are gold card claims increasing in number? Are people using the gold card more? Dr Johnston-I think you can see from our earlier discussion that usage is increasing, as we have discussed before. So in principle gold card usage is increasing, but that does not necessarily involve more work for departmental staff. Much of that is arranged through our contracts with GPs, specialists and so on. Senator MARK BISHOP-But you pay HIC, for example, on a per usage basis? Dr Johnston-That is correct. Senator MARK BISHOP-So, if your usage is increasing, your payments to HIC, as an example, would also be increasing? Dr Johnston-Other things given, although the HIC is implementing a comprehensive strategy to implement e-commerce, and we expect that to achieve significant economies in the unit cost of services provided by HIC to us. Senator MARK BISHOP-But that is in the future? Dr Johnston-That is in the future, and it is in the funding formula which we discuss with Finance each year. Senator MARK BISHOP-I have had a number of representations from managers of community transport providers to the effect that their contracts with DVA are in jeopardy. The minister has issued a press release denying this, but it would be useful if you could tell us how this outcome is going to be managed in an open tender process. For example, how many community transport organisations are affected by the tender process? Dr Johnston-I might say that the Repatriation Commission just recently reviewed the state of play on this tender exercise, and you need to understand that the process to date has to been to issue a draft tender for comment by industry, which is standard practice for us. We are now reviewing our approach in the light of FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 224 SENATE-Legislation Tuesday, 4 June 2002 those comments and once that is clarified-in consultation with providers and the veteran community-we will then progress to an appropriate tender arrangement. Senator MARK BISHOP-So you have not yet implemented any changes? Dr Johnston-We have not yet formally gone to tender. We have only issued a draft tender document for comment by the industry. I might say that the concern expressed by community transport providers has been a particular feature in New South Wales and not in other states. We are now in consultation with the New South Wales Department of Transport and other relevant organisations to see if there is some way we can clarify our funding arrangements and those of various state authorities in the way community transport providers are resourced. At this stage, the commission is of the view that, subject to those discussions, we should continue community transport arrangements in New South Wales as separate arrangements and only go to tender as a new tender arrangement in respect of `book car with driver' and the taxi voucher scheme, which also is unique to New South Wales. I would emphasise that these elements are still being discussed and we are taking careful note of the feedback we have had from the various industry players, and I think we can find a way through with an acceptable approach. I will ask Mr Stonehouse if he wants to add to what I have said or clarify or correct any details. Mr Stonehouse-No. I think it would be no shame to say that, through the process of issuing a draft request for tender, we have discovered some things that we did not know about. That is why we do it that way, and we are reacting to that. Senator MARK BISHOP-I have received some lengthy correspondence from the minister, and the complaints I have here relate to New South Wales as well. Dr Johnston-I think we can find a way through that that will be acceptable to the community providers in New South Wales. Senator MARK BISHOP-Okay, that is fine. I want to go back now to the response to question on notice No. 28 from the additional estimates on 22 February. That question related to gold card expenditure in 2000- 01. I was a bit surprised to learn from that answer that you do not calculate annual figures for actual total expenditure on the different cards administered by DVA. How then do you come up with the estimates of average cost per gold card? Ms Schumann-I have a very simple sheet that explains what I am about to say in some detail, and I can provide you with that. Essentially, we take the average cost per gold card and we divide it by the total number of gold card- Senator Hill-Have you got that in a form that could be tendered? Ms Schumann-Yes, I do. Senator Hill-That would save considerable time, and that would be helpful. Senator MARK BISHOP-Is that an explanation of how you calculate the cost? Ms Schumann-It is indeed, right down to some detail. I think you will find it very easy to understand. Senator Hill-Then we could move on to the next issue. Senator MARK BISHOP-I have been trying to get that information. Ms Schumann-I will table that for you. I have a copy, if you would like it. Senator MARK BISHOP-I would, yes. Ms Schumann-I think you will find it extremely easy to understand and quite self-explanatory. Senator HOGG-That is reassuring, isn't it? Senator MARK BISHOP-How the cost of the gold card is calculated and why the costs are going up has been an ongoing interest of mine. That box at the bottom right- Ms Schumann-The one labelled `Cost per DVA cardholder'? Senator MARK BISHOP-Yes. It shows that the average cost per gold card is going to go up from $9,350 this financial year to $13,250 in four years time. Ms Schumann-That is correct, but as Dr Johnston mentioned this is primarily based on some information for which at this stage we have estimates in the out years with which we are not 100 per cent comfortable. The work that will be undertaken for us by the Institute of Health and Welfare will help define for us those out year estimates, particularly in relation to public hospitals and pharmaceutical services. I say this because, as you probably would be aware, in relation to public hospitals at the moment we do not necessarily pay for every discrete service and then attribute that to the gold card per se. That means that our FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 225 projections here are just that: projections. The institute is working with us to help us find these two figures more particularly and attribute them to the gold card. Senator MARK BISHOP-Thank you. That is a useful document and I will take that away and study it in due course. Ms Schumann-We would be happy to answer additional questions. Senator MARK BISHOP-On this issue, would it not be useful to be able to analyse escalating costs on a cost per cardholder basis? Ms Schumann-I am not sure what you mean. Senator MARK BISHOP-That is a per user basis. This is essentially total expenditure on gold card divided by the number of recipients-average annual cost. Ms Schumann-Yes. Senator MARK BISHOP-And that is one way of looking at cost. Ms Schumann-By type of expenditure, but we can also give you an indication in this bottom box: for example, for the year 2001 we can give you an indication of how much LMO consultations contributed towards the total cost of the gold card for that year. Does that help? Senator MARK BISHOP-Perhaps. If we add up all of those, that gives you 8,400. Ms Schumann-It does. Senator MARK BISHOP-And 2001 was? Ms Schumann-The proposed figure for 2001 is 8,400. Senator MARK BISHOP-So that is 100 per cent of the cost. Ms Schumann-Yes. Senator MARK BISHOP-So you can identify it by those subgroups. Ms Schumann-We can. Senator MARK BISHOP-Would it be useful to be able to identify usage per cardholder? Say you and I both had a gold card: would it be useful to the department to be able to analyse my expenditure and then compare it with your expenditure and the other hundreds of thousands of people who use it? Dr Johnston-I think you are asking questions that, in a sense, we will be exploring in the analysis with the Australian Institute of Health and Welfare. But I think the analysis at this stage will have to talk about the `typical veteran' or the typical veteran in an age cohort, or whatever. We are waiting to see how rich a database we can pull together with the institute to analyse these sorts of questions. In effect, we have to use the institute to match the data that we have, in considerable detail for veterans, but they need to be able to provide comparable data for the community as a whole or the relevant age profile, or whatever. We are not sure yet how comprehensive a comparison the institute will be able to build for us to enable us to analyse some of these factors. Senator MARK BISHOP-The reason I am pursuing that point now-and I have pursued it before-is that, if you go back to the Government Actuary review of DVA health expenditure projection models, the report from the Government Actuary stated that the critical issue in terms of demand is the usage rate by members of the treatment population. It went on to say that analysis would be more instructively done by examining the number of services per member of the treatment population. Is that the type of thing that you are evaluating at the moment? Dr Johnston-We are assuming that the study by the institute will inform that type of calculation by the Actuary. Senator MARK BISHOP-So those issues that were identified by the Government Actuary are part of the review job that has been given to the institute? Dr Johnston-I do not think it is explicitly part of the terms of reference. Mr Stonehouse-The outcomes that we were expecting in the terms of reference document refer to `the analysis will cover expenditure, activity levels and unit price'. Senator MARK BISHOP-Does that necessarily then extend to usage rates or do you have to infer it? Mr Stonehouse-I think you would have to infer it, but that and some of the other issues we have raised with AIHW, I think, would give us the opportunity to look at usage of various groups. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 226 SENATE-Legislation Tuesday, 4 June 2002 Senator MARK BISHOP-It is not just what you call the cohort or the subcohorts; it is the usage rates by individual card holders that the actuary suggested would be a more appropriate way to analyse costs and the like. That is what I am asking you: is that point part of the review by the institute? Mr Stonehouse-Not to that level of detail. We have done some work already on looking at high-cost users, and certainly in some time past now we did some work which suggested that a relatively small percentage of veterans use a relatively high percentage of services-and I think that is consistent across broader communities as well. Senator MARK BISHOP-I think there is a bit of a disagreement in principle between what you are seeking to achieve and what I am suggesting. Could I ask you to provide a copy of the terms of reference to the institute that is going to be looking at this job. Dr Johnston-We can do that, Senator. Mr Farrelly assures me that we are looking at usage in consultation with the actuary and that data that we are extracting from our own database is being shared with the institute for its work. But the critical issue is whether the institute can provide comparable breakdowns of data for the community at large. That is where we are not confident yet that the full analysis can be completed. Senator MARK BISHOP-And that would depend on the quality of the data provided by the HIC, would it not? Mr Farrelly-If I can make one minor clarification: we are yet to send the data to the university. The actuary is still looking at it with us. We are working with the other group that is working with the university, and it is a combined effort to get as much data as we can, whether it is usage or activity, and to look at it from various perspectives to see what most usefully can be done. Senator MARK BISHOP-That is fine. I understand that. Thank you, Mr Farrelly. When the Australian Government Actuary concluded the report we were just discussing, it said that it was doing a second report- and that reference is in paragraphs 4.5 and 4.8. Has the Government Actuary concluded that second report as yet? Mr Farrelly-No. We are still working on the data with them, and we expect that that report would be available in time for additional estimates. Senator MARK BISHOP-Turning now to veteran partnering arrangements, I read with interest your response to question No. 14 from additional estimates and a media release in more recent times. Your response indicated that Western Australian veterans have a total of only three tier 1 and tier 2 hospitals-we understand that-while New South Wales and the ACT have 176, and the average for each state is 65 tier 1 hospitals. Continuing the discussion we had at additional estimates about Western Australia and Brisbane about tier 1 private providers: is there any written agreement with Ramsays to prevent DVA from offering other tier 1 services within the Perth metropolitan area? Dr Johnston-I think we gave you a reasonably full statement to that effect in response to previous questioning at the last estimates hearings, as I recall. Senator MARK BISHOP-I recall that we had a lengthy discussion and I thought that the end was unresolved in that you were unwilling to commit to the fact that I alleged that there was a written agreement with Ramsays that prevented DVA from offering other tier 1 services within the Perth metro area. Dr Johnston-I think I was a bit more careful than that, if I could say so. Of course, there is a contract and there are contractual issues in any change in the business relationship. Senator MARK BISHOP-That is right. Dr Johnston-We have the view that the contract does not provide a sole provider status to Ramsay Health Care in those two metropolitan areas. If veteran opinion changed and sought wider choice, for example, then we would have to have regard for that and then we would need to sit down and negotiate with Ramsay Health Care how such a change in view might be dealt with. Senator MARK BISHOP-That is a clear answer indeed. Has DVA taken any action to enter tier 1 arrangements with private hospitals in Rockingham or Mandurah? Mr Harding-We approached Mandurah and offered them to participate in a request for tender that went out to country Western Australian private hospitals. They declined to do that because the majority of their business is related to their public contract and they have a very small number of private beds. Therefore, the problem was how they would differentiate between veterans who would be treated through their public system versus veterans who would be treated through their private system. They are very much focused on their public system and very much about providing a very seamless service to all people entering that system. Rockingham was seen to be part of the Perth metropolitan area and outside the request for tender process for the WA country private hospital arrangement. So we have not proceeded with Rockingham or with the other FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 227 metropolitan private hospitals. We would hope to re-engage with Mandurah in the near future just to follow that through, because it is about a relationship they have with the Health Department of Western Australia. They are a very effective hospital, working with the local GPs and the nursing homes to effect a very comprehensive care system locally. But, as I said, the problem is about how they would use their very small number of private licensed beds. Senator MARK BISHOP-The reason I ask that question is that I received correspondence from the TPI Federation in Western Australia. I believe it was also sent to the minister and she has responded. Their complaint is that veterans outside Rockingham, heading south, do not have access to the services that veterans living outside metropolitan areas in other states do. Furthermore, they stated that when the privatisation process commenced under the previous government back in 1992 or 1993-whenever it was-undertakings were given that veterans in Western Australia would have access to the same levels of service as those in the other states. They query why that has not occurred. Dr Johnston-That is a factual issue in a sense, but it should also take into account veterans' views about the access arrangements and whether that is what they prefer. To date, the veteran community in both Perth and Brisbane have indicated a strong preference for the special status of those two hospitals. Those issues are still being discussed. The TPI Federation is pressing its views in Perth, and I am sure we will be kept informed of those views as they progress. Senator MARK BISHOP-I take that point. Mr Stonehouse-It might be worth mentioning, Senator, that we have just completed contractual relationships on tier 1 with St John of God hospitals in Bunbury and Geraldton. Senator MARK BISHOP-When will they become operational? Mr Stonehouse-From 1 June. They have just become operational. Senator MARK BISHOP-In Bunbury and Geraldton? Mr Stonehouse-Yes. Senator MARK BISHOP-Were you having negotiations with tier 1 hospitals north of Geraldton? Mr Harding-There aren't any, as far as we are aware. The ones further north would all be public hospitals, and we have an arrangement for them as tier 1 operations now. It is the same with Mandurah; it is a tier 1 operation. Senator MARK BISHOP-So Bunbury and Geraldton are resolved, you are going to reapproach Mandurah, and Rockingham is status quo? Mr Harding-Mandurah is already a tier 1 hospital, so veterans should not have problems accessing that hospital. Senator MARK BISHOP-Turning again to question 18 from additional estimates in February, the figures in that table indicate that on average almost 98 per cent of DVA private hospital expenditure is attributable to gold card holders and almost 97 per cent of private hospital separations are attributable to gold card holders, yet gold card holders represent only 82 per cent of the treatment population. Is this in line with the department's expectations of levels of private hospital treatment according to the treatment population? Why is there that difference? Mr Stonehouse-The white card holders are those who are most well. The white card only applies to people who have accepted disabilities alone and are not at the higher rates of pension which are paid for higher levels of disability. So one would anticipate reasonably that they would require lower levels of care across the board. I think that is reflected in the cost structure that we ascribed to both the white and gold card holders. There is a reasonably significant difference in the comparative costs across the board for both those groups. Senator MARK BISHOP-So gold card holders account for almost 100 per cent of expenditure and almost 100 per cent of separations but they are only 80 per cent or so of the treatment population. How does that relate to white card holders? I do not follow the linkage. Mr Harding-There are two reasons. One is age; they are younger. Secondly, they do not have as many disabilities requiring hospitalisation. It relates to the other issue that you talked about before, which is blowout. The unfortunate thing about ageing is that as you get closer to death you are going to have a higher incidence of hospitalisation. That was the issue you were working through before. Unfortunately, it is between 78 and a little older that you are going to have a higher incidence. If you look at the Australian health care agreements and a number of the hospital utilisation cost studies, you will see they show that from 70 years of age onwards there is very much an exponential growth in the cost of hospital care. As you have warned yourself, in looking through studies, there is the eight per cent growth factor-and we talked about FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 228 SENATE-Legislation Tuesday, 4 June 2002 DMIS before-which is probably a minimal growth rate given the fact that there has been a significant cost increase particularly in hospitals through the nurses awards and the ageing factor. There has been a minimal increase-eight per cent is very minimal-when you take into account the ageing concept and the cost index because of the nursing awards and others that are coming through as well. Senator MARK BISHOP-We will have this discussion when Dr Johnston's review is done. Dr Johnston-When we have the data on the table. Senator MARK BISHOP-I will be surprised if what you are saying is not pretty much 100 per cent correct. I must have received dozens of letters concerning the process for the negotiation of specialist fees. Is it the case that the department is negotiating a new fee for specialists under the RPPS with the AMA and specialist colleges? Dr Johnston-We are talking with the AMA, exploring some possible approaches. The government has not yet decided what approach we should take in concluding those discussions, but we are talking with the AMA in a productive way. We will shortly be going to the government for guidance on how those discussions might be concluded. Senator MARK BISHOP-So are your talks with the AMA exploratory at this stage? Dr Johnston-I think that is a reasonable description, yes. Senator MARK BISHOP-Once those exploratory discussions are concluded, you need to get some instruction from government as to how to proceed? Dr Johnston-That is correct. Senator MARK BISHOP-And then have formal negotiations? Dr Johnston-Then we would hope to conclude any negotiations-that is correct. Senator MARK BISHOP-What sort of time frame do we anticipate? Dr Johnston-I think we need to let matters take their course. We have indicated to the AMA that we are treating this matter as a high priority and the government is considering this a matter of high priority, so we hope that we can progress the matter fairly promptly. Senator MARK BISHOP-If they have to wait a while, it does not really matter, does it? Dr Johnston-We are treating it as a matter of priority, Senator. Senator MARK BISHOP-Will rising medical indemnity premiums be taken into account in these negotiations? Dr Johnston-I would assume so. Senator MARK BISHOP-Specialists have commented to me that the increasing number of veterans entitled to treatment in private hospitals has put considerable financial pressure on their practices as they are forced to treat an increasing ratio of veterans for fees, they say, which cause them to bear an increasingly disproportionate percentage of the cost of providing that service. Does the department acknowledge that this is a problem for specialists? Dr Johnston-I think we have indicated that we are talking seriously with the AMA about these concerns and we are trying to find a way through the issues. Senator MARK BISHOP-Is that a yes? Dr Johnston-I think I would have to reread the transcript, Senator. I do not think I wanted to say yes. Senator MARK BISHOP-No, I do not think you did. Dr Johnston-We are in a process of preliminary discussions with the AMA and the specialist community. We are treating the matter as serious and needing prompt attention. I cannot say too much more than that. Senator MARK BISHOP-Have any veterans contacted the department regarding the availability of specialist services? Mr Stonehouse-Not very many. Senator MARK BISHOP-In fact, none? Mrs Devlin-On two occasions we have had people state that they may have problems accessing services-two occasions only in the last three months. Senator MARK BISHOP-Is the department aware of any specialists who have decided not to treat veterans in the future because of what they see as the inadequacy of the CMBS rate? Mrs Devlin-We have been contacted by specialists about that, yes. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 229 Senator MARK BISHOP-How many have advised you that they are no longer going to treat veterans? Mrs Devlin-There have only been a couple. I am not sure of the exact number that have advised us that they will not treat veterans. Senator MARK BISHOP-I have had some correspondence. It is not a secret-it was sent to the minister, Dr Hunter, the chairman of surgical subcommittee, the manager of Gosford District Hospital and me, from a Dr John Moreton, who said: `This is to inform you that I will no longer be accepting patients classified as Veterans' Affairs under my care at Gosford Hospital. I am happy to accept them as non- chargeable patients. I have ceased accepting Veterans' Affairs rebates for all patients at my rooms and private hospitals.' So you have had a number of similar complaints? Mrs Devlin-Dr Moreton has actually withdrawn his service and I believe we have had one other who has said that. They are the only ones who have withdrawn-or stated that they have withdrawn. Senator MARK BISHOP-So you have had two, including Dr Moreton. On 5 April the West Australian reported that five Western Australian nursing homes were recently penalised by the relevant federal agency- the Aged Care Standards Agency-for negligence in the care of their residents. Are you aware that there are any veterans in attendance at the West Australian nursing homes owned by Hall and Prior Aged Care Group? Mr Stonehouse-Mrs Witkowski might be aware. We investigate any of those reports to determine whether veterans are present in the nursing home. That is our standard process. Senator MARK BISHOP-I have five hospitals in that category: Burswood Private, Freshwater Bay, St Luke's, Kensington Park and Ascot Nursing. Mr Stonehouse-Would you like us to take that on notice and give you the information? Senator MARK BISHOP-I think the information is readily available. Mrs Witkowski-No, we do not have it. We will take that on notice. Senator MARK BISHOP-The question is: are there any veterans in the WA nursing homes owned by Hall and Prior Aged Care Group, which were found negligent in their care of residents? If so, how many veterans are there at Burswood Private, Freshwater Bay, St Luke's, Kensington Park and Ascot Nursing? What action has the department taken since the Aged Care Standards Agency reduced the accreditation periods of those nursing homes? I have had some correspondence from one particularly disgruntled spectacle provider concerning the process applying to the recent tender for spectacle frames. I have some questions arising from the answer to question on notice No. 5 from last time. Can you explain to me why the department advertised both the final request for tenders and the exposure draft of the tender in only two newspapers-the Weekend Australian and the Sydney Morning Herald? Ms Devlin-We were advised that, being a national paper, the Australian would have the coverage. The Sydney Morning Herald and the Government Gazette were also used. Senator Hill-Why not the Adelaide Advertiser? Senator MARK BISHOP-Or the Melbourne Age? Senator HOGG-Or the Courier-Mail? Ms Devlin-Advice was received that that would be sufficient for this particular tender process. Senator MARK BISHOP-The nature of the complaint from this firm in Tullamarine, Victoria is that it was advertised in the Sydney Morning Herald and their competitors up there were aware of it- Senator Hill-How did they become aware of it? Senator MARK BISHOP-Their competitors in Sydney? Senator Hill-No, them. Senator MARK BISHOP-The competitors in Sydney read it in the Sydney paper. Senator Hill-And they told your constituent? Senator MARK BISHOP-No, my constituent wrote to me and said that their competitors- Senator Hill-Your constituent saw it in the Australian? Senator MARK BISHOP-No, my constituent did not see it anywhere. Senator HOGG-He found out late-after the fact. Senator Hill-He had better ditch the Melbourne Herald and read the Australian, hadn't he? Senator MARK BISHOP-He found out late, and he is critical of the tender process. He said that he was denied the opportunity to submit a tender and that the part of the process that was deficient was the FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 230 SENATE-Legislation Tuesday, 4 June 2002 insufficient advertising in all the states except New South Wales. So my question to you, Dr Johnston, is: how do you respond to the criticism of the person who wrote to me? Senator Hill-Ms Devlin has answered that. She said that they advertised in one newspaper with national coverage and chose one of the state dailies. I would be equally distressed as a South Australian, but I know that this is a problem. Logically, it follows that, if it is necessary to advertise in daily newspapers in every state and region of Australia, it will cost a lot more money. Senator MARK BISHOP-And that will not be done? Senator Hill-Not in every instance, no. Senator MARK BISHOP-What about in this public tender instance, which involves substantial sums of money? That is the complaint-that the competitors were not aware of the process because they did not have access to the advertising. Senator Hill-They had better read the Australian. Senator MARK BISHOP-They have never read the Australian. Senator Hill-I do not know much about this industry, but I am amazed because those who are competitive in most fields of industry do know what tenders are coming up and they keep their ears close to the ground. Senator MARK BISHOP-Apparently they did not in this instance and they are complaining about it. Senator Hill-Anyway, the question has been answered. Senator MARK BISHOP-Was any consideration given to advertising in industry publications? Mr Stonehouse-There are a limited number of suppliers of frames and lenses for spectacles, and when we were tendering-and Ms Devlin will correct me if I am wrong-I think we wrote to suppliers. Ms Devlin-All providers of optical services were notified by letter in October that the tender process was going to occur in March of the following year. They were written to and informed personally about that. Senator MARK BISHOP-Did that correspondence go to Merrington's Optical in Tullamarine, Victoria? Ms Devlin-That correspondence went to the Merrington's outlets, yes. Senator MARK BISHOP-What are you laughing at? Senator Hill-I am just waiting for you to acknowledge the helpful efforts made by the department to ensure that your constituent had an opportunity to tender. Senator MARK BISHOP-I am in the process of exploring what has been the tender process and what advice has been given to applicants, and you keep interrupting. Now we have the information, I will turn to the recently released ANAO report and the issue of GST compliance. Does the DVA have any unresolved technical tax issues with the Commonwealth? Mr Farrelly-We have reviewed the ANAO's recent report. Aside from the private ruling on GST, we believe that our control frameworks are sound and, while we could always improve our training and so on, we do not believe we have any major issues. Certainly, we are going to look in more detail at the ANAO report that was released on the 29th and make sure that that is actually the case. Senator MARK BISHOP-Is the department aware of any technical noncompliance in its GST administration? Mr Farrelly-There are occasionally accounts that are incorrectly paid and we rely on a comprehensive quality assurance process that is run every two months to identify areas that might have a systematic problem with GST. We ask the officers concerned to look at those specific problems and address them. While we have something like 200,000 accounts a year that go through the finance system, there will always be the odd account that is not dealt with strictly correctly, but we believe we have processes in place to manage the situation. Mr Stonehouse-We have been advised by the ATO of a draft ruling which says that most of the services that DVA provides are GST free but which raises issues in relation to the GST status of a number of services: dietetics, occupational therapy, podiatry, speech pathology, social work, orthoptics, and some issues relating to domiciliary nursing and veterans' home care services. We are working through this with the Taxation Office. There has been a meeting held at senior level-at deputy president level-of the Repatriation Commission and we are working with the tax office to work out if there are implications for us in relation to the health GST status of some of those items. Dr Johnston-To draw together those two pieces of information: the response that Mr Farrelly gave you was in relation to payment of the department's own accounts. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 231 Senator MARK BISHOP-I understood that. Dr Johnston-Mr Stonehouse is being very careful, saying that there are a range of issues we are still clarifying with the tax office in respect of some health payments. Senator MARK BISHOP-I thank Mr Farrelly for his contribution, but I was referring to the issues that Mr Stonehouse has addressed. Does the department have any private rulings or draft private rulings on the application of the GST legislation to the department's activities? Mr Stonehouse-Yes, that was what I was referring to. Senator MARK BISHOP-When were they issued? Mr Stonehouse-Late last year-6 November. Senator MARK BISHOP-Could a copy of those draft rulings be made available to the committee? Could you take that on notice? Mr Stonehouse-I do not have a problem with that. Dr Johnston-We might just clear our way with the tax office on that if we can, but I do not think it will be a problem. Senator MARK BISHOP-I am making the request to take it on notice and give us a response. Mr Harding-I think that the rulings will give you a date of 22 March. They are the most recent rulings and, at the present moment, the tax office is reviewing them in light of further information we have provided to them. I would suggest that it would be more prudent for them to complete their consideration as they go through an appeal process. They would be seeking to make sure that what they give to us is the most appropriate ruling, having full regard to all the facts. The tax office has given a number of private rulings to other parties and they are corresponding directly with them regarding the appropriateness or inappropriateness of those rulings as well. Senator MARK BISHOP-You made a reference to private rulings in March. Mr Stonehouse made a reference to rulings on 6 November. Mr Stonehouse-Sorry, I obviously did not have up-to-date information in front of me, for which I apologise. Senator MARK BISHOP-So private rulings were issued in early November? Mr Harding-In November, the tax office was seeking to get clarification on certain issues. The rulings were actually issued on 22 March this year. The tax office and DVA are still working through whether or not there are factual errors or omissions within those rulings that require further clarification by the tax office before they issue them as the final thing. Senator MARK BISHOP-So those rulings were issued in March. What are the consequences of those rulings? Mr Harding-The rulings are such at the present moment: ATO is working with DVA on how to effect the implementation, if there are any changes required to systems, so that it is not a retrospective but a prospective tax adjustment if it is necessary. Senator MARK BISHOP-So there would not be any retrospective application to DVA? Mr Harding-No. At the present moment, the tax office wishes to work with DVA where there is a need to have some change. First of all, they are trying to clarify that they have the right understanding. From there, it is more about making sure there are systems in place to ensure there is minimum disruption to the providers and that it is not retrospective. Senator MARK BISHOP-That is a future issue. Does it have any implications for past appropriations? Mr Harding-No. Senator MARK BISHOP-Because we are only going to be talking about prospective application once the systems are up. Mr Harding-Again, the arrangement within the Commonwealth is that there is a special appropriation organised through the department of finance-Mr Farrelly might be able to explain it-but it does not actually affect the specific appropriation since it is some sort of a suspense account, if you want to call it that, where the money goes in and then is drawn again as it is claimed back. Senator MARK BISHOP-Has the department made any estimate of the cost of updating its systems to accommodate any new procedures? Mr Harding-At the present moment, we are trying to work with the tax office to establish what changes are actually necessary. There are some areas where, if we can streamline the paperwork, it will minimise the FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 232 SENATE-Legislation Tuesday, 4 June 2002 amount of changes that are required to our systems. That is working through the idea of having a simplified remittance advice, if you want to call it that. The more simplified that becomes, the less cost that is in terms of the DVA. Senator MARK BISHOP-Has the department had any discussion with health providers on this issue as yet? Mr Harding-A number of providers actually approached the Australian Taxation Office and, because of privacy reasons, the Taxation Office could not tell us that. They then proceeded to issue a number of draft rulings and, as a result of that, they then proceeded to start to have discussions with DVA. When they had better information, as of 22 March, they found out that they have to write to a number of providers to rearrange the previous rulings they have as well as to confirm where we are going in the future. So a letter is being issued by the Taxation Office to clarify the specific relationship between them and the providers about previous private rulings and when the new arrangements would come into place. Senator MARK BISHOP-I have a few final questions on the PBS. The bottom paragraph on page 43 states: A review will be undertaken of the arrangements for contracting hospital services under the Repatriation Private Patient Scheme. This will include the experience with the introduction of Veteran Partnering contracts for private hospital services. What is the purpose of that review? Dr Johnston-We are conscious that over the last two or three years we have implemented veteran partnering for private hospital contracting. We have been in extensive dialogue and negotiation with the states to put our contracting for public hospitals on a more robust basis and on a more satisfactory purchasing basis. We are at a stage, if you like, where we think we need to review, from an implementation point of view, how well we are travelling in that range of contractual approaches. We are still framing our approach to such a review. We have not actually initiated the review; we are discussing possible approaches with various interested parties and hope to progress that in the not too distant future. Senator MARK BISHOP-So you would not have given consideration to who will the conduct the review? Dr Johnston-No, we have not. Senator MARK BISHOP-Is it likely to be in-house or out? Dr Johnston-We are still talking with sister agencies and giving thought to what might be useful to us and what might be useful to others. Senator MARK BISHOP-Any idea of the time frame for the review? Dr Johnston-I think we need to shape it a bit more. In a sense, the more comprehensive it is and the more public it is, the more time you might want to allow for due process and consultation. If it is a fairly straightforward implementation review for the department's primary benefit, we could probably progress that fairly quickly, using one or two consultants that might have expertise in this area. Senator MARK BISHOP-I want to ask a few questions about your answers to questions on notice in this round of budget estimates. Could you explain the difference between pharmaceuticals listed as `restricted benefit' and pharmaceuticals listed as `authority required'? Dr Killer-Restricted pharmaceuticals are restricted to a particular condition. So it is a guidance for the doctor when he is prescribing. If authority is required, then a phone call is necessary to either the HIC or the department to get an authority for that item to be prescribed. So there is the necessity for a phone call. Senator MARK BISHOP-Does that apply to gold card holders or to white card holders? Dr Killer-It applies to everyone. Senator MARK BISHOP-Does that apply in high-cost items-where you need to get authority to issue? Dr Killer-The way our system works is that we have pharmaceuticals listed on the PBS, which you are aware of, and pharmaceuticals listed solely on the RPBS-our list-but if a drug is available and being marketed in Australia and a doctor can give clinical justification for its use, as often occurs in the management of cancers or leukaemias, they can write in for what we call `prior approval' and a member of our Repatriation Pharmaceutical Reference Committee will look at that and see whether it is appropriate for the treatment of the particular veteran. So this is an avenue that is available to veterans through our scheme but not through the PBS. Senator MARK BISHOP-It sounds quite beneficial. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 233 Dr Killer-It is based on a clinical need provision of treatment. Many of these items, such as Glivec-I can mention one preparation for leukaemia-are quite expensive preparations, so they come specifically to our department and then a specialist member of our committee would look at the request. Senator MARK BISHOP-I have a series of detailed questions arising out of questions 3, 4, 5 and 6 where you identified a whole range of medications and the like that are on the RPBS. I think I might put them on notice and ask you to give written information as to why a range of drugs, medications, oils and sunscreens are included on the list. I am sure there is good reason, but I think I will put that on notice. Dr Killer-As you can see, there is a large number of drugs on that list. Senator MARK BISHOP-There is; and there is a large range supplementary items like bath oil and sunscreen and laxatives which are costing millions of dollars. But I am sure there is probably sound condition for those. Dr Killer-The way the RPRC works is that, if a new pharmaceutical is on the market, an application can be made for it to be reviewed by the committee. So not only does it review new items but it does systematic reviews of the items actually on the list and, as a result, some pharmaceuticals are taken off and often replaced by newer and better medications. So it is an ongoing review process. But if you have queries in relation to specific medications-and there are so many of them-it is probably better to take them on notice, I would have thought. Senator MARK BISHOP-I think I will put them on notice. This is one for you, Dr Johnston. I have received representation from the RSL in Western Australia concerning a British veteran who lived in Australia for 10 years previously, served with the Australian Army in Vietnam for quite a long period of time, has been granted 100 per cent DP and the gold card and yet has been rejected for a service pension. On the face of it, it strikes me as being a bit absurd, given that the person concerned is a resident of Australia, has made it his home and has served with our forces. I am told the person has been rejected on two separate occasions, so I raise it formally, as I have been asked to do, and I would appreciate an urgent response with advice as to remedial action of a discretionary nature which might be taken to grant residency in what seems to me to be a fairly open-and-shut case. He served in Vietnam for many years, was a member of the Australian armed forces, lived in Australia for many years, returned to Britain, then came back to Australia in recent times and has had some correspondence. His name is- Senator HOGG-Do you want to put his name in Hansard? Senator MARK BISHOP-Yes, he has asked me to do so. He is Mr P.H.J. White, Vietnam veteran, DVA WSS4051. I wonder if I could ask you to draw it to the attention of the minister to see if there is any discretionary action that exists to give this man residency status in Australia. Dr Johnston-As you know, we are bound by the legislation, but if you can provide me with the papers we would be happy to- Senator MARK BISHOP-I would ask you to draw it to the attention of the minister. Dr Johnston-And we can advise you of our response, yes. [10.50 p.m.] Senator MARK BISHOP-That concludes my questions on health. I thank Dr Killer and the other officers. We might now turn briefly to outcome 1, compensation. Dr Johnston, on 22 February I asked on notice about the costing of exempting disability pension at the general rate only from a Centrelink means test, to which you responded that you were awaiting advice from DFACS. Has that request been forwarded and, if so, when might a response be available? I ask this because it is public knowledge that I will be moving amendments to the social security bill currently before the House and an accurate costing will be required by the government in the event that it passes in the Senate. Dr Johnston-We provided a draft response for the minister's clearance, so it is subject to further process in the light of their reading of our draft response. Senator MARK BISHOP-So the draft response has come and we are waiting for clearance? Dr Johnston-That is correct. Senator MARK BISHOP-You might just draw to the minister's attention the fact that we are waiting on that. I turn now to some T&PI issues. On 22 February I asked about the number of T&PI pensions that had been cancelled as a result of investigation into work undertaken in breach of the work test, to which you responded that there had been none cancelled but a number had been reduced. Could you take on notice, please, that I would like to know the number which have been reduced and the degree of reduction in the same period. Also on that day you told me that there were 11 appeals pending to the AAT from POWs or their widows, some relating to domicile and others to women who were divorced. Could you please advise of the FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 234 SENATE-Legislation Tuesday, 4 June 2002 policy with respect to divorced widows, either where the POW has remarried or where he has not? Also on 22 February you provided me with a list of the best program recipients, and I thank you for that. In consultation with some claims advisers in the community, it has been suggested to me that such grants ought to be made on the basis of claims processed and lodged, which I suppose raises the question of the overall effectiveness of the scheme. Has any consideration been given to such a suggestion? Mr Maxwell-The BEST program is in fact under evaluation at the moment. That is one of the considerations I know has been factored into that evaluation process. Senator MARK BISHOP-So that issue is under review. I refer you to an article in the Australian on 28 May under the title `Cell damage found in SAS veterans'. Can DVA comment on the research by geneticist Judith Ford referred to in that article? Dr Horsley-We have had a preliminary look at the material that Dr Ford has provided. It is based on very small numbers, and it is difficult to make an assessment of the value of work based on such small numbers. In addition, it is clear from the documentation that was provided that the veterans have self-selected-that is, there has been a process by which a number of veterans have put up their hands and said, `Yes, I would like to have my blood tested.' Given that background, it may be that the value of the testing is limited because it is known in these sorts of studies that people who feel they are sick are more likely to come forward and volunteer for such work. We have not seen the full report but, from what I have seen so far, we need to take the results of those tests with a grain of salt. Senator MARK BISHOP-You would put it that strongly? Dr Horsley-Yes, I would. Self-selection is a very serious flaw in epidemiological studies. If you have a group of people who are selecting themselves for testing, that can seriously undermine the value of the work, particularly when you are basing it on such a small number of cases that have not been randomly selected. Senator MARK BISHOP-Do you dismiss this research out of hand? Dr Horsley-No; I think we need to take it, as I said, with a grain of salt. It is work that has not been published in a peer-reviewed journal, it does not have an ethics committee approval that I am aware of, so there are reservations that we need to express at the front end of the research. We also know that research based on very small numbers, where people have volunteered to come forward and be guinea pigs, is often flawed. When a more methodical study is done and more rigorous methodology is used, sampling correctly over the entire group, such early reports often prove not to be sustained. Senator MARK BISHOP-Do you know whether the research referred to involves serving or retired SAS personnel? Dr Horsley-I know for certain that there were some retired ones. I do not know if there were any serving ones. Senator MARK BISHOP-Would it matter? Dr Horsley-It may not. One difficulty with serving personnel is that they are covered under certain degrees of confidentiality that pertain to the SAS. That may make it a little more difficult. Senator MARK BISHOP-Are you aware of whether the ADF supported the study at all? Dr Horsley-No, they did not support the study. It was done by the veterans themselves. That was another slight difficulty, in the sense that each veteran paid for their own tests. That would be another selection bias. You are selecting not only veterans who perceive themselves to be sick but veterans who are willing to pay X amount of money to have their own tests done. Senator MARK BISHOP-How many were involved? Was it 28? No, that is not right. It says here, `An analysis found that six out of 10 SAS veterans tested had suffered chromosomal damage,' so it was 10. They were all self-selecting and they all paid for their own medical costs? Dr Horsley-That is the understanding I have, based on the documents that I have seen. Dr Johnston-Just to be a bit careful with the points we are making, the critical point that Dr Horsley is making is whether this research can serve an epidemiological purpose in some broader statements about this type of circumstance. The study clearly has some deficiencies from that point of view. However, the individuals concerned may be in most unfortunate circumstances which need to be addressed in another context. The question is whether the study has value from an epidemiological point of view, which is the evidence based perspective, and the study has significant shortcomings in that regard. Senator MARK BISHOP-I understand the point you are making. I now refer you to an article in the Sydney Morning Herald on 25 May. FOREIGN AFFAIRS, DEFENCE AND TRADE Tuesday, 4 June 2002 SENATE-Legislation FAD&T 235 CHAIR-I will interrupt you there. Clearly, you require more time. By prior arrangement we are going to meet again with DVA after the dinner break tomorrow, so I think we might pull stumps. Thank you, Dr Johnston, and your officials. We will welcome you back tomorrow evening at 7.30. Dr Johnston-Thank you. I take it that we do not need to bring the Health Division staff back tomorrow; we have completed the discussion of health matters? Senator MARK BISHOP-That is correct, Dr Johnston. Senator HOGG-We should not assume what Senator Allison might want in this process. CHAIR-Her questions revolve around the general theme of problems with Maralinga testing. Are you aware of what she might ask? Senator HOGG-She said to me that she had some questions on notice which you people have answered before. Mr Maxwell-I think they are predominantly ones that we can handle. Senator HOGG-So long as you are aware of her requirements. Dr Johnston-It would be Mr Maxwell and his staff that would address those issues, not the Health Division. Senator HOGG-That is fine. I just needed to raise it with you. I would hate to see you come tomorrow night with the wrong people. CHAIR-Thank you and good evening. Committee adjourned at 11.00 p.m. COMMONWEALTH OF AUSTRALIA Proof Committee Hansard SENATE FOREIGN AFFAIRS, DEFENCE AND TRADE LEGISLATION COMMITTEE Consideration of Budget Estimates WEDNESDAY, 5 JUNE 2002 CANBERRA CORRECTIONS TO PROOF ISSUE This is a PROOF ISSUE. Suggested corrections for the Bound Volumes should be lodged in writing with the Committee Secretary (Facsimile (02) 6277 5818), as soon as possible but no later than: Wednesday, 19 June 2002 BY AUTHORITY OF THE SENATE [PROOF COPY] INTERNET The Proof and Official Hansard transcripts of Senate committee hearings, some House of Representatives committee hearings and some joint com- mittee hearings are available on the Internet. Some House of Representa- tives committees and some joint committees make available only Official Hansard transcripts. The Internet address is: http://www.aph.gov.au/hansard To search the parliamentary database, go to: http://search.aph.gov.au Wednesday, 5 June 2002 SENATE-Legislation FAD&T 237 SENATE FOREIGN AFFAIRS, DEFENCE AND TRADE LEGISLATION COMMITTEE Wednesday, 5 June 2002 Members: Senator Sandy Macdonald (Chair), Senator Hogg (Deputy Chair), Senators Bourne, Chris Evans, Ferguson and Payne. Senators in attendance: Senators Mark Bishop, Calvert, George Campbell, Jacinta Collins, Cook, Cooney, Chris Evans, Ferguson, Hogg, Lundy, Sandy Macdonald, McKiernan, O'Brien, Payne and Schacht Committee met at 9.03 a.m. DEFENCE PORTFOLIO Consideration resumed from 4 June In Attendance Senator Hill, Minister for Defence Department of Defence Portfolio overview and major corporate issues Portfolio overview (including implementation of White Paper) Dr Allan Hawke, Secretary of the Department of Defence Admiral Chris Barrie, AC, Chief of the Defence Force Lieutenant General Des Mueller, AO, Vice Chief of the Defence Force Mr Lloyd Bennett, Chief Finance Officer Budget summary and financial statements Improvement initiatives (efficiencies, Commercial Support Program, customer­supplier arrangements) Mr Lloyd Bennett, Chief Finance Officer Mr Rick Martin, Acting First Assistant Secretary Financial Services Division Mr Joe Roach, Acting First Assistant Secretary Business Strategy Division Capital budget: major capital equipment and major capital facilities projects (questions on Defence Materiel, including on materiel reform, and infrastructure projects) Mr Mick Roche, Under Secretary Defence Materiel Mr Shane Carmody, Deputy Secretary Corporate Services Major General Peter Haddad, AM, Commander Joint Logistics Rear Admiral Kevin Scarce, CSC, RAN, Head Maritime Systems Dr Ian Williams, Head Land Systems Air Vice Marshal Ray Conroy, AM, Head Aerospace Systems Mr David Learmonth, Head Industry Division Ms Shireane McKinnie, Head Electronic Systems Air Vice Marshal Norman Gray, AM, Head Airborne Surveillance and Control Ms Ann Thorpe, Head Materiel Finance Mr Michael Pezzullo, Acting Head Infrastructure Responses to questions on notice from 2001­02 additional estimates hearing. Defence outputs Output 1-Defence operations Rear Admiral Chris Ritchie, AO, Commander Australian Theatre Mr Kevin Pippard, Director Business Management Headquarters Australian Theatre Output 2-Navy capabilities (Navy Group issues) Rear Admiral Brian Adams, AM, RAN, Deputy Chief of Navy Mr Les Wallace, Director General, Navy Business Management Rear Admiral Kevin Scarce, CSC, RAN, Head Maritime Systems, Defence Materiel Organisation Mr Mark Gairey, Director General Submarines Output 3-Army capabilities (Army Group issues) Lieutenant General Peter Cosgrove, AC MC, Chief of Army Mr Lance Williamson, Director General Corporate Management and Planning­Army Output 4-Air Force capabilities (Air Force Group issues) Air Marshal Angus Houston, AM, Chief of Air Force FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 238 SENATE-Legislation Wednesday, 5 June 2002 Mr George Veitch, Assistant Secretary Resources Planning Air Force Air Vice Marshal Ray Conroy, AM, Head Aerospace Systems Output 5-Strategic policy (including Defence Cooperation Program) Dr Richard Brabin­Smith, AO, Deputy Secretary Strategic Policy Air Vice Marshal Alan Titheridge, AO, Head Strategic Command Ms Myra Rowling, First Assistant Secretary Strategic International Policy Output 6-Intelligence (including Defence Security Authority). Mr Ron Bonighton, Acting Deputy Secretary Intelligence and Security Mr Stephen Merchant, Acting Director Defence Signals Directorate Ms Margot McCarthy, Head Defence Security Authority Business processes Defence Science Dr Roger Lough, Acting Chief Defence Scientist Dr Tim McKenna, CSM, First Assistant Secretary Science Policy Ms Chris Bee, Assistant Secretary Science Corporate Management Inspector General (including portfolio evaluations) Mr Claude Neumann, Inspector General Public Affairs Ms Jennifer McKenry, Head Public Affairs and Corporate Communication Mr David Spouse, Acting Director-General Communication and Public Affairs Corporate Services (including management decision support (information systems)) Mr Shane Carmody, Deputy Secretary Corporate Services Mr David Kenny, Head Information Systems Division Mr Ken Moore, Head Service Delivery Division Mr Michael Pezzullo, Acting Head Infrastructure Mr Ian Clarke, General Council Defence Legal Service Mr Patrick Hannan, Chief Information Officer People Defence Personnel (recruitment and retention, recruiting advertising) Rear Admiral Russ Shalders, Head Defence Personnel Executive Mr Felix Bleeser, Deputy Head Defence Personnel Executive Commodore Louis Rago, Director­General Peronnel Plans Ms Bronwen Grey, CSM, Director Equity Organisation CHAIR-I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I will shortly welcome back Senator Hill, Minister for Defence. I welcome Dr Hawke and officers of the Defence organisation. Yesterday the committee adjourned on output 3, Army, which was completed. Today the committee will move to output 4, Air Force. Before I call for questions, Dr Hawke, you have a question of the committee. Senator Hill-I have an answer to a question asked yesterday. I think it was immediately after lunch, when I was not here, that Senator Faulkner asked who tasked Admiral Gates to conduct a review of intelligence advice relating to SIEVX et cetera. The answer is that my office, on my behalf, tasked CDF/Secretary task force to seek the formal advice. They did this to ensure that an answer that I had previously given to Mr Crean was accurate and complete. That brief is being finalised and I expect to get it in the next few days. CHAIR-Thank you, Minister. Dr Hawke do you wish to ask something? Dr Hawke-I have nothing further to add. CHAIR-I thought you were going to raise a question about questions on notice. Dr Hawke-I was going to raise that at the end, but if it is appropriate I will do it now. I wanted to raise with you whether it would suit you and the committee for the written questions on notice-because we probably will not deal with everything today-to be tabled by the close of business tomorrow when the committee finishes its hearings. CHAIR-In view of the fact that the return date for questions on notice is 12 July, I think the secretary is concerned that if the questions on notice are not tabled at an appropriate time then the return becomes very difficult. Dr Hawke-That is right, Mr Chairman. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 239 CHAIR-In other words, if the committee's questions are tabled in two weeks time, having been flagged at this time- Senator Hill-It becomes very difficult anyway. The earlier they are tabled the better. Senator HOGG-I think we should do something similar to that being advocated. I understand your dilemma-and I do not see any problem with that; I cannot speak for the shadow minister and others-but the past practice of the committee has been to have those tabled about 24 hours after Defence appears. There is a need to go back and cull the things that do not need to be addressed. Dr Hawke-This would accord with that practice. It is just that the last time around we got some questions lodged some four or five days after the committee had finished its hearings, which made it particularly difficult for us to meet the timetable we are required to meet. CHAIR-We will meet your request, Dr Hawke. If it requires us to have a private meeting, we will do so. Dr Hawke-Thank you. Senator HOGG-I have a couple of broad questions before Senator Evans asks a few specific questions. On page 49 under the heading `Logistics' it states: To maintain current levels of capability, including current ADF operations, training is being reduced in some key roles. Can you explain to me why you would be reducing training in key areas to maintain levels of capability? That just does not seem to sit well together. I might be missing the point. Air Marshal Houston-It really relates to the rate of effort on some of our aircraft. Because of logistical challenges there are a couple of areas where we have not done as much training as perhaps we would like to. It is a very complex issue because it relates to a very high level of operational tempo as well. I can go into that if you like. Senator HOGG-What are the key areas where you have scaled back training because of the increased tempo to keep up the current levels of capability? Will that not impact upon your longer term operational capacity in those areas? Air Marshal Houston-Right now we have a situation where in certain areas-if we take the maritime patrol capability as an example-just about all of the effort is going into operations. In fact, we have flown a very high rate of effort in that particular area. Some of the training that we would normally do has suffered as a consequence. For example, we have not done any of the normal warfare training that we would do- antisubmarine training and so on. There have been some problems in that area. We have flown above our planned rate of effort because of the government's requirements for operations. Senator HOGG-Given that you have exceeded the rate of effort that you would have otherwise expected, how are you going to redress the lack of training in the longer term, because that must loom as a real problem for you? Air Marshal Houston-When I talk about the P3 it is a very complex situation because we also have the transition to the new P3, the AP-C3. It is not usually a question of one factor; it is usually a whole web of factors. I will address the P3 issue. We are also going through the transition to the AP-3. We have a number of crews who are now trained on the AP-3. In the next few weeks we are sending a number of people on exercises to regain some of the antisubmarine warfare skills that have slipped by the wayside. Those sorts of skills are very perishable. You have to do it all the time, otherwise you lose your proficiency. In the short term we have this exercise set up, and next year, once we have the AP-3C in a more mature state, we will do more exercising and we will regain the capability. Another thing that will help will be to bring on the new operational mission simulator that has been running a bit late because of the project delays. Once we get that, that will also assist with the maintenance of those high-end war-fighting skills in the antisubmarine warfare, antisurface warfare areas. Senator HOGG-In an effort to regain some skills and maintain some in the longer term, will it mean that there is a rate of effort that you will be committed to that you will not be able to sustain to achieve your goals? Air Marshal Houston-Let me put it this way: I am totally confident that when the operational mission simulator comes on line we will be able to maintain those skills, together with a series of exercises that we normally run. The rate of effort we will be able to generate we will not have a difficulty with at all. That is provided of course that we do not have higher operational priorities. At the end of the day, the work that we are doing at the moment in the surveillance area-and we are doing a lot of surveillance-is not good for the maintenance of the high-end war-fighting skills. It is a little bit like the situation that Navy has with their ca- pabilities and which COMAST spoke about quite extensively yesterday. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 240 SENATE-Legislation Wednesday, 5 June 2002 Senator HOGG-Yes, and I do not intend to pursue those with you, because I accept that that would be there for yourselves as well. On page 48 of the PBS you talk about key risks and limitations, and a number of personnel shortages are identified-air crew, engineering, medical, technical work. Can we get some idea of the rate of retention and the rate of separation in those areas and the gap between the actual that you have and what you really need to operate? Air Marshal Houston-Certainly. The shortages come in a number of areas. I have got the specifics in all of those areas, but perhaps I will highlight the complexity of the issue by just talking about pilots. We actually have the right number of pilots-in fact we have more pilots than we probably need-but most of them are junior pilots, and where we have a problem is in shortages of fast-jet pilots and shortages of experienced people, particularly flying instructors. So, if I were to give you the overall figure and say, `Pilots? Actually with pilots we do not have a problem,' that would hide the fact that we do have some shortcomings in numbers of fast-jet pilots, numbers of instructors and so on. We will eventually get healthier: we have been very successful this year in recruiting a number of experienced pilots. We got 24 pilots from Ansett; we got another 10 fast-jet pilots from the New Zealand Air Force. Senator HOGG-Sorry, how many from New Zealand? Air Marshal Houston-Ten. We got three pilots from the airlines: one from Qantas, one from Alitalia and one from Cathay Pacific, and we got a couple of people back from the BAE Systems contract that is run in Saudi Arabia. That is a total of 40 pilots we have been able to recruit, and that has helped substantially with our shortages in the fast-jet and instructor area. Senator CHRIS EVANS-Is that partly driven by the downturn in international air travel and employment for pilots in the market? Air Marshal Houston-Not specifically, because over 50 per cent of them have come from Ansett. They are former Air Force people. Senator HOGG-I was going to ask that. Air Marshal Houston-They have come from Ansett- Senator CHRIS EVANS-Out of the whole shake-up, yes. Air Marshal Houston-and Ansett actually went bust a couple of days after September 11, so I think that was going to happen anyway and we picked them up. I might add that we have also, at the same time, had some people separate to go to Qantas. Qantas are still recruiting and we have had some of our middle-level people go to Qantas. Senator HOGG-I understand that there was a stage in recent times when the number of pilots that were leaving exceeded the number that were being recruited. That was given in evidence before another inquiry that was conducted in the Senate last year. Are you now saying that you have basically arrested that situation? Air Marshal Houston-That situation does not exist. In fact, I can give you the very precise figures- Senator HOGG-No, no. Air Marshal Houston-I can assure you that we have slightly over the number we require. The fact is, though, that a lot of them are in training of one form or another. As you know, and I think Admiral Shalders alluded to this yesterday, it takes probably five or six years to train a fighter pilot from scratch until the time that he is a fully proficient operational fighter pilot. Senator HOGG-I accept that. There is a huge investment by Defence in the training of these personnel. To see some of these people reach a high level of proficiency and then leave is quite tragic indeed. That really brings in the other issue of their career management, which left a bit to be desired when there was an inquiry last year into the matter of retention and recruitment. On the retention side, there was a bit of dissatisfaction around about the way their careers were being managed-the attention and the detail given to the needs of various people in terms of transfers and promotion. There was criticism by some people that the one thing that they wanted to do was to get out there and fly a plane. They did not want to be sat behind a desk somewhere, pushing papers around the table, inserting paperclips and stapling things together. Can you make a comment on that? Senator CHRIS EVANS-Are you alleging that is what Air Marshal Houston does? Senator HOGG-No, I think he is beyond stapling. Air Marshal Houston-All of our pilots are employed in very gainful employment. I think the point is, though, what we have to do and what we are doing. I tasked my DG personnel with coming up with a new way of doing personnel management within Air Force. You are probably aware that we did have a pilot sustainability project that was created by my predecessor, and that has revealed a few interesting facts. What we need to do is better align the requirements of the service with the requirements and the expectations of our FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 241 people. We are now addressing that in detail, not just for pilots but right across the board, because the system we had was basically a very old system-it has probably been in existence since about World War II-and we really need to modernise the way we manage our people. So we are doing that. The end result will be to push down the detailed career management of our officer force and our airman force to the lower level so that it is done at force element group level. Another end result will be that we have a much more realistic approach to the characteristics of our modern work force, where very often people have other requirements that relate to what their partners do, their need for locational stability and so on. I think we will end up with a system that is much more attuned to the requirements and expectations of our people, and I am getting good feedback on the fact that we are addressing the problem in the way that we are. Senator HOGG-Thank you for that. I am not going to pursue this issue any further, except to ask whether you can give some later statistics to me on those areas-not now. If you have got a table, that will suffice. There is one group that you have left out that surprises me, and that is air traffic controllers. Air Marshal Houston-We were established for 333 air traffic controllers. Right now, we are short of about 80 air traffic controllers. That is a big shortfall. We have arrested the rate of separation that we had 12 months ago with the bonus that we put in place. Twelve months ago, we were 82 short. So we are still in the same situation; we just have not lost any more this year. That is a direct consequence of the retention bonus that was put in place. Senator HOGG-At the same time, you have an increase in tempo. Is that affecting the workload that existing air traffic controllers have? Have you had to cut back operations as a result of the increased tempo and the pressure that has been placed on the air traffic controllers? Air Marshal Houston-What we have done is look at the whole air traffic control work force. We have obviously aligned the work force with our priorities and, yes, there have been areas where operations have been restricted because of a lack of air traffic controllers. For example, at East Sale there will be periods where we only have limited air traffic control operation and then the rest of the time, usually in the evenings and into the night-time, we might work with a mandatory broadcasting zone. Obviously we would prefer to have air traffic control services available at that time, but we have been able to operate safely with the MBZ set-up. So we have made those sorts of adjustments to cater for the lack of air traffic controllers and sometimes we have restricted our operations because of a lack of air traffic controllers. I would stress that we do not work them harder. We have very strict rules on how long air traffic controllers can work for, because the last thing you need is a fatigued air traffic controller controlling aircraft. Senator HOGG-I look forward to the statistics that you can provide us with on those various categories. Air Marshal Houston-I can give you all of them now if you wish. Senator HOGG-I just think it might be easier-if you have them in a table-if you table it, and that saves you reading it into the Hansard. Air Marshal Houston-I would stress that a lot of the shortages relate to some of our smaller categories and musterings. I suppose the big areas, as far as the airman force is concerned, are shortages in the communications and electronics area-communications electronics fitters and also avionics technicians. Senator HOGG-The only other thing I want to know about before I hand over to Senator Evans is that on page 48, under `Logistics', there is a comment about `higher than expected costs of operating new platforms'. What platforms are costing more than you expected and are they covered in the budget? Air Marshal Houston-We have two new platforms that we have introduced to service-the Hawk 127 and the C130J. I might take the C130J as an example. The C130J is costing us more than was planned during the project phase. Most of those costs relate to the maintenance of the software and also the need for more work on the engines than we anticipated. I stress that the C130J was in a very early stage of development when we bought it and you would normally expect the costs to be higher at the start of its life than they will be in, say, five years time. That is fairly normal. You normally have a few teething problems, a few unexpected problems, when you introduce an aircraft to service and then, once you get over those, things settle down. I might ask Air Vice Marshal Conroy to give you some specifics about the C130J. Senator HOGG-Thank you. Air Vice Marshal Conroy-I do not have a great deal to add to that, Senator. There was an expectation in the mid-nineties when the project was approved that this being a new generation, largely software driven aircraft there would in fact be an efficiency dividend by the introduction of the new aircraft. But the software support costs of the C130J have exceeded our expectations. Senator HOGG-Can give me an idea of percentage? Is it 10 per cent higher, 20 per cent higher, double? Air Vice Marshal Conroy-It is about double; I think that would be a broad proportion. However, we are in intensive negotiations-in fact, multinationally-with the other C130 users and we have some confidence FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 242 SENATE-Legislation Wednesday, 5 June 2002 that we can come to an arrangement with the original equipment manufacturer to substantially reduce our annual support costs of the C130J. We are working to get a substantial reduction in the way we do business. Senator HOGG-When you say it is double, double of what? What was the original cost you were planning for? Air Vice Marshall Conroy-Last year, it was looking as if we were short of the order of $40 million a year in our forward budgets for the C130J. However, the result of those negotiations I am talking about may well bring that shortfall down to something in the order of $10 million a year, and I believe that is probably manageable within my budgetary base. Senator CHRIS EVANS-In reply to questions from Senator Calvert yesterday, you talked about the F111 wings issue and you canvassed that pretty thoroughly. I am interested in their longer term capability and the flying hours et cetera. Have you got figures for F111 flying hours for this year and last year? You used to publish the targets and then the accomplished. Have you got those? Air Marshall Houston-Yes, I have. Last year it was 2,757 hours; this year we anticipate flying about the same again, 2,700 hours. Senator CHRIS EVANS-That is your target for this year, is it? Air Marshall Houston-No, the initial target was higher than that. Senator CHRIS EVANS-What was that? Air Marshall Houston-The initial target was 3,600 hours. Senator CHRIS EVANS-But you think you will come in at about 2,700 hours, and that is for 2001-02? Air Marshall Houston-That is for 2001-02, and then for 2002-03 our projections are that we will be back to over 3,000-about 3,200 hours-and what we want to do is get back to 3,600 hours further downstream. Senator CHRIS EVANS-Can you explain the rationale behind the targets for the flying hours. Is the primary purpose of having target hours to keep the skills of your pilots and air crews up? Air Marshall Houston-Yes, if we specifically talk about F111s, those hours relate to conversion training and then training to maintain all the skills that are necessary to operate the aircraft. Of course, we also have a flight simulator, which helps to maintain those skills. There are other requirements on us, like the support of exercises: for example, three of those aircraft were recently up in Malaysia on the fire power defence arrangement exercise-the air defence exercise run by headquarters integrated area defence system-and, as I said the other night, they maintained outstanding serviceability and flew about 110 hours over two weeks. Senator CHRIS EVANS-Do those hours get counted in your targets? Air Marshall Houston-Absolutely. Senator CHRIS EVANS-All the hours get thrown in? Air Marshall Houston-Absolutely, and then there would be other exercises that we are involved in, some of them to support the joint operations or, specifically, to maintain our own skills. Senator CHRIS EVANS-The reason you strike the targets is effectively for your need to maintain the skills of your personnel. I assume the corollary is that, if you are not making your targets, you feel that you are not getting the hours that you want. Obviously you have the flight simulator, but what does it mean when you do not meet target hours? Air Marshal Houston-What it means is that certain of the lower priority activities are not completed. In the circumstances we are in at the moment, we are maintaining our skills. The skills are suitable to meet all our preparedness requirements. So we still have a very good operational level of capability; it is just that we are not participating in as many exercises as perhaps we did in the past. Senator CHRIS EVANS-Is that because of other demands on Defence resources or is it because of problems with aircraft or what? Air Marshal Houston-Specifically it relates to problems with the aircraft. Instead of flying 3,600 hours, as we would like, we are flying 900 fewer hours and that means there are 900 fewer hours to support ADF and other exercises. Senator CHRIS EVANS-So you are not rationed, but in terms of the exercise program you have to allocate that over the priorities? Air Marshal Houston-Our first priority is to maintain the skills of our crews and also to train new people coming into the force. We are meeting all those requirements and, indeed, we are supporting quite a few exercises. It is just that we are not supporting all the exercises we were perhaps programmed for. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 243 Senator CHRIS EVANS-So cost pressures are not impacting on these decisions at all? Air Marshal Houston-Not at all. Going back a couple of years, you would be aware that we had some problems with the F111-another ageing aircraft problem-and we had some fuel leak problems. We also had some problems with maintenance of the fuel tanks, and that related to an OH&S problem. The consequence of all that was that we had a reduced rate of effort. Through all of that, we were able to maintain a good operational level of capability and, as you can see from the hours we are going to fly this year, we are actually maintaining the same level of effort and the same level of capability as we had last year. Senator CHRIS EVANS-But that was considerably down on previous years. As I understand it, looking at the records, you used to plan for 4,400 hours per annum-you seemed to fall just short of that in 1996 and 1997 and 1998 but you were basically pretty close to the 4,400 mark. Now you are down to 2,700 hours. That seems a considerably lower level of effort. Air Marshal Houston-It certainly is. I would like to be up at 3,600 hours. That is what we are aiming for in the medium term. I am confident that we will get back to that, once we have the wing problem sorted out. We have sorted out the fuel tank problem and I think we have a very good solution to the wing problem. Once that is sorted out, the F111 will be back up to historical figures in its rate of effort. Senator CHRIS EVANS-As I say, 4,400 hours was the target for many years. You do not seem to be even contemplating getting back up to that sort of level. Is that because you do not think it is possible any longer? Air Marshal Houston-We look at the hours we fly, and we have a certain amount of money and a certain quantity of resources to run the Air Force fleet. We make the necessary trade-offs to make sure we meet all of government's requirements and then we make the necessary adjustments in managing the flying hour program. So the fact that we flew 4,400 hours five years ago is not really significant. We have changed that mentality. We are now into a system of meeting a directed level of capability. My job as the output manager is to deliver the Air Force output for the government. One of the subsets of those outputs is the F111 output. I am not worried about how many hours I fly; what I am worried about is delivering the directed level of capability. If that takes 3,600 hours, so be it. The fact that we used 4,400 hours in the past probably did not mean that we needed that many hours to get the required level of capability. It is a very complex subject, and it also involves the way in which we manage the rest of the fleet, because I have to make the same assessments against each of the output's subsets. Senator CHRIS EVANS-I appreciate that, but from my point of view as a layperson one of the things you look at is how you measure whether you are reaching that level of capability. One of the things that has been used in the past is flying hours. On first blush you say, `We used to plan for 4,400 hours, we did that consistently for many years; now we are flying 2,700,' and it begs the question of whether or not we are actually reaching that level of capability. You assure me that you are, but that is one of the ways we could test that, I suppose. Air Marshal Houston-Let me just say that I really need 3,600 hours to deliver the full capability that I would like to deliver, but I am able to deliver a very credible capability with the hours that we are flying right now. Also, we have a very good simulator and that assists as well. Senator CHRIS EVANS-Putting aside the temporary issue of the wing problem, is the reduction in the number of hours flown or in the capacity for flying impacted upon by the ageing of the aircraft? Is there the sense that you do not want to fly older aircraft as much? Air Marshal Houston-Not at all. As I said previously, both of our recent problems, the fuel leak problem and the wing problem, are classic ageing aircraft problems. Once we have fixed those problems we have to come up with an assessment, and it is an airworthiness assessment, and we have the highest standards of airworthiness in the world; so we meet those standards and there are no problems with flying the aircraft once we have fixed the problem. Senator CHRIS EVANS-But is it the case that the more you fly it the more problems you are going to develop? You indicate in the PBS, and I think you have indicated on the record previously, that the cost of maintaining ageing aircraft increases. Even a lay person like me can understand that. Obviously it then begs the question: is it that the more you fly it the more maintenance you require and the bigger are your costs? Is that a fair comment? Air Marshal Houston-I put it in a slightly different way. Aircraft that are past a certain age, let us say 15 years, require more maintenance and more inspections. Similarly, once an aircraft gets to a high number of fleet hours-let us say we had an aircraft that was 10 years old and it had flown an incredible number of hours-that aircraft would also be regarded as an ageing aircraft. So it relates to the age of the airframe and also the number of hours that it has flown. That ageing aircraft will require more maintenance and more in- spections. And you can anticipate that from time to time you will get a surprise. Let me give you an example: FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 244 SENATE-Legislation Wednesday, 5 June 2002 our Boeing 707 developed a crack in a place we had never seen a crack before-in the wheel well area. We had a look at the other 707s and we found another one with the same condition. We then had to come up with a repair scheme in consultation with the aircraft manufacturer. We sent the aircraft up to Amberley and had them repaired, and they are now flying again. They are now airworthy again. The direct consequence of finding a crack in that place is that that is another place we have to inspect that perhaps we did not inspect thoroughly before, and there may be other additional maintenance requirements for similar problems. That is what ageing aircraft are all about. Even the Falcon 900s that we are about to get rid of have more servicings now than they had through most of their service life. That is a direct consequence of the age of the aircraft. Senator CHRIS EVANS-And that obviously has huge budgetary implications for the cost of maintenance. For instance, do you have a cost figure for the F111s per hour of flying time? Is that how you work it out? Air Marshal Houston-We can give you cost figures. In fact, I will ask my colleague Mr George Veitch to give you a run-down on the cost of the F111. Mr Veitch-We use a full cost rate purely in a cost recovery sense. We recently updated the rate for the F111. It is about $125,000 per hour. Senator CHRIS EVANS-Nothing in Defence is cheap, is it-and that is full cost recovery? Mr Veitch-That is full cost recovery. That would include amortisation of the capital and all the overhead costs-the whole thing. Senator CHRIS EVANS-How has that changed over the years, Mr Veitch? You said that you have just revised those figures. What was it before? Mr Veitch-Yes, we revise those figures on an annual basis. Since we have kicked over to accrual budgeting, we have had to look seriously at the way in which we construct that rate, and there is still an ongoing debate within the department about how best to display those numbers. If you look at it consistently over a number of years, that cost recovery rate shows a steady increase and quite a significant increase in recent years. That goes to the heart of the issue that Air Marshal Houston was talking about-the steady rate of increase for ageing aircraft. However, because we calculate it on an annual basis and it relates to the actual hours flown, part of that increase does give the impression that it is unrealistically high because we have flown only about 2,500 hours in the last two years. That artificially increases it when you look at it on an annual basis rather than over the long haul. Senator CHRIS EVANS-Can you give me the figures on how that has changed over time? Mr Veitch-I could take that on notice. Senator CHRIS EVANS-Thank you, but can you give me an indicative feel for how the graph would look? I think Air Marshal Houston talked about a 15-year period. Mr Veitch-There is no doubt that the graph is exponential at the moment, but you have to take into account that the rates for the last two years are higher because we have flown fewer hours. Senator CHRIS EVANS-If you discount that, though, and say that you are averaging the same sort of hours, what would the graph look like? Mr Veitch-It would also show a steady increase, but it would ramp up more significantly in the last year. Senator CHRIS EVANS-And that is not because of the flying hours issue? Mr Veitch-I think it is to do with two factors. One is, as I said, the cut over to accruals and the way in which you calculate the full costs in an accrual sense. The other is that, because we flew only 2,500 hours, that has the effect of increasing it significantly in the current year. Senator CHRIS EVANS-I appreciate those caveats. Taking those caveats out of it, what would you expect the graph to look like? Are we saying that, after 15 years, you would get a sharp incline? Air Marshal Houston-What I would expect with any ageing aircraft is that the costs will gradually climb over time. There is a lot of debate about what that figure might be-and it varies from platform to platform and depends on the way the aircraft is operated, maintained and so on-but the figures from around the world are usually between three per cent and seven per cent compounding. The US Navy, for example, as you probably saw in the IASB report, uses four per cent. But it will vary, depending on the circumstances. Senator CHRIS EVANS-But is it normally the case that in the early years it is more likely to be three and in the later years it is more likely to be seven? Air Marshal Houston-No, I would not put it that way at all. I think it is just a gradual increase over time. Just to give you some feel for it, if we go back a number of years, a 707 servicing was done in a matter of a FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 245 few months. I think about three or four years ago it was a 12-month servicing-this is the deeper level maintenance servicing. It is now up to 15 months. Senator CHRIS EVANS-It is offline for 15 months? Air Marshal Houston-So that means that servicing is now much more expensive than it was five years ago. That is the reality of older aircraft. It is just a function of the fact that aircraft, as they get older, get more difficult to maintain in an airworthy condition. We maintain very high standards of airworthiness. To maintain those standards we have to put the effort in in terms of maintenance, and it is going to cost. Senator CHRIS EVANS-As someone who flies on your Falcons very regularly, I am very appreciative that you do, too. I take a keen interest in the airworthiness issues. Have you got global budgets for the F18s and F111s for this year and next year? Do you break them down like that? Mr Veitch-If I could talk about the logistic support budget, which is the area we are concentrating on, the 2001-02 allocation is $132 million. We have currently got $109 million planned for next year, but there are a number of logistic shortfalls on that that we are working through the internal mechanisms of the department at the moment. Senator CHRIS EVANS-So what does that budget encompass? Mr Veitch-That encompasses the cost of repairable items, purchasing spares, the maintenance support contract, the contract that we have just outsourced up at Amberley and those sorts of things. That excludes the personnel budget-the crew and the support staff. Senator CHRIS EVANS-That is just for the F111s? Mr Veitch-That is for the F111s. Senator CHRIS EVANS-So you are actually going to spend less next year? Mr Veitch-We currently program for less because, to some extent, when you look at the F111, we had planned to buy life-of-type spares over the last couple of years. We are the sole operator in the world now and it is important that we get as many spares as we can. Senator CHRIS EVANS-We are actually the sole operator now? Mr Veitch-Yes. So if you look at some of our actual expenditure over the last couple of years and, indeed, this year, it is artificially high because we have been going through that life-of-type spares purchase. Senator CHRIS EVANS-You have cornered the market in wings? Mr Veitch-Yes. So it is natural that you would expect some falling off of the expenditure as we go through that life-of-type purchase of the spares. Having said that, though, the sorts of things that the Air Marshal talks about-the surprises-come on top of that. It is very hard to predict those and to budget for them. So what we tend to do is to try and address those on a case-by-case basis as they arise. Senator CHRIS EVANS-So you have got conflicting things happening with your budget-the last few years you have been spending up on spares, effectively, which means that your costs should decrease in the next couple of years, but you have got the increasing maintenance costs driving it the other way? Mr Veitch-Yes. But on an in-year basis you have some flexibility. The reduced level of effort this year, for example, gives you savings in fuel in the year in question. So you can redirect that money to look at some of these other issues. Senator CHRIS EVANS-So your fuel costs are in this as well? Mr Veitch-No, that is exclusive of the fuel costs. Senator CHRIS EVANS-So 2001-02 is $132 million; 2002-03 is $109 million, and that is exclusive of fuel and personnel costs? Mr Veitch-Personnel costs, yes, and general overheads and facilities support-those sorts of things. Senator CHRIS EVANS-What is your fuel bill? Mr Veitch-I do not have that with me but I can get it. Senator CHRIS EVANS-I am just interested to get the perspective. What about the F18s? Mr Veitch-The baseline funding provision for the F18 hovers between about $80 million and $90 million per year. That covers the same sorts of things. Senator CHRIS EVANS-What is your budget for the coming financial year? Mr Veitch-The budget for the current year is about $86 million and, for next year, about $83 million. Senator CHRIS EVANS-Is that a similar effect? Have you been buying up spares for them, as well? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 246 SENATE-Legislation Wednesday, 5 June 2002 Mr Veitch-No, we have not started a life-of-type spares buy for the Hornet but there are some studies going on at the moment which are looking at it. Senator CHRIS EVANS-Is that something you might be doing in the next few years? Mr Veitch-I think it would be a prudent thing for us to look at, yes. Senator CHRIS EVANS-You are doing an upgrade on the F18s, anyway, aren't you? Air Marshal Houston-We are already under way on the upgrade program. If you want details, I can get Air Vice Marshal Conroy to give you a quick five minutes on it. Senator CHRIS EVANS-Yes, if he could give me a couple of minutes broad description of what is happening with the upgrade, it would be good. Air Vice Marshal Conroy-Phase 1 upgrade of the F18 is nearing completion. That is, if you like, an enabler upgrade that changes the computers and a lot of the basic systems. The replacement radar is proceeding. The main avionics upgrade, which is known as phase 2 of the Hornet upgrade, is at the stage of design contracts having been let, so that is in the active design phase. We expect soon to start letting contracts for the production of the phase 2 capabilities that will change the displays, insert a helmet-mounted sighting system for the new missiles, which are being fitted at the moment, and provide a new data link capability called Link 16, which allows information to be passed particularly efficiently between the AEW&C type aircraft. The intent of that is to bring the level of our F18A and B aircraft up to something equivalent, or slightly superior, to the US Navy's F18C and D configuration aircraft. Returning to the logistics issues that you raised before, the Boeing factory has ceased production of the F18C and D configuration and has moved to production of the F18E, which is a completely different and upgraded aircraft. Senator SCHACHT-You are going to run out of letters of the alphabet. Air Vice Marshal Conroy-They often go as far as G and H. I think the B52s are up to H. Senator SCHACHT-Do not end up with a Z. Air Vice Marshal Conroy-There is a helicopter that has gone to Z. Because the production lines have ceased, we have to look at whether it is more sensible now to make life-of-type buys on some equipment that we could otherwise order on a year by year basis. As Mr Veitch said, for the sake of efficiency we will be increasingly required to make some life-of-type spares buys for our F18 fleet. Senator CHRIS EVANS-What is the timing on phases 1 and 2 of the upgrades-when do you expect them to be completed? Air Vice Marshal Conroy-Phase 2 needs to be completed by the end of 2006. Phase 1, I think, will be completed this year or early next year. Senator CHRIS EVANS-What does that mean in terms of operational capacity of the F18s? Are they offline for a long period? Air Vice Marshal Conroy-Yes, there is a floor loading in the factory up until that period of 2006 that takes, from memory, something in the order of six to eight aircraft offline for the upgrade process. Senator CHRIS EVANS-So you have six to eight offline at any one time and they rotate through as they go? Air Vice Marshal Conroy-In the upgrade process. Senator CHRIS EVANS-Out of a total fleet of how many? Air Vice Marshal Conroy-The total fleet is 71. Senator CHRIS EVANS-What life expectancy do you think that this upgrade will give the F18s? Air Vice Marshal Conroy-The current upgrade is to improve the operational capability of the aircraft; its life is actually determined by structural matters. Senator CHRIS EVANS-You are not going to bring the expert back in again? Air Vice Marshal Conroy-We know we have to do some structural upgrades. They are known as phase 3 of the Hornet upgrade program. They are in the defence capability program. They are not totally defined as yet. We will have to do some preparatory structural work soon, and we are scoping that issue at the moment. There may be some major structural upgrade work that needs to be completed, starting in 2007. With that work done, we are aiming to have our F18 fleet viable through to the period 2012-15, on current plans. Senator CHRIS EVANS-But you will not actually be starting the structural work until 2007? Air Vice Marshal Conroy-We will start some soon, but the major work will start in 2007. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 247 Senator CHRIS EVANS-Could you briefly describe what structural work is required, in layman's language? Basically, what do you have to do? Air Vice Marshal Conroy-We have done extensive structural analysis-fatigue tests-at DSTO and in combination with our Canadian colleagues. We and the Canadians fly our aircraft differently to the US Navy, and so we want to know how the structure is behaving under our usage patterns. We have a good picture of that at the moment and we know the areas that need to be worked on. We correlate that with the wider US Navy fleet because they bring a lot of knowledge to this as well. The really extensive work that needs to be done-and we do not know how many aircraft we will have to do this to to get through to 2012 yet; we are still studying that-is to replace what is called the centre barrel of the aircraft. That is a piece of fuselage structure that carries the wing attachment. Senator CHRIS EVANS-That sounds like the main bit of the plane to the layman. Air Marshal Houston-That is correct. We have to do the analysis, but obviously we would prefer not to do that if we can get away without it. Senator CHRIS EVANS-So basically you have to replace the fuselage? Air Marshal Houston-That is correct. The centre barrel is the main part of the fuselage. There is a high technical risk associated with that, and we are looking at ways of managing the fleet so that we can avoid having to do that. Senator CHRIS EVANS-No doubt the cost of that would be fairly high. Air Vice Marshal Conroy-The cost in the forward projections is notional but it is something in the order of $300 million. Air Marshal Houston-Yes, that is my understanding as well. Senator CHRIS EVANS-And that would only get you another five to eight years of life for the plane? Air Marshal Houston-We still have to work through all that. Senator CHRIS EVANS-But in the broader planning, if you start that in 2007 and you are only hoping to get the planes through to 2015, that is a big investment for a fairly short time period, isn't it? Air Marshal Houston-It certainly is. That is why we would prefer not to do it, also noting that there is a high technical risk there. The Canadians have already embarked on their program. Senator CHRIS EVANS-So you at least will have the benefit of learning from their mistakes or experiences. What about the F111s? What is the program to upgrade or make structural changes on those? Air Marshal Houston-The program in place for the F111 is to improve the survivability of the aircraft for operations in the next decade. We can go through that in detail if you wish, but all the projects are related to improving the capability of the aircraft to make it less vulnerable in the future. Senator CHRIS EVANS-When you say `less vulnerable' do you mean vulnerable to attack or vulnerable to ageing? Air Marshal Houston-I am talking about survivability. As we progress into the next decade we are likely to see much more capable air combat aircraft introduced into the region, and we need to upgrade the F111 so that it is more able to survive in that environment. Senator CHRIS EVANS-I do not want you to take me through it all-I am sure you have figured out by now that I would not understand half of it-but, in general terms, what does that mean? Air Marshal Houston-One of the main features of it is to improve the electronic warfare self-protection and there are a number of systems associated with that. They are all detailed in the defence capability program. We can take you through that, if you wish. Senator CHRIS EVANS-I will have a look at that more closely. Are there any major structural issues, putting aside the wing debate? Air Marshal Houston-No, not at this time. Senator CHRIS EVANS-Is it more about their systems? Air Marshal Houston-Yes; improving their systems to improve their survivability. Senator CHRIS EVANS-You were talking before about the number of pilots and the fact that your recruitment had improved. How many F111 pilots are there? Do you categorise them as F111 and F18? Air Marshal Houston-At the moment we can raise, I think, around 18 or 19 F111 crews. I can take that on notice, but it is in that order. Senator CHRIS EVANS-How many in a crew? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 248 SENATE-Legislation Wednesday, 5 June 2002 Air Marshal Houston-Two: a pilot and a navigator. Senator SCHACHT-How many of the crew are women? Air Marshal Houston-We have two women navigators on No. 1 Squadron. Senator SCHACHT-Many years ago at a Joint Committee on Foreign Affairs, Defence and Trade inquiry-in the early 1990s-into issues of service recruitment we got onto the issue of women being used in combat roles. At that stage the Air Force did not allow women into combat roles in the F111s and the F18s. To my astonishment, one of the pieces of evidence given to justify that was that Air Force was worried that any woman in a plane like that going through G forces could suffer a collapse of her uterus. Is there any evidence since we have had women in F18s and F111s that a woman has suffered a collapse of the uterus? Air Marshal Houston-No. Senator SCHACHT-I am pleased to hear it. Air Marshal Houston-We can employ women in 97 per cent of the positions in the Air Force. They are employable in all flying positions. Having flown as copilot to a woman on several occasions I can say there is absolutely no difference between women and men when it comes to flying aircraft. The only positions that are denied to women in the Air Force are in the airfield defence guard area, and we are having a look at that at the moment. Senator SCHACHT-I am glad you are having a look at that three per cent. Is that because they are not strong enough to carry the gun or because we do not like them being shot at? Air Marshal Houston-It relates to physical capability more than we do not like them being shot at. There is a study under way that is being run by the personnel executive. If you want a more detailed response I can get Rear Admiral Shalders to come forward. Senator SCHACHT-I have been through this so many times in so many inquiries over the last 15 years for the Joint Standing Committee on Foreign Affairs, Defence and Trade and the Defence Subcommittee that I have heard all the arguments. Is it because they cannot carry the weight of the pack or the gun? Is it the weight issue that prevents them from being guards on the airport perimeter? Air Marshal Houston-Up until now it has related to their physical capability to do all the tasks involved with being an airfield defence guard or an infantry soldier. I think there are other people in the room who are probably more fully up to speed with this issue, and I can call them forward if you wish. Senator SCHACHT-I do not want to interrupt Senator Evans. Senator CHRIS EVANS-I have finished. Senator SCHACHT-I would not mind someone coming forward, because I would have thought that some men would have had trouble. People like me would have great difficulty slogging it around with a pack on the back and holding a gun. There must be men, I would have thought, who would have trouble meeting the capability. Air Marshal Houston-I think that is precisely the point. Senator SCHACHT-If a woman can meet the generic test, why should she be precluded? Air Marshal Houston-I will let Admiral Shalders take over at this stage. Rear Adm. Shalders-Could I ask you to repeat the question, please? Senator SCHACHT-I have been through this discussion so many times it is a bit like a long-playing record. I believe if people meet the generic test, they should take their chances just like anybody else, whether they are male or female. Why isn't there a generic test so that if either a woman or a man cannot meet the test they do not get the job? To say that women cannot do it per se and therefore they are all excluded seems to me to be a discrimination that is a bit irrational. Rear Adm. Shalders-Senator, that is not the case. The study that Chief of Air Force mentioned is a study into physical competencies. So, as you have suggested, if the person-male or female-is physically capable of undertaking the tasks then they are able to undertake those tasks. That is the direction of the study at the moment. Senator SCHACHT-That is where the study is going, but that is not yet policy. Rear Adm. Shalders-That is correct. Senator SCHACHT-At the moment, women are just excluded, full stop, from being on the- Senator Hill-But the trend has been away from excluding them. You have heard in relation to Air Force- Senator SCHACHT-I know; I understand that. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 249 Senator Hill-Hang on. We have heard your side on this subject over the years, but you do not always listen to the response. Senator SCHACHT-I do listen to the response. Senator Hill-In the case of Air Force, 97 per cent are now open. In the case of the Defence Force as a whole, there is an examination to test whether there is any physical limitation in relation to the balance of the jobs. So you are winning the argument. Senator SCHACHT-I know. Senator Hill-You should claim success and let us move on. Senator SCHACHT-Air Marshal Houston said that there were three per cent involved in protecting Air Force facilities-I am not talking about the general service. Senator Hill-You could claim it as part of your legacy. Senator SCHACHT-Maybe I will, but I am not so presumptuous as to claim too much. Many other people have looked into this argument in greater detail than I have. I am just wondering about the three per cent. At the moment the policy is, although it is under review, that women per se cannot be in the guard position in the Air Force units carrying out a protective role that some might equate to the infantry in the Army. Is that correct? Air Marshal Houston-That is correct. Senator SCHACHT-When will this review be completed? Rear Adm. Shalders-The contract to examine the physical competencies required is about to be let. A request for tender was issued on 31 January-we have done part of that study already in relation to clearance divers in the Navy-and that study is expected to take about six months and will inform future policy directions. Senator SCHACHT-That is good. Air Marshal Houston, what is the highest ranking woman in the Air Force today? Air Marshal Houston-We have a one star, Air Commodore Julie Hammer, who is the commandant at the Australian Defence Force Academy. Senator SCHACHT-Did she ever have flying experience? Air Marshal Houston-No, she did not. She is a very distinguished engineer, and her background is in electronics and communications. Senator SCHACHT-Which are very important. Is it true that, for the future career prospects for promotion to air marshal, it has always been an advantage to have been a pilot or to have had service in flying an aeroplane in some form or another? Air Marshal Houston-I would put it this way: you would need to have an operational background. As we move into the future, that sort of experience might not necessarily be presented by a pilot. But, certainly, up until now that has been the case. Senator SCHACHT-So by removing this restriction we can now say to women-to paraphrase the old saying that everyone can aim to be Prime Minister of the country or President of America-you now have a career structure that means that if you are good enough to be a pilot and rise through the system you can end up being an air marshal of the Air Force. Senator Hill-That is not quite what he said. Air Marshal Houston-Well, fundamentally- Senator SCHACHT-Because clearly before if you were excluded from being in some of the operational areas- Senator Hill-You do not have to be a pilot to be in operations. Senator SCHACHT-As I understand it, and I am not critical of this in one sense, to be a pilot at that level of operation seemed to be an advantage toward gaining promotion to be head of the Air Force ultimately in a career. That is understandable and part of the culture of the Air Force. It is not the same problem that occurs I think in the other services- Senator Hill-The culture is changing. Senator SCHACHT-It is changing. I have been here for 10 or 15 years asking about this, and drip by drip it is changing. I thank you for that. In the Defence annual report for 1999-2000-the one before the one that just came out-the Air Force section listed aircraft capability and performance. Not only was a target set but also the rate of effort was put in percentage terms: what the target was and what was actually achieved. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 250 SENATE-Legislation Wednesday, 5 June 2002 That list goes through the various types of aircraft: F111, F18, Pilatus, Orion, Hercules, Caribou, Boeing 707. I will come back to the figures in a moment, but in the Defence annual report for 2000-01 just out the actual achievement rates are apparently not reported. In the previous Defence annual reports of 1997-98 and 1998- 99, although the targets were set the actual rate of effort and serviceability-the launch rate et cetera-were not included. It seemed to be a step forward that in 1999-2000 they were put in the annual report, but they have not been put in the annual report of 2000-01. Can you explain what might appear to be a revisionist or backward step in reporting from what seemed to be a good idea in 1999-2000? Air Marshal Houston-I am actually not responsible for the presentation of the information in the Defence annual report- Senator SCHACHT-I am sorry, I have come to the wrong section. Air Marshal Houston-but I will get the chief finance officer or his representative to come forward. As far as I am concerned, I am quite happy to table that sort of information should you desire it. Mr Veitch-We probably had this discussion on Monday with Senator Hogg and Senator Evans. We went through this very issue in terms of the presentation. I think that as a result of that discussion the secretary and the minister were going to consider options for how we might repackage the material that is presented in future years. Senator SCHACHT-Senator Hogg was asking specifically about the same material? Mr Veitch-The same sorts of questions, yes. Senator HOGG-As I have done in the last four estimates hearings. Senator SCHACHT-So there was an agreement that there would be discussion about either tabling more material or, in the future, putting it in the Defence annual report? Dr Hawke-The minister agreed that he would give consideration to that for the next estimates hearings, yes. Senator SCHACHT-In that case Senator Hogg has scooped my pool. I congratulate him on that. Senator HOGG-I want some friends, not enemies, out there! Senator SCHACHT-I will ask a couple of other questions. Again, tell me if Senator Hogg has already asked this. Compared with what was published in 1999-2000 and what was not published in 2000-01 but which now can be made available, were there any areas of significant reduction in performance levels of the rate of effort or the serviceability of the sortie launch rate for each of the aircraft types? You can take that on notice if it has not already been covered by Senator Hogg. Air Marshal Houston-I have some information here which may help. Senator SCHACHT-Take the F111. In 1999-2000 the flying hours target in the annual report was 4,400; the actual was 3,500. The rate of effort was 80 per cent and the serviceability sortie launch rate was 90 per cent. In both of those the target was 100 per cent. In the year 2000-01 were those figures maintained or were they improved closer to the target of 100 per cent? I presume the target was still set at 100 per cent. Air Marshal Houston-I think you have been gazumped by Senator Hogg. Senator HOGG-I recommend the Hansard to you. Senator SCHACHT-Fine. It is all there. Thank you. I have to go to another estimates committee and I think by the time I come back Defence will probably have finished. I want to say to the minister and the department that I have been coming here for 12 out of 15 years and I have been a member of the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade for 12 to 15 years, and sometimes in estimates some answers-whether I have been in government or opposition-have been rather oblique and obtuse, but I think that is only natural. All round I have enjoyed dealing with the services and in particular all the personnel. If I may say so, Air Marshal, you have got into some controversy recently. I think in the long term your record out of that will be well recognised as being superior to a lot of other things that have gone on. I congratulate you on that courage. To all the staff and to Dr Hawke, I have enjoyed working with Defence over all those years. Thank you. Senator Hill-I am sure they have enjoyed working with you. Senator SCHACHT-They may not have. Some of them may. Senator Hill-Do not be so negative. CHAIR-Thank you, Senator Schacht. That is your farewell speech. Thank you for your contribution. Senator CHRIS EVANS-I have a couple of questions about the Salt Ash Weapons Range. There is a long history to this and I have not been involved, but could someone give us an update on it? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 251 Air Marshal Houston-The Salt Ash range is currently going through an environmental impact process. We are in the middle of that. The draft has been circulated. There have been public meetings and they relate to the introduction of the Hawk aircraft and the fact that the Hawk aircraft will be using the Salt Ash range. So the process is under way; the community is being consulted and we will deal with the issues as they arise. Senator CHRIS EVANS-What is the time line on this? Air Marshal Houston-It is all to be finalised by July. Senator CHRIS EVANS-By the end of July? Air Marshal Houston-I will get the exact date for you. Senator CHRIS EVANS-I want to understand where it is at. Air Marshal Houston-If you would just bear with us, I do have the information here. We can get it for you in a moment. Senator HOGG-Does this inquiry arise out of the longstanding difficulties surrounding the weapons range? Is it a response to that or is this a separate exercise altogether? Air Marshal Houston-This is in response to the introduction of the BAE Hawk 127 aircraft. It is a lead- in fighter. It will be based at Williamtown and the aircraft will be using the Salt Ash range. We are doing the normal environmental impact work. Senator HOGG-But it is not overcoming the difficulties that have been expressed in these proceedings on other occasions. This is a new situation, in effect. That is what I am trying to get to. Air Marshal Houston-Absolutely. It is a new situation and we will deal with the issues that arise out of the work. Essentially the statement will be completed by 16 July and submitted to Environment Australia at that time. Senator CHRIS EVANS-Does that go to the environment minister? Air Marshal Houston-It will go to Environment Australia for advice. Senator CHRIS EVANS-Who ends up with the decision? Senator Hill-The Minister for the Environment and Heritage. That was part of the reform-the new legislation actually gave the environment minister responsibilities. Senator CHRIS EVANS-Isn't there some argument as to whether the new legislation applies yet? Senator Hill-No, it has triggered the new legislation and the environment assessment is taking place under the new legislation. Senator CHRIS EVANS-The assessment is taking place under the new legislation; is it a decision for the environment minister alone or in consultation with you, Minister? Senator Hill-Having just asserted that with great confidence, I will get advice. Is it under the new legislation? A decision has come back: it is under the transition provisions of the 1974 act. The process must have commenced before the new legislation was brought into effect. The difference is that, under the old legislation, the action minister makes the final decision, which is probably me. If it had been under the new legislation it would have been Dr Kemp. Senator CHRIS EVANS-Is that your final offer on this question? Senator Hill-It looks as if I made the decision that it would be under the old legislation. That fortuitously means that now I have to make the ultimate decision in my new role. I think it is a fair assumption that that will be in consultation with government as a whole. Senator CHRIS EVANS-I want to be clear: we are certain that it is under the old legislation? Senator Hill-That is what the note says. Air Marshal Houston-It is under the 1974 legislation. Senator CHRIS EVANS-And it remains so, whatever the timing on this because it was triggered under the old legislation. There is no cut-off date? Senator Hill-There were transitional provisions in the old legislation dealing with a range of circumstances and I cannot remember why this one applied. In the most common instances where a process had commenced before the new legislation came into effect- Senator CHRIS EVANS-That is what I want to be clear on: because it has been triggered under the transitional arrangements the whole decision making process will continue under the transitional arrangements, and those transitional arrangements make the decision one for the Minister for Defence? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 252 SENATE-Legislation Wednesday, 5 June 2002 Senator Hill-Yes, that is right. Senator CHRIS EVANS-Does it go to Environment Australia or to the defence minister? Senator Hill-The assessment process is much the same under both pieces of legislation. The substantial difference is that under the old legislation the so-called action minister determined the final approval. Under the new legislation the final approval is determined by the environment minister. The action minister is the one who instigated the process-whose project it is-and thus, in this instance, it would be the defence minister. Senator CHRIS EVANS-The deadline you are working to is that it goes to Environment Australia by 16 July? Air Marshal Houston-Correct. Proceedings suspended from 10.31 a.m. to 10.50 a.m. Dr Hawke-Mr Chairman, Air Vice Marshal Conroy has a couple of minor amendments to what he said this morning. Air Vice Marshal Conroy-Senator Evans, when I was giving an estimate of the logistic shortfall on the C130J, I mentioned a figure of mature shortfall of getting it down to around $10 million. I believe that that will oscillate for the reasons given by the Chief of Air Force, and it would be more accurate, in our current projections, to say that it will probably average out at about $15 million. I just want to correct that $10 million figure. Senator CHRIS EVANS-Thank you. Dr Hawke-We got a couple of answers together to questions that we took on notice. Air Vice Marshal Titheridge-Some questions were raised yesterday, one of which was from Senator Faulkner, who asked the name of the DIMIA area that deals with intelligence. The question was really for DIMIA but we found the name: it is the Intelligence Analysis Section and it is inside the Border Protection Branch. There was also a question-I think from Senator Faulkner; I am not sure-on contacts between the embassy in Jakarta and Strategic Command with respect to SIEVX. There were two such contacts. On 22 October there was an email from the naval attache talking about information they had received from the Rescue Coordination Centre in Australia with reference to an overdue SIEV that was supposed to be inbound for Christmas Island. The naval attache was asking us what was going on, because he thought it was quite an unusual request. The following day there was a telephone call from Brigadier Millen, who heads up our Defence staff. He reported over the telephone the arrival back in Indonesia of a naval vessel with survivors on board. I will read you the transcript of the telephone call. It said: An Indonesian naval vessel arrived in Tanjungpriok Jakarta port at approximately 14.45 Zulu on the 22nd October with approximately 45 survivors on board thought to have been on a SIEV that departed from Western Java a.m. Saturday, 20th October. It is believed the SIEV, which was thought to have as many as 400 PIIs on board, sunk in Indonesian territorial seas. Senator JACINTA COLLINS-When was it that the boat arrived back in port? Air Vice Marshal Titheridge-At approximately 14.45 Zulu on 22 October. The telephone call came in on the 23rd, just after midnight our time. Senator JACINTA COLLINS-What does Zulu time equate to in our time? Dr Hawke-At the moment, you need to add 10 hours to our time. Senator JACINTA COLLINS-So it was just after midnight on the 23rd? Air Vice Marshal Titheridge-Correct. Senator JACINTA COLLINS-Can we be provided with a copy of the email you are referring to? Air Vice Marshal Titheridge-There is some classified information in that email, which deals with other things that were not resolved with SIEVX. If I can take it back, declassify it and seek the approval of the minister at the table, I shall do so. Senator JACINTA COLLINS-Is that something that could be done fairly quickly? Air Vice Marshal Titheridge-Reasonably quickly-in fact, my staff are no doubt watching at this moment- Senator JACINTA COLLINS-They are getting quite proficient at this process, despite a recent hiccup. Dr Hawke-We are learning from the senators. Senator HOGG-That is a real efficiency dividend. Senator CHRIS EVANS-How to alter documents. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 253 Senator JACINTA COLLINS-That is my next issue. Air Vice Marshal Titheridge-There were some questions on Operation Coracle, the de-mining in Mozambique, from Senators Hogg and West. We are really not in a position to answer some of those questions. I will paraphrase the questions. One was: what was the cost of Operation Coracle? The additional costs in 2001-02 were $0.159 million. Another question was: what was the reason for Australia ending its commitment? I will read a short statement on that. The accelerated de-mining has gradually evolved from a UN operated and managed program, which we supported with our de-miners, to an independent project with minimum United Nations involvement. It is now in the process of being transformed to a national non- government organisation. It is also one of the most successful indigenous de-mining programs in the world. So it does continue. We were there supporting the UN and the UN is backing out so that is why we are withdrawing our contribution. There was also the question: has there been a reduction in the number of mines left and who is there still de-mining? I think the latter half of that question was answered by the statement I just made. In terms of the reduction in the number of mines, they measure it in areas rather than mine reductions. I have some figures that in 2000 just under five million square metres of land was cleared, including over 317 kilometres of road. It is measured in areas cleared rather than the number of mines. There was a question on how well trained the Mozambique army is in de-mining. That is really a question that you would have to put to the Mozambique army. I suspect that Foreign Affairs would be in a much better position to answer or find the answer to that one than Defence. Similarly, the UN's timetable for completing the job would once again be an issue for the UN to answer. I suggest that question would be better put through our appropriate people in Foreign Affairs and Trade. There was a line of questioning, I think from Senator Faulkner, on the interface with strategic command in DIMIA and another committee. Senator HOGG-It would have been. Air Vice Marshal Titheridge-The only formal interface we had in committee terms was the people- smuggling task force or IDC or high level group that has been discussed quite regularly in various fora. Of course, we have a lot of informal contact with DIMIA and a range of other departments. I trust that answers those questions on notice. Senator JACINTA COLLINS-Air Vice Marshal Titheridge, can I go back to the Jakarta matter? Air Vice Marshal Titheridge-Certainly. Senator JACINTA COLLINS-In case seeing the email does not answer these questions, I ask whether the email was a response to the embassy receiving a copy of the AMSA warning? Air Vice Marshal Titheridge-It sounds like it was. I am reading through the email. I will read the relevant section of the email and that might solve the problem of getting it declassified. This part is not classified. The naval attache says in this email: In regard to a fax I have just received from RCC Australia- that is the Rescue Coordination Centre- re an overdue SIEV bound for Christmas Island, I find it unusual, to say the least, that we are sending out such vessel overdue reports to BASARNAS for action based on our sketchy intel of boat departures. It goes on to say: Does RCC Australia want to do the same for every SIEV we think is departed and has not turned up yet? He says, `I think this is a precedent we do not wish to go down,' or words to that effect. The email was in response to a fax from RCC obviously to the embassy. Senator JACINTA COLLINS-So this naval attache is referring to sketchy information which we now know from Coastwatch was the subject of discussion back to the Federal Police. We are now told that at the time that fax went off there had in fact been confirmation of the departure. Was there no communication back to the naval attache indicating that there was now a confirmed departure and that the information was less sketchy? Air Vice Marshal Titheridge-This was on the 22nd we are talking about? This was a couple of days after the sinking. Senator JACINTA COLLINS-Yes. Air Vice Marshal Titheridge-I cannot answer that question. Senator JACINTA COLLINS-It was not a couple of days after the sinking, 22 October. You believe the sinking occurred earlier than 22 October? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 254 SENATE-Legislation Wednesday, 5 June 2002 Air Vice Marshal Titheridge-I am not sure of the date of the sinking. I would have to check that. It is not a question I can answer. Senator JACINTA COLLINS-All I am asking is: there was no further contact back to the naval attache in relation to his concern? Air Vice Marshal Titheridge-Not that I have a record of, no. Dr Hawke-We were about to move to some answers to questions that Senator Collins asked yesterday. The inspector-general, Mr Claude Neumann, will respond to those. Senator JACINTA COLLINS-Those questions were from the day before, I think it was. Dr Hawke-The day before, sorry. Mr Neumann-I can confirm that information supplied by Mr Byrne to the former Minister for Defence relating to Ridgewell Pty Ltd was passed to my office for examination and consideration in the context of findings made in a previous internal audit. Advice was given to Mr Luke Donnellan, of Mr Byrne's office, in January 2002 that this examination of the Ridgewell documents was not able to determine the claims of unfair dealing, unreasonable change of scope and undue delay. In regard to the issue of whether the Commonwealth should pay Ridgewell a debt that Ridgewell claims it is owed, the auditors found that `it is not clear whether any entity owes Ridgewell money'. However, it is not clear to my officers or me whether these documents are the same documents as those in your possession. The two other questions related to the scope of the internal audit and the external audit. In terms of the external audit, in the media release by Minister Reith the first paragraph says: In response to the continuing concern over facilities management at HMAS CERBERUS, I have asked the Australian National Audit Office (ANAO) to conduct an independent investigation. That leaves it wide open. At the bottom, in the last paragraph, it says: Public accountability and the maintenance of public confidence in the efficient employment of resources by Defence is important. To that end I have now asked that the ANAO conduct an investigation into the matters associated with facilities management at HMAS CERBERUS. To that extent they are open. In terms of the original internal audit, they were similarly open. The secretary wrote back to a particular person saying: I have referred your letter to the Inspector-General of Defence for his attention. I actually wrote internally within the department asking my auditors to look at the matter. Senator Hill-I suggested to Senator Collins, during the break, that perhaps she and the inspector-general should have a talk and make sure that they are talking about the same documents. I further suggest that, it seems to me, if there is an issue as to whether the inspector-general had all of the relevant documents at the time of his examination, that has now been somewhat overtaken by the opportunity to ensure that the Auditor- General has all of the documentation in order for the best possible examination by him of the same issues. Senator JACINTA COLLINS-In terms of the original contract, the issue first comes as a concern in that, as I understand the process here, Mr Donnellan-whom you referred to-in Mr Byrne's office, was advised by Mr Scrafton that it was not possible to work out if there was a contract and that that matter should be resolved with SSL Asset Services. Is that an incorrect understanding from your end? Mr Neumann-I cannot comment on that; I was not privy to that conversation. Senator JACINTA COLLINS-No, but you referred to what you understood to have been communicated. Mr Neumann-I can say a couple of things. Defence does not have-as I understand it; I am relying on information here-an original signed copy of the contract for the junior sailors galley project, if this what you are talking about. Senator JACINTA COLLINS-Yes. Mr Neumann-The original Defence project file is missing and key documents around these events have had to be provided by Defence's prime maintenance contractor which is SSL Asset Services. I think that goes to answering part of your question. Senator JACINTA COLLINS-Is it missing from SSL Asset Services? Mr Neumann-No, SSL Asset Services-as I understand it-have put together key documents, as they understand them, from what they have as the project manager. Defence does not have an original signed contract. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 255 Senator JACINTA COLLINS-In part that goes to my concern, because I have a copy of a letter to the solicitors acting for Defence, from a Defence officer, referring to that original contract being conveyed to the solicitors acting. So my first question is: have you sought a copy of that contract from your legal advisers, to whom you forwarded such a copy? Mr Neumann-I personally have not. Senator JACINTA COLLINS-That is a question for Defence, then. Senator Hill-What is the question? Senator JACINTA COLLINS-The question is: I am aware that a copy of this original contract- Senator Hill-It is interesting to know what you are aware of, but what is the question? Senator JACINTA COLLINS-I will get to it. This is context for the question, Minister. A copy of the contract was forwarded to Clayton Utz on 13 April-the year must be wrong; it should be 13 April 2001-in a letter signed by Major A. McVilly. Senator Hill-So what is the question? Senator JACINTA COLLINS-The question is: has Clayton Utz been asked to provide, back to Defence, a copy of the existing contract? Senator Hill-Do you know the answer to that, Mr Neumann? Mr Neumann-No. Senator Hill-We do not know. Senator JACINTA COLLINS-I presume you have other Defence officers. Senator Hill-No, he is the man. If you want him to go back and reresearch the records, we will do so. At the moment, we cannot give you an answer to that. That is why we tried to get from you yesterday as many questions as we could-so that we could research them. Senator JACINTA COLLINS-The inspector-general is saying to me that Defence does not have a copy of it. I raised on Monday that I was aware that a copy had been provided to Clayton Utz. Mr Neumann-I said Defence does not have an original, signed copy of the contract. We have a photocopy of the signed contract for the project as well as a copy of the agreed revised scope of works for the project that has been made available to Defence by Asset Services, Defence's managing contractor. This information, I understand, was supplied to the Australian National Audit Office in support of the investigations of the service issues. Senator JACINTA COLLINS-Does the photocopy of the contract that you have include a variation initialled at clause 2.1? Mr Neumann-I do not have a copy here so I cannot answer that. Senator Hill-We will have to take that on notice. Senator JACINTA COLLINS-Does it include amendments initialled on page 5? Senator Hill-We will take that on notice. Senator JACINTA COLLINS-Is there any indication in the copy that you have that the amendments have been equally amended by the other party? Senator Hill-Have the amendments been initialled by both sides? Is that the question? Senator JACINTA COLLINS-Yes. Senator Hill-We will take that on notice. Senator JACINTA COLLINS-It is clear now to me that the scope of the internal investigation and the Audit Office investigation appears focused on Cerberus. Are they also investigating broader issues in relation to the operations of SSL Asset Services Victoria-wide? Senator Hill-Is the Auditor-General? Senator JACINTA COLLINS-Both. Senator Hill-Did you investigate matters other than Cerberus, Mr Neumann? Mr Neumann-We had a look, because one of the things that the former minister asked us to do was to see whether it was systemic. The answer to that was no, it was not systemic. Senator Hill-So they did look beyond Cerberus. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 256 SENATE-Legislation Wednesday, 5 June 2002 Senator JACINTA COLLINS-Did you look at the comprehensive maintenance contract between the Defence Estate Organisation and SSL Asset Services? Senator Hill-We would have to take that on notice. Senator JACINTA COLLINS-Is it still possible to provide me with a copy of your report once you have removed identifying information? That was a request from Monday. Mr Neumann-Yes, I have the original. Senator Hill-Is the report a public document, Mr Neumann? Mr Neumann-No, it is not. What we have done with it is take out people's names, because we have not sent it back to people to make comments about. There are actually two sets of reports, and we would have to look at the second one as well, for the same purpose. We did one earlier on and then we looked at the Ridgewell paper separately. Senator Hill-I would want to look at them and see if I have any objection to them being tabled. It would surprise me if I did have. Senator JACINTA COLLINS-My concern was that this was discussed on Monday-and the inspector- general undertook to do that on Monday-in the context of me coming back later in this process, having had the opportunity to review those reports. Senator Hill-I have not seen the reports. Senator Jacinta Collins-And that is my concern. I can understand your concern from that point of view. Senator Hill-We are doing our best. I will have a look at both those reports. Have your reports gone to the Auditor-General, Mr Neumann? Mr Neumann-Yes, I believe so. Senator JACINTA COLLINS-I want to move on to some issues broader than the Ridgewell contract, regarding SSL Asset Services. This pertains to the extent to which the Department of Defence satisfies itself of the accuracy and completeness of contracted maintenance services in accordance with the comprehensive maintenance contract. In the light of our earlier discussion on Monday, where the minister indicated that he understood these matters were being addressed by the Audit Office, it is not clear to me whether that issue is being addressed by the Audit Office. Senator Hill-The question you have just asked was really generic and had nothing to do with the Audit Office. You said you want advice on the extent to which Defence checks that work that it has contracted to have done is done. Are you talking about contracts across Defence or are you talking about a specific instance? Senator JACINTA COLLINS-I am talking about the specific instance of a comprehensive maintenance contract in Victoria. Senator Hill-Has it applied to any particular work? Senator JACINTA COLLINS-Yes. I can go to the particular work, but I was conscious of your comments on Monday that if these matters were being addressed by the Audit Office we could avoid duplication. But I am happy to put specific questions now. Senator Hill-We do not know the scope of the Auditor-General's work. That is something you should take up with him. Senator JACINTA COLLINS-I think it is clear from what has been alluded to earlier by the inspector- general that it is Cerberus focused. Senator Hill-It would be a lot better if we stuck to Cerberus. Otherwise the answers you are going to get will be unhelpful. I suspect the answer will come back that the work gets checked from time to time- Senator CHRIS EVANS-According to established practice. Senator Hill-according to established practice. Senator JACINTA COLLINS-Let me help you to be a bit more specific. You may well need to take this on notice. Senator Hill-If you are talking about a specific issue you can ask whether Defence checked that the work done at Cerberus at a particular time was done in accordance with the overarching contract. Senator JACINTA COLLINS-I will ask you some specific questions now. It will not surprise me if you need to take them on notice, but at least we will get down to some of these specifics. Firstly, did SSL Asset Services submit monthly invoices to a ballpark value of $6,680,000 for the period July 2000 to May 2001 inclusive, and a further $3,500,000 for the period June 2001 to September 2001 inclusive, totalling FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 257 $10,180,000, knowing full well that at best only 60 per cent of the contracted maintenance was actually undertaken? Senator Hill-Who knows `full well'? Senator JACINTA COLLINS-SSL Asset Services knowing full well. Senator Hill-How would we know whether they knew? Senator JACINTA COLLINS-You may not or you may. Senator Hill-We can find out whether we got the invoices- Senator JACINTA COLLINS-Yes. Senator Hill-and then what do you want us to do? Try to guess whether they were misleading? Senator JACINTA COLLINS-I would like you to answer that question first; answer to your knowledge whether 100 per cent of contracted services had been conducted. Senator Hill-Okay. Did we have any reason to believe that the work or any part of the work had not been done? ACTING CHAIR (Senator Ferguson)-It looks as though Mr Neumann is taking these questions on notice. Mr Neumann-I have to take these on notice because it is not part of the audit that we do. Senator JACINTA COLLINS-That is what I am saying. This is not an issue for the inspector-general; this is an issue for Defence proper. Senator CHRIS EVANS-I think this is not really a role for the inspector-general. I think these questions are directed someone in charge of- Senator Hill-I am not sure whether it is believed that these issues were part of the examination by the inspector-general-or is it a different matter? Senator JACINTA COLLINS-These are different issues. Senator Hill-Okay. We will take that on notice and we will get you an answer. Senator JACINTA COLLINS-These are all questions for Defence but in part some of them have been hived off to the inspector-general and-as per your reference on Monday-to the Audit Office. Senator Hill-Okay. Senator JACINTA COLLINS-To the extent that some of them are subject to review I am prepared to say, `Yes, fine, they are being reviewed separately and I am not going to pursue them here.' But there are specific questions about this contract which I do not understand to have been part of that process, so these are questions to Defence proper. Senator Hill-All right. We will get an answer to that question. Senator JACINTA COLLINS-Did Defence management pay the full contract monthly sum, including amendments to the contract sum, to SSL Asset Services for fixed plant and equipment maintenance services during the above period and any subsequent period, and have there been any reclaims for overpayments for services not rendered? Senator Hill-We can get an answer to that. Senator JACINTA COLLINS-How did Defence satisfy itself that those contract services were being fulfilled? Senator Hill-Okay. Senator JACINTA COLLINS-Did SSL Asset Services submit, as part of their monthly invoices for the periods March to July 2001 and December 2001 to April 2002, costs for key staffing positions totalling $70,300 when the positions concerned were vacant? Senator Hill-No, split that question in two. Did we get an invoice for those services? Did we know that the positions were, in fact, vacant? Senator JACINTA COLLINS-Yes, that is right. Senator Hill-They are two separate questions. Senator JACINTA COLLINS-My understanding is that there is a specific line within the contract for key personnel positions. There is a period during which the team leader position was vacant for five months. There was a vacancy in the service delivery manager position for about four months and my question is whether you were invoiced for those positions, which were not filled. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 258 SENATE-Legislation Wednesday, 5 June 2002 Senator Hill-We will get an answer on that. It is two different issues; were we invoiced and did we have any reason to believe the positions were unfilled. Senator JACINTA COLLINS-Yes. We will leave it at that at this point. Did the department of defence management request or direct SSL Assets Services to employ additional resources to cover the additional equipment maintenance requirements under this contract at any stage? Senator Hill-We will see if we can get an answer to that. Senator JACINTA COLLINS-There is one other issue that I would like some explanation on in regard to practices dealing with subcontractors in this area, and that is the Commonwealth taking responsibility for indemnity of contractors. Senator Hill-Indemnity for what? Senator JACINTA COLLINS-Indemnity in terms of their work. It falls into the broader issue of the problem that occurred at HMAS Cerberus, which was poor workmanship not being pursued by the Commonwealth-we partly discussed this on Monday-and the Commonwealth simply paying for the job to be done again rather than going back to the original contract in terms of performance of that work. Senator Hill-I still do not understand the question. Are you asking: did Defence agree to indemnify the contractor against poor workmanship? That does not make any sense to me. Senator JACINTA COLLINS-I have a Defence document here discussing the `granting of indemnities to contractors providing professional service providers who will be registered as Defence Company ScoreCard system users'. I am interested in why Defence would be looking at indemnifying contractors essentially to the same level as an employee would be covered in relation to their work. Senator Hill-I see. Are you speaking in general terms or are you again relating it to a particular contract? Senator JACINTA COLLINS-It is obvious from the document I have of 21 December 2001 that this has been an issue of a policy nature addressed within Defence. What I am not clear about is whether this is a broader issue across the public sector possibly? Senator Hill-Dr Hawke might be able to answer that. Dr Hawke-I cannot answer it, but we will take it on notice. Do you have a reference for that document, Senator? Senator Hill-Have we agreed in some circumstances to treat contractors as employees? Dr Hawke-I think the distinction here might be private service providers rather than contractors. Senator JACINTA COLLINS-It may be. It is signed by J.T. Fitzgerald, Director-General Contracting Policy and Operations. It is dated 21 December 2001. Dr Hawke-We can track it from there. It is in the Defence Materiel Organisation. Senator JACINTA COLLINS-It also, though, refers to: ... legal advice received from the Australian Government Solicitor (AGS) and Clayton Utz, has considered the potential for a contractor to be exposed to legal liability where it provides a PSP to the Commonwealth under a contract and the PSP will be a Defence Company ScoreCard system user. Dr Hawke-We will get you an answer. Senator JACINTA COLLINS-What precisely is a PSP? Dr Hawke-It is a professional service provider. Senator JACINTA COLLINS-Does it limit the type of work we are talking about? Dr Hawke-I do not know. Fitzgerald will be here for the DMO part of the meeting so we will get him across to answer that. Senator JACINTA COLLINS-Okay. You obviously need to do this on notice, but what I am concerned about-and if possible I would like to see it-is the advice from AGS and Clayton Utz suggesting that it is necessary to provide indemnity of this character, and the rationale for it. Senator Hill-If that is legal advice to us assisting us in the interpretation of our contracts then I will consider making it available but it would not be a usual practice. On the other hand, it would be a usual practice for us to provide it to the Auditor-General if that is what he wanted. Senator JACINTA COLLINS-Yes, and in part this is a broader issue to the Auditor-General's issue. The Cerberus issue is this, in part: work has been done, it has been of poor quality-roofs have flown off buildings et cetera-and the original contractor has not been pursued in relation to that. The job has just been done again and paid for again. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 259 Senator Hill-Yes. Senator JACINTA COLLINS-I am trying to understand why the Commonwealth would be looking at indemnifying contractors and, in a sense, possibly making it even more difficult for the Commonwealth to pursue- Senator Hill-Yes. And you are suggesting that in some circumstances Defence has agreed to indemnify contractors. Senator JACINTA COLLINS-It looks as though there has at least been a policy consideration of doing that. I do not know if it has been acted on. Senator Hill-No. What is a policy consideration is really irrelevant. What you want to know is whether there is any contractual limitation on the Commonwealth recovering and, beyond that, whether there is an existing policy that in some circumstances they do not recover and, if so, what are the limits of that policy. Senator JACINTA COLLINS-Yes. And, if so, what is the rationale for those limits? Senator Hill-Yes, I can get that for you. Senator JACINTA COLLINS-And back further than that, what is the rationale to seek to indemnify contractors to the same extent one would indemnify employees? Senator Hill-That is another way of saying the same thing. Senator JACINTA COLLINS-No, because there are quite probably other indemnities in the contracts as well. This is one of a particular nature. Senator Hill-I think it is the same question. Senator JACINTA COLLINS-Okay. I think I might leave these issues here for now. Senator Hill-Okay. Senator JACINTA COLLINS-Am I to expect two inspector-general reports? Senator Hill-There are apparently two and I will have a look at them and decide whether I can put them on the public record. Senator JACINTA COLLINS-I will finish on that, thanks. Dr Hawke-Mr Acting Chair, with your indulgence we could ask Rear Admiral Shalders to add something to what he said earlier. ACTING CHAIR-Certainly. Rear Adm. Shalders-I have the answers to some questions that were previously raised. Firstly, in relation to a question asked by Senator Schacht on the physical employment standards project, I indicated that the tender was released on 31 January. In fact, that tender was released on 24 April. I also indicated that the study will take six months; that six months is in fact for the first part of the review, which is to look at the infantry category. Depending on how quickly that particular part of the study goes, subsequent combat categories will be reviewed, hopefully in a shorter timeframe. Secondly, on Monday I was asked the cost of the Reserve's advertising campaign. This is the campaign that was launched on 25 May. The cost for the current financial year is $2.2 million. For the next financial year it is currently budgeted at $2 million. Senator CHRIS EVANS-Between April and the end of June you are going to spend $2 million? Rear Adm. Shalders-A lot of that is related to developing the campaign: the research that goes into the campaign and the product development. There is quite an up-front cost. The media placement for the campaign will obviously be a lot less than the $2.2 million that I mentioned. Senator CHRIS EVANS-I take it that the total budget for the campaign is $4.2 million? Rear Adm. Shalders-We are currently allocated for another $2 million next financial year, but those allocations have not been made yet. While that is our budget we may well have to cut our cloth-cut our campaign to suit the allocation. Senator CHRIS EVANS-The $2 million is for the year 2002-03. Is that right? Rear Adm. Shalders-That is the current budget projection. Senator CHRIS EVANS-You are spending $2.2 this financial year, 2001-02, and you have budgeted for a further $2 million next financial year? Rear Adm. Shalders-That is correct. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 260 SENATE-Legislation Wednesday, 5 June 2002 Senator CHRIS EVANS-Why would you have to cut your cloth? Because of the reduction in the overall advertising budget? Rear Adm. Shalders-Yes. Senator CHRIS EVANS-What is the overall advertising budget for next year? Senator Hill-It is about $25 million. Rear Adm. Shalders-That is correct, Minister. We bid for that but as you would have seen in the budget papers we have taken a cut of $10 million. Senator CHRIS EVANS-There was some confusion about this earlier in the week. Senator Hill-The only surprise is to find that the cut that the government had previously determined had not been implemented. Senator CHRIS EVANS-I went back and had a look at the additional estimates, Senator Hill, and there was nothing in the additional estimates about a cut. Senator Hill-You needed to read between the lines. It may not have been specified in the documentation. Rear Adm. Shalders-I have another response to a question that was raised earlier in the week. In terms of media and advertising contracts, Senator Hogg asked me who the principal contractors were. We have three-year contracts which commenced in August 2000. Our advertising agency is Young and Rubicam Mattingly and the media buyer is Mitchell and Partners Australia Pty Ltd. I draw the committee's attention to the Defence annual report which lists all advertising and media purchase arrangements across Defence. In the last annual report there is a table on pages 299-300 which goes into extensive details on media and advertising placement. Senator HOGG-It is extensive in the sense that it lists all of the various contracts, which I think is very healthy, but it is very difficult to understand what the individual contracts are for. Whilst I did not pursue that at the additional estimates, let me ensure you that next time round in the supplementary estimates I will be pursuing that issue. Rear Adm. Shalders-We will be prepared for that, Senator. Senator HOGG-I am sure you will. Rear Adm. Shalders-We will be prepared for that, Senator. I have two more answers. The next subject was family support programs. Senator Hogg asked some questions. Has the amount allocated to that program changed over the last five years? Broadly speaking, no, it has not. In 1997-98 the amount allocated was $1.3 million, which continued the next year. Since the 1999-2000 financial year, the amount allocated has been $1.25 million. A second part of the question was: how many people apply for the grants and how many are approved? The figures were: starting from 1997-98, 287 applications and 261 approved; for the next year, 280 applications and 243 approved; for the next year, 1999-2000, 243 applications and 228 approved; for 2000- 01, 218 applications and 169 approved; and, for the current financial year, 201 applications and 128 approved. The next part of the question was: does demand exceed allocation? Yes, it does. A number of applications are normally rejected as they do not meet the requirements or the funding guidelines. The amounts of those applications rejected are: again starting from 1997-98, $500,000; for the next year, $400,000; for the next year, $400,000; for 2000-01, just over $1 million rejected; and, for the current financial year, $962,000 was not able to be allocated. Senator HOGG-When you say `rejected', are you implying that they would have fallen within the guidelines but there were insufficient funds to finance them? Rear Adm. Shalders-A little bit of both. Many do not fall within the guidelines and are therefore not proceeded with and in some cases the funds allocated are insufficient to meet all the bids. Senator HOGG-The purpose of the question was merely to find out if there needed to be some addi- tional funding. It is not a monumental amount, and it seems to me to be a reasonable cause for government to consider in years to come. I am not asking you to do that, of course. That is obviously a matter for the gov- ernment. But I just wanted to get a feel for how many of those projects were being rejected because there were insufficient funds and the magnitude of additional funding that would be necessary if most of the funds were to be granted some sort of allocation in any one year. Rear Adm. Shalders-I am sorry, Senator: was there a question there? Senator HOGG-No. I was just making a statement. Rear Adm. Shalders-I have one other answer. This relates to the Defence family financial emergency fund. Senator West asked some questions about that. This fund is currently allocated $100,000. Since this particular program has been in existence, which is only a short time, we have only had two applications for FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 261 loans. Those two individuals were granted $1,000 each. The loans are interest free and repaid over a 12- month period. I believe that answers the questions that Senator West put on that subject. [11.34 a.m.] ACTING CHAIR-We move on to output 5, Strategic policy. Senator CHRIS EVANS-I will start by asking about the annual review of Australia's strategic environment, which I gather did not take place annually because we did not do it the first time but has been given some prominence on this occasion. Senator Hill-It is going to be an annual review but it is starting this year. Senator CHRIS EVANS-So we jumped a year; does that make it biannual? I just want to get a sense of the time frame and the process, and whether it will be similar to the white paper process or more restricted. Senator Hill-More restricted is the answer. Dr Brabin-Smith-The strategic review will be less ambitious in its scope than the white paper in that it is a reading of the strategic entrails and how matters have moved on since the development of the white paper about two years ago. It will be done in a time scale to help inform decisions on the level of defence funding and the nature of allocation within the funding envelope. This will be a matter for ministers, but I would expect the work to be finished in the final quarter of the year. Given that this is a strategic review and not a white paper, basically we will not have a process for public consultation as such. Again it would be a matter for ministers, but I for one would be surprised if there were not some statement by the government as a consequence of the strategic review. Senator CHRIS EVANS-Will there be any provision for public input in the way the white paper had, or for people to submit views? Dr Brabin-Smith-No. Senator CHRIS EVANS-What is the relationship between the strategic review and the capability plan? Dr Brabin-Smith-The capability plan will be reviewed in the context of the observations on our strategic circumstances that the strategic review will deliver. There will be other factors, of course. I think the white paper contains a paragraph which refers to how changes in judgments on what is or is not cost effective will be reflected in the annual update of the defence capability plan. So there are several factors that will come to bear on the annual update of the defence capability plan. Senator CHRIS EVANS-As a result we would see an update of the capability plan and that would become public as well, would it? Dr Brabin-Smith-Again, it is a matter for ministers. There will be a classified version of the defence capability plan and I imagine there would be a declassified update as well. Senator CHRIS EVANS-Part of the whole point of the capability plan was for industry planning and for- Dr Brabin-Smith-Yes. I would be surprised if there were not. The custom of putting into the public sphere a version of what is now the capability plan goes back many years, so I would expect that to continue. Senator CHRIS EVANS-Could someone flesh out for me the section in the budget papers which refers to Defence seeking to maintain access to United States military technology and intelligence in coming years and in particular the sentence: As part of this engagement, Defence will progress a top-down strategic review of interoperability between the ADF and United States forces. Could someone flesh that out as to what that means and how that will be progressed? Adm. Barrie-At this stage we are, in conjunction with the United States, taking a look at our overall interoperability as we might operate a coalition. It flows out of a tasking that was given to us at the most re- cent Australian-US ministerial talks. We have a process of reporting back to those talks. Senator CHRIS EVANS-It is a scoping study, is it? Adm. Barrie-No, it is not a scoping study in the sense that it is simply going to confine itself to being a scope for work to be done; it is really looking at ways in which we might further enhance the way we operate in coalition with the United States. Senator Hill-I think it is in part a recognition that there seems to be a greater trend than in the past toward a need for coalition operations, and such very basic issues as effective communication between coalition partners become critically important. Therefore, it is worth while to look at these issues in advance. I would not read any more into it than that. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 262 SENATE-Legislation Wednesday, 5 June 2002 Senator CHRIS EVANS-Do you mean things like language training? Senator Hill-I have asked both sides on occasion if they can understand each other. Senator CHRIS EVANS-I am just trying to understand what that means. I assume, given the ANZUS alliance and our traditional relationship with the United States, that that has always been a factor in what we do? Adm. Barrie-I will go to the reason why it came on the agenda. When Australia led the coalition in East Timor, the United States for the first time was placed in the position of being a minor player in a coalition led by another country. That is quite exceptional in United States history. For that reason, there were quite a number of lessons learnt. The reality is they experienced a coalition in the way we normally experience a coalition. The consideration that led to the agenda at the last ministerial round was simply the realisation that there are probably ways in which our two countries can further strengthen the alliance if we look at the way we manage coalitions in the future. That is really what it is about. Senator CHRIS EVANS-So this is more about the management of coalitions rather than things like acquisition policy? Adm. Barrie-There are parts of that associated with it, but I would say the primary focus of our concern is how our two countries work together in military operations. Senator CHRIS EVANS-Rather than looking at things like acquisition and technology? Adm. Barrie-Yes. Senator CHRIS EVANS-Thank you for that. Senator HOGG-I have a quick question on the defence cooperation side. I understood that when India and Pakistan conducted their nuclear test programs a couple of years ago, we withdrew our military attaches in both countries. Dr Brabin-Smith-Yes. Senator HOGG-Did we ever return those military attaches to those countries? Dr Brabin-Smith-Yes. I forget the precise dates. The chap went back into India last year, I think. Senator HOGG-It was mentioned in last year's PBS. Dr Brabin-Smith-He went back in January last year. The one into Pakistan went back more slowly because of reservations about the political structure and the overthrow of the civilian government in Pakistan. Our government took the view that, in light of Pakistan's central role in the war against terrorism, it would be appropriate to put a defence attache back into Islamabad. Senator HOGG-Are they both still there in their respective countries? Dr Brabin-Smith-Yes. Senator CHRIS EVANS-I would like to ask about the memorandum of understanding with Indonesia. I have seen reports about increasing our intelligence exchange, and the minister referred to the possibility of assisting with some counter-terrorism training. I would like to get an update on the development of that. I gather the MOU was fairly broad; we discussed it at the last estimates. What is happening under the terms of that MOU? Dr Brabin-Smith-Minister Hill was in Indonesia more recently than I. I do not know whether he would like to answer that or whether Dr Hawke would like to. Senator Hill-No, you can have a go. Dr Brabin-Smith-We are still very much feeling our way at this stage. I will ask Ms Rowling to talk about her contact with her Indonesian counterpart in a minute. We are feeling our way. There is a fair degree of good intent on both sides, but I do not think we are going to see rapid progress in the relationship. We certainly have common cause not only in the general proposition of the security of our region but, as the MOU clearly symbolises, in the countering of international terrorism. There continues to be contact, and perhaps Mr Bonighton will cover this in a few minutes, between the Defence Intelligence Organisation and their Indonesian counterpart and, I believe, between the Office of National Assessments and their Indonesian counterpart, so there is a whole-of-government approach. As we sit here this morning, there is still-and you can appreciate this-a degree of ambiguity or uncertainty about the precise nature of what international terrorism is in our region. Perhaps I can get Ms Rowling to talk about her discussions with General Sudradjat. Ms Rowling-Following the minister's visit to Indonesia, I visited Indonesia for a meeting with my oppo- site number in TNI headquarters. We looked at initiatives that we might both jointly support and take forward in continuing to develop the defence relationship and bearing in mind the MOU on counter-terrorism as well. As a result of that meeting, we focused on taking forward initiatives such as junior officer training in both FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 263 countries; Indonesian cadets coming to Australia for training, for short-term attachments or for visits; and service-to-service meetings and more visits. We identified a number of areas that we both wanted to progress. We also talked about maritime surveillance cooperation, and that will be another area in which we will have further discussions on how best to progress that. Dr Hawke-You recall that when the Prime Minister met the President of Indonesia there was a memorandum of understanding about cooperation on terrorism. That was the precursor to the minister's visit to Indonesia and consideration by the government announced by the minister that we would be restoring our ties to the Indonesian military in a slow and step by step fashion. These issues have flowed out of that, and the minister mentioned this issue when he was at the International Institute of Strategic Studies defence ministers meeting in Singapore over the last week or so, including the important part that the Indonesian TNI plays in domestic stability. Senator CHRIS EVANS-Ms Rowling, you mentioned junior officer exchanges and training, service to service visits and maritime surveillance. What is happening in the counter-terrorism area? The minister was quoted as talking about the possibility of assisting with some counter-terrorism training. What is envisaged there? Senator Hill-Ms Rowling might want to add to this, but as far as I am concerned it has not really developed into any detail as yet. It is a matter of feeling our way. Both sides have said that we need to be comfortable with what is being proposed, but both sides have an interest in Indonesia having an effective counter-terrorism capability. There is always the potential of course-and I hope it does not happen-that some Australians might be caught up in hijacking or in some other event in Indonesia. We certainly have a real interest in Indonesia being able to capably respond to that. I think we have good doctrine and good practice in that regard. Certainly, we have assisted other countries in the development of their counter- terrorism capabilities. It might be that in the future we can offer some assistance to Indonesia in that regard. Senator CHRIS EVANS-That is not what the Prime Minister said at the time, unless he was misquoted. In my reading of the press reports, he ruled out Australian involvement in counter-terrorism exchange activity with Indonesia. Has there been a change in policy? Senator Hill-I would be very surprised if there were something inconsistent between what I am saying and what he said. Senator CHRIS EVANS-I am trying to be clear about what we are now saying. He was quoted as saying in February, I think: ... we are not talking about an acceleration of military links. We are not talking about Australians getting involved in domestic matters going to the unity of Indonesia. In particular, he ruled out relations with Kopassus. Some of that is a direct quote; some of it is interpretation. I am not arguing the case about what he said. I am keen to get an understanding of where we are now. Are we saying that we are re-engaging with organisations like Kopassus? Senator Hill-No. We do not have any active engagement with Kopassus. Dr Brabin-Smith-To add a point, in Indonesia, as in Australia, the first port of call in dealing with terrorism is the police force. This raises issues of coordination between police forces and defence forces. As you know, in Australia in extremis we have our own special forces who would come in and support the police. I believe it is the same in Indonesia. One of the matters which I believe we have discussed with them is our general arrangement for the coordination of protection against violence-the Standing Advisory Committee on Commonwealth-State Cooperation for Protection Against Violence, or SAC-PAV. There are a few things that we can talk about which would be helpful. This is considerably short of getting back into full- scale training with Kopassus. Senator Hill-There is a lot of scope in what might be described as the nonlethal side of counter-terrorism where I think we could be of assistance to Indonesia. Senator CHRIS EVANS-Do you mean from the Defence Force side or more generally, with the police et cetera? Senator Hill-Our primary capability is a defence capability but, as has just been said, in response to a terrorist action there are a range of different agencies that have a role to play, such as the police, ambulances, emergency services and so forth. We have quite well developed doctrine. We have experience of preparing for the Olympics and preparing for CHOGM. I do not think Indonesia is as well advanced in the command and control of such situations. It could be a good instance where we could offer some assistance. It has not got to that stage yet, but that strikes me as a sensible sort of thing to look at. I know of other instances where we have supported regional states, in our facilities in Australia, in improving their counter-terrorism capabilities. There may be some scope for that in future with Indonesia. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 264 SENATE-Legislation Wednesday, 5 June 2002 Senator CHRIS EVANS-Has any of this gone beyond the discussion of plans? What is currently happening under the MOU, other than discussions between officers? Dr Brabin-Smith-My view is that we are still at the talking stage. Dr Hawke-Ms Rowling's visit to Indonesia was only quite recent I think to follow up on this. Ms Rowling-Yes, just two weeks ago. Senator CHRIS EVANS-We are likely to see the first manifestation of that agreement to be things like service to service visits and training of each other's military officers? Dr Hawke-That will be the first stage in the process. I think that the Indonesians are giving further consideration to it and will probably send one of their people down here in the next couple of months to discuss future practical and pragmatic arrangements. Senator Hill-The exchanges of service personnel are at the relatively easy end of the spectrum. We have had some preliminary discussions with them about maybe some time in the future participating in a joint maritime surveillance exercise. The memorandum, which is not very old, sets out a number of principles and a number of objectives, and what we are now seeking to do at the level of the departments and services is to work out how we can most effectively put it into practice. Senator CHRIS EVANS-I know we have a role with the East Timorese military in the training and development of their armed forces. Are they being briefed on development of some of the MOU as part of that? I assume there are some sensitivities there. Senator Hill-They seem to be developing a very positive relationship with Indonesia. There are some processes taking place that will enable the three countries to work on ideas together. The matters that we are talking about would be regarded positively by the new administration in East Timor. Senator CHRIS EVANS-We had a discussion the other day about the $20 million for the Papua New Guinea Defence Force. Senator Faulkner followed that through. He was interested in the decision-making process that led to it. I am interested in what has happened to the money. Dr Hawke-I think I did answer some questions from Senator Faulkner on exactly where we were at in terms of the payout and that these arrangements are being run through Deloittes to ensure that they are consistent with the intent of the arrangement. I have not got those figures with me today, but I am absolutely sure I read them into the record the other day. Senator CHRIS EVANS-You must forgive me, Dr Hawke. Sometimes when Senator Faulkner is examiner-in-chief I tend not to pay as much attention as I should. Dr Hawke-We will see if we can locate them in the Hansard. Senator CHRIS EVANS-That goes to the question what has been paid out, by whom and to whom. Dr Hawke-Yes. Senator Hill-As I understand it, the money was transferred to an account administered by Deloittes. Deloittes has guidance on what payments can be made-in other words, ensures that any draw-down is consistent with the agreement reached between the two states. We can give you figures. My vague memory is that about 85 per cent of the first $20 million has been drawn down. Senator CHRIS EVANS-Of the first $20 million? Senator Hill-Of the $20 million. The issue is whether there will be further money with another tranche in the future, but no other money has been transferred. Senator CHRIS EVANS-Has there been a commitment from us to fund more than the initial $20 million? Dr Hawke-Yes, there has. I have to confirm this for you, because I am not sure whether it was $A8 mil- lion or eight million kina, which would be about half of that-$A4 million. I am not sure that we have con- cluded that agreement yet. That followed a further meeting between Mr Moore-Wilton and Mr Igara, at which I was present, a few weeks ago. Senator CHRIS EVANS-I will not ask what time the meeting finished. Dr Hawke-Before lunch, as I recall. Senator Hill-According to this note, over 80 per cent of the $20 million has been expended. For what it is worth, progress made was redundancy and repatriation of about 580 members of the PNG Defence Force. Senator CHRIS EVANS-We made a decision to contribute a further $8 million or eight million kina- Dr Hawke-I will take that one on notice and get you a precise answer to the question. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 265 Senator CHRIS EVANS-Yes, as to the currency. When was that decision taken? Dr Hawke-I will get you the details of that too. It was just a few weeks ago. We reviewed where we were at and made a further decision on that. Senator CHRIS EVANS-Is that with the expectation that that would be the last? Dr Hawke-No, that may not be the last. The government would have to consider that. It may be a partial payment against a second tranche of money. But there is no government decision to do that at this stage. Senator CHRIS EVANS-So we have two confirmed government decisions, one of $20 million and one of- Dr Hawke-A further sum of money. I will confirm it. Senator CHRIS EVANS-Is that money, second tranche, set against some benchmarks from the first? Dr Hawke-Yes. It has been made absolutely crystal clear to the PNG side that, if they do not deliver against the targets on the first tranche, they can probably forget about getting any further money to this end. Senator CHRIS EVANS-As I understood it, we were not meeting the whole sum; there was supposed to be some contribution by the Papua New Guinea government as well. Is that right? Dr Hawke-That is correct. On page 36 of the Hansard of Monday, 3 June, in response to these questions, I said, as the minister just did: Of the $20 million, 80 per cent was to go towards redundancies and 20 per cent towards what were called reform stoppers and morale issues. This involved paying some old allowances, fixing up some of the barracks accommodation and some repairs to aircraft and ships. As of 31 May, some $17 million of the $20 million has been spent and about 15 per cent of that has been spent on the reform stoppers; the rest has been spent on redundancies. Senator CHRIS EVANS-Thank you for that. I am sorry, I missed that at the time. There is now a decision for another tranche, and that will also be against a target of numbers to be retrenched effectively. Dr Hawke-Yes, I will be able to confirm for you what the numbers are that are involved. Senator CHRIS EVANS-Does this agreement include some provision to construct armoury bunkers? Dr Hawke-That is a separate issue under the Defence Cooperation Program. Ms Rowling will be able to tell us where that is at. Ms Rowling-We have completed construction of three armouries in Port Moresby, and we are looking in the next financial year to do some more work on armouries probably in northern bases. Senator CHRIS EVANS-Are we funding and doing the construction ourselves? Ms Rowling-We are certainly funding them. I am not certain, but I think it may be built under contract. Senator CHRIS EVANS-Are we commissioning the work or is the Papua New Guinea government commissioning the work? Ms Rowling-It is a joint decision as part of our Defence Cooperation Program-that this is something that would be valuable. Senator CHRIS EVANS-So jointly we commission for armoury bunkers to be built- Ms Rowling-We would do that under the Defence Cooperation Program. Senator CHRIS EVANS-But we are paying for it, effectively, are we? Ms Rowling-Yes, out of the Defence pocket. Senator CHRIS EVANS-What is the budget for that? Ms Rowling-I will have to get back to you with the exact figures, but I have a recollection of about $3 million for the work we have done to date in Port Moresby. I will check that and get back to you. Senator CHRIS EVANS-Could you also get me the figures for what is anticipated next year as well? Ms Rowling-I will do that. Senator CHRIS EVANS-Thank you. Out of which bucket of money is that funded? Ms Rowling-It is $10 million for cooperation with PNG out of the defence cooperation fund. Dr Brabin-Smith-It is on page 53 of the yellow PBS book. Senator CHRIS EVANS-Thank you for that. Dr Brabin-Smith-Mr Acting Chair, perhaps I could respond to the question that we took on notice yesterday from Senator Evans on the Solomon Islands. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 266 SENATE-Legislation Wednesday, 5 June 2002 Senator CHRIS EVANS-We were going to do that with Foreign Affairs, but you have got the information there? Dr Brabin-Smith-We can provide some information on the Defence part of this. On 14 February this year, 2002, ministers approved a plan put together by DFAT in consultation with others to draw down the international peace monitoring team. The ADF contribution at that stage was four personnel who provided specialist intelligence and security advice to the IPMT. As we speak, the ADF component is just one person, who is attached to the High Commission in Honiara for duty as the liaison officer between the IPMT and Commander Australian Theatre. The current contribution by Australia to the IPMT is 18 people, 14 of whom will leave the Solomon Islands on 25 July and the remaining four IPMT people remain in the Solomon Islands until 9 July to complete logistical and administrative tasks associated with the draw-down of the IPMT. Senator CHRIS EVANS-When you said 25 July did you mean 25 June? Dr Brabin-Smith-Did I say July? I meant June. The remaining four folk leave on 9 July and the headquartered Australian theatre liaison officer comes out on 25 June. Senator CHRIS EVANS-That will mean no ADF personnel will remain in the Solomon Islands; is that right? Dr Brabin-Smith-There will be none associated with the IPMT. Senator CIS EVANS-There might still be one attached to the embassy? Dr Brabin-Smith-Yes. Senator CHRIS EVANS-Thank you. CHAIR-Thank you, Dr Brabin-Smith. That completes output 5: Strategic policy. [12.08 p.m.] CHAIR-We move now to output 6: Intelligence (including Defence Security Authority). Dr Hawke-Mr Bonighton will address the question that Senator Cooney was asking about the other day. Senator COONEY-Thank you, Dr Hawke. I am going to ask you about a letter you sent. I ought to declare an interest here. Emma Hunt, who is referred to, is my daughter-in-law, but I hope I am doing it for a public purpose. You have probably answered these questions again and again-I apologise for the repetition. Nevertheless, some issues arise. Dr Hawke, do you have the letter there? If you do not, I have got copies. Dr Hawke-I do recall the letter. Senator COONEY-It was a most courteous letter. You attached not all of the report from Mr Blick but an introduction and a summary, and a press release from the Minister for Defence, Senator Hill-may I say the very eminent minister! Senator Hill-You are very generous, Senator. Senator COONEY-I want to ask a few questions about the report. You say in your letter that the intercept of something outside the material DSD gathers is something that happens `on occasion'. Does that mean it is rare? Is DSD collecting unintentionally a massive quantity of the communications of the citizens of Australia? Mr Bonighton-DSD is basically a foreign intelligence collector, so our emphasis is on the foreign part of the communications that we are collecting. There are provisions for us in some circumstances to collect the communications of Australians, and that is done when it is a targeting matter. There are very limited circumstances in which we might do that-for instance, the risk to the safety of a person or commission of a serious crime or a threat to security. As well as that, we do from time to time come across the communications of Australians in the course of our normal collection. We call that incidental collection. Senator COONEY-How much of that goes on? Mr Bonighton-I could not give you a figure on that, but not a large part of our business would comprise that. The problem is that Australians are everywhere, and even if we are concentrating on the foreign part of our business we are bound to come across them. We do whatever we possibly can to delete those communications from any of our records as soon as we recognise them. If there is any question of them being reported, we do not name or identify those people. In the particular case you have of the three Australians to whom Dr Hawke wrote, at no time were any of those people named. Senator COONEY-That might be the problem-that you did not name them. You say that you do not name these people, and by using that approach people say, `You are not going to name Emma Hunt; there must be something wrong with Emma Hunt.' I do not know. Both her parents are Australian citizens but born in England. Is that a problem? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 267 Mr Bonighton-Not at all. Our aim is to, wherever possible, protect the privacy of Australian citizens. Senator COONEY-This was a communication from inside Australia? Mr Bonighton-Yes. Senator COONEY-You are gathering those all the time, incidentally. Mr Bonighton-Correct-it can happen. Senator COONEY-Is it on a massive scale? Mr Bonighton-I certainly would not describe it as a massive scale. I do not want to go into the details of our operations, but we are aiming to collect foreign communication intelligence, so we are focusing all the time on that foreign intelligence. Those priorities are set by government. We are not deciding what we should be collecting; we are doing this in accordance with the priorities. Senator COONEY-Whatever you collect is done at the direction of government? Mr Bonighton-Yes. Dr Hawke-The Inspector-General of Intelligence and Security does frequent inspections to ensure that the rules are being obeyed. In this case he found these three cases where we had inadvertently reported-but the individuals were not named in those reports. Senator COONEY-I understand what you are saying, but in your letter, Dr Hawke, you use the phrase `on occasion'. That gave me the impression that this was a fairly rare occurrence; I am getting the impression from Mr Bonighton that it occurs more frequently than the phrase `on occasion' suggests. Dr Hawke-It is a rare occurrence for there to be any reporting of Australian citizens. That is correct. We collect it, but we do not report it. So, if we find something that involves Australians, we take that out of any subsequent reporting. It would not be in the reporting we make, because DSD is involved with foreign intelligence collection. It does not target Australian citizens in any shape or form. Senator COONEY-I gather from Mr Bonighton that a whole lot of communications by Australians from within Australia are picked up by DSD incidentally. Mr Bonighton-That could be the case but, without going into the detail, we are trying to focus on foreign communications. Senator COONEY-This is the problem and this is what I am going to come to: you are focusing on foreign communications; I am trying to work out how it is that some Australian citizens were picked up within your intelligence operations. I do not think Emma Hunt particularly cares that she was picked up-I do not know about the others-but what I am trying to get from you is whether you are capable of thinking of this from the point of view of Australian citizens inside Australia. That is what I am trying to get from you. How many of those communications do you pick up incidentally? That is what I am trying to get from you. If it is all secure and you cannot tell me, I understand. Mr Bonighton-It is certainly a difficult issue for us. What we are trying to do, as I say, is to look at the foreign part of the spectrum. Senator COONEY-But you do pick up a lot of Australian communications? Mr Bonighton-We do pick up some Australians. The only time we would deliberately do that is where there is a justified reason for doing so. In that case we would seek authorisation for that to happen on an individual basis. It is very rare. Senator CHRIS EVANS-But Mr Blick's report found these breaches. Mr Bonighton-Those are the breaches we are talking about, but I guess the good news from Mr Blick's report was that the fairly bizarre allegations made in the first place were found to be completely baseless. He did find that we had committed a breach. Senator COONEY-So you are saying that the MUA has been bizarre? Mr Bonighton-No, what I am saying is that allegations that we were intercepting the communications of Australian citizens and hawking around to the government for political purposes the transcripts of Australian citizens' conversations were wrong. Senator CHRIS EVANS-But Blick's report did say that you had breached on four or five occasions and that you had then produced reports, using that information which was in breach. Is that not right? Mr Bonighton-That is what it said. In fact, we were the ones who brought to Mr Blick's attention the fact that there was more than one report. As soon as he notified us that there was a problem-an `apparent breach' as he described it-we immediately stopped that line of reporting and drew to his attention that there FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 268 SENATE-Legislation Wednesday, 5 June 2002 were three other reports in that same line. So the thought that there are people in DSD champing at the bit to intercept the communications of Australians is just dead wrong. Senator COONEY-In your letter, Dr Hawke, what did you mean by the phrase `on occasion'? As I said, I gathered from that that this was very limited. Dr Hawke-It is, and maybe we are not getting that point across. It is very limited. Senator COONEY-So can I take it from what you say that this occurrence that occurred with PILCH, the organisation for which Emma Hunt worked, was a rare occurrence? Dr Hawke-Yes, you can. How do you determine rare? Do you determine it as less than one per cent? Senator COONEY-What do you say? Dr Hawke-My guess is that it would be less than one per cent. Mr Bonighton-That is probably a reasonable number. It is a minute part of what DSD does, and we do whatever we can to make sure that records are kept on these occasions, and the inspector-general looks at them. Senator COONEY-I am not worried about that. What I am interested in is the concept that that is a very rare occurrence and that is an exception. Senator HOGG-Yes. Mr Bonighton-That is absolutely correct. Senator COONEY-Did you turn your mind to the fact that this very exceptional occurrence should have occurred in an incident where the Commonwealth was going to be taken to court? That is the suggestion- that action would be taken against it in respect of asylum seekers coming down from the north. Can you see what I am saying to you? Dr Hawke-That had no bearing. Senator COONEY-Dr Hawke, I am just a poor, bumbling senator who is trying to clarify things. You sweep me off my feet. Can I just put this to you. Here is a rare occasion, as you say-it does not happen at all often-and what does it happen in reference to? It happens in reference to a communication-I will give you a copy of it-which is sent off to the Tampa by PILCH, the Public Interest Law Clearing House, signed off by Emma Hunt, suggesting that PILCH would give help not only to the asylum seekers but also to the captain of the Tampa. That communication is of great interest, you might think, to the government-and if you cavil with that I have a record here of an ABC radio interview with Jon Faine on 23 October 2001. Here is this document, which I am not suggesting for one minute you did give to government but which would be very, very useful to government. Out of all the communications that are going around Australia, one of the very rare ones that is picked up is this communication offering legal help to asylum seekers and to the captain of the ship. There we are. You say to me, `That is very, very odd; most unfortunate.' Out of all these thousands or millions of communications that go around Australia, one of the ones you pick up, one of the rare ones you pick up, happens to be this. Have any explanation for that? Mr Bonighton-I think we can look back to Mr Blick's report again, where at one point he describes this as, I think, a new and fast-moving situation. This, for us, was something different and unusual. I think that is why in fact this report was treated in the way it was. It was a new situation. Senator COONEY-If you look at Mr Blick's report, it reads: 4. That investigation is now complete and I am able to confirm that the claims are without foundation. 5. I am satisfied that DSD did not target or report communications of the Maritime Union of Australia or the International Transport Federation. Nor did it provide raw intelligence product to the government, or to anyone outside DSD (other than this office). The government could not, therefore, as claimed, have used transcripts ... I wonder why he used the phrase `are without foundation'. That sounds to me-I do not know what you think, Mr Bonighton-more like an advocate speaking rather than somebody who is making a cool assess- ment of what went on. Senator Hill-It is a bit unfair to ask this witness what he believes Mr Blick meant by that. Senator COONEY-All right. I ask you and Dr Hawke. Senator Hill-I think it is probably better that you ask Mr Blick. Senator COONEY-No, it is not. I will tell you why. Because Dr Hawke has adopted this report, and so have you, if I may say with respect. Senator Hill-Well, you can ask me- FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 269 Senator COONEY-Mr Blick has provided a report on the matter. This is what Dr Hawke writes to Ms Hunt. Senator Hill-Yes. Senator COONEY-He accepts it. I am asking- Senator Hill-What do you want us to do? He is a separate statutory authority. He is charged to examine this matter independently, to give public confidence in the agency's work. He has done that and he has reported. Senator COONEY-No. That is what I- Senator Hill-And what we are saying is- Senator COONEY-Of course you do. What I am asking- Senator Hill-we do not have a quarrel with his findings or his determinations. Senator COONEY-What I am asking you is: do you fully accept everything he says? Senator Hill-What do you mean by that? Senator COONEY-I have set out a scenario- Senator Hill-I have not done a separate examination of the records. Senator COONEY-No. But you have accepted a record and so has Dr Hawke. Senator Hill-I accept that he is a capable, independent and diligent officer. I have no reason other than to believe he would have done a sound job. Senator COONEY-Dr Hawke, I ask this: did you turn your mind to the question as to whether or not the law had been breached? Dr Hawke-I accepted Mr Blick's recommendation that I should write to these people apologising for the incidental collection. Senator COONEY-But you read his report. You said so. Dr Hawke-I did not say I read his report. CHAIR-Can I interrupt you for a moment, Senator Cooney. I would very much like you to wrap your questions up by lunchtime, which is 12.30, because after lunch we have to finish Defence. Senator COONEY-Can I just ask you this, just to see where we are going. Senator Hill-Yes. Senator COONEY-What did you do in assessing the situation about the provisions of section 12A of the Intelligence Service Act? Senator Hill-Are you asking me? Senator COONEY-I am asking whoever wants to answer it. Senator Hill-Mr Blick in his examination raised the issue, the possibility which I understand had not been considered, that a particular course of action was in breach of that section. As I understand it, no-one had previously suggested that. As a result, as Mr Blick said, the legal issues are being further pursued and a determination will be made as to whether changes need to be made either to legislation or to the practice adopted by the agency. Senator COONEY-What 12A says, Minister, is: Both the Director- that is the director of DSD- and the Director-General must take ... reasonable steps to ensure that: ... ... ... ... nothing is done that might lend colour to any suggestion that his or her agency is concerned ... We have just been through a proposition which would certainly lend colour to any suggestion. If you cavil with that I will give you a copy, a potted copy I might say, of a statement by Julian Burnside QC-very eminent, may I say-where he says there are rule problems about what was done here. That is one thing I ask you about. The next thing is: what regard was had to section 7 of the Telecommunications (Interceptions) Act? This was unlawful. This was a wrong intercept. I cannot see where it is protected. You might be able to point out where the legislation protects this, from section 7.1 of the Telecommunications (Interceptions) Act. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 270 SENATE-Legislation Wednesday, 5 June 2002 Senator Hill-I am not sure whether we are discussing the methodology adopted in the interception or whether we are- Senator COONEY-No. The intercept itself. Senator Hill-In terms of the target? Senator COONEY-What is that? Senator Hill-In terms of the targeting? Senator COONEY-But there is no justification for intercepting, under any legislation I can see, material that is not within the provisions of the act. This is outside the provisions of all the legislation. Senator Hill-With respect, I do not think that is correct. Senator COONEY-Well, let us have a look at it. Senator Hill-Yes. You are talking about the intelligence legislation? Senator COONEY-Yes, plus the Telecommunications (Interception) Act. Senator Hill-The legislation sets out the objectives. It sets out the powers. It sets out restrictions. Senator COONEY-Let us go through that. Let us go through it, since you ask it. Senator Hill-I thought you were quarrelling about the method of interception. Senator COONEY-There was an intercept-which is agreed upon. What I am asking about is the reaction of government to that. I am suggesting that that reaction is unsatisfactory for a variety of reasons. What you say is, `Well, that intercept is all right because we had Mr Blick look at it; whatever Mr Blick says I am going to accept,' and you are suggesting, I think, so should everybody else-so should the Senate committee accept it. I ask you: why should this Senate committee accept what Mr Blick has to say without examining it? Senator Hill-The Senate committee does not have to accept anything. The position of the government is that the decision by the agency to seek foreign intelligence that was relevant to issues of a breach of Australian borders is within its area of responsibility. It has to then do it in accordance with the more explicit guidance of the legislation. Senator COONEY-And it is this committee that has to see whether there was any error in the way that was done. Senator Hill-That is fine. There was an error in the reporting. Matters were reported that should not have been reported. There is a legal issue in relation to the methodology of the interception that is still being worked upon. We do concede some points, but if Senator Cooney is suggesting that the target in the first instance was invalid then that is certainly not the view of the government. It might be the view of this committee; I do not know. It is not the view of Mr Blick either. Senator COONEY-I will clarify what I am saying for you, because I do not think you follow what I am saying. Senator Hill-That would be my mistake. Senator COONEY-No, it would be my mistake. It would be my inability to put it. What I am saying is this: DSD, in going about its necessary duties in the collection of intelligence to protect Australia from people who might want to disadvantage this place, collects intelligence. In going about that task, it might pick up material from Australian citizens, and you might expect that would happen. Nevertheless, the underlying principle- Senator Hill-It has been conceded that that can inadvertently occur. Senator COONEY-Section 7 of the Telecommunications (Interception) Act 1979 puts the position that we want to live under, if we can. It states: A person shall not: (a) intercept; (b) authorise, suffer or permit another person to intercept; or (c) do any act or thing that will enable him or another person to intercept; a communication passing over a telecommunications system That is the position. Senator Hill-That sets rules for domestic Australia, doesn't it? Senator COONEY-Of course it does. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 271 Senator Hill-Domestic Australia is not our business. Senator COONEY-I know, but you did interfere with a communication that originated domestically to take on a matter that would be held in the domestic courts. Senator Hill-No. In an attempt to seek foreign intelligence, there was one of these inadvertent- Senator COONEY-But that is what happened. You are saying that somehow- Senator Hill-That is not the breach. The breach was in the reporting. Senator COONEY-Every time I want to raise an issue about an Australian citizen's right to go about it, you say, `This is immaterial, because what we were doing was a mistake, bad luck, and what we were really after was overseas intelligence.' That is fair enough if your position is, `We really don't worry about what we pick up in the vacuum- Senator Hill-You are putting words into my mouth. I did not say that at all. Senator COONEY-I am not sure what you are saying. Senator Hill-We are concerned that we fulfil our responsibility within the guidance of our legislation. We are in the business of foreign intelligence, and we acknowledge that, in doing so, on occasions you might inadvertently make contact with an Australian. If you do so, firstly, you get rid of it, but you must not report it-that is absolutely clear-and that was the mistake that occurred in this instance. Senator COONEY-What the government is saying-and we will have to cop it I suppose-is, `Mr Blick did this, we will give an explanation and do not test that explanation because we know we are right and just because- Senator Hill-I am not saying that at all. Senator COONEY-Yes, you are. Senator Hill-You can argue the policy. Senator COONEY-I am arguing that. Senator Hill-I must say that we are pursuing the same policy in relation to foreign collection that previous governments have pursued-there has been no change at all. But you can argue that policy. Senator COONEY-Why when I ask what you did about communications from an Australian citizen being intercepted do you then go into talking about policy? That is not a policy. I am simply asking: how did that happen and what are you doing about it? Senator Hill-That is okay, you can ask: how did it happen and what are you doing about it? I thought that had been answered. Senator COONEY-I feel I am criticising what has been done about it. Every time I raise any question of criticism you then introduce what great things this body is doing. I have no doubt about that. You say, `This is government policy.' With respect, you want to do everything but answer that question. Senator Hill-What is the specific question? Senator COONEY-My specific question is: what reliance if any did you place in formulating your press release, Minister, and your letter, Dr Hawke, on the report from Mr Blick? Senator Hill-Do you want to go first? Senator COONEY-Before you answer, just to give you warning, then I am going to say that you clearly should not have done that. Dr Hawke-Mr Blick recommended that I write to the people concerned apologising for the inadvertent collection, and I did so. If I could just make one other point, neither the individual nor the company were actually mentioned. Senator Hill-What did I do? I read the report. I had the extra privilege of reading it before it became public. I also had the opportunity to discuss it with Mr Blick because he has an obligation to discuss it with me. I had more opportunity than most to go through it in effect paragraph by paragraph. I wrote my own press release. Senator COONEY-It is a good press release. I am not concerned about the press release. Senator Hill-I stood out in front of the media and copped it. Senator COONEY-I have nothing but admiration for the letter and for the press release. All I want to do is to ask something about what you were discussing, which is this report, but that is one thing you will not do. You have all the capabilities for doing that. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 272 SENATE-Legislation Wednesday, 5 June 2002 Senator Hill-I think the question you should be asking of the officer is: how can you better ensure that there will not be inadvertent interception of Australians? Senator COONEY-That is exactly what you do want me to ask. You do not want any sort of questioning about how this vital information became part of a court case of some importance to lots of Australians. If you believe in the rule of law, which I do not necessarily require you to do, and Dr Hawke were to-and I presume he does-then you would be somewhat concerned. Do you remember the famous flight over Tasmania to gather intelligence? This is consistent with that. What you are saying is that that was never done. There is a colour to that proposition and the act says you have to look at the colour. You have not addressed that issue. I suggest you look at section 12A over lunch. Senator Hill-I have read 12A. Proceedings suspended from 12.39 p.m. to 1.33 p.m. CHAIR-Dr Hawke, you have some answers. Dr Hawke-I have some answers to questions that we have taken on notice. In response to a question from Senator Evans relating to the original fuel budget for the F111, it was $11.7 million, based on a rate of effort of 3,600 hours. Based on a revised rate of effort of 2,700 hours and lower fuel prices experienced during the year, actual achievement will be about $8 million. Senator Evans also asked the Chief of Army yesterday how many 155-millimetre artillery rounds had been used in training in the current financial year. During the period 1 July 2001 to 1 April 2002, 886 rounds of 155-millimetre artillery have been fired. In relation to the points I was making about PNG redundancies, I have had an opportunity to check and we have not yet reached agreement with PNG on the further tranche. There are still discussions going on between us and them about the quantum of that money and precisely what it will provide to us in return. I expect that we may finish that before 30 June, but there is no answer to that question at this stage. Senator CHRIS EVANS-But the government has given an in-principle agreement to pay more? Dr Hawke-Yes, to negotiate the agreement. We have not yet completed that agreement and got the final government tick to that. Senator CHRIS EVANS-Did you clarify whether it was more in the ballpark of $8 million or eight million kina? Dr Hawke-This bit of paper here tells me it is around $A4 million, so I think eight million kina was right. It could be a lesser or greater sum than that, depending on which agreement we reach, but my guess is that it will be around that vicinity. Joe Roach would like to add something. Mr Roach-Senator Evans, you asked me on Monday morning to confirm that the $1.123 billion change between 2001-02 and 2002-03 included the capital use charge and the receipts from asset sales. Senator CHRIS EVANS-Back on Monday morning-Mr Roach, you really are testing me. That seems like years ago. Mr Roach-I can confirm that that figure is based on figures which include both the capital use charge and the expected receipts from asset sales. Senator CHRIS EVANS-Thank you. Dr Hawke-Lastly, Senator West asked the Chief of Army what use had been made of the equity hotlines by females from the Army aviation units. Since the inception of the Army Fair Go hotline on 1 March 2001, Army records show that five calls have been made to the hotline by female soldiers posted to Army aviation units. Two of those calls were from the same caller. That is all we have at this stage. CHAIR-Senator Cooney, you have one thing you want to say. Senator COONEY-Dr Hawke, subject to everybody agreeing, I would like to table the communication that was sent from PILCH, in the name of Emma Hunt, to the captain of the Tampa, Arne Rinnan. I am doing this to set the scene for suggesting that the legal proceedings that grew out of all this were consistent-I am not saying it did happen-with knowledge being held by the government which would help it. Indeed, I think that matter is conceded by Mr Blick. I will come to that, but I will hand this to you before it is put in to see that everybody is happy for it to be tabled. Dr Hawke, did you want to go on? Dr Hawke-I am waiting for the document, but we can proceed, Senator. Senator COONEY-If you look at the introduction and summary which you sent to PILCH, you will see that paragraph 18 states: Three of the reports contained no information derived from Australian communications that a reader could have put to any practical use. The fourth could, in theory but not in practice- which is a very interesting phrase- FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 273 have given advance notice of legal proceedings to be instituted against the government in an Australian court. That is consistent with the letter that you can see. The proposition I want to put is this: in this rare case of an intercept which was forwarded, the material contained in it was something which could, as Mr Blick says, give advance notice to the government about proceedings in an Australian court. Mr Blick, for some reason or other, uses the phrase `in theory but not in practice'. I have the transcript of a radio interview between Jon Faine and the Attorney-General. The Attorney-General rang up about this on 23 October 2001. He was complaining about what people had done with the courts. He said: They were also seeking to assist the captain of the Tampa who had while outside Australian territorial waters, been instructed by the Government not to enter, to actually do that. So what the applicants were basically doing was from a government perspective, promoting unlawful activity. I will give you a copy of this. He later says: Well I think the legal community needs to have a very careful look. The question has to be asked by the government, do we want to encourage people to bring actions in the courts to stop the government dealing with a situation in which it is negotiating for the safe passage of people with two other governments. I will table this transcript. He further says: They're not looking at the overall situation where people without clients interfered in what was government action being taken outside Australian territorial waters. All of that could have been taken straight from that fax. I will table that and have that incorporated as well, if I may. So there is the communication, which was amongst those rare communications which were taken, tapped and then forwarded. You will remember the action which the Victorian Council for Civil Liberties took against the Minister for Immigration and Multicultural Affairs and the one that Eric Vidalis took against the Minister for Immigration and Multicultural Affairs which, in the end, failed; the government won that. You have the concession from Mr Blick on this communication-we presume that is what it is: `The fourth could, in theory but not in practice, have given advance notice of legal proceedings to be instituted against the government in an Australian court.' That is also consistent with the perception, about which the legislation talks, that this communication was intercepted, for whatever reason, and where government was made aware, if not of it, of the contents of that legislation. I would suggest to you that that is something that would lend colour to a suggestion that this agency-DSD-was concerned to protect the interests of a particular section of the community, namely, the government. Dr Hawke-Yes. Senator COONEY-Do you accept all that? Did you get all that, Minister? I was asking questions and you, with your usual brilliance and ability to put me at a disadvantage, were never quite accepting what I was saying. So I thought I would put all that on the record and see whether you agreed with it. Senator Hill-Obviously we do not, but I understand your argument and I understand where you are coming from. I guess that is what politics is all about: if there were not alternative points of view then we probably would not have as good a system. Senator COONEY-I do not know what I am saying, but I hope I am not saying that the apology is not sufficient. It would be most ungracious of me if I were to do that. On the other hand, I do not know whether the explanation-including the explanation given by the inspector-general-is sufficient to cover the problems here. There is still obviously concern, which I illustrate by giving you a copy of page 56 of the Australian Financial Review of Friday, 17 May 2002 where this is discussed. I say that the system has not yet met the obligations imposed upon it by section 12A of the Intelligence Services Act 2001. Senator Hill-I am happy to have a look at that. I suspect I have probably read it. If I interpret Senator Cooney correctly, he is not quarrelling with the matters we acknowledge were deficient, nor is he arguing with the additional issue raised as to whether this form of interception is legitimate; it is his view that the initial targeting is inappropriate and beyond what he believes should be the function of an agency such as this. That is a legitimate argument to put. As I said before, the scope of the agency's work has not changed for a long time. It has been consistently maintained by successive Australian governments, so it is not as if this government is taking it a step further. Nonetheless, Senator Cooney's view is that it is still working beyond what he believes is appropriate. In the end that is a matter of judgment between individuals and political parties. The fact that there are different points of view on these matters is a healthy thing. Senator COONEY-I am saying this: this having happened and you and Dr Hawke having taken action, the explanation given is not a sufficient explanation to rebut the inference, whether right or wrong, that this material has found its way into the hands of government so that the government could use it for its own ad- vantage and to the disadvantage of the people bringing the Tampa case, if I could use that broad expression. The reason I say that you have not gone into it sufficiently is that, first of all, the inspector-general-and you might differ in your opinion-in a fair reading, was too ready to give weight to the function of advocate FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 274 SENATE-Legislation Wednesday, 5 June 2002 rather than to the function of giving a fair assessment of what happened. I say that because of paragraph 4, for example, where he says: ... I am able to confirm that the claims are without foundation. Then, in paragraph 18, he says: The fourth could, in theory but not in practice, have given advance notice of legal proceedings to be instituted against the government in an Australian court. What he is doing throughout his account-and I have only the introduction and summary-is to protect the government situation and the situation of DSD. He has not turned his mind with any sufficiency to section 12A of the Intelligence Services Act, so the perception is still left that intelligence wrongly gathered by DSD was of use-I am not saying the evidence was used-to the government in finding a successful action against Mr Vidalis and against the Victorian Council of Civil Liberties, firstly, before Justice North and, secondly, the appeal before Chief Justice Black, Justice French and Justice Beaumont. There was a two-two split. It might have been successful but for the information that was obtained as a result of, whether by derivative use or otherwise, the DSD. Senator Hill-I have not seen anything to suggest the government has benefited by that information or in fact that it made use of that information. Apart from that, the issue of whether Mr Blick adequately took into account the potential for government to have made use of the information is something that he might like to have a look at. If he wishes to comment on the points that you have made, he will have the opportunity to do so in his annual report. Senator COONEY-He can do that, but it will be all too late by then. Senator Hill-I assume that you are looking at the big picture for the future. As I have interpreted you, it comes back to what you think is the proper targeting-I said before the `proper targeting' but it is also the proper targeting and the proper use-the limitations of that information going through this agency. Senator COONEY-The other thing I say, apropos 12A, is that the Director of DSD failed to `take all reasonable steps to ensure that: (a) his or her agency is kept free from any influence or considerations not relevant to the undertaking of activities as mentioned in paragraph 12(a) or (b)' and, secondly, he has failed to `take all reasonable steps to ensure that nothing is done that might lend colour to any suggestion that his or her agency is concerned to further or protect the interests of any particular section of the community'- namely, the government-`or with undertaking any activities other than those mentioned in paragraph 12(a) and 12(b)' and that therefore the money we pay to DSD-whatever it is-has in this case failed to be well spent. Senator Hill-I have heard Senator Cooney's argument. I do not agree with it, and I am sure we could continue the exchange all day. At least he has had the opportunity to put his view on the public record. As I said, if there is something that Mr Blick wishes to respond to, seeing in some ways Senator Cooney has been making a case against his report, Mr Blick will have an opportunity to do so. Senator CHRIS EVANS-Perhaps I could take a slightly different tack. Mr Bonighton, you provide reassurance about collection methods and say that this was an extraordinary case, a breach that should not have occurred, but we are left to believe that it just so happened that the one in a million chance of a breach happened to involve the Tampa-I am sorry that I am being provocative, but I am trying to tease out this issue that Senator Cooney was putting to you-happened to involve a legal communication between an Australian citizen and the captain of the Tampa and, as Mr Blick's report says, obviously a number of your officers were involved in the collection and reporting of this matter and it went up the line. It just so happens that this was the one-off case where things went wrong. I suppose we are trying to tease out why it was this particular case where those protections did not seem to work. Mr Bonighton-I think Mr Blick points out that this was a complex and fast-moving situation. I think I have already said that this was something a bit out of the ordinary and that is where- Senator CHRIS EVANS-Why, though? Mr Bonighton-That is Mr Blick's judgment. Certainly something new and different for us was happening here. In those circumstances, that is where your existing procedures can sometimes be found to be faulty. Senator CHRIS EVANS-I accept that. What I do not accept from Mr Blick's report or your comments then was what was new and different? Mr Bonighton-I do not particularly want to get into the operational details. Senator CHRIS EVANS-I appreciate those sensitivities. That is a large part of the defence, as it were, for what has gone wrong, but we do not know why it was different and why the procedures did not hold up. That is clearly the key concern-because they did not. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 275 Mr Bonighton-Certainly there was a breach and what we are doing now is working with Mr Blick to make sure that that sort of situation will not happen again. We have put a number of activities in place that will make sure that will not happen. I should say that the last thing we want is to be involved in a situation like this. We rely on high technology to get things done but, more than that, we rely on really smart people to make sure that it happens. I have had a number of people come up to me in DSD, after these allegations were made, and say that they would not want to work for an organisation that was doing those sorts of unlawful things. So it is very important to us, if we are going to have that talent to perform, that the sort of mud that happens here does not stick to us. We are human; we make mistakes. When we do make mistakes we do our best to learn from them. We work with the inspector-general to put in place procedures and systems which will mitigate that risk. Senator CHRIS EVANS-I accept all of that, but I would not want you to be implying that that means that we should not then pursue those accountability issues to make sure, in the public interest, that these things are being done. This case causes us concern, obviously. Mr Bonighton-Indeed. When it comes to accountability we are the sort of organisation that welcomes that, for that very same reason. If we are not seen to be accountable, then we are going to have a problem with our own people, because our aim is to get a culture in the place where we are looking first and always at protecting the communications of Australians-because that is what is going to do us in quicker than anything else. Dr Hawke-You would be aware, Senator, that there is additional legislation that goes to the accountability arrangements, including the formation of a specific oversight committee, which has not existed in the past, to give the parliament a further reassurance of the accountability of the intelligence agencies. Senator CHRIS EVANS-That is true, but one of the things this whole episode has shaken out is the fact that some of the protections we thought were there when we passed the act are actually not there and that there was an oversight in the construction of the act, according to the minister's response to me, about the protection of Australian citizens. I think that is now subject to- Senator Hill-Did I say that there was an oversight in the construction of the act? Anyway, the answer stands for itself. Senator CHRIS EVANS-I have the answer here, if you want me to read it to you. Senator Hill-I could get into another debate. I think I had one on that the other day. There are so many days of these sittings it becomes a bit of a blur. Senator CHRIS EVANS-You said: The Act did not specifically apply the same protection to Australians in Australia. ... ... ... To ensure that the privacy of Australians was properly protected irrespective of whether they were overseas or in Australia, my predecessor issued a direction to Director DSD under section 8(1)(b) directing DSD to obtain an authorisation before undertaking any such activities in relation to Australians within Australia. It seems to very clearly say that the act did not provide that protection and that your predecessor- Senator Hill-The act has provided that protection. We have adopted a methodology within the scope of the act to provide that protection. That was the point of that answer. Senator CHRIS EVANS-I will quote you again. You said: The Act did not specifically apply the same protection to Australians in Australia. Senator Hill-It did not do it in the same way, that is true. I am presuming that it was more likely to be the deliberate intention of the parliament. You tell me why the parliament chose to pass legislation in that form? Senator CHRIS EVANS-I assume-and I was not intricately involved in the debate-that it was an oversight. Senator Hill-That is your assumption. I do not know whether it was an oversight, but the main point is that we have found a way to ensure that the same protection is in fact given. Senator CHRIS EVANS-By way of secret directives? Senator Hill-Not by way of secret directives. Senator CHRIS EVANS-They are secret; they are not publicly available. Senator Hill-It is publicly available to the extent that I have said in the answer to that question that approval is required of the minister to the interception. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 276 SENATE-Legislation Wednesday, 5 June 2002 Senator COONEY-It is a most fortunate intercept in one way. In any event, I want to table the message from PILCH, the instructions to lodge a writ of habeas corpus that were sent with it and the reply from Captain Rinnan-it has my telephone number on it. The `Barney' on it is me. Senator CHRIS EVANS-That should help DSD! Senator COONEY-I want to table the letter from Emma Hunt, the media release from Minister Hill and the part of Mr Blick's report that was made public. That has some lines underneath it, and paragraph 24 has the word `mode' circled and the query `fax or phone'-you probably cannot say, Mr Bonighton, whether it was the fax or the phone but that is what people are wondering about-and the comment `privacy rules' is noted against paragraph 31. I also want to table the radio interview with Jon Faine and Mr Williams-again, with my name on it. Does anybody have any problem with those documents being tabled? Mr Harding-Mr Chairman, I expect that is a matter for you and the committee rather than for us. CHAIR-I do not think the committee has any problem with those documents being tabled, Dr Hawke, and it would make Senator Cooney happy. Senator COONEY-You have defeated me again, Minister. Senator Hill-No, I have not. Senator COONEY-I have not been able to get to the bottom of it all-failed again. Senator Hill-We have had an interesting exchange that I hope was of interest to others. [2.05 p.m.] CHAIR-We move now to `Business process', starting with defence science. Dr Hawke-I am told there are no questions on defence science. What area would you like to go to? Senator CHRIS EVANS-I gather we are now onto odds and ends. There are a couple of questions we had deferred, Dr Hawke: one regarding the asset sales issue, so maybe we could start on that one. We started on it the other day and you begged me to defer it until now. I have a question regarding what I thought was the traditional arrangement whereby Defence kept one per cent of its budget as proceeds from asset sales. I gather there has been a change in policy in relation to those matters. Could you outline what the old policy was, what the new policy is and when that changed? Senator Hill-It is a bit misleading to say the `traditional' position. There have been a number of different positions over the years, but the officials can outline differences between the coming budget year and this year. Mr Pezzullo-The differences between the preceding system and the one to be operative in 2002-03 is as follows: the operative system up until the forthcoming financial year was that Defence could retain up to one per cent of asset sales as derived from any particular class of asset sales worth to the value of one per cent of its budget. Senator CHRIS EVANS-So it is not one per cent of the asset sale but one per cent of the Defence budget? Mr Pezzullo-Equivalent to a percentage expressed as one per cent of the Defence budget. That is operative in this current financial year, 2001-02. In the forthcoming financial year, 2002-03, there will be a change to that system whereby Defence will be required to return the full proceeds of asset sales up to a particular target. It has been agreed by government that anything beyond that could be retained by Defence. Senator CHRIS EVANS-Just so that I understand the previous system: whatever Defence asset sales took place, Defence could keep to a cap of one per cent of its budget. Is that a fair way of describing it? Mr Pezzullo-Yes. Senator CHRIS EVANS-So I presume that that acted as an incentive for Defence not to sell more than one per cent of its budget's worth in one year-but that is probably commentary rather than a question. Senator Hill-Some people suggested that, but I am sure it was not so. Senator CHRIS EVANS-I am sure that would have been prudent of them So whatever was sold up to that value was just retained by Defence. Had Defence returned funds in excess of that limit to consolidated revenue in recent times? Mr Pezzullo-I would have to check the year-by-year track on that and get back to you. However, I should indicate-I should have added this when I started my answer-that a number of sales have been over the years classed as consolidated revenue sales where it is identified that the proceeds go to consolidated revenue irrespective of the operation of the one per cent cap. So Defence has in fact returned moneys to consolidated revenue outside the operation of the one per cent system. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 277 Senator CHRIS EVANS-Perhaps you could take that question on notice in terms of returns. But in addition to that were certain sites or certain assets identified by the minister or cabinet and marked as being in a sort of separate category? Mr Pezzullo-Particular properties were identified by government as being properties where the entire proceeds go straight to consolidated revenue. Senator CHRIS EVANS-So they were still owned by Defence but something like this was said: `There is a ring around that one and when you sell that the money goes into consolidated revenue.' Mr Pezzullo-Yes. Senator CHRIS EVANS-How is the new system to work? Mr Pezzullo-The government has determined an asset sales target which is incorporated in the capital budget in the papers before you. Up to a particular target that the government has set for us, all of that money goes to consolidated revenue, and the proceeds of anything sold beyond that are retained by Defence. Senator CHRIS EVANS-Is that a policy to be pursued in the out years as well? Mr Pezzullo-The current decision of government applies only to 2002-03. Senator CHRIS EVANS-So do we have any guidance on the out years or is that a wait and see decision? Mr Pezzullo-Government has requested that officials come back to government with some options. Senator CHRIS EVANS-Is it page 63 that- Mr Pezzullo-It is on page 63 that it is most closely identified. You will see there that capital receipts total a tick under $700 million and then there is an item known as capital withdrawal of $659 million. As the secretary indicated on Monday, in effect that capital withdrawal item relates to the property returns. Senator CHRIS EVANS-So that is what you expect to get from the sale of assets this financial year? Mr Pezzullo-The expected return on all of our asset sales, not just property but also plant, equipment and other such capital assets, is indicated at table 3.4 entitled `Capital budget statement' on page 63 and the total $699 million. Senator CHRIS EVANS-That is the figure of $699.766 million? Mr Pezzullo-That is correct. Senator CHRIS EVANS-Is that the target for sales or the target to be retained by Defence? Mr Pezzullo-That is the target for all sales not just property. That includes plant and equipment and, I believe, it includes things like car and computer sales. Senator CHRIS EVANS-Does the policy apply to all sales or just property sales? Mr Pezzullo-Just property sales. Senator CHRIS EVANS-What proportion of that is property? Mr Pezzullo-There is an item one line immediately below called capital withdrawal which you see in reverse. That is a flow that goes back to government. The amount of $659 million is to be returned to consolidated revenue. Senator CHRIS EVANS-So Defence will keep $40 million? Mr Pezzullo-From all of the asset sales, that is correct. I stand to be corrected by my CFO colleagues, but that is my understanding of the position outside of the property world. Senator CHRIS EVANS-I may be getting a bit confused here, but this is net asset sales of property and other assets. Mr Pezzullo-The item identified under the capital receipts is entitled `Proceeds from sales of property, plant and equipment' and it does include therefore non-property items. Senator CHRIS EVANS-But they are subject to a different policy. Are they totally retained by Defence? Mr Pezzullo-They are not captured by the policy I have just described on property. Senator CHRIS EVANS-So they are totally retained by Defence? Mr Pezzullo-I would defer to my CFO colleagues on that, but I believe that is the case. Senator Hill-It is the sale of second-hand vehicles and the like. Senator CHRIS EVANS-I just want to be clear that they are therefore retained wholly by Defence? Dr Hawke-Correct. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 278 SENATE-Legislation Wednesday, 5 June 2002 Senator CHRIS EVANS-Are we able to break down what is related to property sales? The $40 million retained by Defence, on that scenario, might be wholly sales of other equipment. Dr Hawke-The $659.5 million is all property. Senator CHRIS EVANS-And that is to be returned to consolidated revenue? Dr Hawke-Yes, that is why it is shown in brackets. Senator CHRIS EVANS-Do I take it from that that Defence is to retain nothing from the sale of property? Dr Hawke-If we sell or realised more than $659.5 million from the sales we would retain that. Senator CHRIS EVANS-But you have to realise $659 million. Dr Hawke-Yes, $659.5 million. We expect to. In the event that we did not I would be explaining myself to the minister and probably to the expenditure review committee. Senator CHRIS EVANS-That means that they have an expectation that the cheque is in the mail, Dr Hawke. Dr Hawke-That it would be delivered over the course of 2002-03 financial year. Senator CHRIS EVANS-Yes. Dr Hawke-I have an expectation that the infrastructure division will deliver that. Senator CHRIS EVANS-If I am not mistaken, I think your targets for last year were nowhere near met. Dr Hawke-That is correct, but there were a range of factors involved in that. Senator CHRIS EVANS-I am sure that is right, but there may be a range of factors this year as well. Dr Hawke-I expect that we will meet it this year. This is an agreed figure between us and the central agencies which was determined by the government. We have set in place arrangements, under the government's direction, between Defence and the Department of Finance and Administration to monitor progress with this and the way in which we go about it. My expectation is that we will meet it. Senator CHRIS EVANS-I am making the obvious point that these things do not necessarily work out as one plans and clearly they did not last year. Dr Hawke-We have a different team in place and I am confident that they will achieve it. Senator CHRIS EVANS-I was not making any particular point. Dr Hawke-I understand that. Senator Hill-I think more effort has been put into assessing realistic figures. Much greater effort has been put into what are the difficulties in relation to the sale of particular properties, requirements for rezoning, rehabilitation et cetera. Defence has had another look at the estimated prices. We hope as a result of all of that effort that the figures will turn out to be more realistic. Senator CHRIS EVANS-I have a set of figures for the out years. What do I take of what the out year projections mean given that the question of how the proceeds from asset sales are to be returned to government is a question still to be determined? What does the budget indicate as the policy and the projections? Dr Hawke-You can see from the table that none of that is intended by way of return to consolidated revenue. The government wishes to take the additional paper that we are preparing in conjunction with the Department of Finance and Administration on the further approach to this. I believe that they would consider that and make a decision on it probably at the expenditure review committee next year when they are forming 2003-04 budget. I am also sure that when it comes to additional estimates time the minister, aided and abetted by the Treasurer and the Minister for Finance and Administration, will want to be reassured how we are going against the target for this year and that we are going to meet that. Senator CHRIS EVANS-What do you say those figures for the out years mean? Dr Hawke-They are figures that are included in our bottom line. That money in out years is presently programmed to come to Defence as part of our budget bottom line for the out years. Senator CHRIS EVANS-They seem to be involved significantly less. Dr Hawke-They are a lot smaller numbers. This year we are doing a strategic review of our property holdings and where the government might wish to go on that front. Senator CHRIS EVANS-Does that mean that you expect to sell a lot this year and not much next year? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 279 Dr Hawke-Apart from what is in there, we are doing a reassessment of our property holdings and we will bring that back to the government over the course of the next financial year. Those figures will no doubt be adjusted at budget time in light of the decisions that the government makes about that issue. Senator CHRIS EVANS-Maybe I will rephrase the question. On the face of those figures, it appears to me that you are selling a lot of property this year and not much next year. Is that a fair reflection? Dr Hawke-They reflect the decisions that have been taken at this stage. I think that is a fairer way of putting it. Senator CHRIS EVANS-But that involves a significantly lower expectation than the revenue from property sales in the out years? Dr Hawke-That is correct. Beside the $659.5 million figure you can see that our previous estimate was that we were actually going to sell $775 million. The figure of $659.5 million is an agreed figure determined by the government. So it is actually less than what we had programmed under the previous estimates. Senator CHRIS EVANS-That leads me to the next question: what will you record as receipts for capital expenditure in this financial year? Dr Hawke-Receipts for capital expenditure? Senator CHRIS EVANS-Sorry, what will you realise from asset sales this financial year? Dr Hawke-Of course, we have not finished this financial year. Senator CHRIS EVANS-No, no. Dr Hawke-The reason I am saying this is that we are, right at this very moment, engaged in the sale and lease-back of Campbell Park Offices here in Canberra. Senator CHRIS EVANS-I read about that. Dr Hawke-We have not finalised that deal just yet, but we expect to by 30 June. If we do that, that will be quite a significant sum of money. Senator CHRIS EVANS-$80 million according to the Financial Review. Dr Hawke-I read that too. I hope they are right. So I am not sure. Do we have a figure of an expected total for this year? Senator CHRIS EVANS-I was going to ask you why you spent $30 million doing it up if you are only going to get $80 million for it. Mr Pezzullo-At the moment, just in relation to Campbell Park, we are in a state of finalising arrangements for making an announcement in respect of that, but there is obviously a commercial party involved, and we are not at liberty- Senator CHRIS EVANS-I am not seeking to pry into those figures. Have you got a year to date figure on sales? Mr Pezzullo-I would have to get that for you. Dr Hawke-Can we take that on notice? I am sure we will have a figure somewhere about that. Senator CHRIS EVANS-I assume, though, it is fair to say that it is well below the target. Dr Hawke-I do not remember what the target is for this year. Senator CHRIS EVANS-Wasn't the target the $775 million? Dr Hawke-No, that is the target for 2002-03. Senator CHRIS EVANS-Sorry, yes, but I recall you had a fairly ambitious- Dr Hawke-For 2001-02? Senator CHRIS EVANS-Yes. Dr Hawke-Yes, I think we did. The point I was trying to make to you earlier was that we did not necessarily agree with that target, and there has been some debate about that issue. But we will take it on notice and get you an answer. Senator CHRIS EVANS-Thank you. There was an answer given in response to a question on notice to Mr Bevis, which is question No. 136 of 2002, regarding Defence properties, in which you provided him with a list of the properties anticipated to be sold. Can I confirm that that is, in broad terms, the list of properties which are expected to return the $700 million that is targeted for sales? Mr Pezzullo-Mr Bevis's question was couched in terms of either properties listed for sale or evaluated for possible sale during the course of the next three years. Our answer encompassed both classes that his FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 280 SENATE-Legislation Wednesday, 5 June 2002 question went to. That is why we couched our response in terms of the anticipated year of disposal. Since that time, the government has taken a set of decisions in relation to individual specific properties and some individual specific property targets, and those are the commercial figures that are not for publication that we talked about the other day when we spoke about Meeandah. Senator CHRIS EVANS-Do you have a list of properties which are anticipated to be listed for sale in this next financial year? Mr Pezzullo-I do not have a list for publication which goes beyond question on notice No. 136. The government has put no further information beyond No. 136. But, to answer your question in the way that you couched it, that is broadly indicative of the properties that we are targeting. Indeed, we need to strike a balance here between having that indicative information out in the community so that our officers can meet with council planning staff and state planning staff, whilst, of course, retaining the specifics confidential to the government in terms of what we are actually targeting property by property and individual value by value. Senator CHRIS EVANS-I was not after the values. I did not realise there was some sensitivity about property. Isn't it a case where you are either going to sell it or you are not? Mr Pezzullo-In terms of the values, obviously you do not want to be giving away your commercial targets, because then people would bid against those. Senator CHRIS EVANS-That is why I did not ask for those. Mr Pezzullo-In terms of actual properties, the information provided in response to question No. 136 is broadly indicative of where we are going over the next four years. There might well be a slight variation between the confidential decision the government has now taken-that is now our guidance-and what has been put on the record. That, if you like, strikes that balance between having indicative information out there that our officers can talk to councils with, versus having our private asset sales targets. And, as the latter part of the answer to Mr Bevis's question indicates, there might be, in some cases, an individual slippage of a property from year to year or a bring forward of a property, depending on the kind of planning vagaries that you encounter in the real estate market. Senator CHRIS EVANS-I take it from that answer that it would be fair to say that that list, in Defence's view, represents more than the $700 million budgeted for 2002-03. Mr Pezzullo-Because the list is inclusive of the next four years, by definition it goes beyond the 2002-03 financial year. You will see that some of the anticipated years of disposal go out to, I think, 2006. I think that is the latest one-the first year indicated in that answer. It is a multiyear list. Senator CHRIS EVANS-Are some of those sites dependent on the DIDS decision? Mr Pezzullo-Yes, a number of those sites are. As we discussed the other day with Senator Hogg in relation to Meeandah, the DIDS contract is structured around what are called optional sites for the DIDS contractor and a mandated site at Moorebank. Obviously, we cannot finalise any property sale in relation to those sites unless and until the preferred DIDS tenderer is awarded. Senator CHRIS EVANS-What does that mean in practice-that they have the ability to purchase or to lease those properties? Mr Pezzullo-If they are optional sites, they make a commercial pitch to the government as part of their tender, and they say either `We can deliver this service for you with a footprint on that site' or `We've got a better way of doing it 20 miles away.' That will obviously drive the kind of disposal strategy that we then pursue. Senator CHRIS EVANS-What about the mandated sites? What does that mean? Mr Pezzullo-There is one mandated site, and that is the National Storage and Distribution Centre at Moorebank. As I understand the structure of the DIDS tender, the preferred contractor has to have a footprint at that site. Senator CHRIS EVANS-But in terms of the rest of the sites, it is purely a decision for the successful tenderer about whether or not they maintain an operation there and the size of that operation? Mr Pezzullo-Correct. Senator CHRIS EVANS-Does Defence also have the right to say, `We do not want you there?' Mr Pezzullo-I would have to defer to the joint logistics organisation who are running that tender, but the guidance I have been given is that an optional site is just that: optional to the contractor-if they come up with a scheme that does not involve that site, it becomes available for outright disposal-and if they require that site and they win the process, we need to enter into some kind of sale and lease-back arrangement. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 281 Senator CHRIS EVANS-In terms of Meeandah, is the DIDS operation the only Defence facility there or is there a broader Defence facility? Mr Pezzullo-Currently there is no DIDS presence there, obviously, because there is no DIDS contract in place, but there is a unit known as the northern logistics group, as I recall it, who are headquartered at Meeandah. That is, as I understand it, their principal stores facility in Brisbane. We had a discussion the other day. I will just take this opportunity, if I may, for Senator Hogg, to clarify the accounting treatment of the portion that is going off to DIMIA. I indicated on Monday that I did not think that the DIMIA moneys were reflected in those capital receipts that we have just been talking about. I have since checked, and in fact they are. I do not know if Senator Hogg picked that up, but it is read into the Hansard and if it could be drawn to his attention I would appreciate it. Senator CHRIS EVANS-I will do that. Dr Hawke, could I get someone to assist me with some information about PMKEYS? Mr Carmody-Before we do that, could I answer a couple of questions on infrastructure that have come up in the last couple of days so we can get them on the record? CHAIR-Fire away, Mr Carmody. Mr Carmody-Senator Hogg raised a question on when the Qantas travel contract was signed. It was signed on 11 February 2000 for a five-year period with two one-year extensions. The two one-year options would extend the contract until 28 February 2007. Senator West asked a question with regard to Defence Headquarters Australian Theatre and the Defence Headquarters Australian Theatre project. Firstly, she asked what consultation has been undertaken with the landowners since October 2001. There was an initial meeting with the Hyles family, the owners of the affected property. We have had two telephone conversations with the family since that time and Defence project staff are set to meet with the Hyles family again this Friday, 7 June. Those consultations are continuing. The second question Senator West asked concerned the planned expenditure on the project for financial year 2002-03. The answer is that $2 million of pre-approval funding is planned to be spent ahead of parliamentary approval. During 2002-03, we expect to spend $2 million. That is for the conduct of an environmental impact study, preparation for further development of things like the private financing proposal and development of conceptual design which would support the private financing proposal or any other proposal as it goes to the Public Works Committee. Senator CHRIS EVANS-Where have you hidden that in the PBS? Mr Carmody-I defer to my finance colleagues, but I know it is in there. Senator CHRIS EVANS-It certainly was not listed as a measure. I looked backwards and forwards a number of times. I think that may be why Senator West asked the question. I hasten to add that I may just have missed it. Mr Carmody-I will have to take that question on notice to identify exactly where it is, but I am certain we will be able to answer it for you. Mr Roach-Senator, I gather your question was about where HQAST appears in the PBS. Senator CHRIS EVANS-Yes. Mr Roach-If you look at the first table, under `Significant capital facilities projects' on page 84, table 3.11, it does not appear there, because the table is limited- Senator CHRIS EVANS-That is very helpful! Thank you for that! Mr Roach-to projects which are greater than $5 million. That is the reason that it does not appear there. Senator CHRIS EVANS-Can you just describe for me why it does not appear where? Dr Hawke-At table 3.11 on page 84, you will see the introduction: The following table and descriptions provide detail on planned progress and estimated expenditure for the significant major facilities projects with an in-year spend in 2002-03 greater than $5m. But you will also see, on page 76, towards the bottom: New capital facilities projects proposed for Government approval in 2002-03 are ... Headquarters Australian Theatre - Bungendore, New South Wales ... Senator CHRIS EVANS-I read that as being for funding approval in 2002-03. Dr Hawke-I think that is right. Senator CHRIS EVANS-You actually are spending some money this year- Dr Hawke-This would be the money we are spending to- Senator CHRIS EVANS-It is environmental. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 282 SENATE-Legislation Wednesday, 5 June 2002 Dr Hawke-To explore the site and environmental impacts and to prepare the submission for consideration through the Public Works Committee. Is that the case, Mr Pezzullo? Mr Pezzullo-It is in relation to various studies that are being undertaken over the course of 2002-03 preparatory to those approval processes. Senator CHRIS EVANS-And that comes out of your buildings and works budget? Is that right? Mr Pezzullo-We will need to check that. Senator CHRIS EVANS-Mr Roach is saying to me that it is there but it is $2 million and therefore it does not get on that list. I am just trying to ask which budget item it comes under in capital works. Mr Carmody-It comes out of the infrastructure and division budget. There is money set aside within the budget for studies, developing proposals and those sorts of issues. It does not actually come out of the $200 million which was the amount identified around Defence Headquarters Australian Theatre, because we have not got to the stage of that project expenditure yet. This is preparatory. We need to be able to develop enough information to be able to bring a submission forward. Senator CHRIS EVANS-I will move to PMKEYS. Mr Carmody-Mr Chairman, can I answer one more question before you move to that. Senator Hogg asked a question last evening on community centres in Darwin and also at Duntroon. I believe the question related to whether there were community centres which were beyond their expected life. Senator HOGG-And asbestos. Mr Carmody-Asbestos was the second phase. Mr Pezzullo will deal with the second phase; I will deal with the first. That matter has been discussed a great deal in the last month or so. I have asked Defence Personnel Executive over the last month to develop a prioritised list of community centres for consideration so that we can see what neighbourhood and community centres exist in Defence, what state of repair they are in and then if necessary, based on what the Defence Personnel Executive and the Defence Community Organisation believe is appropriate, develop state capability proposals to replace, repair, rebuild, based on the priorities that they set. So that is in hand. Senator HOGG-When will that be done by? Mr Carmody-I am expecting the Defence Personnel Executive to have a proposal ready within the next two months, at least a review of what community centres exist, because there are many which are almost `grace and favour' community centre areas that have been set aside on particular bases. So it is not as straightforward an item as it would appear. Senator HOGG-All right. Mr Pezzullo-In relation to asbestos, as I read the proceedings, your question went to three centres-one at Duntroon and two in Darwin, one of which is at HMAS Coonawarra and the other is at RAAF Base Darwin. The asbestos situation in relation to those three is as follows. At Duntroon community centre, the regional infrastructure staff have advised me that the centre does have asbestos wall sheeting and roofing, which is not untypical of buildings of that age. In its current condition and location-this has been checked through our asbestos control program-the asbestos sheeting does not present a health risk so long as it is not tampered with, broken up, drilled into et cetera. The building is appropriately labelled, indicating the presence of asbestos in the building in that condition. With respect to HMAS Coonawarra, the same conditions apply. The asbestos is contained; it is not dangerous unless the material is broken up or damaged. In that case, Infrastructure Division has written to the users of the community centre advising them of the contained asbestos situation and informing them of the potential dangers if the sheeting is broken or damaged, and asking them to notify Infrastructure staff immediately if this happens. In terms of our audited records of the buildings on RAAF Base Darwin, there is no evidence of any asbestos still in place at that building. Senator HOGG-All right. Thanks. Senator CHRIS EVANS-Admiral Shalders, you are going to tell me all about PMKEYS. I gather it is a software package for personnel management. I just want to know the size of the contract and the state of the contract, and if you could help me with suggestions that there are serious delays in it. Rear Adm. Shalders-The Personnel Management Key Solution project was an outcome of the Defence Efficiency Review. The project started in September 1997. The aim of the project is to provide a single, effective and efficient solution for personnel management. It will replace some 20 separate legacy systems currently performing that role. It will include the following functionality: organisational structures, personnel administration and leave, career management, work force planning, and recruitment and payroll. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 283 The status of the project at this stage is that the civilian human resource aspects and payroll aspects were successfully implemented in September 1999. The second phase provides software development for the ADF, the uniformed services, in the human resource area of functionality. The Navy part of that package was implemented in August last year and is operating effectively. Air Force HR was successfully rolled out on 18 February this year and Army is scheduled to be rolled out in early July. The final phase of the PMKEYS project is the ADF payroll part. At this stage the estimated completion date of that is the final quarter of 2003. Senator CHRIS EVANS-Is that on track in terms of timing? Rear Adm. Shalders-No, there have been delays which have been caused principally by our requirement to customise the standard package that we bought for this system. It is based on a PeopleSoft solution and we have had to do a degree of customisation to meet our requirements, which has caused some delays. Additionally there have been some delays created by the need to migrate data from those 20 legacy systems I spoke of to put them in a format which PeopleSoft can use. Dr Hawke-One added complication to this it is that when Defence decided to go this route, it was on the basis that we would be continuing on a cash based system. Of course, we had the added complexity of moving to the accrual framework, which has caused us quite a deal of trouble, as you would probably know, across the financial and the logistics systems as well, where we are endeavouring to do the same thing and bring a plethora of legacy systems into the one system, so that we would have three key systems: one dealing with personnel, a second dealing with the financial arrangements, and a third dealing with logistics. It has added to the complexity because the financial arrangements of course need to draw on what happens in the personnel and logistics side, so that we can get our accounts properly certified by the National Audit Office each year. I mentioned a couple of years ago that we have got problems in this area and that it will take us some years to fix them. Each time that you hope you are on top of this, something else happens to make sure that you are not. That has been a continuing issue with all three of these systems. PMKEYS is now almost at the completion of the stage it was to get to, and we will need to have a look at how we migrate these systems together in the longer term as well. Senator CHRIS EVANS-How far behind is the implementation of the PMKEYS system? Rear Adm. Shalders-When the project started back in September 1997, it had been our hope that we could complete it by June 2000. As I indicated, the last quarter of 2003 is now the expected completion date. Senator CHRIS EVANS-With that three-year delay, am I right in saying that the original contract was worth $26.5 million? Rear Adm. Shalders-The original estimate was $25 million. Senator CHRIS EVANS-That was the original estimate. What is it going to end up costing you? Rear Adm. Shalders-At this stage, the direct costs we have incurred are just over $60 million. We are in the final stages of negotiation for that final phase which, as I indicated, will be completed in the last quarter of next year. Senator CHRIS EVANS-How much do we expect it to cost us, all up? Rear Adm. Shalders-As I say, we are in the final stages of negotiation with the contractor, and I prefer not to declare our hand on that. Dr Hawke-We would be happy to tell you that when we have finalised the contract. Senator CHRIS EVANS-I appreciate that. Are we talking, in addition to the $60 million, about another $10 million or $20 million? Or are we talking about $1 million or $2 million? Rear Adm. Shalders-In the order of $10 million, I would suggest. Senator CHRIS EVANS-It is going to end up costing us in the order of $70 million. Rear Adm. Shalders-About that, Senator, yes. Senator CHRIS EVANS-I am not trying to argue the thing. I am just trying to get a ballpark figure. There has been a delay. Has all this money gone to the contractor? Rear Adm. Shalders-Up to this point, most of the expenditure has been related to consultancy, contracts, employees and administrative expenses. At this stage, there has been no direct infrastructure cost associated with this project, because we are using existing Defence infrastructure. Dr Hawke-PeopleSoft have got the contract, haven't they? Rear Adm. Shalders-That is correct. Senator CHRIS EVANS-When we were going into this originally, we thought that it would cost $25 million, and that was mainly to be paid to PeopleSoft, I presume, as the contractor. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 284 SENATE-Legislation Wednesday, 5 June 2002 Rear Adm. Shalders-Yes. Senator CHRIS EVANS-Now that it has blown out to closer to $70 million, have they been the beneficiary of that, or have you had to get someone in to clean up? Rear Adm. Shalders-No. There have been a number of consultancies let, as we have looked at some of those customisation issues that I mentioned, for example. A number of consultancies have benefited in terms of the increased expenditure. Senator CHRIS EVANS-Obviously you have had to renegotiate on a number of occasions your contract with PeopleSoft as well, have you? Rear Adm. Shalders-We have, and we are in the process of renegotiating that contract right now. I should also add that there is obviously a considerable degree of training associated with implementing a system like this across the Defence Force, and a large part of the consultancy fees that we have had to pay out have been related to training. Senator CHRIS EVANS-I might put some questions on notice about those. You said you had introduced them progressively to Navy, Air Force and Army. Were you referring to the pay systems or just the other human resource management systems? Rear Adm. Shalders-As I mentioned, the payroll aspect of the project is the next phase, which is the phase to be completed by the last quarter of next year. Senator CHRIS EVANS-Currently, none of your uniformed personnel are getting paid under that system? Rear Adm. Shalders-Not under the PeopleSoft system; they are being paid under one of the legacy systems that I mentioned. Senator CHRIS EVANS-Legacy systems is a catch-all for what? Dr Hawke-All the old systems. Senator CHRIS EVANS-Legacy of the past; not a brand. Dr Hawke-That is right. The civilians are being paid out of this program. That is up and going. Rear Adm. Shalders-The civilian payroll system came online in September 1999. We have not yet got the uniform forces across to that. Senator CHRIS EVANS-You are hoping that the payroll will go across in the last quarter of 2003? Rear Adm. Shalders-That is correct. Senator CHRIS EVANS-What is so different about the two systems that you have been able to do the civilians but you have not been able to do the uniformed personnel? Rear Adm. Shalders-It is a feature of getting the HR functionality across first and from that flows the payroll. We have to bring the uniformed members across onto the HR system before we can move them to the payroll system. Senator CHRIS EVANS-You were able to do the civilians as long ago as September 1999; I do not conceptually understand how you can do the civilians in 1999 but you cannot get the uniformed personnel there until four years later. Mr Hannan-The nature of the arrangements in allowances, salaries, rank structure and so forth is substantially more complex in the military system than it is in the civilian system. In the past we have never been able to acquire a bespoke off-the-shelf system for ADF payroll. It has been an in-house development. This one is to be developed in PeopleSoft but it is going to take some development. Essentially it was underestimated just how complex that was going to be-matters to do with retrospective adjustment to pay rather than in-arrears payment of allowances and the like. It is the nature of the military salary and allowance processes and systems that is substantially more complex than in the civilian world. Senator CHRIS EVANS-So it is not, as it has been put to me, that the troops would jack up if they were put onto that system because it is such a disaster? Have you had serious problems with civilian pay? Rear Adm. Shalders-No, it has been effective now for almost three years. Senator CHRIS EVANS-I will get a couple of people who have spoken to me about it to talk to you about it. Dr Hawke-They might be complaining about how much we are paying them. Senator CHRIS EVANS-The quantum was part of the issue, I am sure. You chose off-the-shelf software as opposed to specialised software. Why is that, given that you have obviously had to try to adapt it? Obviously the off-the-shelf software was not good enough for your needs. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 285 Mr Hannan-We chose one of the government endorsed enterprise resource management packages because it was the one that was most adaptable. Indeed, I have been advised that it would almost be impossible to do what we have done if we had chosen some of the other alternatives. We always recognised that there would need to be some adaptation. The issue has been that the original estimate assumed that we were going to have a greater homogeneity between the three arms of the service. In the way certain processes operated that indeed has proven to be possible. That is certainly part of it and certainly both the extent of customisation required for military payroll was underestimated, I suggest by both parties. Senator CHRIS EVANS-What is it that is different between the way the Air Force, Army or Navy need to be paid? Rear Adm. Shalders-A large part of the difference there is different allowance structures. The leave arrangements are slightly different. All of those things are manageable but there are distinct differences between the three. There is also the difference in size between the three services, and I come back to the training load, which I mentioned before: one of the reasons that we left Army until last was the requirement to train far more users in Army than we did with either Navy or Air Force. Senator CHRIS EVANS-By that you mean human resource officers, payroll clerks and those sorts of things? Rear Adm. Shalders-Correct. Senator CHRIS EVANS-How are you paying the forces currently? Are you using one of the legacy systems? Rear Adm. Shalders-The legacy system known as ADF Pay system. Senator CHRIS EVANS-Is that true you are still doing some of that by hand? Rear Adm. Shalders-I beg your pardon? Senator CHRIS EVANS-Is that all computerised now? Rear Adm. Shalders-It has been computerised for a number of years. The current version of ADF Pay was implemented in 1993 or 1994, I think, and that was an upgrade from an earlier system that was computerised from the mid-eighties, I believe. Senator CHRIS EVANS-So all ADF personnel would be on computerised pays? Rear Adm. Shalders-There are circumstances when there are manual pays, I think largely to do with issues of recruits where they have yet to have proof of 150 points of evidence for banking. Senator CHRIS EVANS-Apart from the one-off payments, it is all computerised? Rear Adm. Shalders-Yes, apart from those it is all computerised. Senator CHRIS EVANS-Which budget does this come out of and where do I find it in the PBS? Rear Adm. Shalders-It is in my budget. I will ask CFO to explain where it is in the PBS. Senator CHRIS EVANS-Don't tell me where it is not, Mr Roach. If you tell me that, or if Dr Hawke uses the excuse again about accrual accounting, I will scream. Mr Roach-The PBS is presented in an accrual and output format. Senator CHRIS EVANS-So you are going to take his excuse now, are you? Mr Roach-No, it is a different excuse, Senator. It is because all of our owner support group costs-and the Defence Personnel Executive is one of our owner support groups-are distributed across all six Defence outputs, so it is subsumed in those costs. Senator CHRIS EVANS-So where won't I find it? Mr Roach-It is, effectively, distributed between the six output prices that are in the six outputs. We do not separately show the group budgets. Senator CHRIS EVANS-So I cannot find a budget item that says, `We budgeted $25 million for this but we have spent $60 million or $70 million'? I have to look across the six outputs? Mr Roach-That is where the money is in terms of the PBS. If you wanted to know a specific number about that particular budget, I am sure we could get that for you. Senator CHRIS EVANS-It is part of Admiral Shalders's personnel cost budget, basically-is that it? Mr Roach-Yes; but that budget, like all of the owner support and enabling group operating budgets, form part of the six output prices. Senator CHRIS EVANS-Thanks for that. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 286 SENATE-Legislation Wednesday, 5 June 2002 Rear Adm. Shalders-Whilst I am here, I have an answer to another question that was asked yesterday. This related to the MSBS retention bonus-the Military Superannuation Benefits Scheme. I think the question was asked by Senator West. There is a 90-day period before reaching the 15-year point where members must apply for that retention bonus. That requirement is a standing condition of service and no individual advice is provided to members that they are approaching that 15-year point. However, advice about the bonus is widely promulgated. It is in the ADF pay and conditions manual and it is publicised via Navy News and SeaTalk. I believe the case that Senator West was talking about was a naval member. Where a member misses that cut-off date, he or she can seek a review of their circumstances through my organisation and should the member be dissatisfied with my decision on those matters they do, of course, have the opportunity to make a further submission through the redress or grievance procedures. Senator CHRIS EVANS-So Senator West could pursue the individual case by writing to you, Admiral Shalders-is that the best thing? Rear Adm. Shalders-In the first instance the member should put his case through the chain of command and it will come to my area. Dr Hawke-I also have an answer on the armouries issue. The work has been completed on the three armouries at a cost of $1.82 million. Senator CHRIS EVANS-These are the PNG ones? Dr Hawke-Yes. Fletcher Morobe is the contractor. We have an Army unit which is managing or overseeing the project, and $50,000 has already been allocated for 2002-03 if there is any rectification work required. That does not mean it will be required or spent. Senator CHRIS EVANS-There is some suggestion there were more to be built. Dr Hawke-My recollection is the minister and the government have not made a decision on that matter yet but it is something the minister wanted to do in the light of him seeing those armouries and their effectiveness. He is going to consider the need for further armouries. Senator CHRIS EVANS-Can I ask, briefly, where we are at in the review of the Military Compensation Scheme? Senator Hill-It is progressing, isn't it? Dr Hawke-Ready to go. Senator CHRIS EVANS-You are wasted as a minister-you make such a good public servant. Senator Hill-That would be a much more valuable use, yes. Rear Adm. Shalders-The current status of the review is we are conducting consultation with ex-service organisations. That consultation is being effected through a working group, which is comprised of Defence and Veterans' Affairs members. The intention or the hope is to have an exposure draft available for public consultation by later this year. Our original intent was to try and introduce legislation in the spring sitting. It now appear that that may not be possible, but that is a result of the requirement to consult widely, particularly with the ex-service community. Senator CHRIS EVANS-When do you think we are likely to get the exposure draft out and about? Rear Adm. Shalders-The target date for that was July. My expectation now is probably closer to September. Senator CHRIS EVANS-There is no realistic hope of that legislation this year, then? Rear Adm. Shalders-That hope appears to be fading, but on the basis of the fact that we are having very constructive dialogue with all the affected ex-service organisations. So that in itself is a good thing. Senator CHRIS EVANS-There certainly will be a public exposure draft and time for public comment? Rear Adm. Shalders-Absolutely. Senator CHRIS EVANS-Then you will frame recommendations to the government? Rear Adm. Shalders-That is correct. Senator CHRIS EVANS-Then it will be a question of the government determining whether or not to proceed with legislation? Rear Adm. Shalders-That is true. But I do note that a lot of that consultation has already taken place between government, opposition and other parties, and the Prime Minister did announce that we would be proceeding with new legislation. Senator CHRIS EVANS-Okay. Thanks for that. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 287 CHAIR-Thank you, Senator Evans, and thank you, Dr Hawke, Minister, Admiral Barrie and all your colleagues from the Defence organisation. It has been a long 2½ days. Thank you for your cooperation. Can I put on record to you, Admiral Barrie, I wish you well in your retirement. I am sorry to say that we won't be seeing you before us again. I am sure you don't feel that way, though. Senator CHRIS EVANS-I am sure the estimates is not part of the job he will miss. Adm. Barrie-I can say after nine years of doing this I do not think I will miss it. But I think the process itself is reasonably important, both to the ADF and to the people of Australia. So, provided it continues to support those needs, I wish everybody else good fortune. CHAIR-The same to you. Farewell and bon voyage. Dr Hawke-Mr Chairman, just before we break can we, through the minister, wish all the best for those other senators who will not be returning in the near future. Senator Sue West has made a long contribution to this committee as well. CHAIR-Thank you, Dr Hawke. Senator Hill-We heard the officials saying, `Hear, hear!' That is rather nice. CHAIR-It is. And can I say, Dr Hawke, what a pleasure it is to have the secretary of the department here for the whole of the estimates. Senator Hill-He has found it a pleasure, too. That will be my last contribution. CHAIR-And it is very much appreciated. Proceedings suspended from 3.00 p.m. to 3.18 p.m. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 288 SENATE-Legislation Wednesday, 5 June 2002 FOREIGN AFFAIRS AND TRADE PORTFOLIO In Attendance Senator Hill, Minister for Defence Portfolio overview Departmental Executive Dr Alan Thomas, Deputy Secretary Mr Doug Chester, First Assistant Secretary, Corporate Management Division Ms Anne Hazell, Chief Finance Officer, Assistant Secretary, Finance Management Branch Australian Trade Commission (Austrade) Outcome 1: Australians succeeding in international business with widespread community support. 1.1 Awareness raising 1.2 Government advice and coordination 1.3 Services and opportunities 1.4 Inward investment and attraction services 1.5 Austrade administered grants. Outcome 2: Australians informed about and provided access to consular, passport and immigration services in specific locations overseas. 2.1 Consular, passport and immigration services. Peter O'Byrne, Managing Director Margaret Lyons, Executive General Manager, Corporate Julia Selby, Executive General Manager, Australian Operations and South Pacific Terry O'Connor, Corporate Manager, Government, Policy and Communications Ian Chesterfield, General Manager, Corporate Finance, Assets, Legal and Risk Marcia Kimball, General Manager, People and Organisational Development Erle Bourke, Corporate Manager, IT Colin Hook, General Manager, Exporter Development Michael Crawford, General Manager, International Business Services Michael Vickers, Group Manager, Client Development and Ally Liaison Lindsay Collins, Acting General Manager, Export Finance Assistance Programs Michael Plummer, National Manager, Program Development, Export Finance Assistance Programs Anthony Fernando, Manager, Americas Office Peter Amey, Manager, Europe Office Pat Stortz, Manager, South Pacific/South East Asia Offices Jessica Ramsden Smith, Manager, Middle East Indian Ocean Office Peter Bergman, National Manager, North East Asia Office Greg Joffe, Corporate Adviser, Strategic Development Department of Foreign Affairs and Trade Output 1.1-Protection and advocacy of Australia's international interests through the provision of policy advice to ministers and overseas diplomatic activity. 1.1.5 Multilateral trade negotiations Mr Bruce Gosper, First Assistant Secretary, Office of Trade Negotiations Mr Allan McKinnon, Special Negotiator­Agriculture Mr Stephen Deady, Special Negotiator­Free Trade Agreements/Processed Food Market Access 1.1.6 Trade development/policy coordination and APEC Mr Patrick Lawless, Acting First Assistant Secretary, Trade Development Division Dr Frances Perkins, Executive Director, Economic Analytical Unit Mr Hamish McCormick, Assistant Secretary, APEC and Regional Trade Policy Branch Ms Ruth Adler, Assistant Secretary, Trade and Economic Analysis Branch Mr David Garner, Director, International Economic and Finance Section, Trade and Economic Analysis Branch Ms Angela Carey, Executive Officer, International Economic and Finance Section, Trade and Economic Analysis Branch Mr Lachlan Crews, Executive Officer, International Economic and Finance Section, Trade and Economic Analysis Branch FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 289 Mr Charles Adamson, Executive Officer, International Economic and Finance Section, Trade and Economic Analysis Branch Mr David MacLennan, Executive Officer, Export Credit Policy Section, Trade and Economic Analysis Branch Mr James Bloomfield, Executive Officer, Export Credit Policy Section, Trade and Economic Analysis Branch Mr Frank Bingham, Executive Officer, Market Information and Analysis Unit, Trade and Economic Analysis Branch Dr Ron Wickes, Director, Trade Analysis Section, Trade and Economic Analysis Branch Ms Lorraine Barker, Acting Assistant Secretary, Market Development and Business Liaison Branch Mr Andrew Todd, Director, Trade Advocacy and Outreach Section, Market Development and Business Liaison Branch Mr David Holly, Director, Information Industries and Online Access Section, Market Development and Business Liaison Branch Mr Tim Toomey, Acting Director, Trade Liaison Section, Market Development and Business Liaison Branch 1.1.1 North Asia (including Australia­Japan Foundation, Australia­China Council, Australia­Korea Foundation) Mr Murray McLean, First Assistant Secretary, North Asia Division Ms Penny Richards, Assistant Secretary, North­East Asia Branch Mr Hans Saxinger, Director, Korea Section, North­East Asia Branch Mr James Baxter, Director, Japan Section, North­East Asia Branch Mr Peter Rowe, Assistant Secretary, East Asia Branch Mr Kyle Wilson, Director, China Political and External Section, East Asia Branch Mr David McGrath, Director, China Economic and Trade Section, East Asia Branch Ms Valerie Grey, Director, Hong Kong/Macau/Taiwan Section, East Asia Branch 1.1.2 South and South East Asia (including Australia­India Council, Australia­Indonesia Institute) Mr Paul Grigson, Acting First Assistant Secretary, South and South East Asia Division Dr David Engel, Director, Indonesia Section, Maritime South­East Asia Branch Ms Kathy Klugman, Director, East Timor Section, Maritime South-East Asia Branch Mr Graeme Lade, Director, Philippines/Malaysia/Singapore/Brunei Section, Maritime South-East Asia Branch Dr Justin Lee, Director, Australia­Indonesia Institute Mr Phillip Stonehouse, Acting Assistant Secretary, Mainland South­East and South Asia Branch Ms Elizabeth Wetherell, Director, ASEAN, Burma and Cambodia Section, Mainland South­East and South Asia Branch Mr Henry Bray, Acting Director, India and South Asia Section, Mainland South­East and South Asia Branch Mr Jurek Juszczyk, Director, Thailand, Vietnam and Laos Section, Mainland South­East and South Asia Branch Ms Carol Robertson, Director, Australia­India Council 1.1.3 Americas and Europe Mr David A Ritchie, First Assistant Secretary, Americas and Europe Division Ms Zorica McCarthy, Assistant Secretary, EU and Western Europe Branch Mr Angus Mackenzie, Director, Western Europe Section, EU and Western Europe Branch Ms Lucy Charlesworth, Director, EU and Institutions Section, EU and Western Europe Branch Mr Barrie Blackburn, Executive Officer, EU and Institutions Section, EU and Western Europe Branch Ms Leanne Caflisch, Executive Officer, EU and Institutions Section, EU and Western Europe Branch Ms Margaret Twomey, Assistant Secretary, Northern, Southern and Eastern Europe Branch Mr Alex Brooking, Director, Northern, Central and Eastern Europe Section, Northern, Southern and Eastern Europe Branch Ms Susan Allen, Executive Officer, Northern, Central and Eastern Europe Section, Northern, Southern and Eastern Europe Branch Mr Tony Urbanski, Director, Southern Europe Section, Northern, Southern and Eastern Europe Branch Mr Mark Fraser, Executive Officer, Southern Europe Section, Northern, Southern and Eastern Europe Branch FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 290 SENATE-Legislation Wednesday, 5 June 2002 Dr Brendon Hammer, Assistant Secretary, Americas Branch Mr Greg Polson, Director, United States Section, Americas Branch Ms Sue Jorgenson, Executive Officer, United States Section, Americas Branch Ms Cathy Raper, Director, Canada, Latin America and Caribbean Section, Americas Branch 1.1.4 South Pacific, Africa and the Middle East Mr James Wise, First Assistant Secretary, South Pacific, Africa and Middle East Division Mr George Atkin, Assistant Secretary, Middle East and Africa Branch Ms Clare Birgin, Director, Middle East Section, Middle East and Africa Branch Mr Don Cuddihy, Executive Officer, Middle East Section, Middle East and Africa Branch Mr John Hennessy, Director, Africa Section, Middle East and Africa Branch Mr Billy Williams, former Director, Africa Section, Middle East and Africa Branch Mr Rohan Titus, Executive Officer, Africa Section, Middle East and Africa Branch Mr John Oliver, Assistant Secretary, New Zealand and Papua New Guinea Branch Ms Julie Chater, Director, New Zealand Section, New Zealand and Papua New Guinea Branch Mr Bruce Hunt, Director, Papua New Guinea Section, New Zealand and Papua New Guinea Branch Mr Graham Fletcher, Director, Pacific Islands Branch Ms Anne Plunkett, Director, Pacific Regional Section, Pacific Islands Branch Mr Rick Nimmo, Director, Pacific Bilateral Section, Pacific Islands Branch 1.1.7 International organisations, legal and environment Dr Geoff Raby, First Assistant Secretary, International Organisations and Legal Division Mr John Buckley, First Assistant Secretary, Ambassador for People Smuggling Issues Mr Christopher Langman, First Assistant Secretary, Ambassador for the Environment Mr Richard Rowe, First Assistant Secretary, Senior Legal Advisor Mr Rod Smith, Assistant Secretary, International Organisations Branch Mr Dominic Trindade, Assistant Secretary, Legal Branch Mr Justin Brown, Assistant Secretary, Environment Branch 1.1.7 Security, nuclear, disarmament and non­proliferation. Mr Bill Paterson, First Assistant Secretary, International Security Division Mr John Quinn, Assistant Secretary, Nuclear Policy Branch Mr Bruce Miller, Assistant Secretary, Strategic Policy and Intelligence Branch Mr Bernard Lynch, Acting Assistant Secretary, Arms Control and Disarmament Branch Dr Terry Beven, Director, Nuclear Trade and Security Section, Nuclear Policy Branch Mr John Carlson, Director General, Australian Safeguards and Non-Proliferation Office Mr Andrew Leask, Assistant Secretary, Australian Safeguards and Non-Proliferation Office Output 1.2-Secure government communications and security of overseas missions. Mr Paul Tighe, First Assistant Secretary, Diplomatic Security, Information Management, and Services Division Mr Malcolm Skelly, Assistant Secretary, Information Management Branch Mr John Richardson, Assistant Secretary, Diplomatic Security and Services Branch Mr Stephen Gee, Director, Security Policy and Operations Section Output 1.3-Services to other agencies in Australia and overseas (including Parliament, state representatives, business and other organisations). 1.3.1 Parliament of Australia 1.3.2 Services to attached agencies 1.3.3 Services to business 1.3.4 Services to state governments and other agencies overseas and in Australia. Output 1.4-Services to diplomatic and consular representatives in Australia. 1.4.1 Services to the diplomatic and consular corps 1.4.2 Provision of protection advice through liaison with the Protective Security Coordination Centre. Ms Karina Campbell, Chief of Protocol, Assistant Secretary, Protocol Branch Output 2.1-Consular and passport services. 2.1 Consular services Mr Ralph Hillman, First Assistant Secretary, Public Diplomacy, Consular and Passports Division Mr Ian Kemish, Assistant Secretary, Consular Branch Mr Keith Gardner, Director, Consular Operations Section, Consular Branch Mr Marc Campbell, Division Coordinator, Public Diplomacy, Consular and Passports Division FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 291 2.2 Passport services. Mr Ralph Hillman, First Assistant Secretary, Public Diplomacy, Consular and Passports Division Mr Bob Nash, Assistant Secretary, Passports Branch Mr Bill Monaghan, Director, Passport Operations Section, Passports Branch Mr John Osborne, Director, Passport Systems and Technology Section, Passports Branch Output 3.1-Public information services and public diplomacy. 3.1.1 Public information and media services on Australia's foreign and trade policy 3.1.2 Projecting a positive image of Australia internationally Freedom of information and archival research and clearance. Mr Ralph Hillman, First Assistant Secretary, Public Diplomacy, Consular and Passports Division Mr Chris DeCure, Assistant Secretary, Parliamentary and Media Liaison Branch Mrs Victoria Owen, Assistant Secretary, Images of Australia Branch Mr Chris Freeman, Director, Media Strategies and Internet Section, Images of Australia Branch Output 4.1-Property management. Mr Peter Davin, Executive Director, Overseas Property Office Mr Kevin Nixon, Assistant Secretary, Alliance Management Branch, Overseas Property Office Output 4.2-Contract management. Enabling services Items-General corporate support; human resource management and overseas conditions of service; financial and budget management; national non­secure (communication system) information technology and information management; records management; property management; executive support; training and development; evaluation and audit; internal legal and statistical services; security services. Ms Caroline Millar, Assistant Secretary, Executive, Planning and Evaluation Branch Ms Nicola Watts, Director, Ministerial and Executive Liaison Section Mr Ian Biggs, Director, Corporate Planning Section Mr Chris Marchant, Director, Evaluation and Audit Section Ms Jemal Sharah, Executive Officer, Ministerial and Executive Liaison Section Mr Chris Moraitis, Assistant Secretary, Staffing Branch Ms Jane Madden, Assistant Secretary, Staff Development and Post Issues Branch Dr Lee Kerr, Director, Management Strategy, Conduct and Coordination Section, Corporate Management Division Mr Richard Andrews, Director, Budget Management Section, Finance Management Branch Mr Daniel Sloper, Executive Officer, Budget Management Section, Finance Management Branch Australian Agency for International Development (AusAID) Outcome 1: Australia's national interest advanced by assistance to developing countries to reduce poverty and achieve sustainable development. Output 1-Policy Output 2-Program management Administered items-Australia's aid program. Mr Ian Anderson, Assistant Director General, Contract Services Group Mr Bruce Davis, Director General, AusAID Mr Scott Dawson, Deputy Director General, Asia and Corporate Resources Division Ms Jacqueline De Lacy, Acting Director General, Budget Mr Paul Flanagan, Assistant Director General, Humanitarian, Multilateral and Community Branch Mr Mark Fleeton, Assistant Director General, Resources Branch Ms Ali Gillies, Assistant Director General, Executive Services Group Mr Robert Glasser, Assistant Director General, Corporate Policy Branch Mr Peter Jensen, Director, Finance and Budget Section Mr Alan March, Acting Assistant Director General, South Pacific Branch Ms Gillian Mellsop, Director, United Nations and Commonwealth Section. Mr Titon Mitra, Acting Assistant Director General, East Asia Branch Mr Richard Moore, Assistant Director General, Mekong, South Asia and Africa Branch Ms Kim Murray, Budget Officer, AusAID Budget Unit Ms Annmaree O'Keeffe, Deputy Director General, Pacific Contracts and Corporate Policy Division Mr Murray Proctor, Assistant Director General, Office of Review and Evaluation Mr Charles Tapp, Deputy Director General, PNG and Global Programs Division FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 292 SENATE-Legislation Wednesday, 5 June 2002 Mr Jason Reynolds, Manager, AusAID Budget Unit Ms Judith Robinson, Acting Assistant Director General, Corporate Policy Branch Australian Centre for International Agricultural Research (ACIAR) Outcome: Agriculture in developing countries and Australia is more productive and sustainable as a result of better technologies, practices, policies and systems. Output group 1-Collaborative research that addresses agricultural and natural resource management problems of developing countries and Australia. Output group 2-Trained researchers in developing countries and Australia. Mr Michael Brown, Director, Corporate programs Dr John Skerritt, Deputy Director, research and development programs Mr Paul Tyrrell, Finance Manager CHAIR-I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee meeting. I will shortly be welcoming back Senator Hill, the Minister for Defence and the Minister representing the Minister for Foreign Affairs and Trade. I welcome officers from the Department of Foreign Affairs and Trade and officers from Austrade. The committee has before it the particulars of proposed expenditure for the service for the year ending 30 June 2003, documents A and B, and the portfolio budget statements for Foreign Affairs, Trade and Austrade. Today the committee will examine the particulars for Austrade, and trade options, outputs 1.1.5 and 1.1.6 of the Department of Foreign Affairs and Trade. When officers are first called upon to answer a question they should state clearly their names and positions. When written questions on notice are received the chair will state for the record the name of the senator who submitted the questions. The questions will be forwarded to the department for answer. The committee has resolved that the deadline for the provision of answers to questions taken on notice at these hearings is Thurs- day, 11 July 2002. I remind my committee colleagues that the Senate Finance and Public Administration Legislation Committee is continuing to monitor the format and contents of the portfolio budget statements. If you have any comments you wish to make about these documents, please place them on the public record during these estimates hearings or direct them to that committee. Witnesses are reminded that the evidence given to the committee is protected by parliamentary privilege. I also remind witnesses that the giving of false or misleading evidence to the committee may constitute a contempt of the Senate. The Senate has resolved that there are no areas in connection with the expenditure of public funds where any person has a discretion to withhold details or explanations from the parliament or its committees unless the parliament has expressly provided otherwise. An officer of a department of the Commonwealth shall not be asked to give opinions on matters of policy. However, you may be asked to explain government policy, describe how it differs from alternate policies and provide information on the process by which a particular policy was selected. An officer shall be given every opportunity to refer questions asked of that officer to a superior officer or to the minister. The minister is not here, so he will not be making an opening statement. Ms Selby, do you wish to make an opening statement? Ms Selby-No. Senator COOK-Before we proceed to the witnesses, Chair, your opening statement raises two questions which I would like, if I could, to deal with now. The first is on the program. Since we are starting almost two hours after the intended starting time for this section of the estimates, I should indicate that if the program you have foreshadowed is adhered to I will need extra time somewhere in the program, and before the appropriation bills are committed to a vote in the Senate, to have finalised my questions in the trade area because they are a bit more extensive than that program would allow. Secondly, I wonder if this is the appropriate time for any questions in overview about the estimates for this portfolio. Is this the time to ask those, or are they questions that we can hold onto until after we have dealt with Austrade? CHAIR-On the second matter, I guess that is up to you, but if the overview questions are of trade matters perhaps you should ask them now. In relation to the other matter, the program was pushed out because your colleagues needed a little bit more time. I am sure that we can address the concern that you have, but perhaps we should just proceed with this and come back to that at a later stage. Senator COOK-That is fine. I just thought I should speak now, because I do not want to forever hold by peace on that subject. I think the overview is more appropriate to DFAT rather than to Austrade, and I will hold on that matter, if that is not a problem. CHAIR-That is appropriate. We can discuss that other problem further in private. Senator COOK-Indeed. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 293 Senator LUNDY-My first question relates to an issue that we raised at the last round of additional supplementary estimates on the decision making of the location of new TradeStart offices. I would like officers to reiterate the basis upon which the locations of the 10 new TradeStart offices were selected. Ms Selby-I will call on my colleague Michael Vickers to answer that for Austrade. Mr Vickers-The locations of the 10 new offices, nine of which are specified and one of which has yet to be specified, were announced by the Minister for Trade in the context of the election campaign. Those offices were on a list of potential offices which were drawn up by Austrade in preparation for the budget round of discussions late in the calender year last year. Senator LUNDY-What other potential locations were on that list? Mr Vickers-Quite a number-there were something heading towards 30 different locations on that list. Senator LUNDY-That list of 30 was provided to the minister? Mr Vickers-Yes. Senator LUNDY-What preference did Austrade indicate on that list? Mr Vickers-Austrade did not indicate a preference on that list. Senator LUNDY-Can you provide a copy of that list to the committee? Mr Vickers-Yes, I am happy to take that on notice. Senator LUNDY-Just to confirm: you did not indicate any preference or make any recommendation on which of those 30 should be selected? Mr Vickers-No, we did not. Senator LUNDY-So it was completely in the minister's office's hands about which offices were selected? Mr Vickers-That is a matter I cannot answer; it is a matter for the minister. Senator LUNDY-I might follow that up when the minister turns up. Austrade's budget has been cut by $5.56 million in this financial year and its staffing profile has been reduced by three, according to the PBS. Given those constraints and reductions, how will Austrade be able to establish and run 10 new TradeStart offices? Mr Vickers-The money for TradeStart is allocated as a separate item in the budget, and the government has allocated $21.5 million over four years to run TradeStart. Senator LUNDY-Can you provide me with a breakdown of what the $5.56 million cut is going to affect directly? Mr Chesterfield-The cut is largely not a cut in real terms; it is a cut in changes to foreign exchange and inflation parameters set across the basket of currencies in the countries we operate in. So there are increases and reductions that make up the overall reduction, but by far the largest part of those are projected changes in foreign exchange rates where the dollar has been projected to be higher this coming year than it has been in the last year. Senator LUNDY-Can you confirm how much additional funding Austrade received in the last financial year or in this current financial year for exchange rate movements? Mr Chesterfield-I will have to take that on notice. I certainly can, but I do not have that information with me. Senator LUNDY-I can probably tell you what it is. I put to you that it is $11.4 million, and my question is: how much less are you getting this year as far as funding goes for those exchange rate movements-in this forthcoming year? Mr Chesterfield-The reconciliation I have available-and I can give you a copy of this-is the reconciliation against the budget position last year. That lays out the changes. If you would like a copy of that, you are most welcome. Senator LUNDY-Is that in the PBS? Mr Chesterfield-No, this is the detailed break-up of the information in the PBS. Senator LUNDY-I would be grateful if you could table that, and then the officers could bring it to me. Are you telling me that the $5.56 million cut is only attributable to the variation in the exchange rate movements or are there other factors like that reduction in staffing that has been identified? Mr Chesterfield-No, it is entirely attributable to the foreign exchange rebasing between years and within years. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 294 SENATE-Legislation Wednesday, 5 June 2002 Senator LUNDY-So, other than the additional funding for the expanded TradeStart program, all other things are equal? Mr Chesterfield-The EMDG scheme has received an extra $400,000 per annum in the budget, and there is an equity injection of $50,000 for the Zagreb office. Senator LUNDY-Is that also as part of the EMDG? Where does that $50,000 fit? Mr Chesterfield-The EMDG scheme has been increased by $400,000 per annum. Senator LUNDY-And the other $50,000 capital injection? Mr Chesterfield-That is for Zagreb. Senator LUNDY-Going to the plan to double the number of exporters over a period, can you tell me whether the reference to 25,000 exporting businesses in Knowing and growing the exporter community includes tourism businesses? Mr Joffe-It includes some but not all. It was based on the Australian Bureau of Statistics business longitudinal study where they took a sample of Australian businesses, both exporters and non-exporters. Some of those businesses were in tourism, but the tourism sector would be less well reflected than other sectors. Senator LUNDY-Are you able to put a figure on what the number of exporting businesses would be if all the tourism businesses were included? Mr Joffe-Not at this point. We are having discussions with the ABS because this is obviously something we are very interested in. Those discussions are at the point of really trying to put a tight enough definition on what constitutes an exporter. At this point we do not have an answer. Senator LUNDY-I guess I am looking for a ballpark figure on what that 25,000 would increase by if you included them all. Mr Joffe-The best I could do is say several thousand more. To give you a specific example, it depends whether you count the shops in Circular Quay with more than 10 per cent of their sales going to foreigners. That is the sort of discussion we are having with ABS. It will be several thousand more, but I do not know how big because it depends on the definition. Senator LUNDY-The government program states that it will double the number of exporters within five years. Obviously how many businesses are currently exporting and what statistic you use to define that is a key factor in determining what the actual goal is. What is the value of talking down the size of the exporting community, particularly in the context of trying to achieve these policy goals? It seems to me that if we are not including all of the businesses-and these issues of definition have not been worked out-and you base a policy on doubling that number then in fact that exporting community cannot help but be left with the feeling that their numbers are being talked down to make that goal more easily politically attainable. The minister is not here, but I would be looking for a comment from him. Is there any specific reason why that statistical definition has not been resolved before putting this policy in place? Mr Joffe-This work on Knowing and growing the exporter community report and working with the ABS are really what has fleshed out that the definition is not tight enough. The ABS has given Austrade their best estimates of exporters, which is the number used in here and both we and the ABS have realised that more work needs to be done to get a tighter definition. The policy of doubling came out of the research and, equally, the research highlighted that we really needed to work with the ABS to get a better definition. Senator LUNDY-Was it Austrade's view that a tighter definition was required? Mr Joffe-Both Austrade and the bureau, as we have worked through the numbers, have realised how slippery that issue is of who is an exporter, particularly in some industries. More definition is needed. Senator LUNDY-What happens now in resolving that issue of definition? What course of action are you following with ABS? Mr Joffe-One of my staff is working on that. I am not sure of the detail. I presume there would be meetings with the relevant people in Austrade, DFAT, ABS and all other constituencies to try to get definitions that could be agreed and that the ABS would be happy to use as robust definitions. Senator LUNDY-What efforts have you made to get the views of that sector of exporters in tourism to garner their views on the sort of support they require or would like from Austrade? Ms Selby-We have been talking to the tourism sector and our minister, Mr Vaile, has recently co-chaired a meeting of the Australian Tourism Export Council. The industry themselves see tourism as an export industry and they talked about how Austrade could work with them to enhance their role. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 295 Senator LUNDY-Just to confirm, this policy of doubling the number of exporters is really focused on the non-tourism exporters, isn't it? Ms Selby-It is focused on the Australian potential export community generally. Senator LUNDY-So they worked with the tourism exporters bureau, did you say? Ms Selby-The Australian Tourism Export Council. Senator LUNDY-Are those figures for the tourism sector and any improvement there going to be counted as part of the statistical analysis of whether or not you are actually achieving a doubling of export figures? Ms Selby-It gets back to what Mr Joffe was saying. We need to be talking to the ABS, as well as to the tourism industry, to make sure that we are all in agreement on what is included and what is not going forward. Senator LUNDY-I am just trying to work out what the benchmark is and I am still not clear. Ms Selby-I understand. Senator LUNDY-What I have heard so far is that not all tourism businesses are included in that 25,000 figure, yet that seems to be benchmark figure the government has identified for the purposes of needing to double it over the next five years. On the other hand, because not all of the tourism businesses are included there, there are also discussions going on with the tourism exporters group. So what I am asking is, firstly, whether there is a benchmark of tourism exporting businesses that can be identified now and, secondly, whether any increase in that number will be factored into the doubling of this 25,000 number. Mr Crawford-I think it is important that the committee notes that when the minister released this policy last year he made it clear that there was a need for a whole-of-government approach here. The committee should note that recently-a couple of weeks ago-Minister Hockey released a 10-year plan for tourism, be- cause the tourism sector itself believes that the value of tourism exports is not yet fully recognised within Australia and that it is substantial. Senator LUNDY-They are certainly not in this group of definitions. Mr Crawford-I think the point is that the identification of tourism operators, as my colleague identified before, is not a simple task. The industry itself is dealing with that issue along with the issues of self- regulation and appropriate standards. So it is not a simple job, and we are working on it at the moment both by talking to the ABS and developing a plan there and also by working closely with the Australian Tourist Commission and the Department of Industry, Tourism and Resources. Senator LUNDY-That still does not answer my question about whether there is a benchmark figure of tourism businesses that is not currently included in the 25,000 that will be included for the purposes of achieving this goal. I am trying to work this out because in five years time I do not want to come back and say, `Well, did you double the businesses?' and have you say yes and then have a big debate about how rubbery the figures are and whether or not tourism businesses were included. I am just trying to get it clear now. Mr Joffe-I understand the question. The answer is slightly long, but I will try and address the question you are asking. At the moment the growth in exporters as estimated by the ABS, in their work with us, is about five to eight per cent a year. Doubling the number of exporters in five years requires about a 15 per cent per year increase. So, almost regardless of what you do, it is a big increase and a real stretch. Within that there is a clear recognition that tourism is one of those sectors. The best estimate of the ABS for last year was about 25,000 exporters, including tourism. Senator LUNDY-Including tourism? Mr Joffe-Yes, including tourism, but we do not know if it is fully representative because the definition is not finalised. As we go forward, we will get better definitions and we will get a number. My response would be that when we get to 50,000 we should be celebrating. Both tourism and any other industry will be part of that. Senator LUNDY-So what you are telling me is that that benchmark figure the government has identified of 25,000 could in fact change depending on the resolution of this definition issue? If ABS and everyone else decides that the definition should be slightly broader, then that figure could go up, but we will still just be measuring 50,000 in a few years time, won't we? Mr Crawford-Can I put to you an important issue, and that is that we are focusing on the finer definition, if you like. But, as the Minister for Trade has made clear, this is about driving dramatic change in Australia to get a greater number of companies exporting. At the moment, it is only about four per cent and so the focus really should be on that dramatic change in behaviour and outlook. At the same time, we are trying to get clearer definitions on figures. I suggest that we report back to the committee as that work progresses. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 296 SENATE-Legislation Wednesday, 5 June 2002 Senator LUNDY-I will look forward to that, but it is my job to be pedantic about government promises and how the government actually achieves them over a period of time. Can I go to this issue of percentage growth. The government has declared that they are pursuing a doubling. That works out to be about 15 per cent per year. We just heard that there is an annual growth anyway in the number of exporting companies. Is that the case? Mr Joffe-Yes. Senator LUNDY-What is that annual growth currently in percentage terms and in numbers of companies? Mr Joffe-It is not a consistent percentage every year but, based on the four to six years that the business longitudinal study went for, it seems to be between about five and eight per cent per year for that period. I should stress that period is 1994-1998, so already some of those numbers are dated. We do not know what it is for the last few years, because there has not been data on it. Senator LUNDY-You would have some idea as to whether we are exporting more or less, surely? Mr Joffe-It is quite easy to do in dollars, because we have the trade figures. Actually getting numbers of exporters is incredibly difficult, and that is what the ABS are working with us on. Senator LUNDY-If the only data that is available points to somewhere between a five and eight per cent growth each year anyway, what is that growth in actual numbers of companies exporting? Mr Joffe-If I take a five-year horizon, if we were at approximately 25,000 exporters last year and we are looking for approximately 50,000 in five years time and if the growth rate was eight per cent, you would get about half of that through natural growth and the other half you would have to do yourself. Using those num- bers-and obviously these numbers are rounded-of the 25,000 extra exporters, about half would come through natural growth and half through having to take extra initiatives. As I was pointing out earlier, that is quite a significant increase. Senator LUNDY-So, in terms of doubling the number of exporters, as far as the government's announcement, policy and commitment go, half of that growth will be achieved through natural growth anyway? Mr Joffe-Based on trend and based on the BLS numbers from 1994-1998, you would expect about half and you would have to make the other half happen by taking specific initiatives. Of course, that the trend would continue is also an assumption, but we do not know one way or the other that it would not. Senator LUNDY-Do you have any reason to believe that that assumption about that growth trend will change? Mr Joffe-No. Senator LUNDY-Let us go to the remaining number of exporting companies that you need to grow. How does that work out as far as each year goes? How many new exporting companies does there need to be each year to achieve the coalition's promise? Mr Joffe-The gap is about 13,000. If you divided it by five, you are talking approximately two-point- something thousand per year. Our analysis is that that would actually ramp up. The program would take time to kick in, so you would expect it to be lower in the first year or two and rising nearer the end. Senator LUNDY-Do you have a series of goals that you hope to achieve over the five years for increasing the number of exporting companies-like 1,000 in the first year, 1,500 in the second year, 2,000 and so forth? Mr Joffe-We are working on that. They are being finalised for the corporate plan, which should be released in July. Senator LUNDY-I thought all this was supposed to be in place in July. Mr Crawford-What should be in place? Senator LUNDY-It should have been in place in July. Mr Crawford-What exactly? Senator LUNDY-The strategy to double the number of exporting companies. Mr Crawford-Yes, and it will be. Senator LUNDY-But we are only going to hear about the goals in July? Ms Selby-I think what Mr Joffe was referring to was that our corporate plan starts from 1 July. It will be considered by our board in June, ready to roll from July. Senator LUNDY-From 1 July? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 297 Ms Selby-Yes. Senator LUNDY-Can you take on notice to provide the committee with those annual goals for increasing the number of exporting businesses? Mr Joffe-Yes, Senator. Senator LUNDY-Thank you. How are you going to achieve that? Mr Joffe-Senator, you have read the Knowing and growing the exporter community report, so I am sure you know the answer. The Knowing and growing research identified five key levers to double the number of exporters over five years. The first was to increase the intention to export of companies that do not currently intend. The second was to support born globals, which continue to be a very important group of exporters. These are the companies that become global very quickly and have to be global to survive. The third was to increase the success rate of Australian companies that intend to export. Increasing the success rate of that original group of intenders has a big impact. One of the insights from the research, as you will have seen, is that we found by using that BLS survey that, on average, 17 per cent of the companies that said they intended to export actually succeeded over a three-year period. Of those who used Austrade services, 74 per cent succeeded. Of those who did not, about 14 per cent succeeded. So the key lever within that is actually to get them to use the available services. In fact, we found it was not just Austrade; it was also other government services. Where these services were accessed, the companies got a better success rate. The fourth lever is aimed at addressing what are called `accidental exporters', people who do not show an intention to export but, perhaps by just sitting next to someone on a plane, have an opportunity come their way. If you can create more chances for those accidental connections, you can actually help that group. The fifth lever is aimed at a large number of companies that are called `irregular exporters'-companies that ex- port one year, do not export the next year but export the year after. If you could make those companies regular exporters so that they are exporting every year, your overall number of exporters every year increases. Those are the five key levers, and then we have programs under each of those to try to make that happen. Senator LUNDY-Including the TradeStart program, which includes expansion of the Export Market Development Grants and so forth? Mr Joffe-Yes. Senator LUNDY-I will come to those. Ms Selby-It includes involving our whole network in working with potential exporters in Australia-so a reallocation of resources, particularly involving our staff from offshore who bring market knowledge and having them much more involved in working with potential exporters. It also involves our working with the states and industry associations. The state governments, in particular, have a large number of people working in enterprise development with a range of companies, not necessarily exporters. One of our strategies in working with the states is to brief or to better educate those enterprise development advisers on what is an export capable company or what is an export ready company so that they can then refer them on to relevant service providers. Senator LUNDY-What is the degree of formality in those discussions with the states? Ms Selby-Reasonably formal, in the sense that the National Trade Consultations are regular meetings between federal Minister for Trade and the relevant minister from each of the states. The last meeting of the National Trade Consultations took place on 4 April. The ministers signed a memorandum of understanding to work together towards doubling the number of exporters, and it was agreed that Austrade would work with each individual state government to identify programs and projects that we could work on together. So it is a formal approach. Senator LUNDY-Are there any specific figures to show what resources the states will be putting in to that particular initiative? Ms Selby-No, not at this stage. We estimate that there are around 700 state and federal enterprise development staff. That includes AQIS and people working on quarantine-a wide range. We did estimate how many there are in each of the states. All of the states have trade development programs. I do not know how much each state government puts into that area, but it is reasonably considerable. Senator LUNDY-In terms of that MOU and the state trade development programs supporting this initiative, I am just trying to get my head around how that will occur. Will Austrade provide a briefing to the officers within each of the states? Will they then deliver those services, like a referral service, to other Austrade services or will they provide their own advice? What kind of transfer will there be to the states from what Austrade's role has traditionally been? Ms Selby-I would expect the enterprise development staff that I was talking about to continue to do their usual work of working with a whole range of companies. We are seeking to train them to be able to identify FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 298 SENATE-Legislation Wednesday, 5 June 2002 export capable companies to refer to providers, such as Austrade, of services for helping companies to get into export. The states also have international trade sections in some of their departments and a few overseas offices, but they do not have the extensive global network that Austrade has. Austrade will continue to work with companies that we identify or that the states may have identified to enable them to use the global network. Senator LUNDY-So not only will Austrade be a point of contact for potential or existing exporters but those state offices will become a point of contact as well and then refer on to Austrade? Ms Selby-That is correct. Senator LUNDY-And you are obviously hoping that that will identify many more potential exporters? Ms Selby-That is correct. Senator LUNDY-You mentioned the reallocation of staff or a different way of using your overseas staff. Could you elaborate on that? Ms Selby-Our overseas staff visit Australia now at different times, sometimes with buyers or customers, sometimes to promote their specific market and sometimes to work with particular companies that they are familiar with in their market. We intend to reorient their visits-not totally but to some extent-to ensure that they are spending time with potential exporters. There is nothing more powerful than a potential exporter being briefed by somebody who is actually from an overseas market, who can give information and knowledge based on their experience of other Australian exporters in the market or who can talk about specific opportunities and so on. This is a very valuable tool which we intend to use a little more with our new exporters. Senator LUNDY-What sort of budget allocation is there? What number of return visits to Australia is the current norm for those officers overseas? What plans do you have to create more visits? What budget alloca- tion have you put against that increased expense of travelling for these people? Ms Selby-I do not have the figures for this. Senator LUNDY-Is that because you do not have the figures here or because you have not worked them out yet? Ms Selby-No, we have certainly worked them out. There will be some additional visits but, in thinking through this program and the use of the overseas staff in Australia, quite a lot of them-I am sure you have met some of them; some of them have been in the ACT-have traditionally been coming back for particular programs anyway. So there will be some increase, but not a major increase over what exists now. I just do not have the figures in front of me. Senator LUNDY-I am trying to get a feel for your resourcing generally. It has increased in specific programs, but through identifying this doubling of exporting companies Austrade is creating a lot more work for itself. That seems to me to be part of the strategy. How will your current resourcing cope with generating a lot more work for yourselves through this program? Ms Selby-The visits of overseas staff to Australia will, we think, be a very useful way of efficiently servicing an increased number of potential exporters in the early stage. We hope to use our overseas people to meet groups of potential exporters-small groups rather than one on one. There is the enhanced TradeStart network, and we will be working with the state government trade people and our own Trade people. We will also be working very closely with potential exporters-coaching, as the expression goes-to try to ensure that those we are actually servicing offshore are ready and that, therefore, we are making very efficient use of our offshore resources in particular. Senator LUNDY-So you are not proposing to put more Austrade officers on the ground here in Australia in your domestic network? Ms Selby-We will be reallocating some of our existing onshore resources but, as I said, the offshore resources will be used more in Australia and that will make those resources available to the companies here face to face, whereas previously business has been conducted through email or some other way. Senator LUNDY-I am just trying to confirm that you are not putting more people into your domestic network here in Australia; rather, you are providing more human resources, in providing the services to potential exporters, by bringing overseas people back for periods of time and also by utilising the people on the ground here employed through the states-through the MOU and other arrangements. Ms Selby-The TradeStart network will put more people on the ground. Senator LUNDY-So more people will be employed by Austrade? Ms Selby-We will be co-funding with the partners in TradeStart. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 299 Senator LUNDY-I will come to that. I see in the PBS that you have three net fewer staff, so I am figuring that if you are going to double the numbers of exporters the human resources to achieve that goal are coming from somewhere. So far, we know that you are going to pull people back from overseas, that the states are going to be doing something. I would like to go to the issue of the partnerships and private providers. I know we discussed this at some length at the last round of additional supplementary estimates, but it is worth revisiting in this context. There was just one other question I had about people coming back from overseas. What consideration have you given to the gap that will leave in the current services provided by those overseas officers within the jurisdictions to which they have been posted? Ms Selby-They will not be coming back for extensive periods. We are talking of three-week visits, on average. As I said, our staff come back to Australia now and offices function effectively when people are not there. Our people are also very competent at functioning in a mobile way, and so they access their emails and whatever while they are on the road and respond to clients, as we call them-exporters-when they are back in Australia as well. Senator LUNDY-So they are doing two jobs? Ms Selby-They are using their time efficiently. Senator LUNDY-Do they get a pay increase? Ms Selby-I am sure they would like one. Senator LUNDY-I am sure they would like one. It seems to me that their scope of work is expanding significantly. They are helping the department out heaps by providing a resource that otherwise would perhaps have to be provided by more people. Ms Selby-I do not think that is really the case. They are doing a different form of work. We are redirecting their efforts towards working with more potential exporters rather than working with the companies-some, not all; we are no longer working with existing exporters-that perhaps no longer require our services. We are ensuring that our resources are more available for new potential exporters. Senator LUNDY-So the rationale behind doing this is that their services are required less overseas and more here and because you have finite resources you have made a choice? Ms Selby-The rationale is that an efficient way of helping a larger number of Australian companies to get into exporting is, in one sense, to bring the overseas market expertise to them and work with them and their export advisers here, one on one or in a group, rather than deal with them offshore. Senator LUNDY-I am certainly not questioning the merit of the exercise. It makes sense the way you describe it. It seems to me that a gap has to be created somewhere. I am trying to get an insight into what thought you have put into the creation of that gap, which is what they would have been doing had they still been in their overseas posts. Ms Selby-Sure. Senator LUNDY-Could we move now to the TradeStart program and partnerships with private providers. Where is that up to? How many private providers have been put in place in these partnership arrangements? Mr Vickers-Are you asking about the current service providers or service providers under the new program from 1 July? Senator LUNDY-I actually think we got the information regarding the existing ones last time. Is that right? Mr Vickers-Correct. Senator LUNDY-Could we focus on the new ones due to start on 1 July. I want to ask about the location decisions for that expanded program. There are more offices now on top of the other 10, are there not? Mr Crawford-I think we need to clarify a bit of a misconception that exists here. The TradeStart program is a deliberate strategy to get a greater domestic reach within Australia by cooperating with allies in both state governments and private sector groups. The object, at the moment, is to try to get maximum geographic and sectoral coverage through that program to support the government's goal of doubling the number of exporters. As to your questions about the lack of capability in the domestic network, you should recognise the intent behind TradeStart. The intent is to try to get more resources on the ground but in a cost- effective and efficient manner. One of the things we need to do is get inside programs that already exist rather than duplicate them. As Ms Selby said, there is a substantial range of programs in state governments which, rather than duplicating, we want to work with. The same applies for other programs in the Commonwealth. Senator LUNDY-That lines up with what I was thinking, and so you must have a guilty conscience or something. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 300 SENATE-Legislation Wednesday, 5 June 2002 Mr Crawford-Not a guilty conscience at all. Senator LUNDY-I was not under any misconception at all. With respect to the TradeStart offices, we have discussed the 10 new ones that were announced during the election. Are there more TradeStart offices due to open up from July? Mr Vickers-We are currently going through a request for proposal process, where we have asked organisations to submit proposals. We are currently evaluating those proposals, and the number of TradeStart offices is dependent on the progress of the negotiations which are part of that evaluation process. Senator LUNDY-What is the maximum number of new TradeStart offices that your budget could sustain? Mr Vickers-Because TradeStart is a program which accepts contributions from the service providers- some state governments, some industry associations-that number is not finite until such time as all the contracts are executed, because there is a commercial negotiation between Austrade and the counterpart service provider. Senator LUNDY-Can you tell me whether Austrade has prepared a list of optimal locations where Austrade feels there is most need for a TradeStart office? Mr Vickers-As you will recall, a list of potential locations was discussed in an earlier question. The re- quest for proposal process invited a broad proposal. So in the evaluation process we will decide which of those locations proposed to us best meet the need. Senator LUNDY-You will use that original list as a guide, and cross off the 10 locations that have already been allocated? Mr Vickers-It is a more interactive process than that, in that we have a list of, if you like, from Austrade's point of view, potential locations. There are also potential locations put to us by the proposers, and sometimes you can achieve the same end through several different ways, because offices are not fixed entities; they cover a geographic region. So it is a question of matching the proposals put to us and the cost versus where we see the service gaps. Senator LUNDY-Can you tell me-and I am sorry if you just did-specifically what the time frames are for the processing of those RFPs? Have you received them all? Mr Vickers-Yes. The RFP process closed on 20 May. Senator LUNDY-What is the formal time line from then on? Mr Vickers-We are going through the evaluation process at the moment. Part of that evaluation process is scope for negotiation, because you will appreciate that, when organisations submit an RFP, there are sometimes issues raised in those RFPs which require negotiation. I cannot provide you with a fixed time frame on every RFP that is ultimately accepted, because they are accepted as they either conform to our specifications or as we reach agreement with them. So there is not one finish line for all of the proposals. Senator LUNDY-Do you have a date identified where you would like to have all of those agreements in place? Mr Vickers-No. As I said, there is no common finish line. Clearly from 1 July we would like to have as many in place as possible, but there are a number of new proposals which have been put to us which will require some negotiation, and it may be some time after 1 July before they are either accepted or rejected. Senator LUNDY-But you would want them sorted out by the end of this year? Mr Vickers-TradeStart is a four-year program and, over the period of the four years, we would expect new opportunities to arise as the client base shifts, and so it is not a fact that we settle on a particular common date with all the offices and that they stay the same over the four years. It is intentionally a flexible program. Senator LUNDY-Would you describe the RFP process as a competitive process, like a competitive tender? In this case, it is more like an RFI, isn't it, a request for information? Mr Vickers-It is a competitive process. Senator LUNDY-How do you deal with that, if you receive submissions from two different entities in the same geographic area? Do you then just get them to bid up against each other in that negotiation phase? Mr Vickers-No. As part of the RFP process, there was a series of evaluation criteria set, and organisations are asked to put their proposals against those evaluation criteria and Austrade uses those criteria to assess the proposals. Senator LUNDY-What if you were not comparing apples with apples in what was being offered? How would you resolve that? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 301 Mr Vickers-I am not quite sure of the nature of your question. Could you elaborate your point? Senator LUNDY-It relates to probity where you are negotiating with one particular company, for example, about a potential agreement and the other company may or may not be aware of those negotiations. If they are aware of them, they may choose to supplement their original tender, if you like, or RFP. What impact does that then have on the probity and the process of negotiation with the other company? Mr Vickers-Can I perhaps provide some more detail on the process. We have a request for proposal. Those are evaluated. A preferred provider is identified in each location. If the preferred provider meets all of the criteria acceptably, then we would proceed to pursue an agreement with them. Where the preferred provider does not meet all criteria, there is scope in the process for negotiation, but we do not have a competitive negotiation. We negotiate with the preferred provider in each location, and if we are unable to reach agreement then it would go to the second ranked person. So it is not a competitive negotiation in that sense. Senator LUNDY-So, if you have two nonconforming proposals, you could still pick one of them and then enter into negotiations? Mr Vickers-We will pick the one that is closest and negotiate with that party. Senator LUNDY-Is there a probity auditor associated with this selection process? Mr Vickers-There is. Senator LUNDY-Who might that be, or which company might that be? Mr Vickers-Deloittes. Senator LUNDY-Will they be providing a report at the end of the process? Mr Vickers-Yes, they will. Senator LUNDY-Will that be at the end of the four years or after the bulk of these decisions are made- presuming that the bulk are going to be made within the next few months? Mr Vickers-At the end of the current selection process. Senator LUNDY-Which is when? It could be four years. Mr Vickers-It does not have a fixed date, as I was explaining earlier. Senator LUNDY-That is what I am worried about. That report might not be available in four years, and in the meantime anything could happen. Could I leave it with you on notice to get back to me with full details about that selection process, to just extrapolate on this issue we have been discussing? Mr Vickers-Could I get you to specify which items you would like us to respond to? Senator LUNDY-What potential submitters of requests to the proposals can expect when they provide you with that proposal, both if they conform or do not conform with the evaluation criteria, and details of your process from that point on, from their perspective. Mr Vickers-Certainly. Senator LUNDY-As far as those partnerships go, can you describe for me the nature of that relationship? Obviously an agreement is in place. It becomes like a contract to deliver certain services; is that correct? Mr Vickers-That is correct. Senator LUNDY-How do you acquit for the money spent? Is it provided in the form of an annualised payment to that particular provider? How do they acquit on the services provided? Mr Vickers-In the agreement, there are certain services that are required. One of the key ingredients of it is the number of clients, the number of new exporters who meet certain criteria. Their approval onto the program triggers payments, and that is a key area of how we acquit the scheme. TradeStart is actually a `pay for performance' type program. It is not a grant program, in the common parlance. So we, in a sense, evaluate an organisation's performance by the number of new exporters that are serviced. Senator LUNDY-How do you cross-reference the companies that are already exporting with new exporters? Do you have a master list of companies already exporting, based on your statistics? Mr Vickers-No. You are asking how do we ensure that a new exporter is a new exporter and not an existing exporter? Senator LUNDY-Yes. Mr Vickers-The companies have to sign a disclosure form. Senator LUNDY-Is that the companies you have the contract with? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 302 SENATE-Legislation Wednesday, 5 June 2002 Mr Vickers-No, sorry; the companies who are participating in the program. There is a certain test of what differentiates an exporter from a new exporter. That information is provided to the companies, and they have to verify that they meet the criteria. Senator LUNDY-On the basis of the companies who are new exporters signing that, then the service provider that has the contract with Austrade can claim some money back? Mr Vickers-That is correct. Senator LUNDY-I would like to go to the Export Market Development Grants Scheme. How many EMDG applications did Austrade receive in the 2000-01 grant year? Mr Collins-The number was 3,391. Senator LUNDY-How many of those applications were successful? Mr Collins-We are still processing claims at this stage and we will be for the next couple of weeks. Senator LUNDY-From the 2000-01 year? Mr Collins-Grant year, yes. They are the claims that were lodged between 1 July 2001 and 30 November 2001. Senator LUNDY-I am sorry, I will start that again. My question was: how many applications were there in the financial year of 2000-01? Mr Collins-That would be 3,215. Senator LUNDY-How many of those applications were successful? Mr Collins-I would not have the exact figure in front of me, but it would be in the vicinity of about 2,900. Senator LUNDY-Could you take on notice to provide me with the exact figure? Mr Collins-Yes. Senator LUNDY-Could you also take on notice to provide me with the total amount paid out to those successful recipients in that financial year? Mr Collins-In that financial year it was $135.7 million. Senator LUNDY-How many of those EMDG recipients in the 2000-01 financial year received the minimum grant amount of $2,500? Mr Collins-In that financial year, there was no minimum grant amount. Senator LUNDY-There was no minimum grant amount? Mr Collins-No. That was a legislative change that was to take effect, if you like, from 1 July 2002. The doubling of the minimum grant was a further addition to that, and that is to take place. It was announced in- Senator LUNDY-And that is in the new bill? Mr Collins-That is right, yes. Senator LUNDY-So there was not a minimum grant amount in that financial year? Mr Collins-That is correct. Senator LUNDY-That means there is not a minimum grant amount now. You said that it was supposed to come into effect on 1 July 2002? Mr Collins-That is correct. Senator LUNDY-So there is not a minimum grant amount now either? Mr Collins-There is no provision for a minimum grant amount, that is right. Senator LUNDY-Is there a maximum amount? Mr Collins-Yes, $200,000. Senator LUNDY-Can you provide me with a table showing the amounts granted in that financial year of 2000-01? How many would be between zero and $10,000 and how many between $10,000 and $50,000? Do you know what I mean? Mr Collins-I can provide that information to you. Senator LUNDY-I am just wondering if you may as well provide me with a full list, but any tabulating of that in groups would be greatly appreciated. Mr Collins-Yes. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 303 Senator LUNDY-And you have figures collated, I presume. You have mentioned July 2001 and November, did you say, or September? Mr Collins-Yes. The normal lodgment process starts on 1 July each year and finishes on 30 November each year. Senator LUNDY-So you pretty much know by 30 November what that annual is. There is actually a closing-off date in November? Mr Collins-There is a firm closing-off date. Senator LUNDY-So you could give me all of the same figures for the financial year 2001-02 for the questions I have just asked-or not quite all? Mr Collins-We probably cannot, because what we know at 30 November or shortly after, by the time we get them onto our database, is the amount that has been applied for, not the amount that we pay. Senator LUNDY-Could you tell me the number of applications for that year? I think you told me that before-3,391? Mr Collins-That is correct. Senator LUNDY-You cannot tell me how many are successful as yet, but you think it will be about 2,900? Mr Collins-It will probably be slightly up this year. Senator LUNDY-Can I go back a step. Successful applications for the financial year of 2000-01: did you give me that figure? Mr Collins-I have said it would be in the order of 2,900. Senator LUNDY-And you took that on notice? Mr Collins-I should point out, though, that it does vary. We do have a review process. For example, people may get denied on their initial assessment but can subsequently substantiate their claim on review. So the figure is, if you like, changing as we work our way through the reviews. Senator LUNDY-Perhaps you could take on notice, to the best of your ability, to provide me with the successful applicants for both this current financial year and the previous one. Mr Collins-Yes. Senator LUNDY-Also the total amount paid out-or the total amount of money allocated in this year as well? Mr Collins-Sorry, the total amount allocated in this year? Senator LUNDY-Yes, to the successful applicants. What the dollar value is to the successful applicants. Mr Collins-Yes. Senator LUNDY-Also the breakdown that I asked for, for the previous year. Mr Collins-Yes. Senator LUNDY-Thank you. You have mentioned the new bill proposing to double the minimum amount to $5,000. When is that supposed to come into effect? Mr Collins-It will come into effect from 1 July, assuming passage of the bill. Senator LUNDY-This year? Mr Collins-It will come into effect from applications lodged from 1 July coming. Senator LUNDY-This year? Mr Collins-Yes. Senator LUNDY-That renders irrelevant the $2,500 minimum? Mr Collins-That is correct. Senator LUNDY-The Minister for Trade stated that that doubling-it is not really doubling; it is the creation effectively of a new minimum of $5,000-will expand the number of business recipients by 250. Can you explain why that is the case and provide, I guess, the logic behind that statement, if there is in fact any? Mr Collins-The reason the effective minimum grant has been brought in is that it accompanied a recommendation of the EMDG Scheme review of 2000, which was subsequently legislated and which reduced the minimum expenditure threshold from $20,000 to $15,000. With the way that grants are calculated, not creating a minimum grant would have meant that an exporter could have expended, say, FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 304 SENATE-Legislation Wednesday, 5 June 2002 $15,001 and under the existing formula that would have meant that they would have got a grant of 50c. So it was meant to accompany the lowering the threshold initiative. In other words, more exporters will be able to access the scheme, because they do not have to spend as much now, and the effect of doubling the minimum up to $5,000 means that anybody spending $15,000 and upwards will get $5,000. So that is expected to attract more into the scheme. Senator LUNDY-It will attract more applicants because, to them, it is more worth while? Mr Collins-It is more worth while and it is accessible to a broader range. Senator LUNDY-Bear with me here because I do not have a great deal of familiarity with this specific program. The minister said doubling, and that legislation had not come into effect to set a minimum. I guess what I am seeing is some logic flowing from the fact that the minimum is doubling but we have never had a minimum. So how does that sit against your findings of applicants to date? Are you getting people who are eligible for 50c worth of support? Have you ever given anyone 50c? Mr Collins-No, because the threshold up until now has been $20,000. Senator LUNDY-To give anybody? Mr Collins-Yes. Senator LUNDY-So that was dropped when $2,500 was set as a minimum in the legislation? Mr Collins-The chain of events is until the grants year that we are currently assessing, the threshold to lodge a grant claim was $20,000, so a person who incurred $20,000 worth of eligible expenditure would get $2,500, because you take the first $15,000 off and they get half of the balance. Senator LUNDY-Sorry, can you say that again. Mr Collins-For the current grants year that we are assessing now, for an exporter who was assessed as eligible, having spent $20,000, the amount of grant is calculated by taking off the first $15,000 and their amount of grant is 50 per cent of the excess over the first $15,000. So if they spent $20,000, they will get half of $5,000, which equals $2,500. Senator LUNDY-That effectively operates as a minimum then, doesn't it? Mr Collins-That is right. But there is no legislated minimum. Senator LUNDY-But there is a minimum. Everything in the minister's statement talks about this doubling of the minimum. It might not be a legislated minimum, but if there is in effect a minimum operating then it makes more sense. Mr Collins-What transpired is that the legislative changes which were passed earlier in this financial year, which included the move to reduce the threshold from $20,000 to $15,000, also brought in-that is law that would have taken effect from 1 July-a minimum of $2,500. Senator LUNDY-So it has the effect of creating a minimum. Mr Collins-That is right. That in practice will be superseded by the bill that is currently before the House. Senator LUNDY-When did that last piece of legislation come into effect? Mr Collins-It would have come into effect from 1 July. Senator LUNDY-No, the change before that, the one that creates an effective minimum of $2,500. Mr Collins-That has been in the legislation for three or four years. I should point out that when I agreed before that, in effect, the minimum grant in previous grant years was $2,500, it can also be impacted by the export performance test from year 3 onwards. For example, if an exporter, as a result of the application of the export performance test, was entitled to a grant of less than $2,500, they would get less than $2,500. Senator LUNDY-But not in their first year? They would not have been eligible in their first year? Mr Collins-No. Senator LUNDY-But it could fall away? Mr Collins-In their first year, if they had $20,000 and upwards, they would get a minimum of $2,500 based on the formula, yes. Senator LUNDY-Given we agreed now that there is an effective minimum, albeit not a legislated minimum, given the other parameters of $2,500, by legislating an effective minimum of $5,000 surely that pushes out the other parameters of eligibility for those businesses? Mr Collins-Yes, it does in the sense that anybody who spends between $15,001 and $25,000 will get $5,000, whereas previously it would have been under the formula. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 305 Senator LUNDY-Under the formula? Mr Collins-Which is half after the first $15,000. Senator LUNDY-I am not sure if I follow it completely, but what I am trying to ascertain is whether or not anyone eligible currently for those parameters that make $2,500 the minimum under that existing formula, instead of being eligible for $2,500 would now-if this goes through-be eligible for $5,000. Mr Collins-Yes. Senator LUNDY-It is a doubling of the grant to businesses who are currently eligible for the $2,500? Mr Collins-Yes, if an exporter who had previously incurred $20,000 of expenditure lodges that same application in this upcoming year, they will get $5,000. Senator LUNDY-With no other conditions changed? Mr Collins-That is right. Senator LUNDY-I think that is all I want to know about that matter. I might have a look at the Hansard and put some questions on notice to make sure that I have covered all the issues that I need to cover. I have some general questions; I do not know whether they relate directly to your program. Increasing the number of exporters is obviously one measure of an expanded capability of a certain number of businesses, as well as having new exporters. I would like to know what attention is being paid to the synergistic effects of that on those businesses and on the requirements of those businesses, for example, in relation to access to growth capital, and perhaps there will be increased pressure on Customs because of export processes and things like that. Is that something that Austrade is addressing or has an interdepartmental committee looking at to ensure that the businesses going through a growth period are not going to find themselves pushed into exports but unable to sustain it because of want of growth capital or lack of knowledge, understanding, competence or confidence with the actual bureaucracy involved with exporting? Do you know what I mean, Ms Selby? Ms Selby-I think so. I will have a go at answering your question. Senator LUNDY-I am asking about the synergistic effects of creating these opportunities for businesses. Obviously, they will have a huge impact for those businesses but also a resource impact perhaps on other areas in government. What thought are you giving to that issue? Ms Selby-One of the sources of advice to these businesses is the enterprise development staff that I have talked about or other industry staff in Commonwealth agencies working on industry programs. Austrade makes it our business to know what programs are available and what the sources of funding are. We do not give advice on venture capital, but we would refer companies to other people who could. So in dealing with pressures on businesses because they are growing, or other pressures, we would refer them to appropriate business professional service providers. Senator LUNDY-Given that we are going to get information from you about the target number of businesses that you are hoping will become new exporters each year, in addition to the natural growth, how well resourced is the Export Market Development Grants Scheme to cope with what will be a massive new demand from new businesses? No doubt those businesses are fully briefed on the benefits of accessing EMDG by the conscientious efforts of Austrade. You have got some extra money over the next four years, but how are you going to cope with what could effectively be a doubling of demand on the services you provide? How does creating this new minimum-which I am sure has a cost impact-fit with that as well? Are you getting lots of extra money soon, or what is the situation? Ms Selby-The government has allocated $150.4 million to the EMDG scheme. Senator LUNDY-Over four years or five years? Ms Selby-That is each year. Senator LUNDY-Is that to cope with that demand? Ms Selby-That is the amount that has been allocated to the EMDG budget. Senator LUNDY-The figure for last year was $135.7 million; with $150 million you think, `Effectively cover off the doubling and the raising of the minimum payable.' Ms Selby-As I said, that is the amount that has been allocated to the scheme and we will administer it according to the regulations. Senator LUNDY-Can you demonstrate in your budget how much of that new money- Ms Selby-What do you mean by `new money'? I do not want to mislead you. That is the amount every year. Senator LUNDY-How much extra? It is $400,000 per annum, isn't it? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 306 SENATE-Legislation Wednesday, 5 June 2002 Ms Selby-That is the extra that was announced in the budget. Senator LUNDY-I was getting all excited then. I thought the program had got heaps-had doubled their money. It makes my questions more pertinent. If you are getting only $400,000 extra per year on top of the $150 million, that will clearly not cope with the creation of 50 per cent new businesses each year. Ms Selby-I guess it is a hypothetical question. It remains to be seen how many of those are entitled to EMDGs, how many claim and how the claims are assessed. We will not know until we go forward. Senator LUNDY-In other words it is not envisaged that the EMDG will grow commensurate with the growth in the number of exporting businesses? Ms Selby-As I said, the government has allocated $150.4 million each year for EMDG. Senator LUNDY-Mr Collins, with respect to that extra $400,000 per annum, can you tell me what that money is going towards as far as your budget is concerned. Mr Collins-That will go towards the additional number of very small exporters that will be encouraged into the scheme. Senator LUNDY-It has a specific allocation? Mr Collins-No, it is part of the pool. Senator LUNDY-The number of applications coming in already is 3,215. If the number grows by 15 per cent how will you cope? Do you have policies about allocating less money to each company or will you knock back more applications? Mr Collins-There is no discretion to accept or knock back applications on a whim. The rules of the scheme provide the basis for the allocation of funds between companies. Ms Selby-To elaborate, the grants are paid in two tranches so that companies that claim up to $60,000 get paid the full amount. Senator LUNDY-That has implications because it spreads it across the out years. Is that the point you are making? Ms Selby-You asked whether we discriminated between companies or whether we did it on a first come, first served basis. Senator LUNDY-You do not have any discretion-if they qualify they qualify and you have to pay them? Mr Collins-Yes. Senator LUNDY-That makes my question even more pertinent because you do not have any choice. You are going to end up like the R&D Start program, surely. Mr Collins-Certainly not, because the funds are allocated based on the formula. The capping mechanism that caps the scheme to within the allocated budget allocates the funds across the available exporters. Senator LUNDY-So it just means that everyone will get less? Mr Collins-Not everyone, because those who are entitled- Senator LUNDY-This is way too complex for me. You had better explain why it would not affect everybody equally. Mr Collins-The way the capping mechanism works or the rules work within the act, when those who have an entitlement-currently of up to $60,000-are assessed, they receive their assessed grant in full. Those who have an entitlement greater than $60,000 receive the $60,000 when we assess their entitlement; then the balance of the moneys goes into a pool. The amount of the available funds is compared with the total of the second tranche entitlements at the end of the year and distributed pro rata amongst the eligible exporters. Senator LUNDY-Have you done any modelling, based on exporters' projected increases and working on a statistical assumption that a proportion of those at least will claim, on what that reduction will be in that surplus pool? Mr Collins-We are working on that at the moment. Our preliminary thinking is that it will have a delayed effect. The grant scheme is a reimbursement scheme: that is, people incur their expenditure on promotional activities in one year and claim it back in the following year. In addition to that, the scheme has parameters such as the fact that they have to incur a minimum of $15,000 worth of promotional expenditure to be eligible for a grant; also, they have the option of combining two years of expenditure in the case of first-time applications for grants. Seventy per cent of exporters historically have done that. What that means is that the FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 307 impact of Austrade's new programs is unlikely to strike in a large way until 2004-05 and will build up progressively past then. Senator LUNDY-What do your current out years show for 2004-05? Mr Collins-We are working on that. Senator LUNDY-Didn't you get $400,000 extra for that year as well? Mr Collins-Yes, that covers off the minimum grant initiative. Senator LUNDY-But you did not get any extra money allocated for the financial year 2004-05, either, did you? Mr Collins-It is part of the funding of the scheme for the next five years, funding of $150 million plus the new $400,000. Senator LUNDY-So effectively the government has put in place a program for which they have not provided you with the resources and funding they know it is going to cost. That is how it looks to me. Ms Selby-Again, we will have to wait and see. In some senses it is hypothetical. A number of issues- Senator LUNDY-I am sorry to interrupt, but it is as if the government is hoping like hell that not too many business apply, and if they do so the government is saying, `We will worry about it in the financial year 2004-05.' I wish the minister was here because I would ask him about this directly. He is not, so you will have to put up with my comments, I am afraid. I interrupted you, Ms Selby; please continue. Ms Selby-I have lost my train of thought. I was talking about how we cannot, in a sense, predict the amount of grants that companies are going to claim, because of things like exchange rate changes and- looking at this financial year-the events of September 11, after which a lot of companies did not travel, and the sorts of things that would have led to eligible expenditure, such as trade shows, were cancelled. So it is hard to predict, going out, down to the level of detail you are talking about. Senator LUNDY-Except that we know that, currently, at least $135 million of the $150 million that you get on an annual basis goes just to people claiming currently. We have a government that has a policy of doubling that number within five years. In four years of budget out years you would expect that that target would at least be half achieved-if not two-thirds achieved, but let us work on half-and it would be reasonable to assume that you would need at least another $70-odd million just to keep pace with the current proportion of allocation of the EMDG scheme. I am astounded, though, to find that there has been no provision in the budget for EMDG that matches increasing the number of exporters. I find that quite an astounding fact. I probably cannot it take any further than that, except it seems to me to be a quite extraordinary deficiency in the budget. It will effectively put the lid on the capability of the export management development grants to cope with the demands of the future, and it may well end up like R&D Start and be unable to cope with the demand. There is the other factor of the minimum grant amount increasing, which we have heard again would perhaps only increase the pressure on the funding available as well. Mr Collins, you wanted to say something. Mr Collins-A majority of the new exporters that will be encouraged into the scheme and those that will be supported under Austrade's program, we would expect, would be those that would incur the lower end of expenditure. At the moment, about 70 per cent of our applicants receive their grant in full, because they receive less than $60,000 in grant. So, whilst it will have an impact on those that are spending more than that, the current scheme can accommodate a lot of new exporters at up to $60,000 before it will impact. In other words, the funding will be spread over more exporters and will impact on the exporters that are incurring amounts at the larger end, but there is a lot of scope within the current $150 million to meet the needs of new firms coming into export. Senator LUNDY-So more companies but less money. Mr Collins-Yes, in essence. Senator LUNDY-I think we have gotten that clear. I would like to ask a couple of questions about the RG Casey Building and the rent. I have noticed the odd media clip on this issue. Can you tell me the total amount of rent that Austrade paid in the RG Casey Building and any associated parking per annum since 1998? I am happy for you to take that on notice. Mr Chesterfield-We will take that one on notice. Senator LUNDY-If you could give me a figure now for the last financial year, that would help me with my subsequent questions. Mr Chesterfield-No, I do not have that figure with me either, I am afraid. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 308 SENATE-Legislation Wednesday, 5 June 2002 Senator LUNDY-I thought you would have, given all the press reports. I think that is pretty slack. I can probably find a press clip-if I were organised with my papers, I could probably drag the clipping out. Can you also tell me what the rent was before the sale? That would cover back to 1998, wouldn't it? At the point that you provide me with those figures, can you show me the difference when the building was sold? Mr Chesterfield-I do not believe there was any difference, but we will check that and provide it. Senator LUNDY-Can you tell me how much you are saving now in rent as a result of the move? Mr Chesterfield-The lease on the new building is not yet finalised so, at this stage, we cannot tell you precisely what the saving is. However, what we have done to assess the rental is look at discounted cash flow over a period of time, and the Austrade board has decided that it is worth moving for that amount of money. Senator LUNDY-Have you already moved? Mr Chesterfield-No. Senator LUNDY-When are you planning to move? Mr Chesterfield-The target date on the move is 1 December, and we are trying to move by then. Senator LUNDY-Can you also take on notice providing me with details of what the associated costs of the move are, like the logistical costs? Mr Chesterfield-Sure. That is still being worked out in finer detail. It is being scoped right at the moment but, yes, I can provide that. Senator LUNDY-I would have thought that, given that issues of costs and savings were cited as a motivation for moving, you would have done all of that before making a decision. Mr Chesterfield-Certainly the discounted cash flow included provision for those items, and we costed on the basis of the information we had available at the time. What is happening at the moment is that the full move is being properly scoped and planned. Senator LUNDY-What if it turns out, in that first year, that it costs you more to move than the savings you hoped to get on the rent? Will that change your mind? Will you be able to back out of it, or are you stuck with a dud deal? Mr Chesterfield-No. We have effectively committed to the decision, although the lease is not finalised. However, the savings over the 10-year period in the longer-term lease were such that the board decided it was worth moving. Senator LUNDY-You will probably need to take this question on notice, because you have not done the detailed work. Are the savings over 10 years more than the costs incurred in embarking upon this move? That includes the associated IT costs and perhaps increased telecommunications costs-any variable as a result of the move or as a result of having moved. I am sure you will be doing it all in great detail. Mr Chesterfield-Yes. Senator LUNDY-I have a couple of questions about the appointment of the new managing director of Austrade, and I note the presence of Margaret Lyons. This would be your first estimates, so welcome. Has the new managing director taken up his position? Ms Selby-Yes, he has. Senator LUNDY-What experience does the new managing director have in exporter assistance and overseas trade promotion? Ms Selby-The new managing director has extensive experience in international business, having worked with a major international company, and extensive experience with joint ventures offshore, having managed a major international business. Senator LUNDY-That is not an answer to the question I asked. What experience does the new managing director have in exporter assistance and overseas trade promotion? Ms Kimball-We would have to take it on notice to get the detail of his experience. Senator LUNDY-Thank you. Did Austrade receive internal applications from Austrade staff for the position of managing director? Ms Kimball-Yes, they did. Senator LUNDY-How many applicants were interviewed for the position? Ms Kimball-I would have to take that on notice as well. Senator LUNDY-Was a short list prepared? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 309 Ms Kimball-Yes, I understand a short list was prepared. Senator LUNDY-Was the successful applicant from the short list? Ms Kimball-I would have to confirm that with our chairman of the board. Senator LUNDY-So you are going to take that on notice? Ms Kimball-Yes. Senator LUNDY-Can you tell me about the selection process in relation to the appointment of Ms Lyons as executive general manager for government and policy? Ms Kimball-Towards the end of last year, we advertised in the national press and we also engaged TMP Worldwide and commissioned them to do an executive recruitment search. Some 50 applicants applied for the position. I understand that around 12 were interviewed by a panel consisting of our then MD, Mr Charles Jamieson, our chairman of the board and our executive general manager for north-east Asia. Senator LUNDY-Was a short list prepared? Ms Kimball-Yes, a short list was prepared. Senator LUNDY-Was the successful applicant on that short list? Ms Kimball-There were two tranches. There was a first group that was interviewed and a preferred candidate put forward. That fell through and then the search was widened. Senator LUNDY-So outside that original short list. Ms Kimball-Yes. Senator LUNDY-From which the successful applicant was drawn. Ms Kimball-Exactly. Senator LUNDY-It is one of those issues that comes up in politics all the time. Ms Lyons, I just want to confirm with you whether you are the same Margaret Lyons that stood against Clare Martin in the Fannie Bay elections on behalf of the CLP in the Northern Territory election. Ms Lyons-I am the same person. Senator LUNDY-Thank you. That is all the questions I have. Senator O'BRIEN-I have a couple of questions. I can put them on notice. They are in relation to the South American operations of Austrade given the Argentinean dimension to the economies of South America. I want to find out what impact, if any, that had had on the operations of Austrade officers in South America or Latin America in terms of staffing, financial commitment and the throughput of trade activity through the Austrade offices. That is a big series of questions. Rather than taking time now going through those matters one by one, would Austrade undertake to provide a report to the committee to answer those questions, detailing the effect on Austrade operations in South America or Latin America which can be attributed in part or in full to the economic problems in Argentina. Ms Selby-Just so that we know what we are being asked for, can I clarify whether you mean changes in staff numbers- Senator O'BRIEN-Yes. Ms Selby-Changes in number of companies that we are servicing- Senator O'BRIEN-Yes. Whether you have changed your budget, for example-altered your priorities, moved staff from one country to another. Ms Selby-In the last six months or something. Would six months be all right? Senator O'BRIEN-Let us make it over the current financial year. Ms Selby-Thank you. We will do that. CHAIR-I thank the officers of Austrade. [4.58 p.m.] Department of Foreign Affairs and Trade CHAIR-I call officers of the Department of Foreign Affairs and Trade, particularly those concerned with output 1.1.5, dealing with bilateral, regional and multilateral trade negotiations, and output 1.1.6, dealing with trade development, policy coordination and APEC. I welcome Dr Thomas and officers of the department. Senator COOK-To begin with I have a couple of what I would term overview questions. The first is a question that is driven simply by the motive of curiosity. I note that some departmental heads-we had earlier FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 310 SENATE-Legislation Wednesday, 5 June 2002 today Dr Hawke from Defence-appear for their department. I have been in estimates for PM&C where Mr Max Moore-Wilton appears. It is not a universal practice; not all departments do so. Is there any reason why, in the case of DFAT, Dr Calvert does not come? Dr Thomas-No, there is no particular reason or policy in relation to that. As it happens, Dr Calvert has a fairly hefty travel schedule, as you would expect the head of DFAT to have. Today, for example, he is en route to India for some senior officials talks. And he travels a lot when the Prime Minister travels and so forth. Largely it relates to his scheduling problems. Senator COOK-It is just that, in my recollection, over the last six years, he and his predecessor have not appeared here at all. I just wondered whether they might have been in town some time. It is not a big deal; as I say, it is just a matter of curiosity as to why they do not come. Is travel the explanation? Dr Thomas-It is part of the explanation at particular times. We have also felt departmentally that it is well served by the batch of officers that we bring along. Senator COOK-My other question is a general one as well. I do not claim to be proficient in the newfangled form of accounting so maybe I have made some foolish errors, but, looking at page 57 of the portfolio statements, table 3.1, Budgeted departmental statement of financial performance-I think this is the table that I should be looking at-I note that for revenue for 2001-02 compared to budget estimate for 2002- 03 there is a decline of $30 million and that the forward estimates never rise to the level of what the estimated actual was for 2001-02. The other part of it is that with total expenses from ordinary activities in 2001-02- that is, the estimated actual compared to the budget estimate for 2002-03-there is a drop in round terms of about $51 million. And it continues in the out years at well below what the estimated actual was for 2001-02. Firstly, am I looking at the right comparison here to try to get an idea of revenue and expenditure year to year? Ms Hazell-These are the right tables to be looking at for a comparison. However, what you do not see between the figures that you are looking at and the out years is parameter adjustments for what we call within year foreign exchange movements, which are only ever put into the estimates in the immediate year. So it is not a strict comparison. The other issue, in looking at some of the changes in expenses, is the impact of the incorporation of the Overseas Property Office into the department partway through this year and the full year effect of that showing through in the out years. Some of the adjustments that we need to make relating to that have only recently been agreed with the department of finance and will appear in our additional estimates statements. Senator COOK-So how do I make an apples to apples or oranges to oranges comparison about what are the revenue and expenses for DFAT last year compared to this year and compared to the out years? Ms Hazell-If you are looking for a change and the reasons for the change in the figures, the easiest way is to look at the new measures that we have and the adjustments. There is a summary earlier in the document of the adjustments to our appropriation. That will give you a feel for what the changes are in revenue. In terms of expenses, most of the time they are reasonably consistent. To a large extent, the change between 2001-02 estimated and the out years relates to that initial bringing on of the Overseas Property Office and the fact that, at this stage, we are not sure what the within year forex impact will be on our estimate of expenses. Senator COOK-If I were to look for a moment at this table, 3.1, which gives total expenses from ordinary activities, estimated actual 2001-02 is 707,533. The budget estimate for this year is, as I say, roughly $51 million less. Does that signify that there is budgeted less money for DFAT in the coming financial year than there is in the current financial year? Ms Hazell-Not necessarily, Senator. The change in DFAT's departmental appropriation, which is the revenue-at the top of the page-is only about $2 million. Senator COOK-Up or down? Ms Hazell-Down. The change in the expenses line is that, you will note, there is no budget provision for write-down of assets in either of those years and no value of assets sold. You will see the value of assets sold is in the estimated actual, but there is no budget provision for it in the out year. When we make some of those adjustments I referred to at additional estimates for the Overseas Property Office, you will see some of this align more closely. Senator COOK-From what you have said, am I right in assuming that, in layman's terms, DFAT has got $2 million less this year than it had last year to operate. Ms Hazell-Yes. That is making the same assumptions about the other revenue that we generate. Dr Thomas-The department proper has about $2 million less but, if you look at our overall appropriation, including so-called administered items-which are, for example, payments to international organisations and so forth-there is an increase of about $36 million. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 311 Senator COOK-That is a very good point. I understand that. Those moneys are tied and earmarked, and we do not have a lot of discretion over some of them. We just have to meet those payments if we want to remain part of the international community. But the point of comparison I am coming to is what you have to operate the activities of the Department of Foreign Affairs and Trade, and that is a continuing making do with less funding than previously, and I imagine the explanation goes that you are more efficient this year than you were last year. Is that it? Dr Thomas-That is part of it; more specifically, for example, when we received money to open some new posts in previous financial years, the equity injection we received for those sorts of expenditures is front loaded, so they decrease each year. So you would expect the money to go down, to some extent, if we have not opened a new post this year, and we have not. Last year, for example, we opened the Chicago Consulate- General. We received a certain amount of money which was designed to decrease in each of the out years after the start-up costs are amortised. That accounts also for a fair bit of that $2 million. Senator COOK-Okay. I am still trying to come to grips with what is a fair measure of what real terms funding you have got this year compared with last year and what you expect in the out years. That $2 million we are talking about, even with your explanation, does not consider the impact on your costs of inflation or salary increases. Ms Hazell-Yes, it does. It includes what we call parameter adjustments for overseas and domestic infla- tion. It also includes adjustments up or down, depending on the strength of the Australian dollar. So it may very well go down in terms of the figure you see here, but in real terms the purchasing power of the depart- ment may very well be the same. Senator COOK-So how do I come to a picture in my head about what has happened to you in terms of funding? Ms Hazell-As I said before, I think it is probably useful to look at the new measures and the adjustments and see what they are for. Adjustments for foreign exchange basically are not affecting the real value of what we have to work with. Then you look at, if you like, the ons and the offs-the new money we may receive, the money that may have finished for a particular project that we do not get anymore. But we also at the same time are not doing that work anymore. Senator COOK-What is puzzling to me is, just on a simple look at DFAT, over the last year we have had the global concern about the war on terror, which is putting greater responsibility on DFAT to be across and more detailed about its work in terms of what international developments are. We have had this military involvement in Afghanistan as well. We have had the border protection measures that soaked up some DFAT resources. We have had heightened activity on the trade front with the launch of the Doha Round. It would seem to me that, on the plain, simple face of it, DFAT are doing more and are being called upon to do more, but there is less money in the kitty to fund it. Is that a fair call? Dr Thomas-Some of the items you mentioned have received some supplementation from time to time. Overall, the budget base in general terms has been fairly steady over the past few years. Sure, we have had to absorb some of those activities, but that has really been more a matter of just reprioritising what we spend the money on from within our overall appropriation. Senator COOK-If you reprioritise, you give more attention to some items and, therefore, others get less. I am not going to pursue this any further, and I will certainly go back and take your advice, Ms Hazell, and maybe I will pursue this next time we meet in this forum-or maybe I will not. It just seems to me that in more troubled times than those in which it previously operated the department is called upon to do more and yet the outlook is to spend less. I would be interested to know how you conjure that type of result, but not today. Senator O'BRIEN-Under `Revenues from ordinary activities' in the estimated actual column for this financial year on page 57 of the PBS, there is a figure of $26.69 million shown against `Other', dropping to a budget estimate of $311,000. That is not from sales of assets; what is the substantial `Other' figure there? Ms Hazell-It relates to an accounting entry only and not a cash entry. It relates to the move of some expenses from the departmental appropriation side to the administrative appropriations. Those expenses relate to the North American Pension Scheme, which is a scheme that we contribute to and that a lot of departments contribute to. After much negotiation with all players involved, it has been moved into the administrative appropriations, because it is not funding that DFAT has control over or can spend on what it chooses. It is funding we administer on behalf of employees. Senator O'BRIEN-And how do we understand the substantial growth in the dividend from $51.35 million this financial year to $93.158 million in the coming financial year? Ms Hazell-The dividend relates to the dividend paid by the overseas property operations that we inherited in the administrative arrangements orders changes on 26 November. The $51 million is a part year FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 312 SENATE-Legislation Wednesday, 5 June 2002 dividend, reflecting the amount that DFAT were repaid from 26 November onwards. The $93 million is a full year dividend. Senator O'BRIEN-So $51 million is from the end of November onwards? Ms Hazell-Yes. Senator O'BRIEN-That is a reasonable explanation. Thank you. Senator COOK-My second general question is aimed at the trade side and concerns the transparency of what is going on in DFAT. I am really looking here for a comment which summarises your government policy or your attitude to making the activities on the trade side more transparent. What is your view? For example, in the community debate over globalisation and the WTO, it is often said that there is a need for confidence building in the community about what our trade objectives are and what the value of trade outcomes is and a need for transparency in what we do-I think the minister has said this from time to time. They are essential elements in rebutting what I would term the more alarmist assertions of the globophobic lobby. In general, does DFAT endorse the idea that, without giving civil society organisations a role in or a veto over the negotiating process, it is desirable to make the explanation of the value of trade and the process of goal setting as transparent as possible? Would that be a view you could sign on to? Mr Gosper-Yes, over the last couple of years the government has put an increased emphasis on public consultation with respect to the WTO and the broader trade agenda. This is reflected in measures such as the establishment of the WTO advisory group. That was established last year; it has provided specific advice to the minister. It is also reflected in the series of round tables and other discussions we have conducted with NGOs and industry groups, as well as with the states and territories. For instance, this year we have visited each state capital to meet with state, industry and community groups to talk about this agenda. It is also re- flected in the fact that we called for public submissions both before Doha and subsequently-in the last few months-on how the government might achieve its particular objectives in the WTO negotiations. All these measures recognise that increased community interest and concern about the trade agenda exist and there is a need for the government to provide means for the community to engage in dialogue on those sorts of issues. Senator COOK-This is pretty consistent with what the WTO itself is doing in putting on its web site explanations of what its activities are and publishing pamphlets and leaflets in easily digestible form. That is a consistent view to make more open the activities on a trade front so that the critics can have less traction about things being done in secret. You are nodding. I take it you are agreeing with me. Mr Gosper-I agree that the WTO has taken such measures, particularly during the term of Director General Moore. Senator COOK-Yes, that is true. That is one of the hallmarks of his perhaps all too brief period. It is coming to an end in September, isn't it? Mr Gosper-At the end of August he will finish his term. Senator COOK-That is not at all a criticism of the incoming director general, by the way. You are aware of the parliamentary Joint Standing Committee on Treaties inquiry, `Who is afraid of the WTO?' Mr Gosper-Yes, I am. Senator COOK-In section 2 of that inquiry is a heading: `Australia and the WTO: education, consultation and participation'. It has a long discussion about community involvement and understanding. I am not asking you to endorse their report-the government has not yet responded and that would be an unfair question-nor to necessarily comment on any of its recommendations. Essentially, that report goes to the idea of greater transparency in the events of the WTO. That idea, without looking at the specific recommendations about how you deliver that, is consistent with what we have been talking about, isn't it? Mr Gosper-It is. Senator COOK-The treaties committee report came out in September 2001, which is some nine months ago now. Do you know when it is intended that the government will respond to this report? Mr Gosper-The government has a draft response and is considering it now. I cannot tell you precisely when it will table its response. Senator COOK-It is nine months old now. Can we expect it imminently? Mr Gosper-I do not know that I can say `imminently', but I certainly hope it will be very near. Senator COOK-Until this year, the TOOS statement-the objectives and outlook statement-was tabled in the parliament with a ministerial statement at the time, enabling parliamentary debate on the statement. That was not followed this year, was it? Mr Gosper-I might ask my colleague Mr Lawless to comment on that. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 313 Mr Lawless-The TOOS issue was tabled out of session on 10 April. On the same day, Mr Vaile launched the TOOS at a function at the National Press Club. Senator COOK-Thank you for that. But my point is that, until now, Mr Fischer, when he came in as Minister for Trade, made a big policy point that he was going to report to the parliament what was going on in the trade area-the objectives and the outcomes. Up until this year, this government have to their credit, I have to say, tabled in the parliament, with a ministerial statement, that document on each occasion. This is the first occasion they have not. I understand, as you say, that they tabled it out of session. Is there some reason why they have not followed the practice of the past six years and tabled it in the parliament? Mr Lawless-I am not sure of the reason why it was done differently this year, but I can check and find out for you. Senator COOK-Was it a departmental or a ministerial decision to do it this way? Mr Lawless-I do not have that either, but I could check. Senator COOK-I would be obliged if you would. I note, from my avid reading of the Hansard, that my colleague in the other place Dr Stephen Martin has on notice a number of questions about the costs and the ASL required to compile, print and distribute the TOOS statement in both its versions this year. Do you know when it is intended to answer those questions? Mr Lawless-I do not. I have got some figures on some of the costings here, if you would like me to provide them now. Senator COOK-Are they to the questions that Dr Martin has asked? Mr Lawless-I have not seen the questions that Dr Martin has asked. Senator COOK-I can provide you with a copy, but I thought that since they are on notice it would be better for me not to regurgitate them here. But, if you have got some information, by all means. Mr Lawless-The total cost of the most recent TOOS was $80,290. That is the only cost figure. I have got some details about how many copies we have distributed. I can also give you some details about the break-up of that $80,290 figure. It consisted of design and typesetting, $16,340.35; printing, $42,330; indexing, $726; editing, $5,632; photographs associated with the document, $1,395; launching the document, $1,735- Senator COOK-I am quite happy if you want to put all these answers on notice rather than read them to me. Table them, if that is convenient, rather than go through them like this. It is quite an impressive document in its production. Do you have a distribution list for who gets freebies of TOOS? Mr Lawless-I do have a distribution list here. I should point out, though, that this year we had the full TOOS, the TOOS executive summary and the TOOS promotional flyer. The first document was the lengthy complete document, the second was 22 pages and the third document was a single page promotional flyer. The distribution varied with each of those. Senator COOK-That is the first time you have had that format, isn't it? Mr Lawless-Yes, it is. Senator COOK-Why did you go to that format? Mr Lawless-It was designed to more effectively raise community awareness of what we are doing on trade issues and our trade policy. The aim was to make these things more readily digestible to a broader range of the public. Senator COOK-This is consistent with the transparency and openness criteria. On the distribution list, do you know how many free copies got sent to various organisations and individuals? Mr Lawless-I can tell you that we distributed 2,500 copies of the full TOOS-that is the long document. I have got a fairly lengthy list of organisations we distributed it to, which I could also table, if you like. Senator COOK-Yes, please. I am not going to ask you to read 2,000-plus names. Mr Lawless-We distributed 6,500 copies of the executive summary, which went for 22 pages, and we distributed 12,000 copies of the one-page promotional flyer. Again, I can give you the details of who those went to. Senator COOK-How is the list compiled? Is it compiled from departmental sources, by the minister's officer or through an interactive combination of both? Mr Lawless-It is compiled from departmental records of people in organisations that we think will have an interest in these sorts of issues. We have a pretty extensive database of industry associations and individuals, as you can imagine. We hold that centrally in Canberra, but our DFAT state and territory offices FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 314 SENATE-Legislation Wednesday, 5 June 2002 also have lists of contacts which are pretty extensive. We put all that together and that is how we come up with it. Senator COOK-Does the minister's office nominate organisations or individuals for copies? Mr Lawless-Not specifically. I presume that they are probably aware of the main direction it is going in, but they do not nominate. Senator COOK-Do you send up a note saying that this is the distribution list, and then they have to sign off on it? Mr Lawless-Yes, we do. Senator COOK-They do not add or subtract names? Mr Lawless-No. Senator COOK-Could the department inform me of the number of consultancies it currently has and any that may have expired last year? Perhaps I can do it this way to save a bit of time: the information I am seeking is the number of consultancies, what the subject of the consultancy was, what the value of the contract was, how the contract was awarded-whether it was by tender or nomination-and over what length of time the consultancy was to run. Dr Thomas-I think we will have to take that on notice. We can provide that information for you. Senator COOK-Thank you. That concludes some of my questions by way of overview. [5.28 p.m.] CHAIR-We now move to output 1.1.5, Bilateral, regional and multilateral trade negotiations, to be followed by output 1.1.6, Trade development policy coordination and APEC. Senator COOK-I am interested in trying to establish what the priorities of the department are in terms of its trade objectives. Before I come to that, though, there is one other question on the objectives and outlook statement that I would like to follow through. I see that the words that appear in the statement now appear as though they are code for policy. `That Australia has a multifaceted trade policy'-that is the first time I have noticed those words in official use in a consistent way. I do not think that was the phrase the department used to summarise its policy last year: Australia's `multifaceted trade policy'. Is this a new set of words to try to describe the focus of our trade policy? Mr Gosper-Words like `multifaceted' may be new, but I do not see them as being particularly different in concept from the way we have described our trade policy, which is flexible-built around the central tenet of support for a multilateral trading system but using regional and bilateral mechanisms where they are appropriate and where they support our overall trade objectives. Senator COOK-Is this just a flash way of describing what we have always done? Mr Gosper-I would have to look at the words and compare them with the descriptions that have been given in earlier years, but I do not think this marks anything different from the point that has been made over the last few years, which is that we should use all the available mechanisms where they can deliver practical gains. Senator COOK-It is a PR phrase, not a policy change indicator. Mr Gosper-I would not describe it as a PR phrase. Senator COOK-How would you describe it? Mr Gosper-It is a descriptive term-perhaps that captures it. You asked whether it was a new term. Senator COOK-How do these words originate? Mr Gosper-Again, I would have to look at the words and compare them with previous formulations. The drafts of the TOOS statement are developed in the department for the consideration of the minister. Senator COOK-My curiosity is fuelled because one of the more enduring quotes about diplomacy and trade negotiations that sticks with me is that words are bullets. If there is a change of words, what is the significance of the new set of words? Are you telling me there is really no significance-it is just a better honed description of what you mean and have meant-or does it presage some subtle shift that I am not aware of? Mr Gosper-I do not believe it foreshadows any subtle shift. I think it is quite consistent with the way the government has been describing its trade policy framework over the last few years. Senator COOK-We understand that Australia has a multifaceted trade policy. What are the priorities of this multifaceted trade policy between multilateral, plurilateral and bilateral trade initiatives? How do you rank them? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 315 Mr Gosper-The government has been quite clear that the multilateral trading system and the WTO are the central tenets of its trade policy. The WTO rules provide the important underpinning for our interests and the Doha Round has been our principal trade policy objective of the last few years. The government has also been clear that where there are opportunities to use other means to develop better market access for Australian products, and where those means can be delivered in a way that is consistent with our commitments and obligations under the WTO, they will pursue those options as well. Senator COOK-In setting out the portfolio priorities on page 9 of your portfolio budget statements, you tell us that there will be a `new foreign and trade policy white paper' to be published this year. I assume that is the financial year 2002-03? Mr Gosper-I understand that it will be released later this calendar year. Senator COOK-Will that go into a discussion about how we rank these priorities, what we expect to be the outcomes of these particular initiatives, and some detail about background and objective? Dr Thomas-The white paper is really an update of the paper that was produced about five years ago. Senator COOK-I hope it is a better one, Dr Thomas. Dr Thomas-In view of some changed circumstances since September 11 and a changed economic outlook in the region since that paper was produced, it was thought timely to set out and articulate government policy in a clear way. That is really the aim. It will cover a whole range of political, strategic and economic trade issues. It is being drafted at the moment and I really do not want to pre-empt what it will eventually say. It should be in the public domain in October or November. Senator COOK-I am obviously not asking you to pre-empt what it is going to say. I think you would have a very short tenure if you were to succumb to such a suggestion and I know that you are altogether too smart to do that. I am groping to find some area where I can grab an encapsulated view, articulated crisply and clearly, of what our trade priorities are and why we have those priorities. Is that the sort of thing this white paper might do? Dr Thomas-It will certainly go into those sorts of issues and themes, yes. Senator COOK-Just following through on that, in the portfolio budget statements, under the heading `Portfolio priorities', on page 9 in the second paragraph it says: The portfolio will continue efforts to lower regional barriers to trade and investment ... The portfolio is negotiating a free trade agreement (FTA) with Singapore and is actively engaged in efforts to launch FTA negotiations with the United States and Thailand. The portfolio will also work constructively with the Association ... I am sure you are familiar with this section. You are nodding approvingly, Mr Gosper; you may have even written it. It sets down a series of things that I take to be the current workload of the department. I do not see there the initiative that the Prime Minister took, about a year or two ago, to launch a free trade agreement with Korea. Has that slipped off the list? Mr McLean-The government is interested in pursuing any means to strengthen and enhance the trade and economic relationship with Korea. When Minister Vaile was in Seoul in April, he raised this with his counterpart and the discussions are ongoing. There is no program or agreement, at this stage, to discuss or launch a negotiation in a formal sense. Senator COOK-So it is not a priority? Mr McLean-It is certainly a priority, but it is not a priority that is as alive as the ones that are cited in this particular document. It is not sufficient a priority to make it onto your list of departmental priorities. Mr McLean-This document is about issues that we currently have before us and about which we are actively involved in discussions with the countries or the agencies concerned. Korea, as you know, is a very important trading partner of Australia and we are certainly keen to strengthen that relationship in whatever way we can. At this stage, it is not as far progressed as these other discussions. Indeed, it has not, as I say, got to a point where we have commenced a negotiation or agreed to do such a thing. Senator COOK-It is two years old, isn't it, Mr McLean? Mr McLean-I am not sure about how old it is. Last year, of course, the current stimulus to discussing anything with Korea on trade was the report that was launched by Mr Vaile in September last year called Australia-Korea: Strengthened Economic Partnership. That report was the genesis of the preliminary discussions that Mr Vaile had with his counterpart, as I mentioned, in April this year. Senator COOK-You may remember that a year earlier, with a great deal of fanfare on a visit to the Republic of Korea, the Prime Minister announced that he was going to pursue a free trade agreement with Korea. You may recall that, as a consequence of that, a process was put in train which created the document you have just referred to which Minister Vaile released. For the purposes of the line of questioning I am now FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 316 SENATE-Legislation Wednesday, 5 June 2002 pursuing, that is not a priority insofar as the department is concerned in terms of these budget estimates. Is that a correct assumption based on the fact that it does not appear in your policy objectives and priorities? Mr McLean-We will be looking at practical potential outcomes, Senator. The ones that are listed are those that have already shown some developmental response from the other country concerned of a positive nature. As you would be aware, when Prime Minister Koizumi was here, there was a launch between the two prime ministers of activity. Indeed, two weeks ago when the Prime Minister visited China, he did the same thing in terms of a framework agreement. The matter has been discussed subsequently and followed up with the Koreans. At this stage, we have not got to a point where we can even say that we have begun a process of joint work towards any particular nature of agreement or other document that might significantly, or in any particular way, lead to a trade and economic agreement, as such. Senator COOK-The way this is expressed confuses me a bit. Towards the end of this paragraph, it says: The portfolio will launch high-level consultations to explore all options for deeper economic linkages between Australia and Japan I think that is what was said between the joint prime ministers when Prime Minister Koizumi was here. Then it goes on: In partnership with business, the portfolio will continue to advance Australia's commercial interests in the expanding Middle East markets. So it sort of comes down a ladder of importance of what it will do to, what is important in terms of intensity and significance, something that is yet to be developed-an exploration of Australia's commercial interests in the Middle East. But it doesn't include Korea. I wonder how many other countries there are that are not included, apart from Korea. Are there other initiatives that the department is involved in that are not mentioned here under the portfolio priorities, or is Korea the only one? Mr Gosper-I do not believe so, Senator. We have covered APEC, the AFTA-CER discussions, negotiations with Singapore and with Thailand prospectively with the United States, CER, as well as the other North Asian economies-Japan and China. Something a little bit different is the overall commercial involvement with Middle East markets. I am not sure of any other particular proposal that is not captured by that. Senator COOK-Should Korea be in there, do you think, Mr Gosper? Mr Gosper-Korea is a large trading partner so, of course, it receives a lot of attention from the department, but perhaps it is not the subject of a specific initiative in the way that some of these other North Asian economies are at the moment. Senator COOK-What is the future of this Korean proposal? Does the department expect to have any further talks with the Koreans about firming up what was originally billed as a free trade agreement? I think that was a bit of hyperbole at the time, but at least that is how it was put. In terms of what it has become, I think it is more an exploration of closer economic relations. What is the current work agenda for Australia- Korea in trade? Mr McLean-Page 38 of the full TOOS statement, which you presumably have, does outline in summary detail what in fact we are doing with South Korea. As I mentioned, the minister was in Seoul in April and spoke strongly about the importance that the government places on the trading relationship and the importance that we believe both countries can bring to bear in further opening and facilitating trade between the two of us. Whether it would eventually come down to being a free trade agreement-in other words, one that significantly liberalises market access in goods-will depend on the response from the Korean side. There are particular issues there that I think will make that quite difficult. In short, we would obviously look at measures that would facilitate further trade and investment short of market access negotiations. Senator COOK-I am sure all of that is true. I will move on from this subject now, but it strikes me as curious given the fanfare at the time and the developments that have occurred since. Now you have drawn my attention to what has been said about Korea in the outlook statement-that is, that it did not merit inclusion as one of the departmental priorities. I guess it did not and that is that. I imagine that does not in any way diminish our regard for Korea, and particularly after their World Cup soccer victory over Poland last night. Mr McLean-I can assure you that our relationship with Korea in the trade sense is going strong and we have every prospect of continued growth. Senator COOK-How do you shuffle the priorities between all the competing interests on the list that we have referred to and how do you value the initiatives? The sort of thing I have in mind, for example, is that for the Doha Round I am aware that the Productivity Commission has said for services trade-I think this figure is right-the value of the round is likely to be between $4 billion and $6 billion to Australia. I think DFAT has said for agricultural trade that the value of the round is around $2 billion to Australia. Am I right? I do not have to be right to the last decimal point of every cent, but is that about the right estimate? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 317 Mr Gosper-I have not looked at the Productivity Commission estimates but, in the forecasts that we did prior to Doha of the benefits of a 50 per cent cut, we estimated the benefits to Australia on the services front as $US3.5 billion a year and for agriculture as about $US1.8 billion. The order of magnitude is about right. Senator COOK-Do we have a figure for what we regard as the overall likely benefit to Australia of a completed Doha Round? Mr Gosper-No, we do not at this point. We have not done any particular modelling since Doha reflecting the specific nature of the agenda that was agreed there. Part of the reason for that is that some of the agenda will not be clear until the fifth ministerial next year. Senator COOK-I have heard figures bandied about that the bottom line benefit is likely to be around $10 billion for Australia. Can you give that any credence or not? Mr Gosper-Based on the modelling that we did do of a 50 per cent cut in barriers, $10 billion a year sounds like it would be a reasonable estimate. Senator COOK-That is about the ballpark. Of all the trade initiatives we have currently, this would potentially be the biggest benefit to the nation, would it not? Mr Gosper-Undoubtedly. Senator COOK-And that is why it is priority No. 1? Mr Gosper-Not just that. The Doha Round is also about a whole set of rules issues which are quite important to the multilateral trading system-market access and rules. Senator COOK-Are you able to tell me how many staff are employed servicing the needs of our negotiating the Doha Round? Mr Gosper-The Office of Trade Negotiations has 69 full-time equivalent staff. Senator COOK-That is the sum total of DFAT officers involved in the round? Mr Gosper-That is the Office of Trade Negotiations total staffing level. Dr Thomas-There are staff in Canberra and in Geneva. Senator COOK-The figure of 69 is for Canberra? Mr Gosper-It is the Canberra Office of Trade Negotiations. Senator COOK-How many are there in Geneva-there are a dozen or more, are there not? Mr Gosper-We would have to get the precise figures for you, but there is an ambassador, two SES officers and, I think, six Australian based staff. Senator COOK-I would like to know the total number of staff involved in meeting our negotiating needs for the round, wherever they are located, if that is possible. Mr Gosper-We can take that on notice, check the numbers for Geneva and give you a figure. Senator COOK-Having established the ranking for the round, what does the department regard as the next most significant priority for Australia in its negotiating objectives? Mr Gosper-The paragraph you are talking about mixes a whole range of particular priorities and instruments. It includes APEC, which has a very wide agenda that extends beyond trade liberalisation to many economic, cooperation and facilitation activities. So you are talking about apples and oranges to some degree in this particular paragraph. Senator COOK-I know, but they are put in this paragraph-which is headed `Portfolio priorities'-in a certain order. They are sorted into a certain order and I want to know whether that order indicates what the departmental priority is or is it just the order that flowed off the pen when this paragraph was written? Mr Gosper-I do not think that it is in any order. We would not rank the potential gains from Singapore negotiations or the Thai negotiations ahead of the potential gains from negotiations with the United States, for instance, given the relative sizes of the economies. Senator COOK-Obviously. It may be that, for strategic reasons or other non-economic reasons, some of these have a higher priority than others. What I am trying to get clear is what the department's priority is and how the department decides where to allocate its staffing resources to meet that priority. Mr Gosper-We have the Doha Round which is our main trade policy objective. We also have two other sets of negotiations: one in play with Singapore and one that has just been launched with Thailand. They absorb a good deal of resources. The negotiation with the United States is in prospect, of course, so, at this point, it does not absorb a great deal of resource or resource that would reflect the high priority that the government would give such a negotiation. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 318 SENATE-Legislation Wednesday, 5 June 2002 Senator COOK-Would you be able to say what the number of dedicated staff to the Singapore negotiations is and, likewise, the Thai negotiations? Mr Gosper-With respect to the Singapore negotiations, Mr Deady is the senior negotiator for Singapore and the staff of the Office of Trade Negotiations supports him. The reason I say that is because it is quite clear that in negotiating these agreements you need to ensure that they are done in a way that is consistent with the WTO rules and discipline. So the people who are actually working in the OTN, including on WTO related issues, are closely involved in the negotiations. Mr Deady-As Mr Gosper has said, I am leading the negotiations with Singapore. Last year, as you may recall, there was a specific task force negotiating with Singapore. That task force has effectively ended and we have rolled, as Mr Gosper said, those negotiations with Singapore into the Office of Trade Negotiations. I think that reflects several things. It reflects the progress we are making with the Singaporeans and the fact that we now have a range of issues on the table with Singapore. Drawing on the expertise that is in the Office of Trade Negotiations is proving to be the most effective way of pressing those negotiations forward and, hopefully, to a successful conclusion. Senator COOK-So you do not have a dedicated task force; you draw in resources as necessary, is that it? Mr Deady-There are three officers dedicated to Singapore. One is working as a lead negotiator on the services and investment part, which is obviously a critical part of those negotiations. I have a deputy chief negotiator with responsibility for a range of issues and one other colleague who works full time on the Singapore negotiations. In the intellectual property chapter of Singapore we draw on the expertise of the people in OTN responsible for those intellectual property issues in Geneva. There is a complementarity between the work they are doing in Singapore, the development of some of the other things we are doing in negotiating with Singapore and the sorts of things we are developing as part of that negotiating agenda in Geneva. Senator COOK-Can anyone say what the staff resources are for the Thai proposal? The Thailand proposal is not regarded as an FTA in the classic sense. In fact, I think I heard the minister say that it is an FTA plus. I am not quite what that is but it is not a classic FTA, is it? Mr Gosper-It is early days in these negotiations; much work has to be done to flesh out how we go about the negotiations in the next few weeks. But the department has set up a task force which will be headed by an SES officer with two other officers to assist, and they will work in collaboration with the trade divisions and geographic divisions of the department. With respect to the nature of the agreement with Thailand, it has been termed an FTA plus. Of course, it is an FTA in the sense that it will have a full negotiation on all tariffs-a tariff liberalisation exercise. But the `plus' simply refers to the fact that there are many other issues which fall outside the scope of an FTA, as it is usually addressed-things like business visas and mutual recognition arrangements and so forth, which will also be addressed as part of this broad negotiation. Senator COOK-How many people in the department are working on this deal? Mr Gosper-As I said, three have been allocated to the task at the moment. They will work in collaboration with other divisions. But, until the agenda is specified over the next month or so, it is difficult to be clearer than that. Senator COOK-In the way in which the Centre for International Economics has quantified what the value might be of an Australia-US FTA, are we able to quantify what the value of an Australia-Singapore FTA might be? Mr Deady-There was some economic assessment work done by Access Economics last year on Singapore. I do not have the precise numbers in front of me. That report has been released and it is on our web site et cetera. It is not a modelling exercise, as such, in that Access believe that, given the nature of the agreement-the emphasis on services and investment-it was more difficult to calculate, to run models to come up with those sorts of numbers. Senator COOK-More intangible. Mr Deady-It is more a qualitative assessment, and a lot of work was done talking to service industry suppliers in Australia and having general consultations with the industry to assess what the benefits would be of better access and better treatment in Singapore under those broad services and investment agenda. Again, there are some numbers there but they are indicative numbers rather than a number that has been produced by a modelling exercise. Senator COOK-But you can get them for me, Mr Deady? Mr Deady-Yes, they are available. Senator COOK-Is there a number for what the benefit might be for the Thai-Australia FTA? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 319 Mr Lawless-Yes, there is. The Centre for International Economics estimated that the boost to Australia's GDP would be $US6.6 billion spread over 20 years. Senator COOK-Is that a published study? Mr Lawless-The results of the study will be made public. The overall joint scoping study includes the chapter on results of the modelling, and that has been made public. Senator COOK-I must obtain a copy of it. For the sake of this discussion here in estimates, the study that the Centre for International Economics did for a potential Australia-US FTA made the assumption that all the barriers we were seeking to be removed were in fact removed. Does a similar assumption underpin this study? Mr Lawless-Yes, the modellers assume that tariffs would be reduced to zero. Senator COOK-Right across the board? Mr Lawless-Yes. Senator COOK-On both sides? Mr Lawless-Yes. Senator COOK-One of the things that has slipped out of public attention lately is the AFTA-CER that we have pursued. Can someone tell me where that is up to? Let me foreshadow the detailed questions: I am interested in knowing how many ASL are involved, if any; and whether or not there has been any study undertaken that might signify some attempt to quantify the benefit that such an arrangement will produce for Australia. Mr McCormick-I will take your second question first: is there any modelling done on the possible outcomes of a closer economic partnership between ASEAN and Australia-New Zealand. You will recall that there was some modelling done about a possible free trade agreement between ASEAN and CER. There has not been modelling about the closer economic partnership yet, because the situation is that last year, in September, ASEAN and Australian and New Zealand trade ministers agreed on the framework for developing the closer economic partnership. We have been working on a formal document which ministers will sign in Brunei in September this year, which essentially will provide the framework for the development of the closer economic partnership. It is not a legally binding treaty either. It is basically a framework for working across a broad range of areas of interest to business, trying to reduce costs and facilitate trade. It also includes the potential at some stage to work on liberalisation issues but that is certainly not one of the initial areas for work under the CEP. Senator COOK-What is the ASL allocated to this issue? Mr McCormick-Of the APEC and regional trade policy branch, which has 18 people in it, there are approximately four people who work on AFTA-CER, but that is also augmented by a range of other agencies, such as Customs, who are also involved in working on the AFTA-CER relationship in specialist working groups. Dr Thomas-In terms of trying to assess staffing numbers working on these particular agreements or activities, you need to bear in mind that all of our heads of mission, in the relevant posts of course, are expected to devote, and do devote, a considerable amount of their time to pursuing Australia's trade interests. There are also the geographical divisions in the department relating to those particular countries with which we are negotiating agreements, and staff in those divisions also get involved to greater and lesser extents, depending on the issues at the time. It is quite a difficult thing to be precise about. Senator COOK-I take your point. It is quite a difficult thing to quantify with any degree of precision. I did not want to put you to the task of trying to work out what the total person hours, if that is the right phrase, at posts might be in servicing the needs. I think it is probably so intangible as to be unclear and would be an impossible accounting exercise for the department, in any case. The value of it when completed may not be all that great. Therefore I have concentrated on trying to get an idea about what the numbers of people doing the core task is, knowing always that there is supplementation and that people are called forward when necessary. The other question that I want to go to is the Japanese proposal. This is a very nascent proposal. What allocation of resources has the department made to service this initiative, and is there any calculation as to what the benefit to Australia might be? Mr McLean-The announcement was made by the two prime ministers and they launched high-level consultations to explore all options; so, in other words, we are not yet at the stage of agreeing what we are going to seek to negotiate. The process will be that the secretary of the department, Dr Calvert, will be visiting Tokyo in a couple of weeks time to meet with his counterpart in order to set in train a process which will lead-by the end of July, we think-to a first working group meeting between the two sides, followed by FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 320 SENATE-Legislation Wednesday, 5 June 2002 another one later in the year. Those would be the essential preliminaries before reporting to deputy secretary/vice minister level as to what they have concluded might be possible to negotiate. As to the ASL involved, as Mr Gosper has said, the special task force that has been set up to be the coordinating point of these trade negotiations would be the culminating point. Those three people would be variously involved and, in addition, they would be working very closely with people in my division. We currently have two desk officers in the Japan section who are essentially working full time on work related to the first working group meeting to be held in late July. A significant amount of the time of the director of the Japan section and the assistant secretary of the Northeast Asia Branch-and indeed of my own time-has been spent in this as well. So it is quite hard to quantify, but there is a lot of effort already being put into this exercise. Senator COOK-Has there been any effort made to quantify what the economic advantage to Australia might be? Mr McLean-That would significantly depend on what we are able to negotiate. Clearly, the greatest benefits would accrue from the most comprehensive agreement possible-and that is axiomatic, I suppose. The point is that we have not made any quantitative analysis at this stage. That is something that we on our side would envisage doing, to a certain extent at least, in this preliminary process. Senator COOK-You did say `during the exploratory stage'. Does the department have a number of explorers working on this? How is it exploring what the prospects might be? Mr McLean-There has been a great deal of preparatory work done over the last 12 months, which led to the two prime ministers announcing that we could agree and explore all options. As you would recall, Prime Minister Koizumi and, indeed, Prime Minister Howard said that if that could include an FTA down the line then that would be a very laudable objective. So the people that I have just identified in the North Asia Division, as well as the core members of this task force, are all involved in this exercise right now-together, of course, with significant support from the embassy in Tokyo. Senator COOK-Without going laboriously through it, is that answer substantially the same as far as the China initiative is concerned? Mr McLean-Broadly. The China framework is a somewhat different order of process. The two prime ministers did, first of all, state that officials would begin work on a new framework agreement. The framework idea would include three different segments. One is to do a joint scoping study-as distinct from the Japan case, where we would do one on our own case-to identify the potential benefits of a closer trade and economic relationship with China, to identify particular impediments that might be in the way of realising the potential that exists, and to identify any particular domestic issues of implantation or otherwise in China that perhaps nullify or reduce the otherwise very useful outcomes of the WTO accession that China has just been through. That joint study, which is yet to be launched but will be in the next month or two, would come up with recommendations which, presumably, we would then agree to negotiate. That might take another six months, for instance. Senator COOK-What are the numbers of staff involved? Mr McLean-We have got the Asia task force people as the core of that but, in the China case, we have a section in my division which is called the China economic and trade section. That is the primary focus of their work-there are five people in that section and I would say that three or four of those would be full-time on this exercise. Senator COOK-Is it too soon to make any estimate about what the economic benefit would be? Mr McLean-It is, Senator. Senator COOK-Mr Gosper, I think you said earlier that the Australia-US FTA is in prospect and therefore there are no people involved in it. Did I hear that correctly? Is that the case? Mr Gosper-No, I did not mean to say `no people'. Mr Deady has responsibility for the US FTA, and he has done work on that. Senator COOK-I think the minister said something about a lot of work having been done on scoping studies. Mr Deady-Mr Vaile and Ambassador Zoellick met last January and agreed that officials would examine the elements of a possible free trade agreement between Australia and the United States. I have been involved in that preliminary exploratory work, talking to colleagues in USTR about what would be the broad structure-the scope, if you like-of an FTA. It is not a scoping study in the same sense that Thailand was a scoping study. It is not an economic analysis of what would be the benefits to both Australia and the United States. It is very much more directed towards the practical: what would an agreement look like; what would be the chapter headings we would be talking about in an agreement. We have scoped that out and have talked FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 321 about what the modalities would be of how we would conduct negotiations in such an agreement. That is the sort of preliminary work that we have been doing with the United States since January. Senator COOK-I think the minister said in a press conference on 31 May: ...there has been some significant work done by officials in terms of scoping up some of the issues that we need to deal with, and looking at, and time frames and possibilities in terms of if we launch a negotiation ... How many people have been involved in this significant work of `scoping up'? Mr Deady-Again, I have been leading those discussions and, with the support of various officers from the Office of Trade Negotiations, I have met face to face on three occasions with USTR officials and with colleagues from the embassy in Washington. On those occasions we have had a number of phone hook-ups with USTR officials which has involved a number of officers from the Office of Trade Negotiations. That is really what that work has been about. One of the objectives of this work was to identify whether we were talking about the same thing in relation to a free trade agreement. One of the key things, for example, that we have done as part of this process is to clearly establish that we are talking about a comprehensive, modern free trade agreement. We have both agreed broadly that it would follow the structure of the NAFTA and the CER with New Zealand. The broad chapter headings we would be dealing with are: agriculture, services, investment, competition and e-commerce. We have talked on what the elements of some of those chapters would be but, given that we have not launched negotiations, both sides have been very careful not to engage in pre-negotiation on anything under those chapters. Senator COOK-That is very useful. What number of people have been involved in this? Mr Deady-You are looking at roughly about 12 or 13 chapters under one of these modern FTAs. I would say that, for example, for the major phone hook-up we had with the United States, I had officers who would effectively be lead negotiators on a range of issues including agriculture, the rules issues and services issues, so there were probably half-a-dozen as well as myself involved in those discussions. Senator COOK-We do have some effort to quantify what the value is here. Mr Deady-The CIE work you referred to, yes. Senator COOK-It comes out at $4 billion over 10 years, doesn't it? Mr Deady-The $4 billion figure is the increase in GDP at the end of the tenth year. Senator COOK-Yes, I thought it was 10 years. Mr Deady-It is not a cumulative figure. That is the increase in GDP in that year-$4 billion higher than it would otherwise be. Senator COOK-And that is based on the assumption that we reach nirvana, if I might put it that way; that everything we want is achieved. Mr Deady-Yes. Senator COOK-The one area that I have not asked any questions about is the one very dear to my heart, which is APEC. Someone in passing said there are 18 ASL on APEC, and 2010, which is the first date for developed countries in the Bogor Declaration, is only eight years off now. Perhaps I will save my questions on all of that for a later time. I do not think anyone has done a quantification of what the complete value to Australia would be if the Bogor goals were met, have they? Mr Gosper-Perhaps there has been some work. Senator COOK-I will be pleased to hear it. Mr McCormick-Sorry, Senator, what was the question? Senator COOK-I am just seeking confirmation, because I think you may have said before that there were 18 ASL on APEC-some of which have been borrowed for other tasks. Mr McCormick-There are 18 staff in the APEC and Regional Trade Policy Branch. The majority of those will work on APEC at some stage but, probably in dedicated terms, there are about 14 or so who work on APEC. Dr Thomas-I might also add that for each APEC year we add an additional full Australian based position to the embassy of the country in which APEC is to be hosted. For example, this year our embassy in Mexico has been supplemented by a full A-based staff for a year. Senator COOK-Mexico is going to be the scene of a lot of trade action in the next couple of years. Has there been a quantification of the value to Australia if the Bogor goals are met in full? Mr McCormick-No, not that I am aware of; not recently. Senator COOK-Not recently or not at all? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 322 SENATE-Legislation Wednesday, 5 June 2002 Mr McCormick-We have not undertaken any analysis of that, and you would have to assume a whole range of factors to build it in. But there is a whole range of modelling done internationally on the WTO which captures some of the potential benefits. Senator COOK-Okay, thanks very much. Let me try and move through this bit more quickly. Looking at this list of trade initiatives, I see that some are FTAs, some are plurilateral arrangements and so forth, and some are less than FTAs. Can someone tell me: what are the criteria that the government use to determine where they might pursue a trade arrangement and to select what initiatives they might make? Are there criteria that you could articulate? Mr Gosper-With respect to free trade agreements, the government set out-I believe it was in the 1997 TOOS statement; it could have been 1998-a set of criteria which are relevant to such FTAs. Of course, they include the facts that they would be with major trading partners and would deliver significant commercial benefits in a time frame that might not be available elsewhere and in a way that is consistent with the WTO commitments and obligations. More broadly, naturally we look at major trading partners-and all the areas that we have talked about today are important trading partners-and look at ways in which we can enhance the trade relationship with those countries. With respect to some of them, we can be more ambitious because those countries are willing to engage in ambitious outcomes. With others, we have to settle for things, at least at this stage, that are perhaps less ambitious but nevertheless deliver some real benefits to Australian export- ers. Senator COOK-So I should go back to the 1997 TOOS. Mr Gosper-We will get a copy of it for you, Senator. Senator COOK-And they are the criteria? Mr Gosper-That is where the criteria were first set out with respect to the government's approach to FTAs. Senator COOK-Are the criteria in the 1997 TOOS still current? Mr Gosper-They have not been formally revised by the government since that time. Senator COOK-Are you satisfied that all of these selections adhere to that criteria? Mr Gosper-Not all these selections are FTAs, but, yes, they are all important trading partners. Senator COOK-In the priority objectives, there is this comment about Middle Eastern markets. Can you throw any more light on what is intended there? Mr Gosper-I cannot. I am not sure if there is a colleague here from the Middle Eastern- Mr Atkin-Would you mind asking that question again? Senator COOK-I was just going to the `Portfolio priorities'. As you would know, on page 10 of the PBS, the last sentence of the second paragraph says: In partnership with business, the portfolio will continue to advance Australia's commercial interests in the expanding Middle East markets. Can you enlighten us as to what that spare text means in reality? What are we talking about? Mr Atkin-In terms of our particular programs and activities this year, our priorities are joint ministerial commission meetings with Saudi Arabia, Iran and the United Arab Emirates. It is planned that all those be conducted this year. They are occasions for both the minister and officials and business delegations relevant to those markets to explore market issues with counterparts and to promote and advance trade in the terms that are summarised here. Senator COOK-Is that what you mean by that reference in the priorities? Mr Atkin-Yes. What I say is an indication of major activities in progress for the current year under that heading. Senator COOK-Without putting too fine a point on it, would I be right in assuming that in developing strong relationships with Arab countries through trade that partly meets some of our strategic objectives in terms of the war on terrorism as well? Mr Atkin-Yes, indeed. I think in any relationship, the stronger the trade, the stronger the relationship, but in the particular context of those countries' concerns and our country's concerns about the issues of the war on terror, it is very much to the point. Senator COOK-To bring this part of my questions to a close, in the year in view, we are not anticipating any initiatives beyond what is current in markets like Latin America? Mr Gosper-None that I am aware of. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 323 Senator COOK-Canada? Mr Gosper-No. Senator COOK-Europe? Mr Gosper-I cannot comment on Europe in great detail. Senator COOK-Someone up the back shook their head. ACTING CHAIR-It looks as if the answer may be no, but perhaps we better get an answer. A shake of the head does not record very well in Hansard. Mr Ritchie-I am sorry, could you repeat the question? Senator COOK-I am just going to the priorities. In the year in view are there any proposals about enhancing or developing a trade relationship in Europe-with the union or with any individual country? Mr Ritchie-There is no particular institutional arrangement under consideration. I think we will, of course, keep on pressing our trading relationship with the countries of Europe. Senator COOK-Mr Gosper, is that the same answer for India? Mr Gosper-Yes, I believe so. Senator COOK-And for Southern Africa? Mr Gosper-Yes. Senator COOK-Thank you. I have a couple of questions about numbers of A-based staff currently employed by DFAT in trade negotiations or in trade issues, compared to A-based or locally engaged staff as a proportion of what DFAT does, but I may put them on notice. ACTING CHAIR-That would probably be a help, Senator Cook. Senator COOK-What is the nature of consultations that the department has undertaken with industry and/or civil society, with respect to trade proposals with the US, Japan, Singapore and Thailand? Mr Gosper-We might answer through several officers. Mr Deady will talk about Singapore and the United States- Senator COOK-I presented all of those countries together so that you could work out whether there is some efficient way of dealing with the answer. Mr Deady-Yes, thank you. There has been a great deal of consultation certainly on Singapore, and also there has been initial consultation with industry and others on US negotiations. With Singapore, it has involved regular contact with various industries with an interest in those negotiations. Particularly, as I have said before, with the services areas, such as telecommunications and financial services, professional associations have been very interested in those negotiations. Also, with the nature of these free trade agreements, it is clear that we have had to have very close consultations with the state governments on a number of the matters that have come forward in these free trade negotiations. Again these have focused on services and investment in particular. So we have had very detailed consultations with the state governments. They have been both, again, through the Singapore negotiating team itself and through the formal mechanisms of the National Trade Consultations and the various other groups that we talk to from time to time on that. On the United States, two studies were done last year. You mentioned one: the econometric study done by the CIE. There was also a study done by the APEC Study Centre that looked at the free trade agreement with the United States. With the US, we are just beginning more detailed consultations with a range of industry groups, again using the NTC processes and the various negotiating forums that Mr Gosper mentioned in relation to the WTO negotiations-for example, the regular agricultural consultations that we have in relation to the WTO negotiations. We incorporate there. We talk to those groups also about the free trade agreement with the United States and some of the issues that are likely to come forward as part of those negotiations. I think there has always been a recognition amongst our contacts with the state governments, in discussions on Singapore, that the United States was at least in prospect. Many of the matters we are talking about in relation to those issues are potentially relevant with negotiations with the US. Senator COOK-That is a wide canvass of negotiations. Can I just be a bit particular about what has happened in the case of Singapore? I understood you to say that, in the case of Singapore, you have had wide consultations with state governments and with industry. Mr Deady-Yes. Senator COOK-Is it possible to say which industry sectors and organisations have been consulted? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 324 SENATE-Legislation Wednesday, 5 June 2002 Mr Deady-I would have to take that on notice to give a very detailed answer in relation to all the various associations we have spoken to. But I could say, for example, on the good side, we have spoken to all the peak industry organisations: the Australian Industry Group and ACII. We have spoken to the textile- Senator COOK-Perhaps it would be better to just take it on notice, if that is fine by you. Mr Deady-Yes, it is. It is a very long list of that regular consultation that we have. Senator COOK-That is Singapore. I am also interested in who is being consulted on Thailand, Japan and the US. Sticking with the US for a moment, has the National Farmers Federation been explicitly consulted on a US FTA? Mr Deady-I have had discussions with the National Farmers Federation; they are part of those wider ag- ricultural consultations that I mentioned. So yes, we have spoken to the NFF about where we are in the proc- ess in our discussions with the United States. Senator COOK-Have they been briefed on the outcome of the scoping work that you have undertaken? Mr Deady-Again, in broad terms, yes; in the sorts of terms that I mentioned today. I have spoken to the NFF about the process that we have been going through and the sort of coverage that we are looking at. Equally, we have made it clear that we are not in negotiating mode with the United States at this point in time. Senator COOK-No, we are not in negotiating mode. Going through the list of what we have covered, we are not in negotiating mode with the United States, but we have done a study concluding there is a $4 billion kick to our GDP over 10 years. We have a commitment to go on Japan, but we have not done any work on them; we have a commitment to look at things on China, and we have not made any effort to quantify China; we cannot quantify Singapore because of the nature of that arrangement; and we have no current quantification or effort to quantify the value of the AFTA-CER arrangement either. I will not surprise you if I say that I have a few more questions on the US. We at least have done that sort of work, and you are telling me-and I appreciate your doing so-that the NFF, for example, has been consulted on the outcome of the scoping work that you have undertaken? Mr Deady-Again, we have spoken to the NFF in broad terms about the discussions and this exploratory work that we are having with the United States. We have spoken to them in similar terms to those I have described it to you in today: we are talking about a comprehensive agreement and we have talked broadly about the chapters; those sorts of things. Senator COOK-I move to the general question of the FTAs. We, as a member of the World Trade Organisation, know that the WTO has a definition of what an FTA is. You are shaking your head in the affirmative, Mr Gosper. Mr Gosper-Yes, Senator. Senator COOK-When we use the term `FTA' in our official description, do we use it to conform with the WTO definition? Mr Gosper-You are referring to the words `substantially all trade'. Senator COOK-Yes. Mr Gosper-There is disagreement among WTO members about what those words actually mean. There are a couple of particular definitions. Australia has always taken the approach to these words that they should be comprehensive and they should cover all major sectors. So, if you are talking about a specific context with the United States or Japan, for instance, that would include agriculture. Proceedings suspended from 6.34 p.m. to 7.29 p.m. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 325 DEFENCE PORTFOLIO Consideration resumed from 4 June. In Attendance Department of Veterans' Affairs Portfolio overview Corporate and general matters Outcome 1: Eligible veterans, their war widows and widowers and dependents have access to appropriate compensation and income support in recognition of the effects of war service. 1.1-Means tested income support, pension and allowances 1.2-Compensation pensions, allowances etc 1.3-Veterans' Review Board 1.4-Defence Home Loans Scheme. Mr Bill Maxwell, Division Head, Compensation and Support Mr Geoff Stonehouse, Division Head, Health Mr Mike O'Meara, Branch Head, Defence Liaison, Compensation and Support Dr Keith Horsley, Senior Medical Adviser Mr Mark Johnson, Branch Head, Disability Compensation, Compensation and Support Mr Roger Winzenberg, Branch Head, Income Support, Compensation and Support Mr Bruce Topperwien, Executive Officer, Veterans' Review Board Outcome 2: Eligible veterans, their war widows and widowers and dependents have access to health and other care services that promote and maintain self-sufficiency, wellbeing and quality of life. 2.1-Arrangement for delivery of services 2.2-Counselling and referral services. Mr Geoff Stonehouse, Division Head, Health Ms Narelle Hohnke, Branch Head, Health Services, Health Mr Wes Kilham, Branch Head, Younger Veterans and VVCS, Health Mr Chris Harding, Specialist Business Adviser, Business Analysis and Development Unit, Health Dr Graeme Killer, AO, Principal Medical Adviser Ms Josephine Schumann, Branch Head, Health e­business, Health Mr Barry Telford, Branch Head, Housing and Aged Care, Health Mrs Olivia Witkowski, Acting Branch Head, Housing and Aged Care, Health Outcome 3: The achievements and sacrifice of those men and women who served Australia and its allies in war, defence and peacekeeping services are acknowledged and commemorated. 3.1-Commemorative activities 3.2-War cemeteries, memorials and post­war commemorations Output group 6-Services to the Parliament, Ministerial services and the development of policy and internal operating regulations-attributed to outcome 3. Air Vice Marshal (Rt'd) Gary Beck, AO, Director, Office of Australian War Graves Ms Kerry Blackburn, Branch Head, Commemorations, Corporate Development Ms Katherine Upton, Assistant Director (Administration), Office of Australian War Graves. Outcome 4: The needs of the veteran community are identified, they are well informed of community and specific services and they are able to access such services. 4.1-Communication and community support .... to the provider and veteran community. Mr Geoff Stonehouse, Division Head, Health Ms Carolyn Spiers, Branch Head, Employee Relations Development Ms Carol Bates, Branch Head, Parliamentary and Corporate Affairs, Corporate Development Mr Bob Hay, Branch Head Strategic support Branch, Corporate Development Mr Barry Telford, Branch Head, Housing and Aged Care, Health Mrs Olivia Witkowski, Acting Branch Head, Housing and Aged Care, Health Mr Mark Le Dieu, Director, Workplace Relations and Policy Outcome 5: Current and former members of the Australian Defence Force who suffer an injury or disease which is causally related to employment in the ADF are provided with compensation and rehabilitation benefits and services. 5.1-Incapacity payments, non­economic lump sums FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 326 SENATE-Legislation Wednesday, 5 June 2002 5.2-Medical, rehabilitation and other related services 5.3-Individual Merits Review 5.4-Advisory and information services. Mr Bill Maxwell, Division Head, Compensation and Support Mr Mark Johnson, Branch Head, Disability Compensation, Compensation and Support Output group 6-Services to the Parliament, Ministerial services and the development of policy and internal operating regulations-attributed to outcomes 1-4. Dr Neil Johnston, Secretary Dr Graeme Killer, AO, Principal Medical Adviser Ms Felicity Barr, Division Head, Corporate Development Mr Murray Harrison, Manager, Information Management, Compensation and Support Mr Sean Farrelly, Branch Head, Resources Branch, Corporate Development Ms Karin Malmberg, Director, Budgets, Resources Branch, Corporate Development Australian War Memorial Outcome 1 :Australians remember, interpret and understand the Australian experience of war and its enduring impact on Australian society... General questions. Major General Steve Gower (Rt'd), Director Mr Mark Dawes, Assistant Director, Corporate Services Mr Mark Whitmore, Assistant Director, National Collection Ms Helen Withnell, Assistant Director Public Programs Dr Peter Stanley, Principal Historian Ms Rhonda Adler, Manager Finance section. Department of Veterans' Affairs CHAIR-The Senate Foreign Affairs, Defence and Trade Legislation Committee resumes its hearing. I understand Senator Hill will not be back this evening. I welcome Dr Johnston and his colleagues from the Department of Veterans' Affairs. I note that this a continuation of the hearing from last evening. It is not necessary for me to go through the formal aspects of the opening of the estimates hearing. We are well aware of the position of you and your officers. Senator MARK BISHOP-I welcome the officers back again. We are on outcome 1, Compensation. I refer you to an article in the Sydney Morning Herald of 25 May in which it is reported that a British pensions court found that the Gulf War syndrome does exist at law. That is contrary to findings of the RMA in this country in the past. Does the DVA have any comment on that decision of the court in the Australian context? Mr Maxwell-The only comment I could make is that the Australian repatriation system no longer relies on legal interpretation of whether or not a disease exists; rather it relies on a scientific determination of that question. The difference we have here is that the British system is still one which is essentially legally based whereas ours is now scientifically based. Our system has deemed that the disease does not exist whereas the British legal system says that it does. Senator HOGG-A scientific determination by whom? Mr Maxwell-By the Repatriation Medical Authority. Senator HOGG-Is that the only authority that you will accept? Mr Maxwell-That is the authority that the act prescribes to determine disease causation. Senator MARK BISHOP-So there is no regard at all to that legal decision in the British courts? Mr Maxwell-It is an interesting development but, as such, it has no bearing on the situation in Australia. Dr Johnston-Other than if it has based its decision on new research or new information, which we would then draw to the attention of the RMA, if it had not already looked to that new research. So we are taking a close interest in the decision- Senator MARK BISHOP-So you are reviewing the decision? Dr Johnston-Yes. We will take a close look at it. It is still not yet resolved whether the decision will not be appealed in the British courts, as I understand, so the matter is still progressing. But we will certainly be reviewing the nature of the decision and the evidence and, if it is substantial new material, refer that to the RMA. Senator MARK BISHOP-What is the current status of the Gulf War health study? When is it due to be completed? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 327 Mr Maxwell-It is well and truly under way. They are towards the end of the process of gathering actual examination results on each of the study participants, and that is of course required before they can start analysing the results. I cannot give you an anticipated completion date at this point, but it is certainly within the coming six to nine months. Senator MARK BISHOP-In terms of both data collection and analysis? Mr Maxwell-That is my understanding, yes. Senator MARK BISHOP-When that is concluded, that becomes a public document? Mr Maxwell-Yes, indeed. Senator MARK BISHOP-Is there any current level of participation by either DVA or Defence with the US authorities on Gulf War syndrome? Mr Maxwell-There is indeed. We are in very close communication with the US Department of Veterans Affairs and the medical researchers attached to that department. We are also in contact with the Canadians and the British. Senator MARK BISHOP-There is an ongoing exchange of information? Mr Maxwell-Indeed. Dr Johnston-It is probably worth while saying that it goes further than that. There is a research protocol that has been adopted by the Americans and the British in the first place, which the Canadians and we are now using as well for our health studies. This will add extra power to the research done here. We will be able to relate it to the results being obtained in those other countries and make wider use of the research for our purposes. Senator MARK BISHOP-Is that a general proposition or just in terms of the Gulf War study? Dr Johnston-It can only be fairly said to be a feature of the Gulf War study at this stage, but we are in regular consultation with the veterans' affairs administrations in those countries and in New Zealand and, increasingly, working much more closely in cooperation, sharing information about research and putting our respective researchers in touch in a network type arrangement to try to improve the quality of research. Senator MARK BISHOP-Our land forces were minimal in the Gulf War, weren't they? Mr Maxwell-They were. I guess it is fair to say that the involvement of our land forces tended to be more those on exchange with overseas forces-with the exception of the Air Force support teams that were land based but not actually in whatever that place was called. Senator MARK BISHOP-We did not commit any forces to the actual engagement in the Gulf War, did we? Mr Maxwell-The naval deployment was in support of that. Senator MARK BISHOP-I mean Army. Mr Maxwell-No. Senator MARK BISHOP-Navy and Air Force were there. Mr Maxwell-If I might add to the secretary's additions to my comments, we perhaps benefit from being the final one of the major groups we spoke about to embark on our health study. Our numbers are relatively small, so we thought it would be very wise if we could arrange to collect the same data at least, at a minimum, as the British and American surveys were collecting so that we could pool our data with theirs and enable better analysis of the outcome than perhaps we would get just from studying our own small cohort. That was our starting point; we went a stage further and sought additional information as well. Senator MARK BISHOP-Thank you, Mr Maxwell. You are still at the data collection stage, although that is coming to a close, so you have not really done any analysis yet. Are there any developments in the research that at this stage are causing concern to the RMA? Mr Maxwell-The results do not go to the RMA until the study is completed and published, but I am not aware of any results that, at this point anyway, have been brought to my attention. Senator MARK BISHOP-I turn now to the Vietnam Veterans Health (Morbidity) Study. Representations have been made to me questioning the time taken to commence the study. Can you tell me where that study is at? Mr Maxwell-I am at a slight disadvantage in that the adjournment meant that, unfortunately, neither Dr Horsley nor indeed Mr O'Meara, the branch head of the defence links branch which handles our research effort, could be here tonight. Essentially, I am aware that a consultative forum of interested veterans' FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 328 SENATE-Legislation Wednesday, 5 June 2002 organisations has been appointed and the first meeting of that group is scheduled to happen, I think, fairly early in July. Senator MARK BISHOP-So they have put together a panel and it is really just starting? Mr Maxwell-When I say it is just starting, it is of course a follow-on-I think this is No. 4 in the series-so the protocol is fairly well trodden and we know what we are on about. Of course, because it is a mortality study, it is infinitely easier to accomplish than a health study because it is essentially a data- matching exercise against the national death index and our veterans' nominal rolls. Senator MARK BISHOP-So this is not going to take as long as the earlier studies? Mr Maxwell-I think each iteration of the mortality study gets quicker. Last time around it was slightly more complex because we did, for the first time, the subsidiary analysis of conscripts who had been to Vietnam and those who had not. That was a new feature last time and it added considerably to the scope of the study. Again, this time around that network and protocol is all there, so it is essentially a matter of running the same studies again, using the updated data. Senator MARK BISHOP-Who is chairing that committee? Mr Maxwell-I think it is Major General Paul Stevens. Senator MARK BISHOP-I refer you to the minister's press release on Friday, 3 May, VA47, titled `Vietnam Veterans' children get increased education support'. It details 30 new bursaries costing $6,000 each over the next four years. Can you advise the committee where this initiative has been funded from? Dr Johnston-It is effectively being funded from the budget allocation that was provided for the range of measures announced by the government following the completion of the Vietnam Veterans Health (Morbidity) Study. There were quite a number of measures announced at that time and, as we have got into the detail of implementing them, some elements have cost a bit more and others have cost a bit less; so the funds that were required for extending this program were available from a reallocation within that overall budget allocation. Senator MARK BISHOP-When was that budget appropriation passed? Dr Johnston-Three years ago, I think; I would have to confirm that. Yes, it was three years ago. Senator MARK BISHOP-So is it fair to say that those are funds that have remained uncommitted from that decision of government some three years ago? Dr Johnston-Funds that to date have not been committed; so it is an opportunity to provide an improvement for children of Vietnam veterans in a way that is consistent with the overall philosophy of the package that was announced. Senator MARK BISHOP-I was not quarrelling with the granting of the bursaries; I was just interested in where the funds came from. So, from that particular budget allocation, how much is left uncommitted? Dr Johnston-I think we would have to take that on notice. As I recall, the overall package is of the order of $34 million. Mr Farrelly-I can confirm that it was the 2000-01 budget that contained that measure. It was $29.5 million over four years. Senator MARK BISHOP-So the question is: how much remains unspent out of that appropriation of $29.5 million, and what are the plans for the use of that money? On notice is fine. On notice will be fine. What is the current status of the nominal roll of the BCOF? Is that concluded? Mr Maxwell-The British Commonwealth occupation forces? Senator MARK BISHOP-Yes. You are in the process of putting together a nominal roll? Dr Johnston-We are at a slight disadvantage, as Mr Maxwell explained. Priority at this stage has been given to implementation of the Second World War component of the nominal roll project. In principle, we have a strategy of developing a nominal roll for all post-World War II service, but I do not think we have made a start on BCOF yet. We can clarify that on notice. Senator MARK BISHOP-I have some correspondence here from the BCOF Association in WA. As I read it closely, I see that they do not say that it has commenced. So that is a job for the future? Dr Johnston-Indeed. Senator MARK BISHOP-When do you plan to start that aspect? Dr Johnston-I was just conferring with Ms Blackburn, and I think I can be confident in the advice I have given you, but we should take that on notice and clarify the position on that. Senator MARK BISHOP-Are you still putting together a nominal roll from World War II? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 329 Dr Johnston-Yes, that is correct. This is a quite massive exercise. Senator MARK BISHOP-How long has that taken? Dr Johnston-We have been working on it for a couple of years now. It took us quite a while to establish protocols for access of the documents with the National Archives, and we went to tender to obtain a company to do the document search for us to build up the basis for the nominal roll. We also had to consult extensively with Defence because, in conjunction with doing the work on the nominal roll, we decided to negotiate to obtain Defence's agreement to use the work to transfer the material to the National Archives. It has been quite a complex administrative initiative and it is now well under way. Senator MARK BISHOP-When do you think that will be concluded? Dr Johnston-I think we are a bit behind schedule. My colleague draws attention to a briefing which says that we were given $4.4 million in the 1999-2000 budget for implementation of the project over four years. As I say, I think we are bit behind timetable on that, but we can confirm the detail. Senator MARK BISHOP-Are you putting together these nominal rolls sequentially in terms of our ADF forces being involved in offshore conflicts? Would they automatically then go to BCOF? Mr Maxwell-That is not quite the way we have come at it. The original nominal rolls were compiled in relation to health studies, or mortality studies, and therefore the first roll we had to attempt was the Vietnam roll. We have done some other rolls to support the Persian Gulf War deployment health study and the Korean War mortality study. We have done some others of more recent deployments because we had people in the data warehouses-in the usual English meaning of that word-at the same time. While they were doing the Persian Gulf, for example, we had them pulling out Somalia and Rwanda and other more recent deployments, because the records were in the same place. But the concept, as I envisage it now, is that World War II is the first major new roll and we will move forward in history from that point. Senator MARK BISHOP-Has a commitment been made to do BCOF next or is that something that is yet to be decided? Mr Maxwell-I guess there is no formal decision to do BCOF next, but if you follow the sequence I have outlined that is the next cab off the rank. Dr Johnston-I can advise that the Second World War component of the project will be completed by September, with the objective of implementing a new web site with that data on it in November this year. Senator MARK BISHOP-I want to have a brief discussion about qualifying service and the guidelines. I understand that the Repatriation Commission has withdrawn the guidelines for the termination of qualifying service for Australians during the Second World War. Is that correct? Dr Johnston-I do not necessarily think they have been withdrawn as such. What has happened is that case law has made it clear that- Senator MARK BISHOP-Who has? Dr Johnston-Case law-judgments handed down by the courts. Case law has made it clear that what was long-held policy was in fact inconsistent with the law, or at least it is if it was arbitrarily applied. But, if it is applied in conjunction with the case law, it still has a vital and important role to play. That is in fact the instructions that have been given to the departmental staff: to apply it in the context of the law as interpreted by the courts. Senator MARK BISHOP-So the policy of the department re QS has to be applied consistent with the case law as it develops? Dr Johnston-Yes. Senator MARK BISHOP-I had a different understanding of the situation. My office was advised that the Repatriation Commission had voided the guidelines because they had been found to have been inconsistent with the law. Dr Johnston-I think it is a question of words, and possibly people, in talking about what has been done, can choose words that might be a little misleading at times. But it is only in respect of coastal waters policy: it is in respect of determining qualifying service during the Second World War around the coast of Australia. The difficulty we have is that the guidelines, which have sought to be administratively efficient, helpful and in a sense beneficial in some cases to veterans, have been seen by the court as not satisfying in all cases the incurred danger test, which is a legislative requirement. In some cases, we have been awarding qualifying service, given our guidelines, where the court after it looked at all the facts was not satisfied that the veteran or the individual actually incurred danger in the sense- Senator MARK BISHOP-In some cases, you have been more generous than the law perhaps authorised. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 330 SENATE-Legislation Wednesday, 5 June 2002 Dr Johnston-Quite openly, and everyone has known the basis on which we made the decision. Senator MARK BISHOP-I am not critical of that, Dr Johnston. When were those coastal waters guidelines first issued? Dr Johnston-I would suspect some time in the late 1940s, early 1950s. Senator MARK BISHOP-What was the legislative authority then? Was it just a policy decision of your predecessors? Dr Johnston-Mr Maxwell has been around a lot longer in the department than I have, sir. Mr Maxwell-It had its genesis essentially in the concept of service in a theatre of war. I think we had this discussion at the last session. The two world wars by their nature were global conflicts and once you set off on the high seas you were at some risk of being torpedoed or mined by the enemy. I think that was its genesis. As successive judgments have made clear, the test is not a subjective one as to whether you thought you were at risk. The test is objective: you must have been at risk, and that is a post hoc analysis that you can only really approach armed with the knowledge of the enemy's disposition, his armaments and his potential to strike. That is where history has shown that the early approach was adopted-as the secretary says, it was administratively adopted because it accorded with the general view of the day-as a means of handling the very considerable number of claims that were coming in at that time. Senator MARK BISHOP-Has there ever been a challenge to the authority of those guidelines? Mr Maxwell-Indeed, there have been a number. One that comes to mind in more recent years is Repatriation Commission v. Thompson in the Administrative Appeals Tribunal, where the veteran was seeking application of the coastal waters policy for service on Garden Island off Perth or, at least, service in transit between the Western Australian mainland and Garden Island. That is probably the most recent example. Senator MARK BISHOP-Is that the case that has given rise to the instant- Mr Maxwell-No, it is just one of a number. That is the most recent one that I am aware of. Senator MARK BISHOP-Do you have records on how many decisions on QS using these guidelines have been granted and how many have been rejected? Mr Maxwell-No. Given the span of history over which the policy was applied-it goes back to before the advent of computers-I do not think we would have any ready means of even identifying it at this stage in history. Senator MARK BISHOP-What advice are you now giving to claimants, post the more recent court decision in this area? Mr Maxwell-The advice, essentially, is that the law has to be applied, and to apply the law you must have regard to the evidence in the particular case in front of you. Senator MARK BISHOP-So it is still on an individual case determination basis? Mr Maxwell-It is an individual case determination, but again it has regard to the type of service the veteran was engaged in. If we are talking about coastal waters, it is about whether during a transit of coastal waters they were actually on duty as opposed to being on leave or going to enlist and not having yet enlisted, all of those sorts of considerations, and then the known disposition of the enemy forces at that time. Senator MARK BISHOP-Have you circulated a memo to branch officers and the AAT, setting out the new guidelines and the reasons for them? Mr Maxwell-I cannot say the AAT, but certainly the branch officers have had it. Senator MARK BISHOP-Could I ask for a copy of that to be provided to the committee, if that is okay? Dr Johnston-That is okay. I might note that the issue of coastal waters policy is, in principle, an issue that will be subject to the views of the Clarke committee, and we have certainly referred to the issue in our submission. Senator MARK BISHOP-Are there any cases previously allowed by either the department or the AAT on review where benefits are now being paid? Is there any attempt now to go back and review previous cases? Mr Maxwell-We have not sought to disturb any previous decisions. Senator MARK BISHOP-Was the decision that we were discussing earlier, Dr Johnston, with Mr Maxwell, where you put some fine points on the current practice of the Repat, a decision of the Repatriation Commission? Dr Johnston-That is correct, yes. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 331 Senator MARK BISHOP-It was not a decision of the minister or of cabinet? Mr Johnston-No, it is formally the commission's responsibility. We have certainly advised the minister of the issue and the approach we were taking, so we would have the benefit of her guidance, but it is our decision. Senator MARK BISHOP-In 1997, following the Black Hawk accident, the then minister announced that, in addition to the supplementary lump sums for widows and children, ADF personnel would be provided with access to the VVCS. Has that indeed happened? Mr Maxwell-Access was provided. I cannot say that I actually know of an instance of it being taken up, but the service was there. Senator MARK BISHOP-If people wanted to access it now, would they just go through the normal channels? Mr Maxwell-Yes. Senator MARK BISHOP-Is that done on a cost reimbursement basis? Mr Maxwell-In essence, the VVCS is a service provided under the Health Division, which is not here tonight. My understanding, though, is that it is a service that is available, and I do not think there is a cost recovery process involved. Senator MARK BISHOP-That is my take from the discussion we had last February. Mr Maxwell-Which is a different matter from the current F111 deseal-reseal, similar extension of the service to the Air Force personnel involved. We will confirm whether it is on a cost recovery basis. Senator MARK BISHOP-Can you also take on notice the level of usage to date and what sums have been spent on that scheme? Turning now to the proposed war widows legislation, which the government had as part of its election campaign, and it has since restated its position, do we know when that legislation will be introduced? Mr Winzenberg-This is in relation to the income support supplement. It should be introduced on the 17th of this month. Senator MARK BISHOP-When is it supposed to be operational from? Mr Winzenberg-It comes into effect from 20 September this year, but the first payday will be 3 October this year. Senator MARK BISHOP-And is it anticipated that will be passed in the June sittings? Mr Winzenberg-The late August sittings-the week of 19 to 22 August. Senator MARK BISHOP-I do not think it is going to be contentious. Will the same amendments be made to the Social Security Act as to the VEA? Mr Winzenberg-We have a number of war widows who receive frozen rate age pension from Centrelink. We are not proposing to amend the social security legislation. We are offering those war widows the chance to transfer back to DVA. Mr Winzenberg-There are only about 170 of them, so the cost of changing the social security IT infrastructure to cope with that change for such a small number is not cost effective. Senator MARK BISHOP-Do you anticipate that any would choose to remain at Centrelink? Mr Winzenberg-There is no reason why they should. We propose writing to them in the next couple of weeks to ascertain the take-up rate. Senator MARK BISHOP-What happens if a small number, for whatever reason, choose to remain in the Centrelink system? You would handle that administratively? Mr Winzenberg-That is clearly their choice, and they would continue under the current arrangements. There would not be any indexation, but we would seek to ascertain what the reason was and try to address that. Senator MARK BISHOP-So, if any number of widows choose not to come back to the VEA and remain at Centrelink, the relevant act will not be amended and they will be disadvantaged compared to their sisters? Mr Winzenberg-That is correct. Senator MARK BISHOP-Do you have on your records how many widows without children are below the age of 57? Mr Winzenberg-Not here. I would need to take that on notice. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 332 SENATE-Legislation Wednesday, 5 June 2002 Senator MARK BISHOP-Can you take that on notice and provide us with that information? You told us the other night that the BEST program was being evaluated. I did have some questions. I cannot recall if I asked you: who is undertaking that evaluation? Mr Johnson-An organisation called Better Enterprises Pty Ltd. Senator MARK BISHOP-Where are they based? Mr Johnson-They are based in Canberra, but they have additional staff located in Melbourne. Senator MARK BISHOP-How long will the review take? Mr Johnson-The review is estimated to be completed by 31 July this year. It has been delayed for about four or five weeks. Senator MARK BISHOP-What has prompted the review of the quality assistance programs? Mr Johnson-The funding for next year represents the fourth year of the program. It was felt that after having three completed rounds it would be an opportune time to evaluate the effectiveness and efficiency of the program and see whether there are any changes that should be made to the program. Senator MARK BISHOP-I do have a follow up question resulting from the answer you provided to my office this afternoon but I will put it on notice. [8.00 p.m.] CHAIR-We will move to outcome 3, Commemorations. Senator MARK BISHOP-In response to articles in the Australian on 25 and 29 April by Mr Peter Wilson, the minister commissioned a report from the Office of War Graves which addressed some or all of the allegations raised in Mr Wilson's article. I will just read you a few comments from Mr Wilson's articles, because the minister's comments in the press release were quite at odds with what was reported so I want to get it on the record. The reporter said: "A lot of them say `I have done Oktoberfest in Germany, and run with bulls in Spain, now I have to do the dawn ceremony (at Anzac Cove)," said Andrea Pardoe, a young Perth accountant now working at ... (a) bar. Does the department, arising from the report, have any comment on that? Air Vice Marshal Beck-No, we do not have any comment on that. If it is reported that that is what he said, that is probably what he said. Senator MARK BISHOP-Yes, he did say that, but the minister put out a comment essentially denying that a `boozy bacchanalia' occurred. She said it was: ... a mischaracterisation of a highly successful event ... all reports indicate they were largely well-behaved and claims of drunken behaviour have been greatly exaggerated. It went on along those lines, saying that if there were incidents of that nature they were rare, isolated and one- off and that to portray it as anything else was a gross exaggeration. That is the thrust of the minister's press release. I presume you drafted it? Air Vice Marshal Beck-Yes, that is correct. Senator MARK BISHOP-So you are familiar with it? Air Vice Marshal Beck-Yes. Certainly, there was no comment on that particular quote from the individual in the report, because the report was about responding to the `boozy bacchanalia' part of it. There was alcohol consumed there in the late afternoon and evening, but by midnight-after 10 o'clock-most people were falling off to sleep. Most people-and there were thousands-were in sleeping bags. Senator MARK BISHOP-Were you there? Air Vice Marshal Beck-I was there until 10 o'clock that night. Senator MARK BISHOP-So you had first-hand knowledge? Air Vice Marshal Beck-Yes. Senator MARK BISHOP-And you had officers of the commission with you as well? Air Vice Marshal Beck-No, I had my staff with me, but my Turkish contractor was there until midnight and I received a report from him on that subject the next day. Others who were there through the night have since made reports that are quite at odds with the Peter Wilson article. Senator MARK BISHOP-From your first-hand knowledge, what is your assessment of what did occur? Air Vice Marshal Beck-People started arriving there at three o'clock on the afternoon of the 24th and many of them settled in for the evening. Alcohol was being sold by Turkish vendors in the area, although we FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 333 sought to have and had had alcohol banned for the 25th. Obviously next year we need to get it banned for the 24th. But there was not a lot of alcohol consumed. I have been attending these services now for three years, and it has never been a major issue. There might be the odd individual-in my three years I think I have seen one person-who was drunk. No doubt others have seen more that that, but we have since had ministerial complaints from people who were there in 1988 saying it must still be happening. No doubt it is, but it seems to be more a myth about young Australians' behaviour at Gallipoli than a fact. I was there until 10 o'clock at night and we were still testing the speakers, the video system and the large video screen, so we were playing loud music because it had to be projected over 100 metres. When we completed the testing, we started-and I approved-the playing of some CDs that the team from Istanbul had. It was Western music and it was not played loudly. I left at 10 o'clock. My contractor has since reported that music continued to be played, but it was music that was brought by young Australians and New Zealanders. They apparently take CDs with them to play in the coaches. The report I got said that there was no loud music. Senator MARK BISHOP-When did the playing of the music cease? Air Vice Marshal Beck-I do not know because I had no first-hand reports after midnight. Certainly by then most people were asleep. I was back there at two o'clock in the morning and there was no music being played then. One small group was making quite a lot of noise and singing down on the beach, but the overwhelming impression was that the place was absolutely packed with people who were asleep. Senator MARK BISHOP-On the beach or on the hill? Air Vice Marshal Beck-In every possible place you could put a sleeping bag, including on the path we had created for the VIPs. Senator MARK BISHOP-So there was government funded sound equipment, which you were setting up and which you tested until around 10 p.m. Then you left. From 10 p.m. to midnight, permission was given to some young people to use the same equipment, and when you returned at 2 a.m. the music had been turned off at some time prior to that. Air Vice Marshal Beck-That is correct. Senator MARK BISHOP-Have any lessons been learned for next year and future years from this year and from the press reports? Air Vice Marshal Beck-Yes, certainly. I think we need to have a staff member there right through the evening, to keep an eye on things. It is very difficult, because we have no authority to act against any of the visitors, and nor does the Australian Defence contingent. We have resisted the idea of having Turkish police patrolling, so we have hired our own security people. I suppose I would take responsibility for briefing them a little better next time, although the security problems were about trying to limit access to the official area. It got a bit crowded there. It was so packed that you could not get anywhere near the official sound systems. Senator MARK BISHOP-What was the size of the crowd this year? Air Vice Marshal Beck-They are only estimates, but I would say it was in the order of 13,000 to 14,000. It seems to keep increasing. It has kept increasing, probably 10,000, 12,000, 14,000 over three years. There has been very rapid growth in the last five years. It doubled between 1999-the last service at the old site of Ari Burnu-and the first service in 2000 at the Anzac commemorative site. Senator MARK BISHOP-So perhaps next year there will be extra briefings, extra security and limited access to the official area. Air Vice Marshal Beck-Yes. I think one of the biggest problems is that more people are coming earlier and camping overnight. That is occurring because the Turkish gendarmerie have diverted all the coaches on a circuitous route. We spent five months negotiating a traffic plan with the Turks and they completely changed it at the last minute without any reference to us. The coach operators got wind of that and most coaches arrived two or three hours earlier than they would normally have arrived. Senator MARK BISHOP-Were there congestion problems? Air Vice Marshal Beck-There were nearly 400 large coaches on single-lane dirt roads, so it is a massive problem. It is the biggest problem at Gallipoli and it is a problem that we have no control over at all. We do our best. We have held meetings with TURSAB, the Turkish agents for coach operators and travel agents. I have met with the president of TURSAB and they have formed an Anzac committee. I accompanied them to Gallipoli in February and we conducted a survey of the route and the way it should work, but the Turkish army, and through them the gendarmerie, took no notice of that. Senator MARK BISHOP-Why is that? FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 334 SENATE-Legislation Wednesday, 5 June 2002 Air Vice Marshal Beck-The Turkish army and the gendarmerie are very security conscious. They cleared the main route from to Eceabat to the Anzac commemorative site at midnight, in preparation for the official party coming across there at 4.30 in the morning. They cleared that road four or five hours early. That meant no-one could travel on that road. That is the main problem and we need to find a way around it. Senator MARK BISHOP-And we are thinking about trying to address that problem? Air Vice Marshal Beck-I have nearly given up. I have been trying to solve this problem for three years. We have not found a way to communicate adequately. Frankly, we have not found out who is in control. We are still working on it, though. Dr Johnston-I think it would be fair to say that, in anybody's terminology, it really is a major logistic challenge-even if there was excellent communication and great clarity. I think the Turkish authorities are, in a sense, focusing on the issue more and more each year; but, as Mr Beck has said, it has still got a way to go to have it working as well as we would like. Air Vice Marshal Beck-That is true, actually. The Turkish authorities really are trying to solve this problem, and I think they are grappling with it too. Senator MARK BISHOP-All right. Is there any proposal to ban alcohol from the site? Air Vice Marshal Beck-We have sought to ban alcohol, but I am not sure that that is the correct approach. I think that would indicate that there is a grave problem there; and frankly I do not think there is a grave problem. I do not think there is any evidence of a grave problem. Certainly 10,000 or 12,000 young Australians are boisterous, but they were even more boisterous before the Lone Pine service at midday. It is just the nature of the location, the site and the numbers of people there. They were boisterous but not because they had been consuming too much alcohol. Senator MARK BISHOP-Okay. Could we now turn to Belgian war graves-not French war graves. There was an article in the Canberra Times on 25 April concerning a new freeway in Belgium. What can you put on the record, Air Vice Marshal Beck, about that proposal? I believe you are aware of it. Air Vice Marshal Beck-Yes. The A19 motorway extension, through Pilkem Ridge battlefield, has been on the books for any number of years. It appears on all the Michelin maps in the area. As far as we know, a final decision on the proposed route was to be made later this year, and it is scheduled for completion at the end of 2005. The problem is not particularly one that we have sought to involve ourselves with as much as other countries have. While we have been involved, the area contains German, British, French and Canadian graves in the main, and it is not an area of Australian operations. We were further to the south-east. Of the six cemeteries that lie closest to that proposed motorway route, there are two cemeteries that contain some Australian graves, but they are few in number. I think there are four in one cemetery, and they were interred after the Armistice was signed; they were reburials. The second cemetery contains 31 of the 676 graves, but they were buried there between 1924 and 1926. It is not an area of Australian operations, so I suppose we have taken a slightly lower profile in our approach to the Belgian government than we have in relation to the French proposals. Senator MARK BISHOP-Are we working through the Commonwealth War Graves Commission? Air Vice Marshal Beck-We are working through the Commonwealth War Graves Commission, the Belgian manager, and also through our embassy there. Senator MARK BISHOP-At this stage it is a monitoring role as to development? Air Vice Marshal Beck-No recent information has come across my desk in relation to the Belgian proposal. Senator MARK BISHOP-And the Australian government has not found it necessary to become directly involved with comment to the Belgian government? Air Vice Marshal Beck-I think we have made an approach through the Australian Ambassador, but I do not think we are actively pursuing it at the moment. Senator MARK BISHOP-The Australian Ambassador to Belgium has made contact with the Belgian government? Is that the situation? Air Vice Marshal Beck-The Commonwealth War Graves Commission is continuing to liaise with the Belgian government, and Australia's High Commissioner to London, who is a member of the commission, is kept fully apprised of all developments. So we are acting through the commission in the main. Senator MARK BISHOP-So I presume the British and Canadian governments would have a much more significant interest. Air Vice Marshal Beck-I assume so, Senator. But, again, the commission is the primary source of liaison with the Belgian government. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 335 Senator MARK BISHOP-Thank you, Air Vice Marshal. Dr Johnston, can you advise how many Anzac Day services were cancelled this year? Dr Johnston-My understanding is there were very few, if any. Ms Blackburn-We contacted each of the state RSL organisations to seek advice on their public liability insurance and what events were cancelled. We were advised of only one cancellation and that was the dawn service at Manly Dam in Sydney. Members of the Avon Valley 10th Light Horse Troop did not take part in the Perth parade citing public liability issues, but we received advice from the RSL that there were no other Anzac Day events cancelled. Senator MARK BISHOP-Anywhere else in Australia? Ms Blackburn-No. Senator MARK BISHOP-What were the circumstances which led to the cancellation of the service at Manly Dam? Ms Blackburn-We did not get that detail. I think it was just a general concern that they may not be covered. That was the information that came back to us. Senator MARK BISHOP-The New South Wales RSL did not provide any information? Ms Blackburn-No. The New South Wales RSL cover is a little bit different from some of the other states. They do have cover available to their sub-branches under a master insurance policy whereas, in some of the other states at least, generally cover is taken out by the state branches. So maybe there was a more local concern in New South Wales. Senator MARK BISHOP-Dr Johnston, I refer you to an article in the Gold Coast Bulletin of 20 April about the condition of war graves in Pusan. If this report is right-and I do not say it is, but if it is-it would seem we have a major problem. Are you aware of the situation up there? Air Vice Marshal Beck-Yes. Senator MARK BISHOP-You are, Air Vice Marshal? I might just read you a number of comments from the article and you might care to comment. An article by Mr Peter Gleeson in the weekend Gold Coast Bulletin on Saturday 20 April, in the first two paragraphs, reads: Civic corruption threatens to destroy Australia's war memorial in Korea. To make matters worse, Australians killed in action during the Korean war may be in the wrong graves-if they are in graves at all. Do you have any comments? Air Vice Marshal Beck-Yes. Firstly, on the civic corruption, we have not gotten involved in that aspect. Senator MARK BISHOP-In the corruption? Air Vice Marshal Beck-I think the origin of this article stems from Mr Brian Foster, who has been up there. I think he is a little bit confused about the circumstances and the suggestions that in some cases Australian soldiers are not even in the graves. The problem is that the Pusan grave was constructed in either 1951 or 1952-I think it was 1951-from seven other burial sites around Korea so, obviously, the remains were removed from those original sites and brought into Pusan. They were also rearranged into national plots so that Australia, I think, has four plots, Britain has about seven, United States has one or two-because they have only got about 30 Americans there, as the remainder were sent back to the United States-and Turkey has a number. So these graves were relocated. The origin of the thought is that Brian Foster had a mate who died there and he knew who was buried next to this mate in the original grave and, of course, they have all been moved. I do not think people quite appreciate that almost all war dead are relocated, usually more than once, before they end up in a Commonwealth War Graves Commission cemetery. So there is absolutely no truth to any of those allegations. Senator MARK BISHOP-Okay. The article goes on to say: The Pusan local government authority in Korea has constructed double lane freeways and resumed land within four metres of the entrance to the gates at the United Nations Memorial cemetery. Do you have any comments on that? Air Vice Marshal Beck-I have not been there, but our reports from the Australian embassy suggest that, yes, the place is getting a little crowded around there; Pusan is now a major city. But there have been no incursions within the cemetery. The only aerial photo I have is a few years old now, and it certainly looks like a major industrial area around the cemetery. But it is an absolutely magnificent park that is brilliantly maintained. It is an absolute gem and it does not quite deserve some of the press it is getting. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 336 SENATE-Legislation Wednesday, 5 June 2002 Senator MARK BISHOP-No. I must say that I do not regard four metres from the freeway to the entrance of the gates as remarkable. It is identical to Karrakatta, the Commonwealth war cemetery 200 yards down the road from my house. Air Vice Marshal Beck-It is a problem all round the world where they are building out around the cemeteries. Senator MARK BISHOP-I will read you a few of the more salacious comments and ask you to comment again. One says: Plans are now in progress to build a playground at the southern end of the cemetery, which is surrounded and shadowed by dense public housing. Air Vice Marshal Beck-I think there has been some exchange of land to create a new entrance at the rear of the cemetery. So there may have been some trade-off in small parcels of land that have allowed a playground to be built. I would be very surprised if a playground is constructed in the cemetery. Senator MARK BISHOP-I would be too. The article goes on: Disturbing new claims have emerged that there was, at best, a `slipshod' approach to transferring Aussie diggers from the old war cemetery to the new one. Do you have a comment on that? Air Vice Marshal Beck-Yes. Nothing could be further from the truth-in fact, the way it was done there was absolutely remarkable. There are very detailed records of every single transfer, and they are all kept by the custodian of the cemetery there. It is a most amazing recording system. But, again, that relates to my first comment-the `slipshod' comment and the suggestion that they do not know where they are buried are not true. Senator MARK BISHOP-So you also reject the suggestion that the transfer was `slipshod'? Air Vice Marshal Beck-Absolutely. Senator MARK BISHOP-Mr Foster went on to say: ... there is evidence to suggest that the transfer of the fallen to the new cemetery `may well have been very poorly supervised if at all'. Air Vice Marshal Beck-Again, he is basing it on the fact that this friend of his mate is no longer located next to him. We do not know whether his mate was of the same nationality. If he was not the same nationality, he would have been moved to his own national plot. Senator MARK BISHOP-The article continued: Mr Foster said the Australian Digger on display as a sole exhibit in Seoul was a national disgrace. "The exhibit makes Australia a laughing stock." Air Vice Marshal Beck-Yes, that may well be true. I do not know where it is. I think it could be a mannequin dressed as an Australian soldier. But that happens in other countries, too. Senator MARK BISHOP-But it is not germane to this cemetery at Pusan? Air Vice Marshal Beck-No, I do not know. It is not in the cemetery. Senator MARK BISHOP-Fine, I just want to get that on the record. I will read you two or three other paragraphs from the article, because they deal with comments made about former Minister Scott and Minister Vale, and I would ask you to address them on the record. The article goes on: Mr Foster said our fallen interred in Korea were no longer resting in eternal peace. He blames successive governments and singles out former Veteran's Affairs Minister Bruce Scott. "Mr Scott has not been interested in the subject ... possibly entwined in his own bureaucratic minefield. The French situation is serious but the problems in Korea are equally criminal. This is a very sad indictment against the RSL and previous governments. And it goes on. Do you have any comment? Air Vice Marshal Beck-Yes. Again, nothing could be further from the truth. I think it is worth putting on the record the rationale behind all these comments. It is an attempt to create a national cemetery in Australia and to have our war dead transferred back here. That is part of a web site campaign initiated, in part, by Americans-some American Vietnam veterans who do not quite understand the difference in our historical treatment of war dead compared with theirs. That thought has been picked up by some Australian Korean and Vietnam veterans also. So there is quite a push to bring our war dead home. I am not sure that they mean all 102,000. Senator HOGG-Is there an organisation as such that you can name? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 337 Air Vice Marshal Beck-There is certainly a campaign. I am not sure I could name it. Senator MARK BISHOP-Thank you for those comments, Air Vice Marshal Beck. The reason I wanted it on the record is that for some reason I received a fair amount of correspondence on this topic and we made some inquiries of the minister's office and Mr Hulsing from her office provided us with a copious amount of information which was of significant assistance to us in answering that correspondence. I thought I would take the opportunity to have the situation outlined on the record. Air Vice Marshal Beck-Thank you, Senator. Senator MARK BISHOP-I will turn now to the Long Tan memorial. What role has the Office of Australian War Graves or DVA had in facilitating the restoration of that memorial? Air Vice Marshal Beck-There has been absolutely no involvement from the Office of Australian War Graves. I had better pass over to my colleague who has been involved. Ms Blackburn-There has been no involvement with the restoration of the Long Tan memorial itself. However, a grant of $15,000 has been made to provide an all-weather road surface to the road which runs past the Long Tan Cross. That is designed primarily to complement the work that has been done by the Australian Vietnam Veterans Reconstruction Group and to assist the local people. Senator MARK BISHOP-Did that $15,000 grant come from DVA? Ms Blackburn-Under the Commemoration Grants Program, yes. Senator MARK BISHOP-So there have been no other funds contributed? Air Vice Marshal Beck-I think I have to correct myself. I think we give $100 a year which I have lost track of. Senator MARK BISHOP-But there has been no significant contribution from DVA? Dr Johnston-The Long Tan Cross has great significance to those who were involved in that particular battle but it does not have the formal status of an official memorial. That is a matter of considerable sensitivity to the Vietnamese authorities and the local people. Senator MARK BISHOP-Why is that? Dr Johnston-I think that is possibly something for the Vietnamese authorities and the people to speak to. What is interesting is that, over recent years, the Australian Vietnam Veterans Reconstruction Group has developed an excellent rapport with the local communities and now have their trust and have been very active in maintaining and improving the amenity of the Long Tan Cross. It is certainly a significant site. We would have an interest over a period of time, with the acceptance of the Vietnamese people and the Vietnamese authorities, in giving appropriate recognition to that site. But this, of course, is a matter of great sensitivity to the Vietnamese people. Senator MARK BISHOP-I can understand that from their perspective. The question then is: are there any negotiations under way between our government and the authorities in Vietnam to alter the status from a private endeavour to something more official? Dr Johnston-I think it is probably worth noting that the National President of the RSL, Major General Peter Phillips, has in recent times made a visit to Vietnam and was hosted by the Vietnamese authorities and the veteran organisations. He has indicated his view that it is time for the Australian government to build on his visit. Bruce Scott visited some years ago, including to the site of the Long Tan Cross. Peter Phillips is now of the view that it is time to progress that dialogue and exchange with the Vietnamese authorities and the Vietnamese veteran community. The government is currently considering the possibility of some type of visit in the new year. Senator MARK BISHOP-So the government has noted Major General Phillips' views and is reviewing its position? Dr Johnston-Not reviewing, just giving thought to how it might respond to his suggestions and its own interests in that area. Senator MARK BISHOP-Understood. Who funded Mr Scott's trip to France: was it DVA or PM&C? Ms Blackburn-My understanding is that it was the Department of Finance and Administration, but we would have to confirm that. Senator MARK BISHOP-Can you confirm that it was Finance and tell me the cost involved. What was the justification for that? Ms Blackburn-My understanding is that the Prime Minister asked former Minister Scott to represent the Minister for Veterans' Affairs at a number of significant ceremonies in Belgium and France around Anzac Day. The ceremonies in France are always the weekend after Anzac Day. In Belgium there has been a fairly FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 338 SENATE-Legislation Wednesday, 5 June 2002 longstanding relationship with EPA and the officials at the Menin Gate, and former Minister Scott attended functions there. Senator MARK BISHOP-Was he given ministerial status for the visit? Dr Johnston-We should take that on notice and give you a strictly correct answer. We assisted Mr Scott with arrangements for his visit and he had the courtesy of support from our embassies and so on. Senator MARK BISHOP-I am sure the embassies provided support and I am sure you did. You are a very gracious organisation. The question is whether he was elevated to ministerial status for the visit. Dr Johnston-He was there as the official representative of the government. Senator MARK BISHOP-Given the fairly lengthy and recent controversy over the proposed French airport, would it not have been more appropriate for Minister Vale to have attended? Dr Johnston-I think that is a question you should direct to the minister who would be sitting here in other circumstances. Senator MARK BISHOP-Yes, it is. We will talk briefly now about the proposed London memorial. I have received some correspondence from the national office of the RDFWA concerning, they say, the non- recording of the names of Australians who served with British forces in World War I and II on the roll of honour at the War Memorial with the suggestion that this might be done on the London memorial. Is it correct that the names of these Australians are not recorded at the AWM, and if so what is the reason? Air Vice Mashal Beck-I cannot speak for the War Memorial, but I would think that they probably are not recorded there, if that is what they are saying, if they were not members of the Australian forces who served. It is only a roll of honour. It is for those who died. Those Australians who served with British forces and died are probably not recorded at the War Memorial. Senator MARK BISHOP-The RDFWA state: The particular anomaly relates to the fact that Australian citizens who served in British units in WWI and WWII do not have their names inscribed on the walls of the Australian War Memorial as the Act provides only for Australians who served in Australian units. There is the answer. Air Vice Marshal Beck-There is the answer. Senator MARK BISHOP-It is a legislative direction. Will names be inscribed on the London memorial? Air Vice Marshal Beck-No, they will not be. On the other hand, the memorial is very clearly going to be designed to ensure we do pick up all Australians who served. Because in fact the memorial is about Australia's support in the defence of freedom along side Britain. Senator MARK BISHOP-You are not going to have a roll? Air Vice Marshal Beck-It will not have anyone's name on there. Senator MARK BISHOP-But it will make it clear that it is for all Australians. Air Vice Marshal Beck-It will be for all Australians who served with Britain. Senator MARK BISHOP-I might get you to take on notice the suggestion by the Regular Defence Force Welfare Association that there is a legislative prohibition for having the names of Australians who served in British units in World War I and II inscribed at the memorial. I suspect there would have been a large number of Australians, particularly in those days, who signed up in various British units. Air Vice Marshal Beck-Certainly I know that is true of the RAF in World War II. Senator MARK BISHOP-You might confirm that that is the reason their names were not inscribed. If that is incorrect, could I ask you to advise why their names would not be inscribed. Dr Johnston-I think we will take that on notice on behalf of the War Memorial and ask them to respond. Senator MARK BISHOP-Yes, that is fine. Similarly, I now refer to an article by Charlie Lynn in the Sunday Telegraph on 21 April under the heading ` Failed monuments that betray the Kokoda spirit'. I ask you, again, Air Vice Marshal, to comment. In this article Charlie Lynn goes on to say, about a third of the way into the article: The Kokoda Memorial Hospital has been without a doctor for most of the past 10 years. Nobody is even qualified to operate the hospital's X-ray machine-and they don't have power for it, anyway. The new wing, completed almost 12 months ago, has never been used. Do you have any knowledge of the situation up there? FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 339 Air Vice Marshal Beck-It is true that there is not a doctor stationed there, but a doctor frequently attends there. There is a good letter which has been written to refute that from Rotary International, who have done all of the work at the hospital. Over 4,500 babies have been born at this hospital and about 70,000 people have been served by the hospital since we constructed it, so it is doing pretty well for a hospital in Papua New Guinea. Senator MARK BISHOP-So you refute those allegations? Air Vice Marshal Beck-There might be some evidence in them but from the reply-written by Mr Don Jury, a retired Rotary International president-the Rotarians, who constructed this with funding we provided from the Australian government, were deeply upset by Charlie Lynn's comments. Senator MARK BISHOP-But you do not have a detailed knowledge of the situation up there? Air Vice Marshal Beck-Having constructed the hospital, it actually became the responsibility of the PNG government to fund its maintenance and that has been somewhat deficient. We are currently negotiating to have a plant operator there to maintain all the systems operating. We are just trying to work out how we can actually do that in terms of whether it is a locally employed civilian which we fund through the Australian High Commission. We are trying to find a solution to the problem. Senator MARK BISHOP-All right. Can you take on notice-because, again, I have received correspondence on this-and provide a written comment as to the truth or otherwise of these allegations: that the hospital has been without a doctor for most of the past 10 years; that no-one is qualified to operate the hospital's X-ray machine; that the new wing, completed almost 12 months ago, has never been used; and that there is no fuel to run the generator hence there is no power? Air Vice Marshal Beck-Yes. Senator PAYNE-Mr Chair, I just want to clarify something with Air Vice Marshal Beck. I do not think there is a suggestion that the comments are made in what I would describe as a malicious way; I think they are made with concern about the most effective use of the facilities and Mr Lynn's concern about the appropriate recognition or acknowledgment of the Kokoda Track itself. Air Vice Marshal Beck-Yes, I think that is a fair comment. I think, given that there are no maintenance funds, there is no doubt that there is some truth in the comments. I guess the article does not give any recognition for the work that has been done and what the hospital has achieved. Senator PAYNE-I know Mr Lynn to be particularly committed to this aspect of the recognition of Australia's role and to Australia's continuing presence in the area, having taken, I think, between 27 and 30 trips up and down the track in recent years. Air Vice Marshal Beck-I look forward to responding to get to the bottom of it. Senator MARK BISHOP-I was not passing any comment on the accuracy or otherwise of the article; I was just referring it for public comment because I have received some correspondence making similar allegations. So we need to get on the public record what the facts are. Dr Johnston-It might be useful if, in the answer, we also provide some information on the range of development projects that the Australian government has been involved in along the Kokoda Track because that might provide a context for the Rotary International project. We are talking about a range of development projects in an area which is remote, in many cases, and faces all the challenges of that sort of situation. Senator MARK BISHOP-Thank you, Dr Johnston. Air Vice Marshal Beck-I will put that in context. I think it was part of the Australia Remembers program. There was a joint funded arrangement whereby the Australian government provided the hospital and a range of other facilities, including classrooms and what not, and the other half was to be provided by the PNG government. It totalled 81 projects and, to date, they have not been funded. Part of that was funding the ongoing maintenance and support of this hospital. There is no question as to efficiencies. Senator MARK BISHOP-I understand; thank you. Is it a fact that the Office of Australian War Graves has permanent leases over World War I and World War II graves but the same does not apply to the graves of Korean and Vietnam veterans? It has been a problem in South Australia and has been raised in some of the local press. Air Vice Marshal Beck-That is correct. It is a problem that occurs only in South Australia, because they are the ones who are most active with the limited tenure leasing. All the World War I and World War II graves are in Commonwealth War Graves Commission cemeteries that we maintain. We have a 99-year lease, which is the most that we granted under the local legislation, but I think in effect it is permanent, so there is no problem with the World War I and World War II graves. I do not think there are any Korean veterans. Of course, those who may have come home injured and then died would be buried privately. Then, again, there FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 340 SENATE-Legislation Wednesday, 5 June 2002 are 54 Vietnam veterans in South Australia. The minister has undertaken to pay for renewal of the leases, but the minister has also written to the South Australian Premier seeking a permanent change in legislation to create permanent leases for all our war dead. Senator MARK BISHOP-They are currently interred in cemeteries other than in Commonwealth War Grave Commission sites? Air Vice Marshal Beck-Yes, all the Commonwealth War Grave Commission cemeteries closed on 31 December 1947. All our war dead, those who came back from Vietnam and those who were injured and died in the Korean War are buried privately, except for 24 veterans who are in military cemeteries in South-East Asia. Senator MARK BISHOP-When did the minister write to the South Australian Premier? Air Vice Marshal Beck-About a month ago. Senator MARK BISHOP-Has there been any response to date? Air Vice Marshal Beck-I saw a response in a news item this morning that the South Australian government is considering the question. Senator MARK BISHOP-We might revisit that at the end of the year. That concludes outcome 3, Commemorations. Thank you, Air Vice Marshal Beck and Ms Blackburn. [8.43 p.m.] CHAIR-I would now like to turn to outcome 4, the needs of the veteran community. Senator MARK BISHOP-I refer to the announced opening of the new DVA office in Tweed Heads, welcomed greatly, I presume, by the member for Richmond. What is the estimated cost of opening this office and maintaining it for a year? Mr Hay-I do not have the exact costs with me. But, from recollection, I think establishment costs were of the order of $400,000 and the ongoing costs were approximately $200,000. We can take that on notice to give you the exact figures, if you wish. Senator MARK BISHOP-Yes, if you do not mind. So that is $200,000 a year ongoing costs-is that right? Mr Hay-Yes, of that order. Dr Johnston-That is not the effective cost of providing the increased service at Tweed Heads, because opening the office at Tweed Heads will mean there will be less demand on the Southport office on the Gold Coast. There will be a rearrangement of a couple of staff positions and budgets, but that gives you the gross cost of the new office. Senator MARK BISHOP-Has any consideration been given to closing the office in the former minister's electorate of Maranoa? Dr Johnston-No, Senator. Senator MARK BISHOP-Why was the office located in Tweed Heads? I have pulled out some figures on the 16 electorates around Australia with the highest concentration of vets. I did not observe that Tweed Heads was in one of them, so why has the office been located there? Dr Johnston-The region around Tweed Heads, Lismore and the Gold Coast is an area with a significant veteran community. It can certainly be justified in those terms, but I would make the point that the commitment to opening the office at Tweed Heads was a commitment by the government during the last election campaign and we are implementing the government's policy. Senator MARK BISHOP-When I looked at the figures, there was a much higher concentration of vet and ex-service personnel in Lilley and Bowman-those sorts of seats in and around Brisbane. But you say that it was an election commitment by the government? Dr Johnston-That is correct. Senator MARK BISHOP-So that is the reason. Was that a departmental decision or a decision made under the direction of the minister? Dr Johnston-It was a government election commitment, and at the moment in the budget the department is proceeding to implement the government's election commitments. It has gone to gold card indexation of income support supplements and so on. This was a commitment during the election, and we are implementing that. Senator MARK BISHOP-Gold card income support supplements go to a class of Australians who are to receive a benefit Australia-wide-gold card access to health benefits and, for the widows, improved payments FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 341 whether they live in Queensland, Perth or wherever. It is not electorate based. If the government had not made that commitment in the election campaign, would the department have opened that office in Tweed Heads? Dr Johnston-We are certainly keeping under review the adequacy of services in regional areas right around the country. Whether that would have been an immediate priority is not something I want to comment on. CHAIR-Senator Bishop, I think that is a question better addressed to the minister. Senator MARK BISHOP-I understand that the government made an election commitment and the department has carried that out. I accept that. My question is not about that. My question is: if there had not been a government decision, what is the normal forward planning of the department for new offices to cater to the needs of veterans; and, but for that decision, would the department have opened the Tweed Heads office? I think that is in line. Dr Johnston-It was not an immediate proposal being developed within the department. But I think, Senator, you are coming close to asking me to comment on government policy, which is not my role. Senator MARK BISHOP-I think you have answered the question, and I have probably pushed it as close as I can. Thank you, Dr Johnston. The final subject I want to raise with you, Dr Johnston, goes to the ANAO IT report released during the last two months. There are two criticisms that have been the subject of some press speculation: the sale of assets at half their estimated value and the growth in the value of the contract since its inception. What is the explanation for the deal that saw the capital assets sold for significantly less than their book value? Mr Harrison-When the tender was first issued back in 1997, all tenderers were advised that the department had a valuation of $10.6 million for our assets. At that point, we advised the tenderers that we wanted to see that value reflected in their bids in one way or another, either in money or in reduced prices. They all responded in different ways, and the acquisition council made a decision based on what was offered. The IBM bid was for $5.5 million, with a reduced price on the rest of the baseline services. Senator MARK BISHOP-So they could have offered you the $10.6 million. You indicated in the tender process that you wanted close to market value. Did you receive close to market value in terms of the reduced cash price and reduced services? Mr Harrison-The acquisition council at the time thought so, yes. Senator MARK BISHOP-What items of expenditure were entered into after the contract was signed which explained the increase in outlays in the contract? Mr Harrison-There is a short answer and a long answer. There are three components of the increased cost. As was reported, the initial value of the contract over five years was anticipated to be $65 million. We expect to have spent $140 million by the end of November. The components of the difference are as follows: $25.482 million in increased usage and price increases, increased usage being more mainframe components being used, more desktops in the department than we anticipated at the time, a whole range of increased use of the stuff we originally bought- Senator MARK BISHOP-We might explore that a little. That $25.48 million is a large amount. You talk about increased usage, extra access to the mainframe and extra desktops and increased usage of those. What caused that extra package of usage that was not anticipated at the time when the contract was signed? Mr Harrison-Again there were a number of components of that. One, for example, was that the prediction at the time was that the department would reduce in size to a position today where we would have 2,200 seats-the terminology in the contract is `seats'-and we actually have 3,300. If you take each of those costs, the total cost of that increase is about $8.8 million. If you will forgive me, I will talk in the terminology of the contract. Regarding the mainframe itself, the baseline purchase at the time was for a metrical CPU minutes per month. That is the engine within the mainframe. The baseline at the time was 42,000 CPU minutes per month. At the time the prediction was that that would remain static. We are currently up around 200,000, so there is a fivefold increase for that, which goes some way to explaining the increased usage. Associated with that particular metric are storage costs, tape mounts and a whole range of things that were not predicted at the time. Senator MARK BISHOP-Why did the things that were not predicted at the time occur? Was it because of changed government policy? Mr Harrison-Again, there were a number of components to that. The audit report made the observation that our strategic planning documents at the time had some prediction of increase and we did not pick that up in the contract. There is some validity to that, but I think generally in the IT industry it would have been a brave IT manager to have predicted in 1997 a fivefold increase in mainframe capacity, which is what occurred. The sorts of things that led to that were things like Y2K remediation. The level of activity that that FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 342 SENATE-Legislation Wednesday, 5 June 2002 required was not obvious at the time. To help our business, we have added a lot of applications systems that were not predicted at the time. For example, there is a suite of applications called enterprise resource planning or ERP applications which are financial and human resource management systems that are very resource hungry. They have been deployed across most organisations over the past four or five years. That sort of activity was not predicted at the time. We have been very active in building quite sophisticated computer systems to support our ongoing business, and the more sophisticated those systems are the more resource hungry they are. Senator MARK BISHOP-This could be a fairly lengthy discussion and somewhat technical. Could a list be provided of all systems development during the term of the contract, showing original estimates and final outcomes? Dr Johnston-We have a suggestive table, which Mr Harrison was referring to, which we can give to you. You run the risk of getting lost in a lot of data that is not necessarily very easily interpreted. Senator MARK BISHOP-I am looking for a broader explanation. The cost blow-out is $65 million to $140 million. I am aware that there have been some significant changes within the DVA in recent years, occasioned by government policy and government commitments. I wonder if there is any link between that and the cost blow-out. Dr Johnston-As a department, we object to the media coverage saying that there has been a cost blow- out. We reject that very firmly. It is particularly important to keep in mind that when the contract was let it was very early in the first term of the government and there was a policy of comprehensive review of provision of services, including the possibility of services being contracted out. At the time we had a range of possibilities that we were looking at in principle. It was certainly conceivable that the department's own internal business could have declined. It was equally true, in other scenarios, that it could have increased. It is also fair to say that over the five years the department has taken a fairly aggressive approach to the use of IT to improve productivity and to improve the quality of service to veterans. The system that we were talking about last evening, the DMIS system, is very hungry in its use of storage and computer-processing power. It is a very data-intensive system that provides considerable power to the program manager to analyse data, look for consistency differences and make informed business decisions, but it is very expensive to operate on the computer. The funding for DMIS, as you drew out last night, was provided in a budget context on the basis that in the end it would more than pay for itself because of the improvement in program management. We can give you a suggestive list of some of the principal areas where increased funding has gone. To refer to some big blocks of data, a large chunk of the increase from $65 million to $140 million, as Mr Harrison has indicated, is a change in the level of business and adjustment for prices in line with the CPI and so on. That is catered for entirely within the terms of the contract. It is not something that has been added on. The contract has served us very well in its flexibility in handling the general expansion in business. Another reason for the growth from $65 million to $140 million is that we have added, for the calculation that was done, another-how many months, Mr Harrison? Mr Harrison-It would be another eight months. Dr Johnston-We have added another eight months and, on the current cost of running our services, that is another $15 million. Significant IT projects, including provision for Y2K-we can provide you with a list-adds to $35 million. So we can quite readily explain the increases in expenditure from $65 million. Senator MARK BISHOP-Dr Johnston, does that suggested list come from the ANAO report or was it put together by the department? Dr Johnston-This has been done as we have pulled together material to respond, in particular, to the media coverage, which we saw as being most unfortunate and most unfair. Mr Harrison-But it is consistent with the information we provided to the ANAO. Senator MARK BISHOP-Do you wish to have that incorporated in the Hansard? Dr Johnston-If you would find it useful, we would be happy to have it incorporated. FOREIGN AFFAIRS, DEFENCE AND TRADE Wednesday, 5 June 2002 SENATE-Legislation FAD&T 343 The document read as follows- IBM-GSA EXPENDITURE & PROJECTIONS Notes Increased usage $25,482,690 Includes Mainframe upgrades, (includes Price Review increases) PCs, CPU, DASD & Tape Mounts Extension of contract $15,221,302 April 2002 to November 2002 (includes Price Review increases) IT Projects $34,592,822 Y2K Code Remedial & Related $ 6,503,060 Services DMIS $ 2,943,319 HOCAS $ 2,153,601 Remote Office Servers $ 1,456,957 DOLARS & PAHRIS (including GST $ 1,291,027 impl) $75,296,814 Senator MARK BISHOP-How much of the increased outlays-up from $65 million to $140 million- described by ANAO were budget funded? Was it all of it? Dr Johnston-I am not sure what you mean by budget funded? It has all been paid for, either out of our running costs appropriation or out of particular budget measures. Senator MARK BISHOP-Did you have to get supplementary appropriations or was it out of the original appropriation? Dr Johnston-We have DMIS on the list, for example; that was a specific new policy measure in the budget. Senator MARK BISHOP-Let us go through them one by one. `Increased usage, includes price review increases of $25 million'-where was the funding for that? Was that in the original appropriation measure? Dr Johnston-We have, in effect, had to cover that in our own operating costs. Over time we have had to manage our resources, including in discussion with the Department of Finance and Administration in the pricing review last year, to make sure that in terms of the overall budget for the department we had enough to cover these sorts of expenditures as well as other activities. Under the government's accrual accounting budget framework, there is a provision for depreciation, which was also a source of funds for these expenditures. I do not know what the allocation would have been over this period. Mr Farrelly-The recent allocation was in the order of $9 million a year. Dr Johnston-Yes. So that is a new element that, in a sense, adds year by year to the availability in terms of our operating budget. We were funded specifically for implementation of Y2K. I think we would have to take on notice to provide the amount for that. Mr Harrison-It was in the order of $12 million. FOREIGN AFFAIRS, DEFENCE AND TRADE FAD&T 344 SENATE-Legislation Wednesday, 5 June 2002 Senator MARK BISHOP-So Y2K and remedial and related systems were specifically funded, and DMIS is specifically funded. What about HOCAS? Mr Harrison-HOCAS is the computer system associated with the Veterans' Home Care program. Dr Johnston-And we were resourced for that. Senator MARK BISHOP-What about the remote office server? Mr Harrison-That was an early decision that was internally funded. I should explain these numbers a littler further, if you can spare the time. These are the amounts of money we have spent on these activities with IBM; they are not the total cost of the projects themselves. This is specifically the amount of money that was paid to IBM for these various projects. The remote office servers were back in the early days when the contract allowed us to connect the remote offices for the very first time-remote offices being a number of van offices around the country-and we had anticipated providing them with email capability only. As soon as they were connected, it became evident that they required more capability at that local office level. To provide that capability we needed to provide servers in those offices, so we took a decision to provide that capability. Again, that was not anticipated in the original contract. Senator MARK BISHOP-It might be easier, Dr Johnston, if you take on notice to advise us whether each row identified in the document was budget funded or whether it was the subject of a separate, different or later appropriation, and the source of that. If it was from internal funds, you might advise us of that as well. That might be the simplest way. Dr Johnston-We understand the broad intent of that question. We will try to lay out an explanation for you. I might say that this is not a complete list; it is just the larger items. That is suggestive of the aggregation that does provide an explanation. I would suggest you would get lost if we did a total enumeration. Maybe we can look at whether there are some items that should be added. Senator MARK BISHOP-I presume that $75 million is the difference between $65 million and $140 million. Mr Harrison-That is correct. Senator MARK BISHOP-That is the basis of the questioning. Mr Harrison-The items listed underneath are the big ticket items within the $34.5 million. It is not all of the items. All of them go to some pages. Senator MARK BISHOP-I take that point. Dr Johnston-I think we should stick to the larger items. Senator MARK BISHOP-If I want to come back to it, I will request it on notice. I am going to give you a table, Dr Johnston, and ask you to take it on notice. Earlier this year I received a briefing from the department and you provided me with some material which had a whole range of information in it. In that document there was table 25 as at September 2001, which identified the number of persons receiving the aged pension who were also T&PI intermediate rate and general rate. On Monday at the Community Affairs Legislation Committee estimates they provided some figures on the number of DSP recipients who are T&PI intermediate rate and general rate. I would ask you, whether it is your department or DFACS, to provide the figures in the same form for those who receive the Newstart allowance. I will give you the document that explains it. I have some other material in the health area to give you on notice. That concludes my questions. I thank you, Dr Johnston and the officers of the department, for your assistance over the last two days. Dr Johnston-I thank you too, Senator Bishop, for a very workmanlike performance. CHAIR-Thank you, Dr Johnston and the officers of the department. We look forward to seeing you later in the year. Committee adjourned at 9.08 p.m.