How to spend billions on the Defence Force

Sunday, 16 March 2025

The Government is soon to release a new Defence Capability Plan, as concerns about large-scale conflict rise has the Western world rearming. How should New Zealand arm itself for the future? That’s a billion-dollar question. Thomas Manch reports.

Having finished monitoring three Chinese warships off the Australian coast, the New Zealand navy’s HMNZS Te Kaha paused its journey to the Arabian Sea for a “world-first” live fire exercise of its own last week.

Air Force technicians mounted an anti-ship “penguin missile” and its 120kg warhead on the side of a Seasprite helicopter.

The helicopter took off from Te Kaha and the missile - which can skim the water’s surface 34km before penetrating a ship’s hull and detonating - was fired and struck its target.

The firing of a penguin missile from a Seasprite was a “world-first”, Defence says. And it took more than a decade to reach this milestone. Defence bought an unknown number of these missiles in 2013.

Te Kaha also tested a missile in December. It fired a Sea Ceptor off the coast of Australia, as its sister ship HMNZS Te Mana did a year earlier. The missile test was the final step in an upgrade programme for the two frigates which cost $639 million and had both ships spending years in Canada.

The missiles tests were declared successes by Defence, but they also reveal a problem: this military hardware is now up-and-running in time for the frigates and helicopters to be retired.

The fleet of Seasprite helicopters have to be replaced, by 2028. Spare parts are expensive and difficult to come by, and two of the fleet are already being cannibalised.

Both the Te Kaha and Te Mana, acquired in the 1990s, are reaching the end of their 30-year lifespan. With further work, they possibly have another decade to run, but will be retired alongside all but one of the navy’s eight ships between 2032 and 2036.

“This is the moment where we've managed to avoid paying up, and it's not just us, it's everyone,” says Josh Wineera, a defence consultant and retired lieutenant colonel.

“If we don't do it … it'll be more expensive.”

Expensive because, as the rising risk of large-scale conflict coincides with a wave of fast-evolving technology, much of the Western world is re-arming.

A bullish Trump administration in the United States is pressing partners for greater military spending, as it relieves itself of the burden of being the pre-eminent global security guarantor.

China’s rapidly growing navy sailed into the Tasman Sea with its cutting-edge guided missile Renhai-class cruisers, demonstrating its hard power potency.

The use of drones has changed conventional battlefield strategy in Ukraine, and as the US seeks a hurried peace, European military officials are holding panicked meetings. Poland and Lithuania talk of abandoning arms treaties to stockpile land mines, such is the fear of an expansionist Russia.

Closer to home, New Zealand’s only defence ally, Australia, in December became the third country to acquire and fire a Tomahawk cruise missile. The Tomahawks have a range of 2500km - greater than the distance between Sydney and Auckland - and Australia plans a stockpile of 200.

This leaves New Zealand to decide how to arm itself.

“We have to go back to defining what are our national interests? Therefore, what are the threats to those, then what capabilities do we need?” says Wineera.

The Government has been doing just this behind closed doors and a Defence Capability Plan, or DCP, is set to be publicly released in the coming weeks.

The plan will replace a 2019 version and set out Government’s defence strategy for years to come, updating how the Government sees the world, and how it will spend billions on personnel, vessels, aircraft, and air and sea drones.

Defence Minister Judith Collins first said the DCP would be released mid-2024, but this further slipped from September to a promise of the end of March this year.

However, Collins this week would not confirm if the plan may arrive by the end of the month.

Cabinet conversations continue, she says. Coalition code for: agreement has yet to be reached.

Nonetheless, she says the plan would be “sensible, practical, and doable”.

“I’m not an unhappy person, and that is a good thing.”

Already the Prime Minister Christopher Luxon has said the Government aims to get close to spending 2% of GDP on defence, a target widely-held as a creditable level of defence spending.

But how quickly this is achieved remains a question.

Current spending is tracking below 1%, at roughly 0.9%. Doubling this could mean spending more than $4 billion.

Finance Minister Nicola Willis has set tight operating allowances for the coming four years, however.

Each Budget is to contain no more than $2.4b in additional spending, and already much of this for May’s Budget has been promised to health commitments - $700 million remains.

Willis this week said 2% can still be reached.

“You will see in the Budget that when we prioritise carefully, we can make investments in the things that matter. And New Zealand’s security matters.”

Collins says there is “absolute agreement” in the coalition about “movement towards” this target. The direction of travel is also supported by Labour, though the 2% target is not.

While Collins would not get into the specifics of the plan, the basic premise will be “more money” and “more people”.

“We’re stating: this is the issue, this is the solution that we can see, and we can afford.”

The first problem for the DCP, says former defence minister Andrew Little, will be personnel.

“You can have all the best kit in the world, but if you haven’t got people to run it, and trained up, and confident and competent in a combat environment, then it’s nothing.”

Retaining personnel has been an acute problem for the Defence Force in the post-pandemic years, however attrition among uniformed staff has dropped from a 2022 peak of 15.8% to the current rate of 7.5%.

“We've actually come quite a long way in the last year. So our attrition rates are right down now … the recruitment is not as fast as it needs to be,” Collins says.

“We have a lot of people wanting to join, but we have to really get our DCP in place, and we have to make sure that we have opportunities available for people.”

As of February, the army was 4277-strong, the air force had 2404 personnel, and the navy 2168.

Compared to before the pandemic, Defence has more than 450 fewer uniformed personnel overall, the majority from the army. But the churn of more than a thousand uniformed staff leaving since the pandemic has Defence describing its workforce as “hollowed out”.

Increases to personnel pay in recent Budgets appear to have helped, but crewing navy vessels remains a difficulty.

As of this month, the tanker HMNZS Aoteroa, the frigate Te Kaha, the sealift vessel Canterbury, and inshore patrol vessel Taupo are all working. The second frigate Te Mana is in extended maintenance.

The inshore patrol vessel Hawea, and offshore patrol vessels Wellington and Otago, have been tied up in “care and custody” since 2022.

HMNZS Manawanui remains on the seafloor south of Samoa, having disastrously sunk last year. In its stead, work will begin later this year to bring the Otago back into operation.

Little says the DCP should make “a serious assessment” about the navy, “given the difficulty we have providing crew for all our vessels'.

Discussions were already under way about reducing the fleet to six vessels when he was minister, in 2023.

One vessel expected to be needed is an ice-strengthened Southern Ocean Patrol vessel to better monitor fisheries between New Zealand and Antarctica. Purchase of such a vessel was “deferred” in 2022 due to Covid-19 spending pressures.

“The big challenge is with the frigates now,” Little says. The decade these vessels have left will go “very quickly” when planning, designing, procuring, and commissioning their replacements.

Collins has confirmed the Manawanui, a dive and survey ship, will not be replaced. But the Air Force’s ageing Boeing 757 aircraft, used for VIP and other logistical transport, will be.

The air force is otherwise now realising the benefits of the last major round of capital investment. Since December 2022, it has been receiving a fleet of four P-8A Poseidon surveillance and submarine hunting aircraft, costing $2.34b, and five new C130J Hercules to replace their 60-year-old predecessors, costing $1.5b.

The army also has new 11-tonne Bushmaster armoured personnel carriers, after the Government in 2020 purchased 43 from an Australian firm for $102.9m.

More than a thousand hours of training on the new vehicles has been completed, Defence said this week, and it planned to send some of the vehicles overseas for multi-national exercises later in the year.

Still being finalised, however, was the communications equipment needed on the Bushmasters, as part of a broader “network enabled army” project to overhaul frontline technology. This programme received a second $106m funding tranche in 2019.

Little says the Bushmasters were a “classic example” of a problem with Defence spending: Treasury considers “peripherals” to the assets, such as communications equipment, as “optional extras”.

“Things get sliced up for different financial use in a way that’s completely disconnected from the reality of defence spending.”

Museum Street Strategy’s Tim Hurdle, whose government relations clients include defence industry firms, says procurement will “probably will need to become more agile and work on shorter time lines to meet the market, given the competition for resources”.

“Other countries are bolstering their sovereign defence industry so they have control over the supply chain, but also to provide for their own needs.

“We probably need to be looking at what capacity we can to manufacture equipment that we'll need in New Zealand, and that can be things like drones … and levels of support for equipment that don't require a reliance on a just-in-time supply chain, as we have in the past.

“With the current climate, we may need to invest taxpayer resources to bolster production and capability and ensure that the technology is available to out of Armed Forces onshore.”

Wineera says if $1b is to be spent on defence, the first $100m should go directly to improving how the remaining $900m will be spent - hiring specialists in strategy, procurement, contracting, and testing.

He says the major naval platforms needed are “a given”, considering New Zealand’s responsibilities in the Pacific and Antarctica. More than two frigates could provide better coverage, and redundancy in the event one was sunk.

Beyond this, Wineera says there are three critical aspects the coming plan should contain.

The first was “force multipliers” for the major platforms, such as air and sea drones to be launched from air force planes and navy vessels.

“What I would really, really like if in the DCP there was money put aside for invigorating and encouraging defence industry, and it's not to build the big ships or the big planes,” he says.

“That would be to support the development of AI systems, drone systems, integration of software.”

The second was increasing “stand off capability” to extend both the air and naval force’s lethal range. This is a similar strategy to that pursued by Australia, and Wineera says Tomahawk missiles should be considered for New Zealand navy frigates.

The third was not about military hardware, but relationships.

“We have to be a bit more than just interoperable with the likes of Australia. I think we need to be interchangeable … to have value to our military alliance that we can't lose.”

An example of interchangeability, Wineera says, is the appointment of Major General Hugh McAslan as deputy chief of joint operations in the Australian Defence Force - the most senior appointment for a foreign military officer in Australia.

“That's a busy headquarters, because that's a headquarters that controls all of their Colins submarines, their F35s [jet fighters], all their land force.”

Beyond Australia, Wineera says deepening relationships with similarly-sized countries -- such as Singapore, United Arab Emirates, and Sweden -- would be a good move.

Particularly when you can’t keep betting on US security leadership.