Higher prices hit Defence budget hard

The Defence Force needs up to $80 million more this financial year after suffering from the double hit of rising fuel costs and the fall of the New Zealand dollar.

The Defence Force chief, Air Marshal Carey Adamson, said numbers were speculative but he conceded the operating budget had been hit by a "double whammy."

One of the problems was that budget baselines were set in 1997 when the kiwi was worth 69USc.

"Obviously with the exchange rate hovering around 40c that has an impact on our operating budget."

Air Marshal Adamson said a lot of Defence operations were based overseas, many of which New Zealand was paid for by the UN.

But there was still a problem meeting operational costs, particularly paying for spare parts in US dollars and the cost of fuel.

To be prudent, Defence had to look forward and determine what would happen if exchange rates and fuel costs remained at present levels.

"Obviously we have to take the worst case and decide what impact that will have in the future rather than waiting for the last quarter of the financial year and find we are in difficulty."

The Defence Force has a budget of $1.4 billion, although $500 million of this is clawed back by the Government in the form of depreciation and capital charges.

Air Marshal Adamson would not speculate on what would happen if the budget was not increased.

The falling dollar had added to the cost of all operations, maintenance, the purchase of spares and ammunition.

Another factor squeezing Defence was "military inflation" - the cost of equipment and operations rising faster than other sectors of the economy.

The military inflation factor is calculated at 8 per cent to 10 per cent above the consumer price index.

- NZPA

Herald Online feature: Our national defence

Statement from the Hon. Mark Burton, Minister of Defence: Rebuilding the capability of the NZ Defence Force