Nzdf and Ministry of Defence

Cabinet CAB Min (10) 39/8

Copy No:";).l

Minute of Decision

This document contains information for the New Zealand Cabinet. It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority.

Defence White Paper: Final Draft ~r?~ ~ Portfolio: Defence ~~ ~ • 'I. On 1 November 2010, following reference from the Cabinet Exte hRelatlOns and: efertce Committee (ERD), Cabinet: 1 noted that on 26 October201O, ERD noted: ~~/J~ 1.1 the contents of the draft Defence Whi e ape 'QO 10, :ache 0 the paper under ERD (10) 48; A.

1.2 that the draft Defence White Defence White Paper 201

1.3

2 endorsed ~V{~l¢ ..",nPrn Ol0, attached to the paper under CAB (10) 581. kdatUfl- ~ Secretary of tlt~abiItet Reference: CAB (10) 581 8 Distribution: (see over)

t:CMS i[, ', , 1 Udtr.? ...... , i F'oider r\l{] , , , , i I i ~'~~~.::'!_:..:~ec) ,_ To '•. :.:,~~,,~:::.::.:_~.~~.~:.:.:~.:.:..:.:..:.;,::.~:~~

1'7'1'100,,1 Cabinet External ERD Min (10) 11/1 Relations and Defence Copy No: aci Committee Minute of Decision

Defence White Paper: Final Draft

Portfolio: Defence

On 26 October 2010, the Cabinet External Relations and Defence Committee:

1�noted the contents of the draft Defence White Paper 2010, attached to the paper under ERD (10) 48;

2�noted that the draft Defence White Paper 2010 is the finalised content of the Defence White Paper 2010, subject to final minor editing amendments;

3�noted that the draft Defence White Paper 2010 will now be finalised in preparation for its proposed release on 2 November 2010 by the Prime Minister and the Minister of Defence; 4�agreed to recommend that Cabinet endorse the Defence White Paper 2010.

Saphron Powell � Committee Secretary Reference: ERD (10) 48

Present: Officials present from: Hon Bill English (part of item) Office of the Prime Minister Hon David Carter Officials Committee for ERD Hon Murray McCully (Chair) Treasury Hon Dr Wayne Mapp Ministry of Foreign Affairs and Trade Hon Georgina to Heuheu Ministry of Defence New Zealand Defence Force

Distribution: (see over)

1 ERD Min (10) 11/1

Distribtstton: Cabinet External Relations and Defence Committee Office of the Prime Minister Chief Executive, DPMC Tony Lynch, DPMC PAG Subject Advisor, DPMC Director, Security and Risk Group, DPMC Director, NZSIS Director, GCSB Secretary to the Treasury Minister of State Services State Services Commissioner Commissioner of Police Secretary of Foreign Affairs and Trade John Allen, Chief Executive, MFAT Bronwen Chang, MFAT Secretary of Defence Brook Barrington, Defence Chief of Defence Force

17T751-1v1� 2 Cabinet External ERD (10) 48 Relations and Defence Copy No: 3 Committee

Summary of Paper 21 October 2010

Defence White Paper: Final Draft

� Portfolio Defence

In February 2010, the Cabinet Strategy Committee agreed that a Defence White Paper be prepared incorporating the conclusions of the Defence Assessment and the outcome of the Value for Money review [STR MM (10) 1/1]. In September 2010, Cabinet: • authorised an ad hoc group of Ministers (comprising the Prime Minister, the Minister of Finance, the Minister of State Services, the Minister of Foreign Affairs, and the Minister of Defence) to make any decisions that may be required to complete the final draft of the Defence White Paper; • invited the Minister of Defence, in consultation with other Ministers as appropriate, to submit the final draft of the Defence White Paper to Cabinet for approval, before the end of October 2010. The paper under ERD (10) 48 seeks endorsement of the attached Defence White Paper 2010. A summary of the nine chapters in the Defence White Paper is provided on pages 1-3 of the paper.

The Minister of Defence recommends that the Committee:

1�note the contents of the Defence White Paper 2010, attached to the paper under ERD (10) 48; 2�endorse the attached Defence White Paper 2010, subject to final minor editing amendments;

3�note that the Prime Minister and the Minister of Defence will launch the Defence White Paper in early November 2010.

Saphron Powell Committee Secretary

Distribution: (see over) ERD (10) 48

Distribution: Cabinet External Relations and Defence Committee Office of the Prime Minister Chief Executive, DPMC Tony Lynch, DPMC PAG Subject Advisor, DPMC Director, Security and Risk Group, DPMC Director, NZSIS Director, GCSB Secretary to the Treasury Minister of State Services State Services Commissioner Commissioner of Police Secretary of Foreign Affairs and Trade John Allen, Chief Executive, MFAT Bronwen Chang, MFAT Secretary of Defence Brook Barrington, Defence Chief of Defence Force Office of the Minister of Defence

Chair, Cabinet External Relations and Defence Committee

DEFENCE WHITE PAPER: FINAL DRAFT

Proposal

1�I propose that the Committee endorse the final draft of the Defence White Paper. The next steps are to publish the document, and launch it in early November.

Background

2�The culmination of almost two years work, the Defence White Paper is New Zealand's first complete defence review in well over a decade. It has looked at Defence comprehensively, and sets the direction for the next 25 years.

3�The White Paper takes a systematic approach to New Zealand's defence requirements. Our policy is shaped by enduring national security interests. We view the strategic environment in light of these interests. Together, our interests and perceptions of the strategic environment determine the tasks we envisage for the New Zealand Defence Force. These tasks shape required military capability. Capability choices are further influenced by the Government's fiscal objectives.

4�The White Paper draws on the Defence Assessment which was earlier prepared by the Secretary of Defence. It has been informed by public and academic consultation, and by the views of an independent advisory panel. An independent Value for Money review (VfM) led by Dr Roderick Deane has complemented the process.

5�Cabinet has considered the defence review on a number of occasions. The Prime Minister, Minister of Finance, Minister of Foreign Affairs, and the Minister of State Services have considered the draft White Paper in detail.

Defence White Paper Chapters

6�Chapter one is an executive summary.

Chapter 2 New Zealand's National Security and Defence

7�It is unlikely that New Zealand will face a direct military threat. But our security interests extend beyond New Zealand territory. We have a fundamental interest in a rules-based international order; strong international linkages; and a sound global economy. The New Zealand Defence Force (NZDF) is one of a number of agencies that collaboratively advance these interests. It is the only agency of state that maintains disciplined forces that have the capability of conducting a range of tasks up to and including military operations. Chapter 3 New Zealand's Strategic Outlook to 2035 8�The next 25 years are likely to be more uncertain than the 25 just past. New Zealand can expect growing pressures on our resources. There are economic, social, governance, environmental, and other security stresses in a number of Pacific Island states. Major strategic shifts are underway in East Asia. Trans- boundary challenges such as proliferation are growing, and international institutions are struggling.

Chapter 4 Tasks for the New Zealand Defence Force

9�Given this strategic outlook, the NZDF is likely to continue performing tasks that are similar to today, in similar places, and alongside partners and friends. But the operational demands are likely to intensify.

Chapter 5 The NZDF's Military Capabilities

10 The proposed future force structure will retain and enhance the breadth and depth of the NZDF's current capabilities. There will be a particular emphasis on enhancing the NZDF's ability to sustain land operations. Intelligence, surveillance, and reconnaissance capabilities across the NZDF will be a focus. Major capabilities will be replaced as their life expires. Such a force structure will require the NZDF to realise the expected level of resource redistribution. The proposed capability programme will be carefully prioritised and phased.

Chapter 6 A People-Centred NZDF

11 This White Paper introduces a new approach to managing the NZDF's workforce. The goal will be to focus uniformed personnel on frontline tasks, and allow a more effective mix of full and part time military, and civilian personnel to fill other roles. This will improve corporate performance. There will also be substantial efficiencies by increasing the proportion of civilian staff.

Chapter 7 Infrastructure

12 NZDF's real estate and information and communication networks are vital enablers of front line capability. At present they are not optimised to current and future requirements. Some real estate is very run down. This limits effectiveness and efficiency. Real estate will be reviewed and facilities renewed. ICT networks will be over-hauled.

Chapter 8 Affordability

13 This White Paper is distinguished by the level of scrutiny given to financial issues. The White Paper aligns policy, capability, and funding. By 2014/15, the NZDF will free up $100m from the Defence Transformation Programme, and $250-300m from other VfM initiatives, on an annual recurring basis, for front line capabilities.

Chapter 9 Organisational Reform

14 The White Paper sets the foundation for organisational reforms to strengthen the performance of the NZDF's supporting functions. These include strengthening the CDF's role as Chief Executive through changes to the Executive Leadership Team and to senior officer appointment processes. A new Chief Operating Officer position will be created. These reforms are integral to achieving the redistribution target. The White Paper also establishes new, more collaborative arrangements for the Ministry of Defence and the NZDF to manage the capability life cycle.

Comment

15 The White Paper is the blueprint for defence planning for the coming decades. It is a systematic statement of how Defence supports New Zealand's interests. It describes the capabilities we require, presents a plan for funding those capabilities, and set outs a vision for the future management of Defence. In publishing this White Paper we will deliver on a key election commitment for Defence.

16 But the White Paper does not lock us into a rigid or detailed plan. A fresh review will occur every five years, to take account of strategic, fiscal, and other developments. Moreover, the new capital asset management regime will ensure that each major spending proposal receives full ministerial scrutiny.

Consultation

17 The Treasury, Department of the Prime Minister and Cabinet, and State Services Commission have been consulted on this submission and the draft White Paper has been considered by the Officials Committee for Domestic and External Security Coordination.

18 The White Paper has been considered and endorsed by Senior Ministers.

19 Preparations are being made to brief international partners and friends.

Financial implications

20 There are no financial implications arising from this submission. The affordability of the capabilities proposed in the White Paper is dependent on resource redistribution within the NZDF. The capability programme will need to be carefully prioritised and phased.

Legislative Implications

21 A number of White Paper initiatives are likely to require amendments to the Defence Act (1990).

Publicity

22 My office and the Office of the Prime Minister are making arrangements to launch the Defence White Paper in early November.

Recommendations

23 I recommend that the Committee:

1�note and endorse the draft Defence White Paper; and Consultation on Cabinet and Cabinet Committee Submissions

Certification by Department:

Guidance on consultation requirements for Cabinet/Cabinet committee papers is provided in the CabGuide (see Procedures: Consultation): http://www.cabguide.cabinetoffice.govt.nz/procedures/consultation

Departments/agencies informed: In addition to those listed above, the following departments/agencies have an interest in the submission and have been informed:

Others consulted: Other interested groups have been consulted as follows:

Name, Title, Department: s9(2)(a)

Signature Date: � 20 / 10 / 10

Certification by Minister:

Ministers should be prepared to update and amplify the advice below when the submission is discussed at Cabinet/Cabinet committee.

The attached proposal:

Consultation at d has been consulted with the Minister of Finance Ministerial level [required for all submissions seeking new funding] d has been consulted with the following portfolio Ministers: ❑ did not need consultation with other Ministers

Discussion with ❑ has been �or �• I be discussed with the government caucus National caucus ❑ does not need discuss 5n44-2witethe4tdi rrent cautsCeAmcf—(5 — c-MM)

Discussion with ❑ has been discussed with the following other parties represented in Parliament: other parties ❑ Act Party �❑ Maori Party �❑ United Future Party Other [specify] Erillwill be discussed with the following other parties represented in Parliament: Act Party �❑ Maori Party �❑ United Future Party ❑ Other [specify] ❑ does not need discussion with other parties represented in Parliament

Portfolio Date Signature , 7 O 4 ' '; ? �/ /A",-,,' .vim --- �/� / �/ c; / �/L--; ,

140117v 1 Cabinet CAB Min (10) 33/2

Copy No:

Minute of Decision

Report of the Cabinet Strategy Committee: Period Ended 10 September 2010

On 13 September 2010, Cabinet made the following decisions on the work of the Cabinet Strategy Committee for the period ended 10 September 2010.

� STR Min (10) 13/1 Defence Review: NZDF Value for Money Review Separate Minute: see � Portfolio: Defence CAB Min (10) 33/2A

4 104°�f-e,-vT7A-SzC Secretary of the Cabinet Reference: CAB (10) 463

Distribution: Cabinet Strategy Committee Chief Executive, DPMC Director, PAG, DPMC MINISTRY OF DEFENCE Director, NAB •�INWARDS MAIL

Director, GCSB EDMS ID . � Director, NZSIS Date A tP .C1 ' r°� Secretary to the Treasury Folder No. State Services Commissioner G49001 I� Commissioner of Police File.�Yes No Minister for Biosecurity Referred To � Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Dep sec. Pd Minister of Defence "Dv sCA Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Secretary, STR

170370v 1 Mr‘i!STRY OF DEFENCE�CAB Min (10) 33/2A Cabinet INWARDS MAL EDIVIS ID � is�c'D Copy No:

Folder . No L>et Minute of Deoisione No .'gip�E) P t/ SCA This document contains information for the 1\leiiird -S"attrierlt must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority.

Defence Review: NZDF Value for Money Review

Portfolio: Defence

On 13 September 2010, following reference from the Cabinet Strategy Committee (STR), Cabinet:

Background

1�noted that on 15 February 2010, the STR considered an item on the Defence Review, and: � 1.1 directed Defence officials, in consultation with other agencies as appropriate, to pursue Value for Money efforts to identify efficiencies and options for shifting resources to front-line activities, and to provide assurances and options around the cost effectiveness and sustainability of the New Zealand Defence Force (NZDF); 1.2�agreed that a Defence White Paper be prepared incorporating the conclusions of the Defence Assessment and the outcome of the Value for Money review; [STR Min (10) 1/1]

Value for Money review

2�noted that the Value for Money review undertaken by Dr Roderick Deane has been completed;

3�noted the contents of the A3 document attached to STR (10) 11, the presentation by the Minister of Defence and Dr Deane, and the discussion at the meeting on the Defence Value for Money review;

4�agreed that the Defence White Paper will endorse a total annual recurrent savings target of between $350 - $400 million from 2014/15 by comparison with current levels (once fully implemented), through continuing the Defence Transformation Programme and implementing the Value for Money review recommendations, with a focus on: 4.1�management and organisational changes within NZDF, and between NZDF and the Ministry of Defence; 4.2�the most effective balance of full-time uniformed, part-time uniformed, and civilian staff; 4.3�efficient management and consolidation of real estate; CAB Min (10) 33/2A

4.4�innovative methods of managing and operating key capabilities; 4.5�efficient management of the NZDF workforce and corporate functions; 5�noted that the following management and organisational changes are proposed: 5.1�that the Chief of Defence Force have performance and accountability milestones relating to military leadership and the effective management of NZDF, including achieving savings targets; 5.2�that the State Services Commission manage, on behalf of the Minister of Defence, the Chief of Defence Force's performance agreement; 5.3�that the warranted officers in NZDF be the Chief of Defence Force and the Vice Chief of Defence Force, with the single service chiefs not being warranted; 5.4�that the Vice Chief of Defence Force be primarily responsible for military functions; 5.5�that a civilian position of Chief Operating Officer, equivalent in status to the Vice Chief of Defence Force, be introduced, mandated and accountable to the Chief of Defence Force for the oversight and implementation of the Value for Money review recommendations, and to manage NZDF's corporate functions; 5.6�that the State Services Commission be responsible for managing the Chief of Defence Force, Vice Chief of Defence Force, and Chief Operating Officer appointment process; 5.7�that an independent Defence Advisory Board be established, appointed by the Minister of Defence, to act as a consultation and collaboration vehicle for the Chief of Defence Force and the Secretary of Defence, and to advise the Minister; 5.8�that allowances be rationalised (excluding combat and overseas service allowances); 6�directed Defence officials, in consultation with Treasury and the State Services Commission, to provide further advice to Ministers on options aimed at clarifying the accountabilities of the Chief of Defence Force and the Secretary of Defence in relation to capability and acquisition; 7�noted that decisions relating to warrants, NZDF organisation, and possibly the Reserves, will require changes to the Defence Act 1990; 8�agreed that savings achieved by NZDF through the implementation of the Value for Money review be used to fund future capabilities and provide an incentive for reform;

Defence White Paper

9�authorised an ad hoc group of Ministers (comprising the Prime Minister, Minister of Finance, Minister of Foreign Affairs, Minister of Defence, and Minister of State Services) to make any decisions that may be required to complete the final draft of the Defence White Paper;

170413v1 CAB Min (10) 33/2A

10�invited the Minister of Defence, in consultation with other Ministers as appropriate, to: 10.1 submit a paper to the Cabinet Business Committee on 4 October 2010 seeking decisions on the content of the Defence White Paper; 10.2 submit the final draft of the Defence White Paper to Cabinet for approval, before the end of October 2010.

� Secretary of the Cabinet Reference: CAB (10) 463; STR Min (10) 13/1

Secretary's note: This minute replaces STR Min (10) 13/1. Cabinet amended paragraph 5.7.

Distribution: Prime Minister Chief Executive, DPMC Director PAG, DPMC Director NAG Director, GCSB Director, NZSIS Minister of Finance Secretary to the Treasury Minister of State Services State Services Commissioner Minister of Police Commissioner of Police Minister for Biosecurity Director-General, MAF (Biosecurity) Minister of Foreign Affairs Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Minister of Transport Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Secretary, STR

170413v1� 3 ��

Cabinet Strategy STR Min (10) 13/1

Committee Copy No:

Minute of Decision

MIDISsF�F- DEFENCE Defence Review: NZDF Value for Money Review il ,.VVARDS MAIL E✓MS Portfolio: Defence q1PC?

Folo'er No. 64k2C32 — ( 2,� On 6 September 2010, the Cabinet Strategy Committee: File�Yes No Sec Background Referred re�S6 C P5-t P , 1�noted that on 15 February 2010, the Cabinet Strategy Committee considered an item on the Defence Review, and: � 1.1 directed Defence officials, in consultation with other agencies as appropriate, to pursue Value for Money efforts to identify efficiencies and options for shifting resources to front-line activities, and to provide assurances and options around the cost effectiveness and sustainability of the New Zealand Defence Force (NZDF); 1.2�agreed that a Defence White Paper be prepared incorporating the conclusions of the Defence Assessment and the outcome of the Value for Money review; [STR Min (10) 1/1]

Value for Money review

2�noted that the Value for Money review undertaken by Dr Roderick Deane has been completed;

3�noted the contents of the A3 document attached to STR (10) 11, the presentation by the Minister of Defence and Dr Deane, and the discussion at the meeting on the Defence Value for Money review; 4�agreed that the Defence White Paper will endorse a total annual recurrent savings target of between $350 - $400 million from 2014/15 by comparison with current levels (once fully implemented), through continuing the Defence Transformation Programme and implementing the Value for Money review recommendations, with a focus on: 4.1�management and organisational changes within NZDF, and between NZDF and the Ministry of Defence; 4.2�the most effective balance of full-time uniformed, part-time uniformed, and civilian staff; 4.3�efficient management and consolidation of real estate; STR Min (10) 13/1

4.4�innovative methods of managing and operating key capabilities; 4.5�efficient management of the NZDF workforce and corporate functions; 5�noted that the following management and organisational changes are proposed: 5.1�that the Chief of Defence Force have performance and accountability milestones relating to military leadership and the effective management of NZDF, including achieving savings targets; 5.2�that the State Services Commission manage, on behalf of the Minister of Defence, the Chief of Defence Force's performance agreement; 5.3�that the warranted officers in NZDF be the Chief of Defence Force and the Vice Chief of Defence Force, with the single service chiefs not being warranted; 5.4�that the Vice Chief of Defence Force be primarily responsible for military functions; 5.5�that a civilian position of Chief Operating Officer, equivalent in status to the Vice Chief of Defence Force, be introduced, mandated and accountable to the Chief of Defence Force for the oversight and implementation of the Value for Money review recommendations, and to manage NZDF's corporate functions; 5.6�that the State Services Commission be responsible for managing the Chief of Defence Force, Vice Chief of Defence Force, and Chief Operating Officer appointment process; 5.7�that an independent Defence Advisory Board be established, as recommended by the Value for Money review, to act as a consultation and collaboration vehicle for the Chief of Defence Force and the Secretary of Defence; 5.8�that allowances be rationalised (excluding combat and overseas service allowances); 6�directed Defence officials, in consultation with Treasury and the State Services Commission, to provide further advice to Ministers on options aimed at clarifying the accountabilities of the Chief of Defence Force and the Secretary of Defence in relation to capability and acquisition;

7�noted that decisions relating to warrants, NZDF organisation, and possibly the Reserves, will require changes to the Defence Act 1990;

8�agreed that savings achieved by NZDF through the implementation of the Value for Money review be used to fund future capabilities and provide an incentive for reform;

Defence White Paper

10.2 submit the final draft of the Defence White Paper to Cabinet for approval, before the end of October 2010.

Janine Harvey � Committee Secretary Reference: STR (10) 11

Present: Officials present from: Rt Hon John Key (Chair) Office of the Prime Minister Hon Bill English Officials Committee for STR Hon Simon Power (part of item) Department of the Prime Minister and Cabinet Hon Tony Ryall (part of item) Treasury Hon Judith Collins Ministry of Defence Hon. Anne Tolley (part of item) New Zealand Defence Force Hon Christopher Finlayson Hon Murray McCully (part of item) In attendance: Hon Dr Wayne Mapp Dr Roderick Deane Hon Steven Joyce

Distribution: Cabinet Strategy Committee Chief Executive, DPMC Director, PAG, DPMC PAG Subject Advisor, DPMC Director, NAB Director, GCSB Director, NZSIS Secretary to the Treasury John Whitehead, Treasury State Services Commissioner lain Rennie, SSC Commissioner of Police Minister for Biosecurity Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs

DEFENCE RETrEW NZDF VALUE FOR MONEY REVIEW

CONTENTS VALUE FOR MONEY (VFM): KEY ISSUES PAGE 2 SUMMARY

PAGE 3 MIDDLE PATHWAY Capital Plan • Give NZDF the agreed savings target and empower CDF to get on with it PAGE 4 DR DEANE'S Findings • Establish a Chief Operating Officer, consider the role of the Vice Chief, PAGE 5 SAVINGS Goal remove Service Chief warrants

PAGE 6 FUNDING THE MIDDLE Pathway • Civilianise 1400 positions that do not require deployable staff

PAGE 7 VFM IMPLEMENTATION • Rationalise bases (establish joint Army and Air Force facility at Ohakea; close Linton, rationalise Burnham, downsize Trentham, Waiouru and PAGE 8 NZDF AND MOD Roles Tekapo; close or downsize Woodbourne) PAGE 9 TOWARDS the White Paper • Redesign reserves to meet contemporary needs

PAGE 10 RECOMMENDATIONS for Ministers • Achieve Value for Money targets without damaging morale

DR RODERICK DEANE: • "The greater the level of savings and efficiencies achieved by the NZDF, the greater the prize in terms of increased front-line capability." • "The VFM gains will only be realised if there is a change in processes, culture and leadership style throughout the organisation." • "If the total savings are realised, the Middle Pathway of the Defence Assessment is achievable without the need for Government to increase Defence appropriations" DEFENCE RE\rrEW SUMMARY

SUMMARY

• In June 2010, Cabinet noted that the Middle Pathway (see page 3) would sustain the NZDF much as we have it, able to do what it is doing today, in places similar to where it is today, alongside partners and allies.

• But the Middle Pathway faces funding pressures because of: • the existing rebuilding strategy (eg new helicopters and upgraded aircraft) • the future need to replace key capabilities (eg C130 Hercules, P3 Orions, ANZAC frigates) • the Government's overall strategy of fiscal consolidation

• The VFM exercise led by Dr Roderick Deane has identified $271m additional OPEX savings (nett of $30m OPEX investments) from the NZDF. This could be reinvested in building the Middle Pathway front line capabilities recommended by the Defence Assessment.

• VFM SAVINGS: Give NZDF the goal and empower them to achieve it. • Some of the VFM proposals require Ministerial discussion (eg. Reserves, 757 aircraft, Base rationalisation). The rest can be accepted. • VFM savings of $271 m plus a further $104m from Defence's existing savings programme (a total of $375m recurring savings) would fund the OPEX for the Middle Pathway to 2014/15. Some OPEX increases would be needed from 2015/16 onwards. • VFM does not identify CAPEX savings for capabilities. Without some capital injections, the capital programme would need to be tightly prioritised to ensure the affordability of critical capital replacements.

• It will be important to strike the right balance between savings and the organisational health of the NZDF.

• VFM IMPLEMENTATION: Introduce senior-level civilian expertise to help the CDF drive change.

• VFM ORGANISATIONAL: Clarify the accountabilities of the CDF and the Secretary of Defence. especially over capability and aquisition.

• There will be a further Cabinet submission formalising key White Paper decisions.

131

DEFENCE REVI EW MIDDLE PATHWAY CAPITAL PLAN THE MIDDLE PATHWAY WOULD ENABLE THE NZDF TO DO WHAT IT IS DOING TODAY, IN PLACES SIMILAR TO WHERE IT IS TODAY, ALONGSIDE PARTNERS AND ALLIES

OPV The bars show indicative REPLACEMENT ($225m) timeframe for acquisition programmes expected to cost $100m+

LAND TRANSPORT ($120m) Different models of PROGRAMME ownership have not been CANTERBURY shown. It is possible that ($310m) some of these capital costs REPLACEMENT could be reduced when IPV business cases are put to REPLACEMENT ($150m) Cabinet SEASPRITE REPLACEMENT (6400m)

P3 REPLACEMENT

AIR LIFT (C130/B757 REPLACEMENT)

LITTORAL WARFARE SHIP ($120m)

LAND COMMAND AND CONTROL (C4ISR) PROGRAMME

LAND TRANSPORT PROGRAMME

ANZAC FRIGATE SELF DEFENCE UPGRADE ($500m)

(5175m)

TANK REPLEMENT ($160m)

SHORT RANGI I SURVEILLANCE AIRCRAFT ($200m) 11 ADVANCED PI _OT TRAINING AIRCRAFT ($75m)

PROGRAMME OF CAPITAL PR JECTS LESS THAN $100 MILLION

2010/11�2015/16 2020/21 2025/26 2030/31 2035/36

FINANCIAL YEAR Ell

DEFENCE REV)EW DR DEANE'S FINDINGS IF FULLY IMPLEMENTED, THE VFM REVIEW CONSIDERED THAT RECURRING SAVINGS OF $271M FROM 2014/15 WERE POSSIBLE

KEY FINDINGS: • The "front end" of the defence organisation delivers considerable value for money. • But there is scope to transfer significant resources from the NZDF's "middle and back" to its deployable military capabilities. • The NZDF is over geared. The ratio of finance and human resource support to full time employees is higher than elsewhere. It is paying a high premium for civilian tasks. In other areas, such as ICT, it is investing too little. • If fully implemented, the VFM proposals could reach a savings peak of $271m OPEX in FY 2014/15 (or $375m OPEX if the savings previously identified by the NZDF are included). • Additional capital expenditure, especially on IT systems and the defence estate, will be required to facilitate these improvements.

• Work Force - reduce superannuation entitlements; "right size" a number of positions; replace territorial forces with a limited number of part- VFM SAVINGS: time personnel; reduce scheduled remuneration increases; civilianise military positions that do not require deployable personnel; rationalise non-operational allowances.� (Annual savings potential: $139m)

• Support Functions - rationalise finance, human resources, and procurement functions; reduce use of consultants. (Annual savings potential: $44m)

• Defence Estate - consolidate bases; accelerate housing sales. (Annual savings potential: $41m)

• Platforms and Capability - including sale of the Boeing 757s and lease the capability (including VIP transport). (Annual savings potential: $26m)

• Logistics - further centralisation and efficiencies in procurement, inventory, personnel numbers and increased contracting out. (Annual savings potential: $16m)

• Other services - rationalise libraries, scientific research, overseas defence relations posts, bands, and museums. (Annual savings potential: $15m)

• Non-Specialised Non-Military Equipment Procurement - increase the efficiency of this function.� (Annual savings potential: $10m)

• Education and Training - increase the efficiency of the training and education function. � (Annual savings potential: $10m)

• Private Sector - increase collaboration with the private sector in a range of areas. � (savings are reflected in the other categories)

• Non-Military Activltes - establish a separate output class: 30% of NZDF outputs are allocated to non military tasks (compared to 10% in 1990). MINUS

( $30M • Information, Communications and Technology (ICT). Increased ICT investment underpins most of the VFM initiatives. (Annual expenditure $22m)

• Defence Estate - Increase property maintenance.� (Annual expenditure S8m) ) \s,� NET VFM SAVINGS:�minus VFM INVESTMENT

DEFENCE REV)EW SAVMS GOAL TOTAL SAVINGS OF DTP AND NETT VFM IS $375M. VFM HAS SHOWN ONE PATHWAY. NZDF SHOULD BE GIVEN THE HIGH LEVEL TARGET AND BE EMPOWERED TO GO FOR IT

*Defence Transformation Programme (DTP) and other savings initiatives being run by DR DEANE'S ANALYSIS: POTENTIAL ANNUAL SAVINGS TARGET 2014/15 = up to $375M the NZDF

DTP* VFM ISSUES FOR DECISION $104M $73M $375M

1. Reserves - Dr Deane estimates savings Barracks accommodation Differential between eiv/mil pay and of $33m per annum. Considered excessive, allowances to market rates (Risk Civilianise 1400 positions (2000 pers under training set at civilian but some reconfiguration of Reserves is around reduction in nett pay) suggested by VFM)�$26m 1 _ rates $20m needed Disposals (Housing/Vehicles) Provision for Military Remuneration 2. Boeing 757s - Expensive to operate. Dr $12m Remove provision for System market rates and Deane suggests savings of $24m per annum. Non-military procurement remuneration increment�$20m progression� $5m Considered excessive $1 Om Procurement staff reduction/ Dated data provided to Better 3. Real estate - possible VFM savings $16m Reduce overseas representation civilianisation and process change Administration Support Services - Establish joint Army and Air Force facility som (BASS) at Ohakea via PPP; close Linton, rationalise Further reduce consultants/ Rationalise Non-Operational Non-discretionary allowances removed Burnham, downsize Trentham, Waiouru and contractors� S5m Allowances _ _�from data Tekapo; close or downsize Woodbourne) � $6m

Commercialise Defence Technology Training/Education Baseline Agency� $3m reduction

Rationalise warrant officer Further reduce HR staff numbers numbers $3 m

Rationalise bands $3m* Rationalise healtitservices�$10m Double counted civilianisation $4m Rationalise museums $2m* Reduce Finance staff numbers Whenuapai Aviation industry $4m Shared Services� -;2m Reconfigure Dockyard Management� $2m Restructure superannuation: not *Note: Some risk around balancing possible without dismantling the culture, heritage and morale with full Rationalise libraries�$1 m* Total Fixed Remuneration model realisation of sums. $6m

VFM NETT SAVINGS $271 M DEFENCE REV)EW FUNDING THE MIDDLE PATHWAY

OPEX 2010 TO 2015 MIDDLE PATHWAY MIDDLE PATHWAY CAPEX COST CURRENT BASELINE OPEX COST • Capital injections are needed at an average of DTP SAVINGS $135m p.a. CAPEX VFM SAVINGS ACCEPTED • Given all DTP and VFM savings, no OPEX 0111=1 I increases are needed. VFM ISSUES FOR DECISION I�I I VFM SAVINGS 1-s$�1750 �1800� 1900 2000� 2100 2200 300�350� ■ ACCEPTED WITH 0 400�450�500�550�600 FURTHER WORK SMILLION pa SMILLION pa ■ OPEX INCREASE

2015 TO 2020 MIDDLE PATHWAY OPEX COST MIDDLE PATHWAY CAPEX COSI CAPEX

OPEX CAPEX DEPRECIATION • Capital injections are needed at an average of ■ AVAILABLE $49m p.a. i 13M=Ell DTP SAVINGS • Opex increases are needed at an average of VFM ASSET $60m p.a. I�I�I�I ■ DISPOSALS 3$�I� I�I I I I I�I 1 1750 1800 1900 2000 2100 2200 0 SS 300�350�400�450�500�550 0 �66001 CAPITAL SMILLION pa SMILLION pa II INJECTION

2020 TO 2035 Middle Capability Pathway OPEX with Full DTP and VFM Savings 1950 � r • The VFM opex savings do not improve capex affordability of the Middle Pathway 1900 capabilities, and long term capex affordability challenges remain. Current baseline 1850 The replacement of two significant capital items (ANZAC frigates and P3 Orions) will (less capital require capital injections. Opex pressures will be manageable. charge) 0 1800 — Middle Capability Pathway with full 1750 DTP and VfM savings

1700

1650

1600 a �a a�a a a a a a

NOTE: All graphs show average annual figures over the period. All figures in 2009/10 dollars.

6 DEFENCE RETrEW DR DEANE'S RECOMMENDATIONS ON VFM IMPLEMENTATION VFM IMPLEMENTATION REQUIRES: EXPERIENCED CIVILIAN EXECUTIVES, REMOVING SERVICE CHIEF WARRANTS, MAKING SAVINGS AVAILABLE TO FUND CAPABILITY

"While the savings identified in this review are achievable, there has to be an appropriate level of commitment to them wi and throughout the NZDF. Getting the right people in the right jobs is overwhelmingly important. � - Dr Roderick Deane

REMOVE SERVICE CHIEF WARRANTS. CHIEF OF DEFENCE FORCE TO APPOINT CHIEFS OF SERVICE

• VFM concluded that:

• Appointment of the Service Chiefs by the Governor General in Council limited the ability of the Chief of Defence Force to manage the NZDF efficiently and effectively. Accepted.

• Only the Chief of Defence Force should be warranted. Accepted in part. Defence and Central Agencies recommend retention of a re-scoped military VCDF, who should also be warranted.

• The Chief of Defence Force should then appoint the Service Chiefs in consultation with the State Services Commissioner. Accepted.

• This would require a change to the Defence Act.

APPOINT EXPERIENCED CIVILIAN EXECUTIVES TO MANAGE BUSINESS-END OF THE NZDF

• VFM proposed a new position of Chief Operating Officer (COO), an empowered Chief Financial Officer, and an upgraded Chief Information Officer. Accepted.

• The COO would take many or all of the functions of the Vice Chief of Defence Force (VCDF).

• NZDF recommends VCDF position retain responsibility for military matters, capability, personnel and strategic operations.

• Central Agencies agree with the proposal by NZDF to retain a VCDF provided the position only has responsibility for military functions, which would need to be re-scoped.

• Central Agencies regard the position of COO as critical to the successful implementation of the Value for Money recommendations and for achieving affordability for the Middle Pathway. Central Agencies recommend a civilian COO be mandated and made accountable to the CDF for the oversight and implementation of VFM and for corporate NZDF, including personnel functions.

• Central Agencies recommend the State Services Commissioner manage the appointment process of the COO (in consultation with the Chief of the Defence Force).

• Dr Deane indicated that the proposed reforms were likely to fail or be only partially delivered if substantial authority was not vested in these positions. Accepted

• These changes can be implemented by the Chief of Defence Force.

RETAIN SAVINGS WITHIN DEFENCE TO PROVIDE AN INCENTIVE FOR REFORM

• To provide a strong incentive to pursue VFM initiatives, the review envisages that savings and revenue should be retained within the NZDF. Acceptec.

• Performance agreement for CDF (soon to be appointed) and each of CDF's direct reports should include clear savings targets.

DEFENCE REVI EW NZDF AND MOD ROLES VFM REVIEW RECOMMENDS SHIFTING THE CAPABILITY REQUIREMENTS FUNCTION TO THE MINISTRY OF DEFENCE, AND SHIFTING THE MAJOR ACQUISITION FUNCTION TO THE NZDF

"In the case of acquisition of military platforms, the current separation of responsibilities between the MOD and the NZDF ISSUE: creates conflicts and inefficiencies and is lending to sub-optimal outcomes" -Dr Roderick Deane

ACTIONS: ESTABLISH A DEFENCE ADVISORY BOARD

• To comprise Defence Chief Executives, the Secretary of the Treasury, and 2-3 external independent members one of whom would be chair. The chair would have direct access to the Minister of Defence.

NZDF AND MINISTRY OF DEFENCE

• Option 1 • Option 2 • Option 3 SEPARATE/SWAPPED MINISTRY LED INTEGRATED • Preserve separation OR • Capability development function to the Ministry OR • Integrate military between the two • The Ministry retain the acquisition function capability tasks organisations but reverse by forming a unit • Joint accountability for whole of life capability current allocation, accountable to the management by CDF and Secretary of Defence. assigning development Secretary of Defence and of capability to the (Central Agencies recommendation) Chief of Defence Force Ministry and acquisition jointly, meeting by way of capability to the NZDF. of a Joint Management (Value for Money) Board or otherwise. (Defence Assessment)

(4!. DEFENCE REV)EW TOWARDS THE WHITE PAPER WHITE PAPER BY THE END OF OCTOBER, BEGIN VFM REFORMS IMMEDIATELY

WHITE PAPER PROCESS

• MID-SEPTEMBER: Ad-hoc group of Ministers to consider key White Paper ( issues, if required. • EARLY OCTOBER: CBC to take key White Paper decisions. • LATE OCTOBER: ERD to consider the draft White Paper. Public release.

INITIATING VFM REFORMS

• PRODUCE a plan to implement the VFM Programme as an immediate priority ( once the White Paper is published. • APPOINT a new Chief of Defence Force, with a VFM savings target as a performance objective. • APPOINT civilian executives to help CDF drive change. • INITIATE legislative changes.

IMPLEMENTATION PRINCIPLES

• There is value in proceeding quickly, but organisational strain must be managed.

• Chief of Defence Force and the Secretary of Defence will report to the Minister of Defence on a case by case basis as the VFM proposals are progressed. A number will require complete business case analysis.

• The Defence Assessment recommends more frequent and detailed financial reporting to Cabinet. This would provide an effective vehicle for monitoring VFM progress.

DEFENCE I I V IP

AD HOC GROUP OF MINISTERS TO CONSIDER KEY ISSUES, AND PROVIDE DIRECTION FOR A CBC PAPER ON 4 OCTOBER

IT IS RECOMMENDED THAT MINISTERS:

1. Note that the Value for Money (VfM) review undertaken by Dr Roderick Deane has been completed,

2. Agree that the White Paper will endorse total annual recurrent savings of $375m from 2014/15 by comparison with current levels (once fully implemented) through continuing the Defence Transformation Programme and implementing VFM recommendations with a focus on: I. Management and organisational changes within the NZDF, and between the NZDF and Ministry of Defence; II. The most effective balance of full time uniformed, part time uniformed and civilian staff; III. Efficient management and consolidation of real estate; IV. Innovative methods of managing and operating key capabilities; and V. Efficient management of the NZDF workforce. and corporate functions.

7. 11"6Note the following management and organisational changes: I.�That the CDF have performance and accountability milestones relating to military leadership and the effective management of the NZDF, including achieving savings targets; II. That SSC manage, on behalf of the Minister of Defence, the CDF's performance agreement; III. That the warranted officers in the NZDF be CDF and VCDF, with the single service chiefs not being warranted; IV. That SSC be responsible for managing the CDF, VCDF and COO appointment process; V. That a civilian position of Chief Operating Officer (COO), equivalent in status to the VCDF, be introduced, mandated and accountable to CDF for the oversight and implementation of VFM, and to manage the NZDF's corporate functions; VI. That theVCDF be primarily responsible for military functions; VII. Either Option 1 (Separate/Swapped); Option 2 (Ministry led); Option 3 (Integrated), on page 8; VIII. Establish an independent Defence Advisory Board, as recommended by the VFM review, to act as a consultation and collaboration vehicle for the CDF and Secretary of Defence IX. Rationalise allowances (excepting combat and overseas Service allowances);

JON1111111111111111t. 4. Note that decisions relating to Warrants, Defence organisation and (possibly) Reserves will require changes to the Defence Act.

5. Agree that VfM savings achieved by the NZDF be used to fund future capabilities (and to provide an incentive for reform);

8. Agree that an ad hoc group of Ministers (comprising the Prime Minister, Minister of Defence, Minister of Finance, Minister of Foreign Affairs, and Minister for State Services) should be established to advise officials on the completion of the Defence White Paper;

7. Note that a paper formally seeking decisions from Ministers on the content of the White Paper will be put to Cabinet Business Committee on 4 October; and

8. Note that the final draft of the White Paper will be put to Cabinet before its publication before the end of October.

Cabinet CAB Min (10) 24/3

Copy No: r a Minute of Decision

Report of the Cabinet External Relations and Defence Committee: Period Ended 2 July 2010

On 5 July 2010, Cabinet made the following decisions on the work of the Cabinet External Relations and Defence Committee for the period ended 2 July 2010.

ERD Min (10) 6/1 New Zealand Commitments in Bamyan: Quarterly�CONFIRMED Update: June 2010 Portfolios: Police / Foreign Affairs / Defence

ERD Min (10) 6/2 Tokelau: Maritime Boundary Delimitation Treaty�CONFIRMED with Cook Islands Portfolio: Foreign Affairs

ERD Min (10) 6/3 Antarctica: Mt Erebus Remembrance Flight �CONFIRMED Portfolio: Foreign Affairs

ERD Min (10) 6/4 New Zealand Contribution to Uruzgan Province�CONFIRMED Portfolios: Foreign Affairs / Defence

ERD Min (10) 6/5 Defence Assessment: Summary Report � CONFIRMED Portfolio: Defence

ERD Min (10) 6/6 Tax Information Exchange Agreement with Vanuatu CONFIRMED Portfolio: Revenue

ERD Min (10) 6/7 Tax Information Exchange Agreement and� CONFIRMED Supplementary Agreement with the Republic of the Marshall Islands Portfolio: Revenue

OF DEFENCE VVARDS MAIL

Secretary of the Cabinet EDMS ID � leeference: CAB (10) 328; CAB (10) 343 Date.�. � Distribution: (see over) Folc.i.&r

„(eF

-�k 1) r-�APP,

Cabinet External ERD (10) 30 Relations and Defence Copy No: -1 Committee

Summary of Paper 28 June 2010

This document contains information for the New Zealand Cabinet. It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official information Act 1982, by persons with the appropriate authority.

Defence Assessment: Summary Report

Portfolio� Defence

Purpose�This paper reports on the main findings of the Defence Assessment.

Previous� In February 2010 the Cabinet Strategy Committee: Consideration • invited the Minister of Defence to submit a paper to the Cabinet External Relations and Defence Committee on the Defence Assessment. before the Assessment is concluded; • agreed that a Defence White Paper be prepared incorporating the conclusions of the Defence Assessment and the outcome of the Value for Money exercise rL S'i R. Min (10) 1/1]

Summary The Defence Assessment, attached to the paper: • comments on New Zealand's likely strategic context to 2035: • identified the tasks which might be expected of the NZDF given the strategic context; • provides advice on the capabilities which the NZDF will need (and can afford to retain or acquire) to perform those tasks; • suggests ways in which the NZDF might better manage its infrastructure and organise itself. The Assessment concludes that the NZDF' s current capability mix and force structure provides a minimum capability to support government policy. The Assessment identifies three pathways 107 the future shape of the NZDF: Low. Middle and High. The Assessment indicates that the Middle Pathway would best align capability with the expected strategic environment, although current fiscal constraints may necessitate a period of consolidation under the Low pathway. Based on the Middle pathway the Assessment recommends some new capabilities, the replacement of some major platforms as they reach the end of their life, and some targeted enhancements (summary on page 5).

� 141680v1 1 ERD (10) 30

A full listing of the recommendations from the ten chapters of the Assessment is on pages 123 — 131 of the Assessment. An external and independent Value for Money (VIM) exercise has been initiated and will provide Ministers with additional assurance on matters related to affordability. The VfM exercise is on track to be completed by the end of July. A submission in August 2010 will seek Ministerial guidance on defence policy priorities, the preferred capability pathway, funding, and organisational reform. This submission will draw on the findings of the Assessment, the Cabinet Expenditure Control Committee consideration of the Value for Money exercise, and the conclusions of the three Companion Studies (New Zealand Defence Industry; the Role of the NZDF in Youth Programmes and the New Zealand Cadet Force; and Voluntary National Service) being considered by the Associate Minister of Defence. Decisions on that submission will be followed by the preparation of the draft Defence White Paper.

Regulatory�NA. Impact Analysis

Baseline� None at this time. Implications

Legislative�None at this time. Implications

Timing Issues�None.

Announcement�None.

Consultation�The Minister of Defence indicates that discussion is not required with the government caucus and has been discussed with other parties represented in Parliament.

Paper prepared by Defence. Treasury, SSC, DPMC, MFAT, NZSIS and Police have been consulted. Customs, Labour (Immigration), National Assessments Bureau, Fisheries, GCSB, Antarctica New Zealand and the National Maritime Coordination Centre have been informed.

The Minister of Defence recommends that the Committee: Background

1�note that in March 2009 Cabinet approved the Terms of Reference for the Defence Review 2009 directed the Secretary of Defence, in consultation with the Chief of Defence Force and other stakeholders, to undertake a Defence Assessment (the Assessment), as prescribed by Section 24(2)(c) of the Defence Act 1990 [CAB Min (09) 11/12]; note that in February 2010, the Cabinet Strategy Committee (STR) invited the Minister of Defence to submit a paper to the Cabinet External Relations and Defence Committee on the Assessment, before the Assessment is concluded [STR Min (10) 1/1];

141680v1 ERD (10) 30

3�note that the Secretary of Defence has now completed the Assessment;

Key findings

4�note that the key findings of the Assessment, attached to ERD (10) 30, are that:

4.1�the range of capabilities of the existing New Zealand Defence Force (NZDF) have to date been effective and versatile in the delivery of policy;

4.2�a Defence Assessment, including an update of New Zealand's national security interests, be undertaken at five-yearly intervals;

4.3�an overarching national security strategy for protecting New Zealand, its people, and its interests be developed;

4.4�while New Zealand faces no direct military threat, the international strategic outlook is for more instability, including in the South Pacific, and that New Zealand's security interests are best served by strong partnerships, and an international environment in which the rule of law is generally accepted;

4.5�the principle roles and tasks of the NZDF are:

4.5.1�the protection of New Zealand and the Exclusive Economic Zone;

4.5.2�honouring New Zealand's alliance obligations to Australia;

4.5.3�contributing to peace and stability in the South Pacific;

4.5.4�making an appropriate contribution in support of peace and security in the Asia-Pacific region;

4.5.5�protecting New Zealand's global interests;

4.6�a set of capability choices at or around the Middle pathway would enable New Zealand to sustain the NZDF much as we have it, able to do what it is doing today, in places similar to where it is today, alongside partners and allies;

4.7�the Middle pathway would best position the government to manage any deterioration or improvement in the strategic outlook;

4.8�a capability mix based on the Middle pathway is expected to be affordable for up to the next 10 years, although a period of consolidation under the Low pathway might be necessary given current fiscal pressures;

4.9�affordability projections, and New Zealand's likely fiscal position, are increasingly uncertain after 2020 but the government could face challenging investment decisions in this period as key capabilities come up for replacement;

4.10 the Value for Money (VENT) exercise will provide an opportunity to reinvest savings in the NZDF and to explore alternative funding arrangements, including of a commercial nature (e.g. in relation to the Defence Estate);

4.11 the NZDF pursue at least a pragmatic scenario for the management of the Defence Estate for the five years to 2014/15, moving to a progressive scenario as soon as possible thereafter, subject to additional funding;

� 141680v1 3 ERD (10) 30

4.12 changes be implemented to the way in which the fiscal needs of the NZDF are forecast and managed, including the introduction of a 10 year rolling indicative planning profile for both capital and operating expenditure based on Cabinet decisions, and a continuing requirement for capital spending proposals to address the operating expenditure implications;

4.13 to manage the total workforce most effectively, there should be maximum flexibility of movement of personnel between uniformed and civilian personnel, and between Regular and Reserve Forces, to ensure the most qualified person is matched to the position;

4.14 a new Joint Management Board comprising the Secretary of Defence and the Chief of Defence Force, together with independent advisers, be established to provide for the more effective management of defence capabilities across the capability lifecycle;

4.15 a non-executive Advisory Committee also be established to provide the Defence Ministers with additional independent advice on defence policy and management issues, to comprise the Ministers and three independent members nominated by the Ministers, supported by the Secretary of Defence and the Chief of Defence Force;

5�invite Ministers to indicate whether there are any parts of the Assessment which they would like to see reflected in the work leading to the White Paper;

6�note that the Defence VfM exercise is progressing, and will be completed by the end of July 2010;

7�invite the Minister of Defence to submit a further submission to STR which integrates the conclusions of the Assessment, the VfM exercise, and the Companion Studies (New Zealand Defence Industry; the Role of the NZDF in Youth Programmes and the New Zealand Cadet Force; and Voluntary National Service) before they are introduced into the Defence White Paper, which is to be published before the end of September 2010.

Bob Macfarlane Committee Secretary

Copies to: (see over)

� 141680v1 4 PAGE 1 OF 21

Office of the Minister of Defence

Chair, Cabinet External Relations and Defence Committee

DEFENCE ASSESSMENT: SUMMARY REPORT

Proposal

1�This paper reports on the main findings of the Defence Assessment, which the Secretary of Defence has now completed. A full copy of the Assessment is attached.

2�It is proposed that officials now proceed to integrate the conclusions of the Assessment, and the three Companion Studies which have been undertaken by the Associate Minister of Defence, plus the conclusions of the Value for Money (VfM) exercise (which is nearing completion), into a single piece of advice for Cabinet Strategy Committee before the end of August. That integrated advice will shape the content of the White Paper on Defence, which is to be released by the end of September.

Executive Summary

3�The Assessment is made up of ten chapters. They cover strategic context; capability issues (including workforce); resources, including affordability; real estate and financial management; and suggested organisational reforms.

4�In terms of the "headline" conclusions from the Assessment, these are as follows:

a�that the range of capabilities of the existing New Zealand Defence Force (NZDF) have to date been effective and versatile in the delivery of policy;

b�that a Defence Assessment, including an update of New Zealand's national security interests, be undertaken at five-yearly intervals;

c�that an overarching national security strategy for protecting New Zealand, our people, and our interests be developed;

d�that while New Zealand faces no direct military threat, the international strategic outlook is for more instability, including in the South Pacific; and that New Zealand's security interests are best served by strong partnerships, and an international environment in which the rule of law is generally accepted;

e�that the principal roles and tasks of the NZDF are the protection of New Zealand and the EEZ; honouring our alliance obligations to Australia; contributing to peace and stability in the South Pacific; making an appropriate contribution in support of peace and security in the Asia-Pacific region; and protecting New Zealand's global interests; PAGE 2 OF 21

f�that a set of capability choices at or around the Middle pathway' would enable New Zealand to sustain the NZDF much as we have it, able to do what it is doing today, in places similar to where it is today, alongside partners and allies;

g�that the Middle pathway would best position the Government to manage any deterioration or improvement in the strategic outlook;

h�that a capability mix based on the Middle pathway is expected to be affordable for up to the next ten years, although a period of consolidation under the Low pathway might be necessary given current fiscal pressures;

that affordability projections, and New Zealand's likely fiscal position, are increasingly uncertain after 2020 but the Government could face challenging investment decisions in this period as key capabilities come up for replacement;

that the VfM exercise will provide an opportunity to reinvest savings in the NZDF and to explore alternative funding arrangements, including of a commercial nature (eg in relation to the Defence Estate);

k�that the NZDF pursue at least a pragmatic scenario for the management of the Defence Estate for the five years to 2014/15, moving to a progressive scenario as soon as possible thereafter, subject to additional funding;

that changes be implemented to the way in which the fiscal needs of the Defence Force are forecast and managed, including the introduction of a ten-year rolling indicative planning profile for both capital and operating expenditure based on Cabinet decisions, and a continuing requirement for capital spending proposals to address the operating expenditure implications;

m�that to manage the total workforce most effectively there should be maximum flexibility of movement of personnel between uniformed and civilian personnel, and between Regular and Reserve Forces, to ensure the most qualified person is matched to the position;

n�that a new Joint Management Board comprising the Secretary of Defence and the Chief of Defence Force together with independent advisers be established to provide for the more effective management of defence capabilities across the capability life cycle; and

o�that a non-executive Advisory Committee also be established to provide the Defence Ministers with additional independent advice on defence policy and management issues, to comprise the Ministers and three independent members nominated by the Ministers, supported by the Secretary of Defence and the Chief of Defence Force.

See paragraph 13. PAGE 3 OF 21

5�Although the Assessment itself contains a number of recommendations, Cabinet today is not being asked to take any final decisions, although Ministers may wish to indicate whether there are any parts of the Assessment which they would like to see reflected in the work leading to the White Paper. In terms of decision points, the next steps are as follows:

• the findings of the VfM exercise will be reported to the Cabinet Expenditure Control Committee before the end of July [ECC Min (10) 7/2 refers]; then

• a 'core decisions submission', drawing on the findings of the Assessment, ECC's consideration of the VfM exercise, and the conclusion of the three Companion Studies, 2 will be submitted to the Cabinet Strategy Committee (STR) for approval by the end of August, with a view to shaping the text of the White Paper; then

• a draft White Paper will be submitted to STR for approval before release in September.

Background

6�Building on the decisions taken by STR at its meeting on 15 February 2010 [STR Min (10) 1/1 refers], the Assessment:

• comments on New Zealand's likely strategic context to 2035,

• identifies the tasks which might be expected of the NZDF given that context,

• provides advice on the capabilities which the NZDF will need (and can afford to retain or acquire) in order to perform those tasks, and

• suggests ways in which the NZDF might better manage its infrastructure and organise itself.

7�As directed by STR, an external and independent VfM exercise, led by Dr Roderick Deane, has also been initiated and will provide Ministers with additional assurance on matters related to affordability. The VfM exercise is on track to be completed by the end of July.

Strategic Outlook

8�A direct military threat to New Zealand remains highly unlikely, but continued instability is expected in our near region. This is likely to see the NZDF continuing to play an active role in reinforcing stability and security in the South Pacific, most often working alongside Australia.

9�The international outlook more generally is uncertain. The rise of China is changing the strategic balance, particularly in the Asia-Pacific region. New and evolving international and regional institutions will come under pressure as they try to accommodate a more prominent China, and as

2 The three Companion Studies cover the following issues: New Zealand Defence Industry; the Role of the NZDF in Youth Programmes and the New Zealand Cadet Force; and Voluntary National Service. PAGE 4 OF 21

they struggle to build consensus in dealing with non-conventional challenges (eg illegal migration, terrorism, proliferation).

10�The Assessment concludes that New Zealand, with Australia, needs to be able to deal with any reasonably foreseeable contingency in the South Pacific. This must not, however, preclude the NZDF from deploying further afield.

11�New Zealand benefits from a stable international order which is sympathetic to our values and is based on the rule of international law. It is in our interests to contribute alongside allies and partners to the maintenance of such an order, including by contributing combat-capable forces when necessary.

Military Capability Pathways

12�A central aim of the Assessment has been to provide the Government with choices. New Zealand benefits from having a Defence Force which is responsive, versatile, and professional. An uncertain strategic context underscores the need for an NZDF which is able to conduct a range of tasks, particularly in the South Pacific, and also alongside allies and partners further afield. But the challenging fiscal context requires an NZDF which is financially sustainable now and into the future. Reconciling these various requirements has not been easy.

13�In developing the Assessment, more than a dozen force composition options were generated, reflecting various shades of strategic and fiscal risk. From these, and following the discussion and guidance provided by Ministers at the STR meeting on 15 February, three capability pathways were selected for elaboration and detailed costing:

o the Low pathway (presented to STR as the 'Lean Force') would enable the existing ranae of NZDF capabilities to be retained for the immediate future but at a level of investment which would see them degrade over time;

o the Middle pathway (presented to STR as the 'Strengthened Force') would retain and, in a small number of areas, enhance the current level of capability, but cost pressures would need to be managed, especially after 2020; and

o the High pathway, although not recommended by the Assessment, would address the shortcomings of the Middle option.

14�Consistent with the advice which was put to STR in February, the Assessment recommends that a capability mix based on the Middle pathway would enable New Zealand to sustain the NZDF much as we have it, able to do what it is doing today, in places similar to where it is today, alongside current allies and partners, and would be an appropriate response to the expected strategic outlook. The Middle pathway recommends: PAGE 5 OF 21

o an increase in Army strength; o an increase in Navy strength; o an increase in Air Force strength; o enhanced Special Forces; o eight NH90 and eight A109 helicopters (five upgraded and possibly armed); o the acquisition of a new shorter range maritime air patrol capability; o the acquisition of an imagery satellite capability; o an upgrade of the ANZAC frigates, and replacement at the end of their life with an equivalent capability. o a more versatile replacement for HMNZS Endeavour, o a replacement for HMNZS Canterbury at the end of her life; o replacements for the C130 and B757 fleets at the end of their life; o P3 Orion fleet enhanced and replaced at the end of the aircrafts' life; and o replacement of the in-shore and off-shore patrol vessels at the end of their life. 15�The proposed personnel numbers contained in the Middle pathway will be further tested in light of the VfM recommendations. Alternative ownership models for the recommended capabilities, along with issues related to timing, effective asset management, and linkages to partner capabilities (especially Australia), will be considered in the preparation of the White Paper.

16�Case-by-case analysis can only be done nearer the point of decision. Ministers will, of course, have opportunities to address the various components of the pathway, not least when business cases for each individual recommended acquisition are put to Cabinet. A ten-year rolling capital acquisitions plan will also be formulated, giving Ministers a further and continuing opportunity to test the proposed acquisition programme.

Managing Strategic Risk

17�The Assessment has been constructed in such a way that the Government could, if it wished, choose different trajectories within and between the various capability pathways, depending on its assessment of the strategic risk. For example:

o the Government could best manage the strategic risk by adopting the Middle pathway, while retaining the option of shifting the trajectory if the future international environment warranted this; or

o if Ministers believed that the risks of strategic uncertainty will unfold slowly then part or all of the Low pathway could be pursued for a period (mindful that the existing NZDF could not sustain this degradation indefinitely), before taking any decision to migrate to the Middle pathway; or PAGE 6 OF 21

o if the Government believed that the strategic risk was greater then it could choose to invest more money in the NZDF and begin a migration to the High pathway.

Managing Fiscal Risk

18�The Government's fiscal strategy has made provision for increases within a maximum annual operating allowance of $1.1 billion (increasing at 2% each year from 2011/12) and approximately $13 billion in capital allowance over the next ten years.

19�If Vote Defence Force were to receive a share of the Government's future fiscal allowances equal to its historic share, it would receive average increases in operating expenditure of $36 million per annum and average increases in capital injections of $80 million per annum. On this basis, it is possible to consider forecast expenditure increases in relation to three indicative bands:— Lower (less than the historic share), Central (historic share) and Upper (more than the historic share) as set out below:

Average Annual Lower Central Upper Increments ($ million) ($ million) ($ million)

Operating 24 36 72

Capital 40 80 160

20�It should be noted that the Crown is contractually committed to a number of existing acquisition and upgrade programmes which have not yet fully come to charge (eg Project Protector vessels, new helicopters).

21�The impact of these past decisions will see unfunded depreciation increase by about $100 million over the next two years. The increased costs associated with these legacy commitments are essentially unavoidable. Notwithstanding the increase of $35 million in operating funding approved for 2010/11, the funding available for "personnel" and "other operating" expenditure will be approximately $45 million less in 2010/11, and approximately $133 million less in 2011/12, than was available in 2009/10.

22�The following tables present the estimated funding increases required by the Low, Middle, and High pathways, in three time bands. The cost estimates are presented in constant (2009) dollars, to facilitate like-for-like comparability across years. However, the following points should be noted:

• the fidelity of these estimates declines over time. In general terms, this can be characterised as follows: 2010/11 — 2014/15 will be reasonably robust; 2015/16 — 2019/20 should be a fair indication; and 2020/21 — 2034/5 will be increasingly uncertain; PAGE 7 OF 21

• the estimates do not include provision for additional expenditure on the Defence estate; 3 and • the estimates have not factored in any savings likely to arise from the VfM exercise and other Defence efficiency exercises already underway.

Low pathway 2010/2011 — 2015/16 — 2020/21- (2009 dollars) 2014/2015 2019/20 2035/36

Average Annual Operating 48 20 10 Increases ($ million)

Average Annual Capital 21 47 121 Injections ($ million)

Middle pathway 2010/11 — 2015/16 — 2020/21- (2009 dollars) 2014/15 2019/20 2035/36

Average Annual Operating 70 32 11 Increases ($ million)

Average Annual Capital 91 56 177 Injections ($ million)

High pathway 2010/11 — 2015/16 — 2020/21- (2009 dollars) 2014/15 2019/20 2035/36

Average Annual Operating 77 72 11 Increases ($ million) 374 Average Annual Capital 311 403 Injections ($ million)

23�Of the various tracks which have been identified by the Assessment, the Low pathway would keep additional expenditure to a minimum, and a period of consolidation at this level might be needed for the period immediately ahead, given the Government's fiscal outlook. But it presents the highest strategic risk in terms of capability and responsiveness to new challenges. 5

24�The Middle pathway would be consistent with the Upper indicative band in 2010/11 — 2015/16, and the Central indicative band in 2015/16 — 2019/20. It represents a modest increase in capability over time, and carries less risk.

3 See paragraphs 44-51 below. 4 This estimate may seem counter-intuitive. It is a consequence of the greater capital spending in the previous period. The larger amount of depreciation that accumulates from that enlarged capital stock reduces the need for further capital injections in this period. 5 For example, the ability of the NZDF to sustain overseas operational deployments similar to those of recent years would be reduced. PAGE 8 OF 21

25�The High pathway would exceed the indicative bands. It is, however, the lowest risk option and represents a marked improvement in capability over time.

26�On the basis of these unadjusted numbers, therefore, the estimated funding increases required by the Middle pathway would fall within the indicative fiscal bands for at least the next ten years. The fidelity of the forecasts for the period after 2020 need to be treated with caution, and updated in the next Defence Assessment.

Key Investment Decision Points

27�The Government faces a number of significant decision-points over the next twenty-five years, as core platforms come up for replacement:

Next ten years

• Acquisition of new short-range maritime patrol aircraft (in the period 2011-13, at a cost of $200mn [Middle]);

• Replacement of the tanker Endeavour (in the period 2013-14, at a cost of between $160mn [Low and Middle] and $450mn [High]);

• Self-Defence Upgrade for the ANZAC Frigates (in the period 2013-17, at a cost of between $300mn [Low] and $500mn [Middle and High]);

Following ten years

• Replacement options for the C130 and B757 transport aircraft (in the period 2020-2025, at a cost of between $1.3bn [Low], $1.45bn [Middle] and $1.6bn [High]);

• Replacement of the P3 Orion maritime surveillance aircraft (by 2025, at a cost of $2.0bn for all options); and

• Replacement of the ANZAC frigates (in the period 2026-2029, at a cost of between $2.0bn [Low] and $2.6bn [Middle and High]) .

28�As well as these core platforms, decisions on the level of investment in various enabling capabilities will also need to be made by Cabinet. These include whether to retain unchanged, upgrade or replace the existing Seasprite naval helicopters; what level of investment should be made in the rolling replacement of the NZDF land transport fleet over the next twenty-five years; and what level of investment should be made in the network-enabled capabilities of the NZDF over the same period. Options related to these capabilities have been costed in each of the three pathways.

29�As was the case for managing the strategic risk, the various pathways set out in the Assessment also provide the Government with some fiscal choices around the capability decisions which will fall due over the period of the Review. PAGE 9 OF 21

30�For example, costs for the self-defence upgrade for the ANZAC frigates (which would be the most cost-effective way for New Zealand to retain a naval combat capability until the frigates are replaced in the period after 2025) range from $300mn (Low pathway) to $500mn (Middle and High pathways). Similarly, the option of purchasing new short-range maritime patrol aircraft is found in the Middle and High pathways but not the Low. And various C130 and 8757 replacement combinations can be formulated, sufficient to provide the Government with some fiscal leeway nearer the time of replacement.

31�This dynamic nature of the Assessment means that the Government, whether motivated by strategic or fiscal concerns, could choose to mix elements of the Low pathway (eg a $300 million self-defence upgrade option for the ANZAC frigates) with those of the Middle pathway (eg the early acquisition of the short-range maritime surveillance aircraft) or even the High (eg choosing a more versatile vessel to replace Endeavour). The Government could also choose the Low pathway for a period, if needed in order to consolidate the fiscal position, before then migrating to the Middle pathway.

32�More distant acquisitions, such as replacements for the P3 Orions by around 2025, and replacements for the ANZAC frigates in the period after 2025, are far enough into the future for it to be difficult to forecast with confidence what new technologies and more cost-effective replacement platforms might be available. It should, however, be noted that many countries are grappling with the need to replace core capabilities with cheaper and more versatile options, and New Zealand should be a beneficiary of this when we come to the time for decisions.

33�The Government will be able to mix and match pathways in advance of any upgrade or purchase decisions, as business cases are put to Cabinet. Government will retain an absolute right to determine the need for any given capability, the range of replacement options and costs, and the timeframe over which any capital investment should be made.

Value for Money

34�Another factor which will shape the affordability of decisions in the White Paper will be the results of the Value for Money review.

35�The NZDF has already made savings of $84 million as a result of its Defence Transformation Plan, and further recurring savings are in the pipeline.

36�Initial reports from the VfM exercise suggest that a significant amount of recurring annual savings should be possible. It would be appropriate for these savings to be applied to the forecast operating and capital needs of the Defence Force.

Fiscal Risks

37�As noted above, the estimates for each of the three capability pathways have been costed in 2009 dollars at 2009 prices. The Assessment has, however, also additionally modelled three main sources of cost variability. Domestic inflation has been factored in at the historic rate of 3.0% per PAGE 10 OF 21

annum. The exchange rate has been factored in at its historic average (a fall of 9.9%). And individual capital items have been adjusted for the assumption that costs of military equipment can rise at anything between 1.0% and 7.0% per annum above inflation, depending on the type and newness of the technology.

38�These variables are difficult to determine with confidence but, in the worst case, they could increase the costs of the capital programme above the levels provided in the fiscal allowances. Given the current strength of the NZ$, and historic evidence of cost growth in procurement programmes, the impact of these adjusted costs is more likely to be on the down-side. More work will be done on this issue when preparing updated fiscal advice that takes into account the cost implications of the VfM study.

39�The modelling was careful only to include cost reductions that were relatively firm. Thus, the figures presented above do not include the reductions in costs which are expected to come from internal reforms and the Value for Money exercise. These cost reductions will be presented to Ministers when the outcome of the VfM exercise has been received. In addition, the indicative funding bands (as set out following paragraph 19 above) have not been adjusted to take account of inflation, and did not assume any future relaxation of the Government's fiscal strategy. Finally, the estimates did not seek to include any cost reductions that would follow from the availability of more cost-effective technologies.

40�The modelling assumptions for cost variability as adopted by the Assessment were therefore conservative. Estimates in $2009 indicate that the capital costs of the Low and Middle pathways fall within the Central indicative band, and estimates using escalated costs fall within the Upper indicative band. The overall impact on operating expenditure will need to be judged after estimated cost increases have been netted off against estimated cost reductions that will follow from the efficiency opportunities identified by the VfM exercise.

The Bottom Line

41�Even after adjusting for cost variability, the central theme of the Assessment remains unchanged. A Defence Force at or around the Middle pathway is expected to be affordable for up to the next ten years, but the Government could face challenging investment decisions thereafter as key capabilities come up for replacement, assuming no improvement in the fiscal situation.

42�Modelling has its limitations, especially as the time horizon expands. Nor can it readily take account of factors that are as yet unknown, such as the savings which will come from the Value for Money exercise or movements in the foreign exchange rate. A key recommendation of the Assessment is to provide Ministers annually with updated information on the NZDF's fiscal trajectory in the form of a rolling ten-year planning profile. This would also be subject to close review in each of the Defence Assessments which would follow at five-yearly intervals. PAGE 11 OF 21

The Defence Estate

43�In addition to the above capability pathways, there will also be costs associated with the proposed way ahead on Defence real estate.

44�The Assessment recommends four scenarios for the recovery and future development of the Defence estate (which comprises 74,833 hectares, nine bases, and two primary training areas):

• Conservative: reflecting current fiscal constraints and the lead-time needed to plan change; • Pragmatic: reflecting steady improvement as resources allow; • Progressive: requiring significant capital investments and major, commercially-oriented change; and • Radical: moving to a situation where almost all estate requirements are met through commercial solutions.

45�Subject to the outcome of the Value for Money work, which is looking specifically at this area, and which is expected to identify ways in which costs associated with the Defence Estate can be reduced (including by way of Public-Private partnerships and other commercial arrangements), the Assessment recommends the pursuit of at least a pragmatic scenario for the five years to 2014/15, moving to a progressive scenario as soon as possible thereafter.

46�This trajectory would provide an opportunity to complete changes and initiatives currently underway, while also allowing time to develop the planning and business case analyses needed to move to a more aggressive scenario from 2015/16 onwards.

47�The Pragmatic Scenario, for example, would require an average annual increase in operating funding over the next five years of $24 million over the amount spent in 2009/10, together with average capital funding of approximately $78 million per annum. 6

48�The main initiatives under the pragmatic scenario would be:

• stabilising estate condition and performance; • completing major investments at Whenuapai and Ohakea Air Force bases; • constructing a new Battle Training Facility; • acquiring a new primary data centre; • reducing the footprint at Waiouru and in the Wellington central business district using commercially-leased solutions; and • targeting investments to achieve the greatest benefit for the NZDF.

49�Just as for the capability pathways, the Government does have choices. It could, for example, choose the Conservative Scenario for the next five years as a response to fiscal circumstances. This would require an

6 This is in addition to the estimated average annual additional costs in paragraph 22. PAGE 12 OF 21

annual average increase in operating funding of $7 million over the amount spent in 2009/10, and average capital of approximately $65 million per annum.

50�Whatever choice is made, the fiscal consequences of managing the Defence Estate will need to be managed and the relative importance of physical infrastructure and military capabilities will need to be carefully weighed. As noted above, this is one area of expenditure where the conclusions of the Value for Money exercise might have particular application, and it therefore would be sensible to postpone any detailed consideration until the outcomes of that process are known.

Future Financial Management

51�The Assessment recommends the implementation of a regime for funding and financial management of Defence based on:

• annual re-forecasts of capital expenditure (capex) requirements for the next 20 years (a current requirement under Treasury's Capital Asset Management Regime); • annual re-forecasts of operating expenditure (opex) requirements for the next 20 years; • rolling ten-year capital and operating planning profiles that maintain opex and capex in balance, and which are updated annually and are subject to full revisions at intervals of not more than five years in the course of a Defence Assessment; • annual approval by Cabinet of the NZDF's expenditure proposals for the next fiscal year within the context of the rolling ten-year planning profiles; • alignment of capex and opex so that any decision to approve a capital injection should also address the implications for operating expenditure; • some flexibility for moving output funding across fiscal years so long as it remains consistent with the indicative planning profiles; and • protection against opex increases arising from asset revaluations.

52�Transparency, predictability and completeness lie at the heart of these proposals. The overarching objective is to ensure that Ministers have good visibility of the future operating and capital expenditure implications of all capital funding requests, and that NZDF spending intentions remain aligned with the Government's policy objectives.

Total Defence Workforce

53�The Assessment identified a number of strategic objectives for the management of the NZDF's personnel, whether Regular Force, Reserve Forces, or Civilian, which can be summarised as follows:

• ensuring that the NZDF has the people it needs at the right time and the right trained state to be an effective military force; PAGE 13 OF 21

• achieving the optimum number of people with the right skills needed both to deliver the Government's required defence outputs and capabilities, and also to manage the NZDF and its resources efficiently and effectively; and

• enabling the maximum flexibility of movement of personnel between Regular Force, Reserve Forces and civilian categories to ensure that personnel are appropriately qualified in all respects to meet the requirements of the positions that they hold.

54�Both the Companion Studies and the VfM exercise have paid particular attention to Workforce issues and this is another area where the advice contained in the Assessment is likely to be supplemented or modified as we shape the content of the White Paper.

55�For example, the Middle pathway recommends an Army Reserve Force of 4,400 (up from 1,800 at present), as well as increasing the capability and roles of the Navy and Airforce reserves. This recommendation, and analysis relating to the Reserves more generally, including from the Companion Studies and the VfM exercise, will need to be further evaluated in the development of the White Paper.

Procurement and Organisational Reform

56�The Assessment examines the internal management of the defence organisations, including the relationship between them, as well as the mechanisms for the provision of external advice to the Defence Ministers.

57�Two independent reviews of procurement and organisational structure were conducted as part of this Assessment. Arising from the reviews and after further consideration, the Assessment recommends the establishment of a `joined-up' capability group, managed by a joint management Board comprising the Defence Chief Executives and at least two independent non-executive directors. The Board would oversee a continuous defence capability life-cycle that encompasses policy, capability definition, business case consideration, Cabinet approval, acquisition, through-life operation, disposal, and replacement.

58�The creation of the Board is intended to reconcile the apparent contradiction of retaining two defence organisations but operating certain functions as a joint activity. It would see the merger of some aspects of policy with capability development, acquisition and through-life support. The challenge is to create a new body within the defence organisations, with appropriate authority and accountability for such joint activities, yet retaining the singular accountability of each of the Defence Chief Executives.

59�In addition to adding independent members to this joint management Board, there should also be a non-executive Advisory Committee to provide the Defence Ministers with additional independent advice on defence policy and management issues. This Board should comprise the Ministers and three independent members nominated by the Ministers, supported by the Secretary of Defence and the Chief of Defence Force. PAGE 14 OF 21

60�These proposals, if adopted, are likely to require some legislative change.

Next Steps 61�The Assessment has now been completed. The next step is for the Value for Money exercise to be finished in July and the findings of that exercise reported to the Cabinet Expenditure Control Committee [ECC Min (10) 7/2 refers].

62�It is envisaged that a 'decisions submission', drawing on the findings of the Assessment, and ECC's consideration of Value for Money exercise, and the conclusion of the three Companion Studies, will be submitted for Cabinet approval before the end of August. That submission will seek Ministerial guidance on defence policy priorities, the preferred capability pathway, funding, and organisational reform, at which point the Defence White Paper will be drafted.

63�It is my intention to submit the Defence White Paper for Cabinet approval before the end of September. A detailed capability plan to guide the acquisition decision of the NZDF will be prepared immediately thereafter.

Consultation

64�The Assessment is the view of the Secretary of Defence, as consulted with the Chief of Defence Force.

65�The Minister of Defence and the Associate Minister of Defence briefed Cabinet Strategy Committee in March, August. November and December 2009 and in February 2010. They also briefed the Foreign Affairs, Defence and Trade Select Committee on 18 March 2010.

66�Relevant government agencies have been consulted, including formally through the Officials' Committee for Domestic and External Security Coordination at Chief Executive level. The New Zealand Customs Service, Immigration New Zealand, the National Assessments Bureau, the Ministry of Fisheries, and the Government Communications and Security Bureau were consulted on Chapters 1-5 of the Assessment. The Treasury, the States Services Commission, the Department of the Prime Minister and Cabinet (the 'Central Agencies'), the Ministry of Foreign Affairs and Trade, the New Zealand Security and Intelligence Service, and the New Zealand Police were consulted on the complete Assessment and on this paper. Antarctica New Zealand and the National Maritime Coordination Centre were consulted on the relevant parts of the Assessment. Central Agency comment is below.

Central Agency Comment

67�The Defence Assessment aims to align policy, capabilities and funding and improve organisational performance. Looking towards the White Paper advice, this Defence Assessment will be supplemented by wider advice from the VFM Review, the companion studies and other officials (including central agencies).

68�Ministers will have choices regarding specific capabilities within and between the low and middle pathways (the lean and strengthened forces PAGE 15 OF 21

discussed by STR in February 2010). Based on the presented defence assessment costings, the lean and strengthened force are affordable over the next ten years. The lean force is the only pathway that is within the fiscal parameters when the Defence Assessment real estate recommendations are factored into the costings. The high pathway, which the Defence Assessment does not recommend, is considered to be unaffordable. High is not required by the strategic assessment and it would equate to allocating three out of the next ten capital budgets to defence only with no other capital investments. This would require significant re-prioritisation across Government from other policy areas to increase the defence share of the capital allowance to around 30% from the 6% in the past 10 years (with flow-on opex increases e.g. depreciation).

69�The fiscally significant and critical capital investments fall in the period 2020-2030. To ensure that the critical capabilities of strategic airlift C130s and maritime surveillance P3 Orions can be replaced post 2020 it is likely that depreciation needs to be set aside over the next ten years. This would reduce the capital programme and require prioritisation 2010-2020. Further work is needed to enable informed decisions on NZDF personnel numbers, indentifying the dollar savings and number of staff potentially able to be reallocated within NZDF, and the implications on the personnel increases sought.

70�The costings for the final decisions will change, e.g. to reflect the VFM Review findings. The presented costs, particularly 2020-35, are likely to be under-estimated e.g. due to the military cost factors raised by the Defence Assessment. The total fiscal impact for Vote Defence Force needs to be included in final costings for White Paper decisions, with analysis of sensitivities.

71�Treasury's assessment is that based on defence costings it is unlikely that replacement of both the maritime surveillance P3 Orions and the naval combat frigates from 2025-2030 will be affordable. The Long Term Fiscal Statement indicated that revenue in the 2020s is expected to grow more slowly than GDP. This and rising pressures on expenditure from the ageing population will widen the projected deficit from the mid-2020s.

72�Central agencies support the direction for organisational changes proposed by the Defence Assessment.

Views of the Independent Panel

73�Ministers and Chief Executives have been advised on Assessment matters by a panel of three independent advisers, selected for their experience in international relations, military matters, commercial affairs and management and organisational change [CAB Min (09) 12/16 refers]. The Panel comprises:

• Simon Murdoch, former Secretary of Foreign Affairs and Trade • Martyn Dunne, former Commander Joint Forces New Zealand and Comptroller, New Zealand Customs Service • Rob McLeod, Managing Partner, Ernst & Young, New Zealand PAGE 16 OF 21

74�Panel members have engaged extensively with me and the Associate Minister, and with internal and external stakeholders. In the process, they have drawn my attention to a lack of depth and critical mass across the Defence Force, particularly in the Army.

75�The Panel expressed a concern that the NZDF was potentially at a tipping point. Its underlying capabilities were in a more 'anaemic condition' than might be apparent. Consequently it might slip quite rapidly from its recent overall level of deployability and military effectiveness. This would create both defence risks and foreign policy opportunity costs for future governments. The Panel noted that specialised military capabilities should be preferred in military contexts, and had concerns that multi purpose capabilities risked doing no job well. The Panel recommended that the Assessment should preserve, and where necessary deepen, the NZDF's overall military effectiveness and inherent deployability, both for joint operations, and niche contributions to regional stability, as well as homeland security.

Public Consultation

76�An extensive public consultation process was undertaken between June and October 2009. A summary of submissions received was published in June 2010. The major themes as set out in that document are attached.

External Consultation

77�In accordance with the Terms of Reference of the Review, New Zealand's security allies, partners and friends have been briefed on the issues within the scope of the Review, either through dedicated consultations (as with Australia) or by Ministers and senior officials taking advantage of meetings with representatives of other Governments, either in New Zealand or overseas.

Financial Implications

78�There are no direct financial recommendations associated with this submission. Ministers will be asked to make financial decisions after the completion of the Defence Value for Money exercise, and prior to completing the Defence White Paper in September.

Legislative Implications

79�There are no immediate legislative implications associated with this submission, although some changes may be required as a consequence of the recommendations flowing from it. Specifically, the Defence Act 1990 might need to be amended to:

• constitute the proposed Joint Management Board, and to provide for the exercising of joint authority and accountability of those functions designated in the legislation as joint; • to provide both the Ministry of Defence and the NZDF with statutory rights of prompt access to relevant information held by the other organisation; PAGE 17 OF 21

• to provide for the evaluation of the performance of the Chief of Defence Force by the State Services Commissioner; and • to provide clarity around the definitions of the Regular Force, the Reserve Force, and civilian personnel.

80�Further work will be needed to identify and draft any necessary changes to legislation, and to develop a detailed implementation plan. These will be reported to the Committee in due course.

Human rights, legislative, gender, disability, regulatory, and compliance cost implications

81�There are no implications arising from this paper.

Publicity

82�Publicity is not proposed. The future structure of the NZDF, and the factors shaping that structure, will be announced as part of the Defence White Paper.

Recommendations

83�It is recommended that the Cabinet External Relations and Defence Committee:

1 note that the Terms of Reference approved by Cabinet for the Defence Review 2009 directed the Secretary of Defence, in consultation with the Chief of Defence Force and other stakeholders, to undertake a Defence Assessment as prescribed by Section 24(2)(c) of the Defence Act 1990 [CAB Min (09) 11/12 refers];

2 note that on 15 February 2010 the Cabinet Strategy Committee invited the Minister of Defence to submit a paper to the Cabinet External Relations and Defence Committee on the Defence Assessment, before the Assessment is concluded [STR Min (10) 1/1 refers];

3 note that the Secretary of Defence has now completed his Defence Assessment;

4 note that that the key findings of the Defence Assessment are as follows:

a. that the range of capabilities of the existing NZDF have to date been effective and versatile in the delivery of policy;

b. that a Defence Assessment, including an update of New Zealand's national security interests, be undertaken at five-yearly intervals;

c. that an overarching national security strategy for protecting New Zealand, our people, and our interests be developed;

d. that while New Zealand faces no direct military threat, the international strategic outlook is for more instability, including in the South Pacific; and that New Zealand's security interests are best PAGE 18 OF 21

served by strong partnerships, and an international environment in which the rule of law is generally accepted; e. that the principal roles and tasks of the NZDF are the protection of New Zealand and the EEZ; honouring our alliance obligations to Australia; contributing to peace and stability in the South Pacific; making an appropriate contribution in support of peace and security in the Asia-Pacific region; and protecting New Zealand's global interests; f. that a set of capability choices at or around the Middle pathway would enable New Zealand to sustain the NZDF much as we have it, able to do what it is doing today, in places similar to where it is today, alongside partners and allies; g. that the Middle pathway would best position the Government to manage any deterioration or improvement in the strategic outlook;

h. that a capability mix based on the Middle pathway is expected to be affordable for up to the next ten years, although a period of consolidation under the Low pathway might be necessary given current fiscal pressures;

i. that affordability projections, and New Zealand's likely fiscal position, are increasingly uncertain after 2020 but the Government could face challenging investment decisions in this period as key capabilities come up for replacement; j. that the VfM exercise will provide an opportunity to reinvest savings in the NZDF and to explore alternative funding arrangements, including of a commercial nature (eg in relation to the Defence Estate);

k. that the NZDF pursue at least a pragmatic scenario for the management of the Defence Estate for the five years to 2014/15, moving to a progressive scenario as soon as possible thereafter, subject to additional funding;

I. that changes be implemented to the way in which the fiscal needs of the Defence Force are forecast and managed, including the introduction of a ten-year rolling indicative planning profile for both capital and operating expenditure based on Cabinet decisions, and a continuing requirement for capital spending proposals to address the operating expenditure implications;

m. that to manage the total workforce most effectively there should be maximum flexibility of movement of personnel between uniformed and civilian personnel, and between Regular and Reserve Forces, to ensure the most qualified person is matched to the position;

n. that a new Joint Management Board comprising the Secretary of Defence and the Chief of Defence Force together with independent advisers be established to provide for the more effective management of defence capabilities across the capability life cycle; and PAGE 19 OF 21

o. that a non-executive Advisory Committee also be established to provide the Defence Ministers with additional independent advice on defence policy and management issues, to comprise the Ministers and three independent members nominated by the Ministers, supported by the Secretary of Defence and the Chief of Defence Force. 5 invite Ministers to indicate whether there are any parts of the Assessment which they would like to see reflected in the work leading to the White Paper;

6 note that the Defence Value for Money exercise is progressing, and will be completed by the end of July; and

7 invite the Minister of Defence to submit to the Cabinet Strategy Committee a further submission which integrates the conclusions of the Defence Assessment, the Value for Money exercise, and the Companion Studies before they are incorporated into the Defence White Paper which is to be published before the end of September.

Hon Dr Wayne Mapp Minister of Defence PAGE 20 OF 21

Major Themes Defence Review Consultation

There was considerable public support for the Defence Force coupled with the desire for it to have greater capabilities and more international participation in defence and security-related roles.

Submissions contained various views on the level of threat New Zealand is likely to face in the next 35 years. While some submitters believed that New Zealand will be in a benign environment and face little direct threat, more believed that all of New Zealand's strategic environments are likely to be challenged to a greater extent than is presently the case.

It is unsurprising that virtually all submitters gave highest priority to the defence of New Zealand. Most of those that prioritised all the strategic environments placed the South Pacific next, then the Asia-Pacific region followed by deployments to the wider world. Many responded more generally in terms of the balance of effort between regions close to home and those further afield. The majority favoured greater focus in South Pacific and Asia-Pacific regions.

Most submitters agreed that deployments beyond New Zealand's Exclusive Economic Zone (EEZ) are likely to be in collaboration with Australian forces, either as a partner in the South Pacific or as part of a wider coalition force including the Australian Defence Force in the Asia-Pacific region and wider world. Ensuring the Defence Force can add value to the capability of the ADF was supported.

Combat capabilities were seen as important for developing the core purpose of the Defence Force, and were seen by many as important for all Services including the Air Force. A combined air and sea strike capability was seen as necessary for securing New Zealand's maritime domain and supporting deployments.

Developing capability involves modern training and equipment that is interoperable, deploy-able and valuable both to New Zealand and its likely coalition partners. Capability was also seen as a significant enabler in determining what roles the Defence Force may play in international deployments. Consequently, it is essential that acquisitions supported the capabilities necessary for the conduct of all the Defence Force's likely roles, particularly in multinational coalition forces.

Most submitters had an expectation that the Defence Force will play a significant role in major activities such as civil defence, search and rescue, and disaster relief both domestically and regionally. Ways to enhance the effectiveness of joint civil-military operations was a focus for many of these submitters. Another concern was ensuring that the Defence Force's support for these roles did not come at the expense of its core functions and resources.

Income and conditions of service remained major factors in the recruitment and retention of Service personnel. Education, training and skill development for Defence Force personnel must be aligned for careers spanning Service and post- Service civilian life. Education and careers were also seen by young people as an attractive feature of joining the Defence Force. PAGE 21 OF 21

Some submitters saw the potential for cost and efficiency advantages for the Defence Force from employing investment initiatives, shared ownership and leasing options with the private sector, as well as outsourcing and/or civilianising non-core roles. Others believed it is better for the Defence Force to manage and operate all of its functions.

Many submitters wanted to see greater funding for the Defence Force. This was usually expressed in terms of a higher fixed proportion of GDP comparable to New Zealand's strategic partners. Others also specifically supported greater funding for the Reserves and Cadet Forces. Consultation on Cabinet and Cabinet Committee Submissions

Gertiticatiori by Department. -

Departments/agencies consulted: The attached submission has implications for the following departments/agencies whose views have been sought and are accurately reflected in the submission: The Treasury, the States Services Commission, the Department of the Prime Minister and Cabinet (the 'Central Agencies'), the Ministry of Foreign Affairs and Trade, the New Zealand Security and Intelligence Service, the New Zealand Police.

Departments/agencies informed: In addition to those listed above, the following departments/agencies have an interest in the submission and have been informed: The New Zealand Customs Service, Immigration New Zealand, the National Assessments Bureau, the Ministry of Fisheries, and the Government Communications and Security Bureau, Antarctica New Zealand, the National Maritime Coordination Centre.

Others consulted: Other interested groups have been consulted as follows:

s9(2)(a)

Name, Title, Department: John McKinnon, Secretary of Defence, Ministry of Defence

Signature 24 June 2010 Date: � e---C-"\-----\___,

. �. �... �, �,. �. �.. �,.... �., �- Certification : ., yttlinister: __..

Ministers should be prepared to update and amplify the advice below when the submission is discussed at Cabinet/Cabinet committee.

The attached proposal:

Consultation at ❑ has been consulted with the Minister of Finance Ministerial level [required for all submissions seeking new funding]

i\A r U., L . �i t;,- 0 �has been consulted with the following portfolio Ministers: , t r ,, ''..1 (..L. � a ktEl i...k, ci �i-q%C‘Sitv „1- .) ❑ did not need consultation with other Ministers

Discussion with ❑ has been �or �❑ will be discussed with the government caucus National caucus ,---,7 Llt �does not need discussion with the government caucus

Discussion with has been discussed with the following other parties represented in Parliament: other parties [(Act Party ❑ Maori Party �❑ United Future Party 1 �Other [specify] rss---,c__ �Iv. ,,,iks-i-te �04- �os..c-lc... v ❑ will be discussed with the following other parties represented in Parliament: ❑ Act Party ❑ Maori Party �❑ United Future Party ❑ Other [specify] ❑ does not need discussion with other parties represented in Parliament

Portfolio Date � I Signature ./ DaL.--x,...iciE, 24- / O �/72.c, it; � ///:"

140117v1

Cabinet CAB Min (10) 6/2

Copy No:

Minute of Decision

Report of the Cabinet Strategy Committee: Period Ended 19 February 2010

On 22 February 2010, Cabinet made the following decisions on the work of the Cabinet Strategy Committee for the period ended 19 February 2010.

STR MM (10) 1/1 Defence Review: Strategy, Tasks, Capability and Funding CONFIRMED Portfolio: Defence

-eja,C66<- 11----9//fieff(t- Secretary of the Cabinet � Reference: CAB (10) 43

Distribution: Cabinet Strategy Committee MINISTRY OF DEFENCE Chief Executive, DPMC iNWARDS MAIL Director, PAG, DPMC EDMS ID� � Director, EAB ES 0211) 0 Director, NZSIS DateDate Director, GCSB No. P�431 Secretary to the Treasury File�Yes No State Services Commissioner Commissioner of Police Referred To � Minister for Biosecurity Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Associate Minister of Defence Secretary, STR Secretary, ERD Cabinet Strategy STR Min (10) 1/1

Committee Copy No: 3 Lr,

Minute of Decision

Defence Review: Strategy, Tasks, Capability and Fundin MINISTRY OF DEFENCE. INWARDS MAIL Portfolio: Defence ...... EDMS ID� ...... Date .. (.2 ..� .� ...... On 15 February 2010, the Cabinet Strategy Committee (STR): Folder No�...... �

File�Yes / No 7e,--, , s„ ...... c.-.c... i)e/- . Background Referred To...... D W._� ! I-�L.... 1�noted that on 7 December 2009, STR considered an item on the Defence Review and invited the Minister of Defence, in consultation with other Ministers as appropriate, to report back to STR in early 2010 with further advice that: � 1.1 identifies what an optimised force structure may look like over the next 20-25 years, given New Zealand's strategic context, threat analysis, international interests and relationships, and the core and enabling capabilities required of the New Zealand Defence Force (NZDF) over that period; 1.2�indicates how the development of the required capabilities could be staged or managed over the next 20-25 years, given the current fiscal situation; 1.3�indicates the relative priorities of the capital projects that may be required over the next 20-25 years, and suggests how the procurement programme could be staged or managed to meet fiscal restraints over this time period; [STR Min (09) 25/1]

Defence Assessment

2�noted that work on the Defence Assessment to date points to an uncertain strategic picture over the next 25 years, and reaffirms the need for a responsive, versatile, balanced, professional NZDF able to conduct a range of tasks, particularly in the South Pacific region, but also alongside friends and allies further afield;

3�noted that the work underlying the Defence Assessment has analysed and mapped the relationship between New Zealand's strategic environment, New Zealand's security interests, the contribution made by the NZDF in the pursuit of national security tasks, and the capabilities required to perform those tasks;

4�noted that various alternative force options have been considered, but the analysis supports the conclusion that the current NZDF is broadly configured to meet the tasks required of it by the government; STR Min (10) 1/1

5�noted that a range of strengthening options exist to plug the capability gaps identified in the `Lean Force' structure and to sustain NZDF outputs;

6�noted that the priorities for strengthening are to: 6.1�boost the Army and Special Forces; 6.2�introduce a short range surveillance/transport aircraft; 6.3�maximise air and navy crew availability; 6.4�invest in a prioritised capital upgrade and replacement programme;

7�noted that even with the identified gaps plugged, there would be some continuing risk around the size and sustainability of NZDF's deployable forces, especially if the global outlook deteriorates;

8�noted that these risks will be monitored, including in a Defence Assessment to be completed every five years;

9�noted that capital and operating increases for both the 'Lean Force' and 'Strengthened Force' are expected to be affordable in the period to 2020, within the fiscal parameters;

10�noted that operational funding requirements for both the 'Lean Force' and 'Strengthened Force' will be under pressure in the period to 2015, but are expected to ease thereafter;

11�noted that although some consolidation of the 'Lean Force' might be necessary in the years 2010-2015, it may still be possible to make a start towards the priorities of the 'Strengthened Force';

Next Steps

12�noted that the Minister of Defence intended to submit a paper to the Cabinet External Relations and Defence Committee by the end of March 2010 on Defence organisation and structure; 13�invited the Minister of Defence to submit a paper to the Cabinet External Relations and Defence Committee on the Defence Assessment, before the Assessment is concluded;

14�directed the Ministry of Defence to present the completed Defence Assessment to the Minister of Defence by the end of April 2010;

15�directed Defence officials, in consultation with other agencies as appropriate, to pursue Value for Money efforts to: 15.1�identify efficiencies; 15.2 identify options for shifting resources to front-line activities; 15.3 provide assurances and options around the cost effectiveness and sustainability of NZDF;

16�agreed that a Defence White Paper be prepared incorporating the conclusions of the Defence Assessment and the outcome of the Value for Money exercise; STR Min (10) 1/1

17�agreed that the Defence White Paper should be completed by the end of September 2010.

Janine Harvey � Committee Secretary Reference: STR (10) 1

Present: Officials present from: Hon John Key (Chair) Office of the Prime Minister Hon Bill English Officials Committee for STR Hon Simon Power (part of item) Department of the Prime Minister and Cabinet Hon Tony Rya11 (part of item) Treasury Hon Judith Collins Ministry of Foreign Affairs and Trade Hon Anne Tolley Ministry of Defence Hon Christopher Finlayson New Zealand Defence Force Hon Murray McCully Hon Dr Wayne Mapp Hon Steven Joyce (part of item)

Distribution: Cabinet Strategy Committee Chief Executive, DPMC Director, PAG, DPMC PAG Subject Advisor, DPMC Director, EAB Director, NZSIS Director, GCSB Secretary to the Treasury John Whitehead, Treasury State Services Commissioner lain Rennie, SSC Commissioner of Police Minister for Biosecurity Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Associate Minister of Defence Secretary ERD

s9(2)(a) DEFENCE REV)rEW DEFENCE REVIEW OVERVIEW

STRATEGY, TASKS & CAPABILITY STRATEGIC CONTEXT, TASKS & CAPABILITIES 11.F THE NZDF IN ACTION

CAPABILITY CHOICES KEY QUESTIONS LS A LEAN FORCE 4 STRENGTHENING THE LEAN FORCE

FUNDING FINANCIAL ISSUES 14 NEXT STEPS DEFENCE REII)rEW vi�STRATEGIC CONTEXT, TASKS & CAPABILITIES

NIP PI.ArF IN THE WORE n OPEX COST KEY 09/10 NATIONAL SECURITY INTERESTS EXTERNAL FACTORS LAND COMBAT FORCES - A safe New Zealand ,..2..t- WEAKER INTERNATIONAL INSTITUTIONS - Strong International Partnerships :0,701:10 $445m 21% N-I� r - Enhancing New Zealand's international reputation II aLsiot1'4 SHIFTING BALANCE OF POWER BETWEEN - A peaceful international order STATES - THE RISE OF CHINA - Freedom of commerce

INCREASED RESOURCE COMPETITION - E.G. FISHERIES & WATER DEFENCE PRIORITIES - Defend New Zealand DEMOGRAPHIC PRESSURE & ILLEGAL MIGRATION - Support Australia - Play a leading role in South Pacific region THE PACE OF TECHNOLOGICAL CHANGE �mmOIN" - Contribute to security & stability in Asia-Pacific, and in the wider world where we can

CONTINUING TERRORIST THREAT�moillp. DEFENCE TASKS INSTABILITY & WEAK GOVERNANCE - Security & Stability Operations IN SOUTH PACIFIC - Disaster Relief & Evacuations S493m 23°. - Maritime Resource & Border Protection INCREASING UNGOVERNED SPACES - Defence Relations - Counter Terrorism SEA TRANSPORT & SUPPORT - Combat

$98m 4% 111" DISASTER RELIEF & MARITIME RESOURCE SECURITY & DEFENCE RELATIONS EVACUATIONS & BORDER PROTECTION (reinforcing key COUNTER TERRORISM STABILITY COMBAT OPERATIONS (e.g. search and (working with, for relationships, including (domestic & rescue within NZ example, Ministry of international, including (e.g SAS in Afghanistan) Fa- (e.g. Timor Leste & PRT through joint military and Samoa Tsunami Fisheries & NZ Customs support to the NZ $362m 17% in Afghanistan) exercises) assistance) Service) police)

SPECIAL FORCES

$63m 3°0 As*

OTHER 6% ie.g overseas depki men%) $128m DEFENCE RE\nkEW NZDF IN ACTION

TIMOR LESTE (SINCE 1999) Infantry, Protected mobility Frigates, with embarked SAMOA & TONGA TSUNA helicopters I�(mortars), engineers, RELIEF (2009) HMNZS ENDEAVOUR

medical, communications, „ transport and logistics units Boeing 727, C130 Hercules, Engineers, commun cat ons, helicopters (Iroquois) advance command, medical and SAS environmental health teams (UP TO OVER 1,200 NZDF PERSONNEL IN TIMOR AT THE PFJUQ P3 Orion Reconnaissance HMNZS CANTERBURY, operational divers C130 (NZ and Aus) B757 Helicopters Air movements tea

Search and - AFGHANISTAN & ARABIAN el111111111111115 TO REGION WITHIN 3 DAYS) GULF (SINCE 1999) AFGHANISTAN e (around 140 personnel) since Nov 2002. 71 PARTNERED „› In—country liaison, training & support personnel (14) lkook C130 airlift

Special Forces — SAS deployments since Oct 2001 ARABIAN GULF THE ANZAC CONNECTION P3 Orions providing airborne The NZDF contributes more than twenty percent of A—NZ land combat, maritime surveillance maritime patrol, naval combat, sea transport & supply, air transport & special Frigates conducting patrol & forces. Australia has capabilities we do not have: air combat forces, heavy enforcement tasks. armour and submarines. Changes in NZDF's core capabilities will have implications for the ANZAC relationship DEFENCE REV)rEW KEY QUESTIONS

( DOES THE CURRENT NZDF Current capabilities are useful, versatile, mutually-reinforcing, and proven MEET OUR STRATEGIC AIMS? Broadly, yes They are valued by our friends and allies IS IT SUSTAINABLE? They can be sustained but fiscal pressures need to be addressed

The Army (including SAS) is under pressure due to the tempo of operations

( DOES THE CURRENT Three main gaps Having no dedicated short-range aircraft lessens NZDF ability to patrol the EEZ and South NZDF HAVE GAPS? need to be plugged Pacific, and to support land operations Frigate self-defence systems need upgrading to stay effective and retain compatability ith Australia

The NZDF is inexpensive by international standards. But resources need to be shifted to front-line activities There is scope for extending commercial arrangements for non-military activity, to Organisational savings lease assets or buy them second-hand CAN THE EXISTING exist. And we can We may be able to share some assets with Australia (e.g. air transport) NZDF BE MORE look for cheaper WHEN WE NEED TO MAJOR ASSETS, THERE ARE OPTIONS: COST—EFFECTIVE? options when existing Replace the naval tanker with a multi-purpose ship equipment is replaced Replace the hydrographic survey and dive support ships with one vessel UAVs and satellites might enable fewer Orion replacements The replacement air transport fleet may have a different composition The r e are a range of combat capable frigate replacements that could be considered when the time comes

Reduce the strain on Army by increasing front line numbers and greater use of Reserves Boost special forces WHAT ARE OUR Introduce a low-end surveillance/ transport aircraft capability IMMEDIATE PRIORITIES? Undertake a sustainable and cost effective capital replacement/ upgrade programme for current capabilities Continue with value for money work DEFENCE� REVIEW A LEAN FORCE

• Maintain Army personnel at current levels • LAV maintenance programme on rolling basis to maintain capability as far as possible RISKS

• As with the existing NZDF, this option will not deliver the full range of tasks currently contracted for by Government. • Maintain Army support functions (e.g. lo•istics,,en For example, the NZDF cannot sustain for 12 months

intelligence)� , either: an infantry battalion; a P3 force of two aircraft: or an operational dive team without damaging the longer term • Invest in enhanced medical capability' . sustainability and capability of the NZDF

• Maintain P3 capability and replace at end of life • Strain on the Army will continue. The Land Force will be stretched to maintain concurrent deployments and its • Maintain Offshore Patrol Vessel and Inshore Patrol Vessel capabilities will decline over time capability. Replace at end of life

• No dedicated short-range aircraft lessens NZDF ability to patrol the EEZ and South Pacific, and to support land • Upgrade frigate self-defence with cheapest credible package operations • Upgrade maritime helicopters to maintain current capability. • The introduction of the Protector fleet and upgraded Replace with reduced capability at end of life Orions will place pressure on operational crews and key trades

• The entry into service of new helicopters may place • Replace replenishment ship (Endeavour) at end of life pressure on operational crews and key trades • Upgrade logistic support ship (Canterbury), and replace at end of life

• The frigate self defence upgrade will be the minimum credible, but well below the level of Australia's ANZAC • Replace C-130s at end of life, maintaining current level of capability capability • Consider whether to replace B-757s with an appropriate air transport capability to be determined • Special Forces getting overstretched • Maintain support helicopter capability. Replace at end of life

• Maintain Special Forces at current capability

Ira DEFENCE REVIEW STRENGTHENING THE LEAN FORCE

STRENGTHENING CHOICES, RISK MITIGATION BUILDING ON 'LEAN':

• Increase Army front line strength to enable larger • Increase Army strength to improve ability to sustain operations deployments to be sustained for longer

• Boost Special Forces • Enhance Special Forces by increasing sustainability

• Introduce short range patrol aircraft and satellite imagery capabilities to fill existing gaps • Introduce new short range surveillance capability • Manage Air Force and Navy personnel to maximise I • Acquire satellite imagery capability utilisation of ships and aircraft

• Consider merit of a further frigate self-defence I • Upgrade frigate self-defence to close the gap with Australia. upgrade in the context of a wider replacement/ Replace with equivalent at end of life upgrade programme

THE VALUE FOR MONEY EXERCISE WILL SUPPLEMENT THE DEFENCE ASSESSMENT BUT THERE WOULD BE SOME CONTINUING RISKS AND BOTH WILL INFORM THE GOVERNMENT'S CHOICES IN THE WHITE PAPER • There would be some residual risk around the NZDF's ability to conduct larger scale and longer-duration deployments • NZ forces would still lack higher-end combat capabilities • Our value to coalition partners risks declining as the capability gap widens

DEFENCE REVIEW FINANCIAL ISSUES

(� CAN WE SUSTAIN THE Yes — but not The 'Lean Force' is sharply focused. It retains existing capability sets, but the NZDF will EXISTING NZDF? without risk have no depth to meet additional tasks beyond current levels of operational commitments

4�

The next few years will focus on bringing new assets into service, which have already WHAT ARE THE IMMEDIATE�New equipment; been purchased (e.g. helicopters). This will have operating implications, which are not currently recognised in baselines FINANCIAL PRESSURES�demanding ( FACING THE NZDF?� Deployments are putting pressure on the sustainability of personnel, especially Army y deployments and Special Forces

A number of capital assets are coming up for upgrades/ replacement over the next 25 ( years. This will have a direct impact on NZDF capital and operating expenditure WHAT CHALLENGES Major asset The C130 Hercules will need to be replaced before 2020. And in the period 2020-2035, LIE AHEAD? replacement needed major decisions will be required around frigate & P3 replacements These capital decisions will have operating implications (e.g. depreciation). � )1

The NZDF has a number of efficiency programmes already underway ( HOW WILL THESE The Value for Money exercise will rigorously examine the NZDF business model for PRESSURES AND By investing in efficiencies, including by looking at levels of readiness CHALLENGES BE an efficient NZDF Future investment will be made, but decisions will be needed on what to buy and how MANAGED? much to spend Depreciation and other operating implications will need to be factored in and managed

( Consolidation of the NZDF over the next five years is manageable, but any further IS 'LEAN' AN No. We need to reduction would damage its ability to deliver on policy ENDURING SOLUTION? rebuild over time There are options to mitigate these risks and strengthen the 'Lean Force' DEFENCE REV)EW FINANCIAL ISSUES

MAJOR CAPITAL PROGRAMMES 2010 - 2035

PATROL OPTIONAL: NEW SHORT RANGE FURTHER FR GATE�SATELLITL UPGRADE SURVEILLANCE $200 m $200m $30m

P3 MARITIME PATROL REPLAd TANKE 3 AIRCRAFT REPLACEMENT* (ENDS YOUR) $2000m $100m AIR TRANSPORT (C130 & 757) REPLACEMENT FRIGATE $1300m REPLACEMENT* NECESSARY: $2000m

$300m LAV UPGRADE

COMMUNICATIONS & SITUATIONAL AWARENESS (C4ISR) $470m

LAND TRANSPORT AND SUPPORT E(1711111=11111 6111111111111 $390m

2010 2015 2020 2025 2030 2035

NOTE: HEIGHT REFLECTS EXPECTED DOLLAR COST OF PROGRAMME *THERE ARE ALTERNATIVE REPLACEMENT OPTIONS

DEFENCE REVI EW FINANCIAL ISSUES THE 'LEAN' FORCE: FUNDING STRENGTHENING: FUNDING

2010 TO 2015 2010 TO 2015 KEY OBJECTIVES KEY OBJECTIVES Consolidate and bring new assets into service • Increase Army numbers ( Deal with immediate capability investment decisions: • Introduce new short range maritime surveillance aircraft • Replace replenishment ship (Endeavour) • Maintain LAV Capability on a rolling basis • Minimum upgrade of ANZAC frigates • Enhanced medical capability COMMENT COMMENT Capital injections are required at an average of $60m p.a. Capital injections are required at an average of $130m p.a. Opex is under pressure. The annual average increase needed is Opex requirements would be under pressure. The average $48m p.a. but this eases over time increase needed is $70m p.a.

2015 TO 2020 2015 TO 2020 KEY OBJECTIVES KEY OBJECTIVES Develop the force • Purchase additional training / light utility helicopters Deal with capability developments: • Further self-defence upgrade of ANZAC frigates • Replacement of the air transport fleet COMMENT COMMENT Capital injections are required at an average of $55m p.a. Capital injections are required at an average of $50m p.a. Opex would be under pressure. The average increase needed Opex increases needed average $20m p.a. is $30m p.a.

2020 TO 2035 KEY OBJECTIVES 2020 TO 2035 Develop the force KEY OBJECTIVES ( ( • Manage replacement of the maritime surveillance fleet (P3 • Manage replacement of the maritime surveillance fleet (P3 Orion aircraft) Orion aircraft) • Manage replacement of naval combat capability • Manage replacement of ANZAC frigates COMMENT COMMENT The replacement of two significant capital items (frigates and The replacement of two significant capital items (frigates and Orions) will require capital injections. Orions) will require capital injections. Opex pressures are manageable. Opex pressures are manageable.

� ) El DEFENCE REVI EW NEXT STEPS

NEXT STEPS

COMPLETE DEFENCE ASSESSMENT: 30 APRIL Report provided to External Relations and Defence Committee on Defence Organisation and Structure by end March Defence Assessment Final Report presented to Minister of Defence by end of April 2010 • Assessment is then parked while Value for Money Review is completed

COMPLETE NZDF VALUE FOR MONEY REVIEW: 1 JULY Terms of Reference are being finalised Recruitment of Lead Reviewer is underway VFM Review will: • provide assurance that all reasonable steps are being taken to make the NZDF as efficient and effective as possible • identify any significant changes to the NZDF's business model that would improve financial sustainability and narrow the funding gap

COMPLETE DEFENCE WHITE PAPER: BEFORE 30 SEPTEMBER Defence Review in the context of the Value for Money Review Ministers to provide direction on the shape of the White Paper, taking into account the conclusions of the Defence Assesment and the Value for Money work White Paper published before end of September

Cabinet Strategy STR Min (09) 2511

Committee Copy No: 3

Minute of Decision

Defence Review 2009: Defence Force Options MINISTRY OF DEFENCE INWARDS MAIL Portfolio: Defence EDMS ID . � Date � On 7 December 2009, the Cabinet Strategy Committee (STR): Folder No. �

1�noted that on 2 November 2009, STR: FU �(es I NO�.3) Referred To 1.1�considered an item on policy assumptions and fiscal parameters relating to the Defence Review 2009;

1.2�invited the Minister of Defence to report back on 7 December 2009 with viable and credible options for New Zealand's military capability over the next 25 years, that:

1.2.1�take account of New Zealand's strategic context, threat analysis, and --international interests and relationships;

1.2.2�have been robustly costed, are consistent with the government's fiscal strategy, and that address issues relating to depreciation funding;

[STR Min (09) 22/1]

2�noted that:

2.1�previous expenditure decisions mean that the New Zealand Defence Force (NZDF) will face a shortfall in depreciation from 2010/11, rising to $113 million by 2012/13;

2.2�there will also be a capital shortfall, the precise extent of which Defence officials are quantifying;

3�directed the Ministry of Defence, in consultation with central agency officials and NZDF, to provide further advice to the Minister of Defence and to the Prime Minister and Minister of Finance on how the government can get improved value for money from the NZDF, including through:

3.1�shifting resources from the NZDF's (non-deployable) supporting structures to its (deployable) military capabilities;

3.2�implementing the organisational changes proposed by the Defence Review 2009 (to be reported separately);

3.3�exploring alternative models of asset ownership;

I 41665v1

STR Min (09) 25/1

3.4�reassessing policy requirements, as set out in the Output Plan;

3.5�reducing the current tempo of deployments to some extent;

3.6�carefully managing new capital spending on essential projects;

4�invited the Minister of Defence, in consultation with other Ministers as appropriate, to report back to SIR in early 2010 with further advice that:

4.1�identifies what an optimised force structure may look like over the next 20-25 years, given New Zealand's strategic context, threat analysis, international interests and relationships, and the core and enabling capabilities required of the NZDF over that period;

4.2�indicates how the development of the required capabilities could be staged or managed over the next 20-25 years, given the current fiscal situation;

4.3�indicates the relative priorities of the capital projects that may be required over the next 20-25 years, and suggests how the procurement programme could be staged or managed to meet fiscal restraints over this time period;

5�noted that a separate report will be provided to the Cabinet External Relations and Defence Committee in due course on the organisational and management aspects of the Defence Review 2009.

Janine Harvey Committee Secretary Reference: STR (09) 30; Summary chart on Force Structure Options and Operating Cost Scenarios tabled by the Minister of Defence at the meeting

Present: Officials present from: Hon Bill English (Chair) Office of the Prime Minister Hon Simon Power Officials Committee for STR Hon Judith Collins (part of item) Department of the Prime Minister and Cabinet Hon Anne Tolley Treasury Hon Christopher Finlayson Ministry of Defence Hon Murray McCully (part of item) New Zealand Defence Force Hon Dr Wayne Mapp Hon Steven Joyce Hon Heather Roy

Distribution: (see over)

� 141665vI 2 SUMMARY CHART: FORCE STRUCTURE OPTIONS AND OPERATING COST SCENARIOS

Force Structure Options Operating Cost Trajectories

Force Reduction Current Optimised Graph 1: Operating Expenditure Trajectories Depreciation "Funded" Naval Combat 2x Surface Combatants 2x Surface Combatants 2x Surface Combatants 2,800 (No ANZAC Upgrade, replaced at end (ANZAC Upgrade to address (ANZAC Upgrade to address of life with 2 x lesser combat capable obsolescence issues. obsolescence issues. Replaced at 2,700 vessels Replaced at end of life by end of life by combat ship with combat ship with similar similar capabilities) capabilities) 2,600 nil Force Reduction 5x Maritime Helicopters 5x Maritime Helicopters 5x Maritime Helicopters 2,500 0 Current SH-2G not upgraded at mid-life but (SH-2G Upgraded at mid- (SH2G replaced at mid-life) MN Optimised replaced at end of life with 5 x 2,400 life) —Low maritime helicopters of lesser combat capability 2,300 — Medium Maritime 2x Offshore Patrol Vessel 2x Offshore Patrol Vessels 2x Offshore Patrol Vessel — High patrol 2,200 4x Inshore Patrol Vessel 4x Inshore Patrol Vessel 4x Inshore Patrol Vessel P3K2 Orion replaced 2025 by 4 x P8 P3K2 Orion replaced 2025 P3K2 Orion replaced 2025 by 4xP8 2,100 by 4xP8 5x short range surveillance I tactical 2,000 transpart aircraft 2009/10�2010/11�2011/12�2012/13�2013/14�2014/15

3x Unmanned Aerial Vehicles . Satellite communications Year Satellite surveillance Land Combat Infantry Battalions of: Infantry Battalions of Infantry and Cavalry Battalions: 65 RF Infantry Companies 3x RF Infantry Companies 8x RF Infantry Companies Graph 2: Operating Expenditure Trajectories Depreciation "Unfunded" No RF Cavalry Companies 2x RF Cavalry Companies 3x RF Cavalry Companies 2,700 3x Reserve Force Infantry Companies 3x Reserve Force Infantry 3x Reserve Force Infantry Companies Companies 2,500 1 x LAV mounted Reconnaissance and Surveillance Company 2,500 MI Force Reduction 80x LAV 88x LAV 88x LAV O Current 2,400 Optimised SAS SAS SAS — Low Land Support Engineers Engineers Engineers (more) 2,300 Medium Medical Group Medical Group Medical Group (more) 2,200 High Support Staff Support Staff Support Staff

8x NH-90 8x NH-90 8x NH90 2,100 5x A109 5x A109 8x A109 Air & sea 2x jet transport (not replaced in 2024) 2x jet transport (8757) 2x jet transport (8757) 2,000 transport and 5x medium trans port (C130 Hercules) 2009/10�2010/11 2011/12�2012/13�2013/14�2014/15 sustaInment 5x medium transport (C130 5x medium transport (C130 Hercules) Hercules) Year 1 x Sealift Ship (CANTERBURY) lx Sealift Ship lx Sealift Ship (CANTERBURY) (CANTERBURY) Fleet Replenishment Ship 1 x Replacement lx Replacement ENDEAVOUR Conclusion ENDEAVOUR (not replaced in 2013 at ENDEAVOUR combines replenishment with sealift end of life) capability • If depreciation is funded the optimised force structure is achievable within Treasury No diving/ survey ship 1 x diving/survey ship 1 x dving/survey ship guidelines. Numbers Army: 5000 Army: 5000 Army: 8000 • If depreciation is not funded the optimised force structure is not achievable. The current Navy: 1800 Navy: 2200 Navy: 2200 Indicative force structure is just achievable at the top end of the Treasury band. Air Force: 2200 Air Force: 2650 Air Force: 2700 Civilians; 2700 Civilians; 2700 Civilians: 2700 Reserves: 2400 Reserves: 2270 Reserves: 4500 The key changes in the "optimised" option from current are increases in: • Army Capability — they are the most stretched of the three services • Maritime Surveillance — both of our EEZ and the South Pacific. �

Cabinet CAB Min (09) 40/1

Copy No:

Minute of Decision

Report of the Cabinet Strategy Committee: Period Ended 13 November 2009

On 16 November 2009, Cabinet made the following decisions on the work of the Cabinet Strategy Committee for the period ended 13 November 2009.

STR Min (09) 22/1 Defence Review 2009: Policy Assumptions and Fiscal �CONFIRMED Parameters Portfolios: Finance / Defence

di)-(60(. lat-e/A 41- Secretary of the Cabinet Reference: CAB (09) 665

Distribution: 'NOE Cabinet Strategy Committee \NARDS Chief Executive, DPMC ...... Director, PAG, DPMC !D� Director, EAB 1 5Z• It 0‘'\. 2 Director, NZSIS l'o!der No. �' (.1` (:) Director, GCSB Secretary to the Treasury Yes i Nc; ...... State Services Commissioner erred Fo. -2e ...� Commissioner of Police -oeoc.,\ Minister for Biosecurity Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Associate Minister of Defence Secretary, STR

161659v1� 1 Cabinet Strategy STR Min (09) 22/1

Committee Copy No:�59,

Minute of Decision

Defence Review 2009: Policy Assumptions and Fiscal Parameters

Portfolios: Finance / Defence

On 2 November 2009, the Cabinet Strategy Committee (STR):

noted that on 17 August 2009, STR considered an item on priorities and objectives relating to the Defence Review 2009, and noted that follow-up reports would be submitted in due course, regarding Defence priorities, objectives and capability issues more generally, and on fiscal parameters [STR Min (09) 16/1];

2�noted the contents of the papers attached to STR (09) 27 and the discussion at the meeting on policy assumptions and fiscal parameters relating to the Defence Review 2009;

3�3.1�noted the paper tabled at the meeting by the Minister of Defence, which comprised the initial drafts of the first four chapters of the Defence Review 2009 report;

3.2�invited Ministers to provide any comments and feedback that they may have on the draft referred to above, to the Minister of Defence as soon as practicable;

4�invited the Minister of Defence to report back to STR on 7 December 2009 with viable and credible options for New Zealand's military capability over the next 25 years, that:

4.1�take account of New Zealand's strategic context, threat analysis, and international interests and relationships;

4.2�have been robustly costed, are consistent with the government's fiscal strategy, and that address issues relating to depreciation funding.

....—..—.----. MINISTRY OF DEFENCE INWARDS MAIL Janine Harvey ...... •• Committee Secretary Date�§: ...... Reference: STR (09) 27

folder No. . 2 � File.�Yes i No Distribution: (see over) Referred To.

Defence Review '09: Overview

From Review to White Paper

Timeli les

STR 7 Dec: Military Capability Options and Jan: International consultation STR 2 Nov: Overview of Defence Review. and Affordability Late Dec: (tentative) Defence Assessment/ Strategic Context and Tasks Final Report of Defence Review '09 and Late Feb (tentative): Draft White Paper ERD 9 Dec: (tentative): Defence Organisational Public Consultation Report STR 2 Nov: Fiscal Parameters and Management Issues 31 Mar (tentative): White Paper

Review Documents

Chapter One Chapter Two Chapters Three & Four Subsequent chapters... Defence within a national security New Zealand's strategic context and Options for aligning defence policy, force structure / capabilities, and funding Objectives of the Review frameworK outlook to 2035 and Defence Tasks Resource responses (funding arrangements, savings, reforms) Organisational and Management Issues, Structure

Recap: 17 August Strategy Committee Discussion Where do our principal security responsibilities lie?

National security interests to which Defence can contribute - New Zealand has primary responsibility for meeting security requirements in our sovereign environment

- New Zealand should be in the forefront of international efforts to support the broader stability and security of Pacific island states (constitutional obligations, local and A modern, professionally trained defence force, working in close partnership with other international expectations, and strategic interests) agencies can contribute to the following national security objectives: - New Zealand should add to Australia's strategic weight (alliance partner, major source of security for New Zealand) a secure border and approaches to New Zealand - therefore the area where our principal security responsibilities lie, and where we have a peaceful international order based on the rule of law the least discretion in choosing to deploy the NZDF is:

a network of strong international security partnerships our near region — in and around New Zealand itself, in the South Pacific, and in the vicinity of Australia a sound global economy under-pinned by open and safe trade routes - New Zealand also has global interests, and a particular interest in security and meeting domestic security challenges (terrorism, illegal offshore resource extraction, stability in East Asia natural disasters, other emergencies) - the NZDF is therefore also likely to be deployed, but with a greater degree of discretion:

in East Asia and in areas of instability in the wider world, notably the Middle East and contiguous areas

Strategic context and choices Future tasks to 2035 Based on the strategic context the NZDF should be able to:

- defend New Zealand and New Zealand's territories against likely threats to sovereignty or sovereign resources Strategic Context: next 30 years - provide combat forces to support Australia if that country is threatened

- meet foreseeable needs in the Pacific (including state stability, and humanitarian and disaster relief) in cooperation with Australia, and independently in some cases

- contribute to security and stability needs in the Asia-Pacific Immediate region: New Zealand, the maritime zone and dependencies oe■ direct military threat to New Zealand will remain highly unlikely, but New Zealand is - operate in fragile/failing states and ungoverned spaces where adversaries are limited- likely to face a range of low-level challenges: illegal resource extraction from the EEZ, capability military forces, guerrillasfinsurgents, pirates and other non-professional 'Illegal entry, terrorism, cyber attacks (by state and non-state actors) forces

South Pacific - maintain a niche range of capabilities to ensure New Zealand governments retain - a number of South Pacific island states will face challenges, including to law and order, options to participate in international responses to conflict ,stabihty and governance, as well as from natural disasters

.Global - conflict between states is increasingly rare (but not impossible in the medium term), while conflict within states is increasingly common (South Pacific, Africa, parts of Asia) Key questions and still requires combat capable forces

Operational context - stability operations (both combat and peacekeeping) with other armed forces and civilian New Zealand's military capability choices should be guided primarily by the military agencies in fragile, failing or failed states where opposing forces employ asymmetric operations we are most likely to undertake in the regions where our principal security and warfare, interests lie

- operations in support of civilian agencies as part of a whole of government operation To what extent should the NZDF's military assets be shaped for use in civil tasks? following conflict or natural disaster To what extent should the NZDF be shaped to 'give the ANZAC spirit greater contemporary - less frequently, the NZDF may need over the next 30 years to contribute to higher relevance' and assist Australian efforts to defend itself? intensity operations (interstate conflicts) in coalition with other states To what extent should the South Pacific determine military capabilities (e.g. Solomon Islands, Tonga style stabilisation operations)?

To what extent should the NZDF be capable of military operations in East Asia?

To what extent should the NZDF be in a position to make a niche contribution to interstate war and high intensity operations? )

To what extent should the NZDF be specifically shaped to contribute to civil tasks (such as post-disaster reconstruction)? (e.g. unarmed Inshore Patrol Vessels)

3 � The NZDF today Future Major Capital Costs

Land Transport replacement: $344-526m Based on the Defence Force of 2016, when all current capabilities-under- Anzac self defence upgrade: $400-600m acquisition should be complete and staffing levels up to requirement. Endeavour replacement: $278-416m Options for military force on and across New Zealand, the maritime zone, C130 replacement x6: $960-1440m the region and elements globally Naval helicopter upgrade $150-250m P3 replacement x6: 2070-3110m Core Capabilities B757 replacement x2: $320-480m Deliver policy: options for military force on and across New Zealand, the Anzac replacement x2: $2040-3068m maritime zone and dependencies, the region and elements globally. Notes: 2x Infantry Battalion (3 company ea) with LAV 1. Projects over $300m 2. Like for like replacement SAS 3. Costs are indicative only 2x ANZAC Frigate a. e al eo options leading to oestvalue decisions in u mg 4x Inshore Patrol Vessel composition options will be made as a part of the Defence Review 2x Offshore Patrol Vessel process 6x P3K Orion 5. A further discussion will be held by STR in December

Enabling Capabilities Indicative capital project timings Capabilities that ensure the core capabilities can deliver policy under most operational conditions.

SAS Indirect Fire Support: artillery, mortars Naval combat force lx Engineer Regt (combat and logistics) Helicopters: 8x NH90 (medium), 5x A109 (light) Maritime helicopters: 5x Seasprite Air Transport: 5x C130 Hercules, 2x Boeing 757 Refuel and Replenishment Ship: Endeavour

Support Capabilities Capabilities that allow the core and enabling capabilities to function C130 effectively. Naval Combat Services and Support helicopter Communications: Strategic, operational and tactical upgrade 3x Auxiliary ships: Canterbury, Resolution, Manawanui Note: Air expeditionary and mission support units Start point is set two years before first payments are indicated Regular Force Numbers Anzac SDU Navy - 2148 Army - 4988 Air Force - 2609 Land Transport

2010�2015�2020�2025�2030�2035 Cabinet CAB Min (09) 30/1

Copy No:

Minute of Decision

Report of the Cabinet Strategy Committee: Period Ended 21 August 2009

On 24 August 2009, Cabinet made the following decisions on the work of the Cabinet Strategy Committee for the period ended 21 August 2009.

STR MM (09) 16/1�Defence Review 2009: Priorities and Objectives � Portfolio: Defence CONFIRMED

.elaalA 1411-(A -) Secretary of the Cabinet Reference: CAB (09) 459

Distribution: Cabinet Strategy Committee Chief Executive, DPMC ...... Director, PAG, DPMC "Us... sr� pauer.38 Director, EAB Cf DOZ. -1� oN / sat�eiu Director, NZSIS Director, GCSB ieppj Secretary to the Treasury : Ocfc,,G2_�amp .� State Services Commissioner ... al SW03 Commissioner of Police 11VVV SCI8VAANI 30 Minister for Biosecurity N3JER:1 4C? AE1LS1N11/11, Director-General, MAF (Biosecurity) Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Secretary for Transport Minister of Immigration Secretary of Labour (Immigration) Minister of Customs Comptroller of Customs Associate Minister of Defence Secretary, STR

� 145456v1 1

DEFENCE REvAr DEFENCE POLICIES: LOCAL CONSIDERATIONS 0 WHOLE OF GOVERNMENT SECURITY OUTCOMES 10 INTERNATIONAL Contributed to by all relevant government agencies /vetV5 • Safety of the individual at home and abroad GO • Protection of New Zealand's economic well-being • Safeguarding the border

• Benefits from international engagements ~cG9ry.\

WHY DO WE HAVE A DEFENCE FORCE? • • To use military capability in New Zealand and in our region 41* • Protect New Zealand — land, EEZ, associated states [equator to pole] Plus • Support civil agencies in those domains (eg surveillance) Military Operations • Support civil agencies at home (eg counter-terrorism) Defence Diplomacy Support Pacific island states: help keep South Pacific stable, protected and friendly • High demand for assistance with stability • 1990s� Bougainville • 1999/Present�Timor Leste • 2003/Present�Solomons • 2006� Tonga • National Support Tasks STABLE • Search and Rescue . disaster response; maritime zone surveilance Peace Support • Low demand required to keep the region friendly Search & Rescue • Support for disciplined forces Aid • Presence: visits by ships and aircraft Patrol OBJECTIVES • We can't expect others to help us if we don't help ourselves Good neighbour Strategic denial Reinforce other aspects of Pacific policy PROTECTED • To be in military partnership with Australia: together together or together alone PARTNERSHIP Counter terrorism • Supported by Australia when we lead (Tonga, Bougainville) Maritime Patrol • Support Australia when it leads (Solomons, Timor) r Deterrence • Able to interact with Australia even when we are not operating together J Civil Defence (Afghanistan) Antarctic Support • Inter-operability • Complementary capabilities • High demand against all of these OBJECTIVES Common interests in keeping South Pacific stable and friendly Add weight to trans-Tasman relationship Practical benefits to Defence Force (training, exercising) OVERARCHING PRINCIPLES: Shared interests in regional and global stability Engender favourable view of NZ's defence capability • Whole of Government approach • Staying informed about the strategic environment DEFENCE POLICIES: GLOBAL CONSIDERATIONS WHY DO WE HAVE A DEFENCE FORCE?

• To support strategic stability and promote New Zealand's interests in the Asia-Pacific region with military assets • Exercises • Visits by ships and aircraft • Training and exchanges (both ways) • Participation in regional defence groupings • Response to specific requests for support from regional countries • High demand against all of these from KEY TRADING PARTNERS TRADITIONAL FRIENDS AND Singapore DEVELOPING STRATEGIC IMPORTANCE KEY TRADING PARTNERS • Low/medium demand against all of these from other Asian countries .0 o AP .� 1 r o OBJECTIVES ' - /6.- fiporipro■� US strategic position in region maintained Reinforce bilateral and regional relations with key lE Asian countries i. Reinforce bilateral relationship with US China's increasing power managed constructively •01 I' c,�I . 4� 1 REGION OF IMMEDIATE INTEREST Higher levels of confidence between Asian ... �� to ' F.nraketeto NFea defence forces il�I &ilinwzgeasti anteds 1. �I. - --,'- 40•4'� L"'� 0;(, . -14' A, I�IR. Preserve the freedom of the high seas and sea • Risks & Obligations lanes 445 "�- 4 ,,,,,,I. • '�•itrit�, lir '..,',!'i , , ALLIANCE� • Constitutional Stop nuclear weapons proliferation ."..'"-- �11�/ �PARTNER • Cultural Practical benefits to Defence Force (training, exercises) NEW ZEALAND'S I MARITIME REGION • To make a military contribution to internationally mandated operations beyond am Increased competition our region, whether local or trans national for maritime resources • Unit deployments (Bosnia, Sinai, Afghanistan) • Observers • Commanders • Specialists • Training • High but intermittent demand against all of these • Medium discretion as to how and where to respond Antarctic OBJECTIVES T reaty claim A well-ordered and peaceful world - the international rule of law Discharging obligations under the UN charter - good international citizen Dealing with specific trans national threats (terrorism) Reciprocally supporting bilateral and regional partners when they need help STRATEGIC ENVIRONMENT

CONSIDERATIONS RECENT NZDF INTERNATIONAL ACTIVITIES At .41 • Globalising world • Decreasing salience of interstate conflict 4.110" • Increasing salience of internal conflict • No direct military threat to New Zealand • Increasing salience of asymmetric and non traditional threats • Responsibilities to the immediate region • Understanding of the importance of an international role illEFENCESPENDING AS A PERCENTAGE OF GDP 2007 Percentages are standardised using Stockholm International Peace Research Institute data

• New Zealand 1.1 • Australia 1.9 • United States 4.0 • Canada 1.1 • Singapore 4.1 • Japan 0.9 • Sweden 1.4 • Norway 1.5

NON—OPERATIONAL ACTIVITIES OPERATIONAL DEPLOYMENTS II _Unit Deployed�IndMdual Deployed

Antarctica - Logistic support to New Zealand Antarctic Timor Leste 1999 - Battalion and company sized deployments, and Sudan 2005 - Staff officers and observers Programme, and international airlift pool numerous smaller contributions including helicopters Lebanon 2007 - Demining personnel (2007), Staff officer (2009) Australia - Exercising with Australian forces with land, sea, and air Afghanistan 2001 - Three Special Forces deployments, a company forces sized Provincial Reconstruction Team since 2003, and numerous 9 Gulf region 2002 - 2008 Occasional deployments of P-3 Orions, and ANZAC Frigates • South Pacific - Exercises, disaster relief, and support to aid smaller contributions programmes Solomon Islands 2003 - Company and platoon sized deployments g Former Yugoslavial 990s -2007 Staff officers, company deployment, observers, and other personnel Southeast Asia - Annual deployments of naval and air forces, and • Egypt (Sinai) 1984 - Around 30 personnel attached to the Multinational some land forces, to Five Power Defence Arrangements exercises Force and Observers • Laos 19908 Demining personnel with Singapore, Malaysia. the United Kingdom, and Australia 9 Israel/Lebanon/Syria 1954 - Observers and staff officers 9 Cambodia19903 Demining personnel • North Asia - Defence diplomacy visits and exercises with naval Tonga 2006 Company deployment and air forces to China, Russia, South Korea, Japan jo Korea 2004 - Staff officers and observers 9 Mozambique 1994 - 2005 Staff officers, observers, demining personnel • Indian Ocean - Navy defence diplomacy and exercises • Iraq 1990s - Weapons inspectors (1990s - 2003), Light Engineer Group g (2004 (Military advisers (2004 - ) Sierra Leonel 998 - 2004 Staff officers Europe/North America - Miscellaneous NZDF exercises 9 MINISTRY OF DEFENCE CAB Min (09) 30/2 Cabinet INWARDS MAIL EDMS ID . � Date al- Copy No: Folder No. ..GlegD2. — f

Minute of Decision Yes I No Referred To 1)P 9L-4 r�Dec'eAC-4-124-e-A--) This document contains information for the New Zealand Cabinet. It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority.

Report of the Cabinet Appointments and Honours Committee: Period Ended 21 August 2009

On 24 August 2009 Cabinet made the following decisions on the work of the Cabinet Appointments and Honours Committee for the period ended 21 August 2009. � APH Min (09) 11/1�2025 Taskforce: Appointments Separate Minute: see � Portfolios: Finance / Regulatory Reform CAB Min (09) 30/2A

APH Min (09) 11/2 Community Trusts: Appointments and Separate Minute: see Reappointments CAB Min (09) 30/2B Portfolio: Finance

APH Min (09) 11/3 Human Rights Review Tribunal: Reappointments CONFIRMED Portfolio: Justice [Withdrawn at APH] � APH Min (09) 11/4 Land Valuation Tribunals: Appointments and CONFIRMED Reappointments Portfolio: Justice � APH Min (09) 11/5 Psychologists Board: Appointments and CONFIRMED Reappointments Portfolio: Health � APH Min (09) 11/6 Learning Media Ltd: Appointment and CONFIRMED Reappointment Portfolio: Education � APH Min (09) 11/7 The Correspondence School: Reappointments CONFIRMED Portfolio: Education � APH Min (09) 11/8 Coronial Services: Appointment CONFIRMED Portfolio: Attorney-General

145483v1 1

CAB Min (09) 30/2

APH MM (09) 11/9 Waikato River Guardians Establishment � CONFIRMED Committee: Fee Increase Portfolio: Treaty of Waitangi Negotiations

APH Min (09) 11/10 National Animal Welfare Advisory Committee: �CONFIRMED Appointment Portfolio: Agriculture

APH MM (09) 11/11 New Zealand Antarctic Institute (Antarctica New �CONFIRMED Zealand): Reappointments and Appointment Portfolio: Foreign Affairs

APH Min (09) 11/12 Crown Research Institutes and Research and �CONFIRMED Education Advanced Network New Zealand Ltd: Appointments and Reappointments Portfolio: Research, Science and Technology

APH Min (09) 11/13 Korowai Manaaki Grievance Panel: Appointment CONFIRMED Portfolio: Social Development and Employment

APH Min (09) 11/14 Employment Relations Authority: Reappointment CONFIRMED Portfolio: Labour

APH Min (09) 11/15 Chartered Professional Engineers Council: �CONFIRMED Reappointment Portfolio: Building and Construction � APH Min (09) 11/16 Defence Review 2009 — Companion Studies: CONFIRMED Appointments Portfolio: Associate Defence

Secretary of the Cabinet Reference: CAB (09) 460

Distribution: (see over)

� 145483v1 2

Cabinet Appointments�APH (09) 131

and Honours Committee Copy No: 2$4 Summary of Paper � 17 August 2009

LATE PAPER: This paper was submitted after the Cabinet deadline and has been accepted for the agenda by the Chair.

Defence Review 2009 — Companion Studies: Appointments

Portfolio� Associate Defence

This paper notes that the Associate Minister of Defence intends to appoint three study team leaders to support her in the conduct of three companion studies linked to the Defence Review 2009. The Associate Minister intends to appoint:

• Hon Hugh Templeton to lead the team examining New Zealand's defence industry;

• Major General (retired) Louis Gardiner to lead the team examining the role of the defence force in youth programmes and the New Zealand Cadet Force;

• Brigadier (retired) Timothy Brewer to lead the team examining voluntary national services. Each study team leader will be supported by up to three people.

No conflicts of interest have been identified. The study team leaders have indicated that they will not seek fees for their work. Any reimbursement of out-of-pocket expenses will be in accordance with the Cabinet Fees Framework.

The Associate Minister of Defence recommends that the Committee: 1�note that in March 2009, Cabinet approved terms of reference for the Defence Review 2009, which provided for three companion studies to be led by the Associate Minister of Defence on:

1.1 New Zealand's defence industry, examining options for economic improvement in the sector;

1.2�the role of the New Zealand Defence Force in youth programmes and the New Zealand Cadet Force;

1.3� voluntary national service, including examining_ future _o e ...�of government strategy; - 1,;';fNISTRY or ,-.: liqVVARDS MAIL ID...... [CAB MM (09) 11/12] EDMS ...1 ...... Dale i�...9...... ~~ ...... No 1I"ite�es, No IRE,IerrecI To

1AC,C0 -1 APH (09) 131

2�note that, in undertaking the above studies, the Associate Minister of Defence will be supported by three study teams, each of which will have a study team leader, supported by up to three people;

3�note that the Associate Minister of Defence intends to appoint the following individuals for terms commencing on the date of appointment and continuing for the duration of the companion studies:

3.1�Hon Hugh TEMPLETON [CV page 6], study team leader, New Zealand's Defence Industry;

3.2�Major General (retired) Louis GARDINER [page 8], study team leader, Role of the New Zealand Defence Force in Youth Programmes and the New Zealand Cadet Force;

3.3�Brigadier (retired) Timothy BREWER [page 10], study team leader, Voluntary National Service;

4�note that the Associate Minister of Defence indicates that discussion is not required with the government caucus.

Adrian MacGregor Committee Secretary

Distribution: Cabinet Appointments and Honours Committee Minister of Defence Secretary of Defence Chief of Defence Force Associate Minister of Defence

� I AG'140..1 2 Office of the Associate Minister of Defence

Chair, Appointments and Honours Committee

DEFENCE REVIEW 2009: COMPANION STUDIES: APPOINTMENT OF STUDY TEAM LEADERS

Proposal

1. This paper outlines my intention to appoint three study team leaders to support me in the conduct of three companion studies linked to the Defence Review 2009. The studies are on New Zealand's Defence Industry; the role of the Defence Force in Youth Programmes and the New Zealand Cadet Force; and Voluntary National Service. The proposed appointments are:

Hon Hugh Templeton — New Zealand's Defence Industry

Major General (retired) Lou Gardiner - Role of the Defence Force in Youth Programmes and the New Zealand Cadet Force

Brigadier (retired) Timothy Brewer - Voluntary National Service

Background

2. On 30 March 2009, Cabinet approved terms of reference for the Defence Review 2009 (the Review). A key output of the Review will be a Defence Assessment to be conducted by the Secretary of Defence that will report on defence policy priorities and strategies; develop a range of costed options for aligning policy, capabilities and force structure; and examine options for improving the administrative and organisational capabilities of the Defence agencies. Analysis and conclusions from the Defence Assessment will be submitted to Cabinet by 30 November 2009, following which the Government will finalise its defence policy and release a Defence White Paper by mid 2010 [CAB Min (09) 11/12 refers].

3. The terms of reference for the Review state that the Defence Assessment and White Paper will be informed, as appropriate, by three companion studies to be led by me. The studies will examine:

• New Zealand's Defence Industry, examining options for economic improvement in the sector;

• The role of the Defence Force in Youth programmes and the New Zealand Cadet Force; and

• Voluntary National Service, including examining future options for a whole of Government strategy.

4. The findings of the companion studies will be submitted to Cabinet for approval. The intention is that they will then be published as stand-alone reports prior to, or concurrently with the Defence White Paper.

5. In undertaking the studies, I will be supported by three study teams. Each team will be led by a team leader, supported by up to three other people. Comment

6. I propose to appoint the Hon Hugh Templeton to lead the companion study on New Zealand's Defence Industry; Major. General (retired) Lou Gardiner to lead the study on the role of the Defence Force in Youth Programmes and the New Zealand Cadet Force; and Brigadier (retired) Timothy Brewer to lead the study into Voluntary National Service.

7. All three appointees have the range of skills required. A former Minister of the Crown with portfolio responsibilities for Post Office, Broadcasting, Revenue and Finance, Education, Science, Customs, and Trade and Industry, the Hon Hugh Templeton has considerable eiperience across government, including representing New Zealand's interests abroad. Since leaving Parliament in 1984, Hugh has worked as a consultant in Australia, the South Pacific, Asia, Latin America, Hungary, Russia, and the Commonwealth of Independent States. He has strong political and industry links across the Tasman, which is a critical market for New Zealand's defence industry.

8. Major General (retired) Louis Gardiner has considerable experience in Defence Force management and organisation. He joined the New Zealand Army in 1971, serving in a number of senior posts including as Director of Resource Policy and Plans, Deputy Chief of Staff, Land Commander, and Head of Defence Staff in Canberra. On 1 May 2006, Lou was appointed Chief of Army, a position he held until 1 May 2009. On retirement from the Army, Lou accepted the position of Chief Executive for CrirneStoppers New Zealand.

Brigadier (retired) Timothy Brewer has a long history of part-time service with the New Zealand Army. He enlisted in the Army's Territorial Force (Reserve) in 1976 and was appointed to a commission in the 5th (Wellington, West Coast and Taranaki) Battalion in 1977. Tim has held a number of senior posts, including as Assistant Chief of General Staff (Personnel) (Territorial Force), Territorial Force Advisor, and Director of the Defence Employer Support Programme. In July 2006, he was appointed Director- General Reserve Forces, retiring earlier this year. In his civilian career, Tim practises litigation law as a Partner in Auld Brewer Mazengarb and McEwen, Barristers and Solicitors, and has held a number of Crown and Law Commission appointments.

Term of Appointment

10. The terms of appointment will commence on the date of appointment and will continue for the duration of the companion studies.

Representativeness of Appointment

11. I am satisfied that the proposed appointees have the appropriate mix of skills and experience required to do the task.

Appointment process and consultation

12. I can confirm that an appropriate process has been followed in considering the proposed appointees.

Conflicts of Interest

13. I can confirm that appropriate enquiries concerning conflicts of interest have been carried out, in accordance with the State Services Commission appointment guidelines, to identify any conflict of interest that could reasonably be identified and no conflicts of interest have been identified. Financial Implications

14. No additional funding is being sought to complete the companion studies. The study team leaders have indicated that they will not be seeking fees for their work and no payments will be made for research and secretarial support. Such costs as the studies incur, including reimbursement of out-of-pocket expenses for study team leaders, will be a charge against Vote: Defence.

15. Any reimbursement of out-of-pocket expenses will be in accordance with CO (09) 5 guidelines.

Consultation

16. The Ministry of Foreign Affairs and Trade, the Department of the Prime Minister and Cabinet, the Treasury and the State Services Commission were consulted in the preparation of the terms of reference for the Defence Review 2009. The Officials Committee on Domestic and External Security Coordination has reviewed the terms of reference for the three companion studies.

Publicity

17. A press statement will be issued once the appointments have been approved and the appointees notified.

Recommendations

18. I recommend that the Committee:

1. Note that on 30 March 2009, Cabinet approved terms of reference for the Defence Review 2009 which provided for three companion studies to be led by the Associate Minister of Defence on:

New Zealand's Defence Industry, examining options for economic improvement in the sector;

The role of the New Zealand Defence Force in Youth programmes and the New Zealand Cadet Force; and

Voluntary National Service, including examining future options for a whole of Government strategy [CAB Min (09) 11/12 refers].

2. Note that in undertaking the above studies, I will be supported by three study teams, each of which will have a study team leader, supported by up to three people.

3. Note the Associate Minister of Defence intends to make �the following appointments:

Hon Hugh Templeton, study team leader, New Zealand's Defence Industry;

Major General (retired) Louis Gardiner, study team leader, Role of the New Zealand Defence Force in Youth Programmes and the New Zealand Cadet Force; and

Brigadier (retired) Timothy Brewer, study team leader, Voluntary National Service. tifkri 3 I /U I

Current Membership Form�CAB 51/01 Cabinet Appointments and Honours Committee All sections must be completed. This form is available at www.domc.govt.nz/cabinet/ Organisation

Defence Review 09 (Companion Study - Team Leaders)

Current Membership List members, including those being replaced or reappointed, but excluding the proposed new appointee(s).

Name Age City/Town Date of original Expiry date of appointment present term

New Body

Brief Outline of the Functions and Responsibilities of the Organisation

The Companion Study team leaders, Hon Hugh Templeton, Tim Brewer and Louis Gardiner, will function in support of the Associate Minister of Defence during her conduct of the Companion Studies into the New Zealand Defence Industry, Voluntary National Service, the role of Defence in Youth Programmes and the New Zealand Cadet Force, as part of Defence Review 2009. The study leaders terms, functions and responsibilities are outlined in the Companion Studies Terms of Reference.

Use further pages, if required, to provide the information requested.

Date:0/

Curriculum Vitae Form�CAB 50/01 All sections must be completed. This form should be completed in consultation with the candidate where possible. This form is available at www.dpmc.govt.nzicabinct.

Name (family name in upper case; Hon. Hugh TEMPLETON include title if appropriate)

The Position

Organisation� Defence Review 09 — Companion Study.

Position (Chair/member etc)� Team Leader: New Zealand Defence Industry.

� Term In accordance with Cabinet approved Terms of Reference for the Defence Review 2009 � Payment � No fees will be payable to team leaders or members of the Companion (per day and/or per year) Study. Actual reasonable costs for the studies will be a charge against Vote Defence. Any reimbursement of out of pocket expenses will be in accordance with CO (09) 5 guidelines.

How the Candidate Meets the Needs of the Position

Skills and attributes the A former Minister of the Crown with portfolio responsibilities for Post Office,� candidate will bring to the Broadcasting,�Revenue�and�Finance,�Education,�Science, position Customs, and Trade and�Industry, the Hon�Hugh Templeton�has considerable experience across government, including representing New (eg: business skills, community Zealand's interests abroad.� involvement, cultural awareness, Since leaving parliament in 1984, Hugh has regional perspective — as relevant to the worked�as�a�consultant�in�Australia, the�South�Pacific,�Asia,�Latin needs of the position) America, Hungary,�Russia,�and the Commonwealth of�Independent States.�He has strong political and industry links across the Tasman, which is a critical market for New Zealand's defence industry.

Possible conflicts of interest No conflicts of interest.

n/a Proposals for conflict management (if applicable)

Continue on next page if required Name Hon. Hugh TEMPLETON (family name in upper case; include title if appropriate)

Address

I s9(2)(a) Citizenship (if not New Zealand)

Age

Current or most recent employment Chairman of the NZ Portrait Gallery. (specify position and employer, include years)

Government board appointments held (current and previous, include years)

Private and/or voluntary sector board appointments Vice President of the New Zealand Institute of International Affairs. held Member of Transparency International NZ. (current and previous, include years)

Qualifications and experience (include significant work history and Rhodes Scholar - Educated at Otago and Oxford Universities. community involvement) First Class Degree in History.

lise further pages, if required, to provide the information requested.

D ate: 17/08/09

Curriculum Vitae Form�CAB 50/01 All sections must be completed. This form should be completed in consultation with the candidate where possible. This form is available at www.dpmc.govt.nz/cabinet.

Name (family name in upper case; Louis Joseph GARDINER — Major General (rtd) ONZM include title if appropriate)

The Position

Organisation� Defence Review 09 — Companion Study.

� Position (Chair/member etc) Team Leader: Role of the New Zealand Defence Force in Youth Programmes and the New Zealand Cadet Force. � Term In accordance with Cabinet approved Terms of Reference for the Defence Review 2009. � Payment � No fees will be payable to team leaders or members of the Companion (per day and/or per year) Study. Actual reasonable costs for the studies will be a charge against Vote Defence. Any reimbursement of out of pocket expenses will be in accordance with CO (09) 5 guidelines.

How the Candidate Meets the Needs of the Position

Skills and attributes the candidate will bring to the Major General (retired) Lou Gardiner has considerable experience in position Defence Force management and organisation. He joined the New Zealand Army in 1971, serving in a number of senior posts including as (eg: business skills, community involvement, cultural awareness, Director of Resource Policy and Plans, Deputy Chief of Staff, Land regional perspective — as relevant to the Commander, and Head of Defence Staff in Canberra. On 1 May 2006, needs of the position) Lou was appointed Chief of Army, a position he held until 1 May 2009. On retirement from the Army, Lou accepted the position of Chief Executive for CrimeStoppers New Zealand.

Possible conflicts of interest No conflicts of interest.

n/a Proposals for conflict management (if applicable)

Continue on next page if required Name (family name in upper case; include Louis Joseph GARDINER — Major General (rtd) ONZM title if appropriate)

Address

s9(2)(a)

Citizenship (if not New Zealand)

Age

Current or most recent Chief Executive for CrimeStoppers New Zealand employment (specify position and employer, include years)

Government board In his capacity as Chief of Army, he was Chairman of the Queen appointments held Elizabeth II Army Memorial Museum Trust (a trust board) between 2006 (current and previous, include years) and his retirement in 2009. The role goes with the job so it has now passed to the current Chief of Army.

Private and/or voluntary sector board appointments held (current and previous, include years)

Qualifications and experience (include significant work history and Officer of the New Zealand Order of Merit community involvement) Bachelor of Arts - Majoring in Economics and Geography Bachelor in Human Resource Management Attended Australia College of Defence and Strategic Studies Attended Finance for Senior Executives course at Harvard Business School

Use further pages, if required, to provide the information requested.

Date: 17/08/09

Curriculum Vitae Form�CAB 50/01 All sections must be completed. This form should be completed in consultation with the candidate where possible. This form is available at wv,rw.dpmc.vovt.nz/cabinet.

Name Timothy Charles Brewer — Brigadier (rtd) ONZM (family name in upper case; include title if appropriate)

The Position

Organisation� Defence Review 09 — Companion Study.

Position (Chair/member etc) � Team Leader: Voluntary National Service.

� Term In accordance with Cabinet approved Terms of Reference for the Defence Review 2009. � Payment � No fees will be payable to team leaders or members of the Companion (per day and/or per year) Study. Actual reasonable costs for the studies will be a charge against Vote Defence. Any reimbursement of out of pocket expenses will be in accordance with CO (09) 5 guidelines.

How the Candidate Meets the Needs of the Position

Skills and attributes the candidate will bring to the Brigadier (retired) Timothy Brewer has a long history of part-time service position with the New Zealand Army.�He enlisted in the Army's Territorial Force (Reserve) in 1976 and was appointed to a commission in the 5th (eg: business skills, community involvement, cultural awareness, (Wellington, West Coast and Taranaki) Battalion in 1977. Tim has held a regional perspective— as relevant to the number of senior posts, including as Assistant Chief of General Staff needs of the position) (Personnel) (Territorial Force), Territorial Force Advisor, and Director of the Defence Employer Support Programme.�In July 2006, he was appointed Director-General Reserve Forces, retiring earlier this year. �In his civilian career, Tim practises litigation law as a Partnerin Auld Brewer Mazengarb and McEwen, Barristers and Solicitors, and has held a number of Crown and Law Commission appointments.

Possible conflicts of interest No conflicts of interest.

n/a Proposals for conflict management (if applicable)

Continue on next page if required Name (family name in upper case; include Timothy Charles Brewer - Brigadier (rtd) ONZM title if appropriate)

Address

s9(2)(a) Citizenship (if not New Zealand)

Age

Partner Auld Brewer Mazengarb & McEwen Current or most recent employment (specify position and employer, include years)

Government board appointments held (current and previous, include years)

Private and/or voluntary sector board appointments held (current and previous, include years)

Qualifications and experience Officer of the New Zealand Order of Merit (include significant work history and community involvement) Bachelor of Laws (Hons) (First Class) — Victoria University Crown Solicitor: 1988 - Law Commissioner: 1997 - 2001 Judge Advocate 2004-2009 Judge of the Courts Martial of New Zealand 2009

Use further pages, if required, to provide the information requested.

Date: 17/08/09 CAB 100/2008/1 Consultation on Cabinet and Cabinet Committee Submissions

.� ,.� .� ,� •.� -� .

-.1,,, e4.:1*7-:km...t!,t--,, -..- ,L ' ,.,,:,:?%..4;-...,:44gozt,$.3:4.� .,!.' ,,,..Z,V=,4,1,-,t1;::::,, ..: .�.:.:,1::-.:i .�,..••..: ,�.: . Guidance on consultation requirements for Cabinet/Cabinet committee papers is provided in the CabGuide (see Procedures: Consultation): htto://www.cabduide.cabinetoffice.00vt.nziprocedures/consultation

Departments/agencies consulted: The attached submission has implications for the following departments/agencies whose views have been sought and are accurately reflected in the submission:

Departments/agencies informed: In addition to those listed above, the following departments/agencies have an interest in the submission and have been informed:

Others consulted: Other interested groups have been consulted as follows:

Name, Title, Department:

Signature

il.;ntol° ,Certification.b -�-�_...;7`..3.�.�**1.- 411:2f,t.: ■ 4„� ,�>�,.�ir:t4�eg .,,. , Ministers should be prepared to update and amplify the advice below when the submission is discussed at Cabinet/Cabinet committee.

The attached proposal:

Consultation at has been consulted with the Minister of Finance Ministerial level [required for all submissions seeking new funding] tfr has been consulted with the following portfolio Ministers: ro e6x.e. did not need consultation with other Ministers

Discussion with as been�or�will be discussed with the government caucus National caucus does not need discussion with the government caucus

Discussion with has been discussed with the following other parties represented in Parliament: other parties Act Party�Maori Party�United Future Party Other [specify] will be discussed with the following other parties represented in Parliament: Act Party�Maori Party�United Future Party Other [specify] g does not need discussion with other parties represented in Parliament

Portfolio Date Signature �47 /)(7-6ce (7 , O% I�c.),

1 4 0 1 1 7 v I

Cabinet Business CBC Min (09) 8/9 Committee Copy No:

Minute of Decision

Defence Review: Public Discussion Document and 2009 Process

Portfolios: Defence / Associate Defence

On 8 June 2009, the Cabinet Business Committee:

1�noted that in March 2009, Cabinet approved the terms of reference for the Defence Review 2009 and provided for a public consultation process, to be facilitated by a discussion document outlining the current status of defence policies and capabilities [CAB Min (09) 11/12];

2�noted that an effective public consultation process is important for generating awareness and understanding of New Zealand's approach on defence issues and to further develop a broad national consensus on key elements of defence policy;

3�approved for release the draft consultation document attached to the paper under CBC (09) 72;

4�authorised the Minister of Defence and the Associate Minister of Defence to approve amendments of an editorial nature to the draft consultation document prior to its publication;

5�noted that public consultations will be launched by the Minister of Defence and the Associate Minister of Defence in late June 2009 with the release of the public consultation document and a Defence Review webpage;

6�noted that public submissions are being sought by 24 August 2009, which will form a basis for public hearings planned for mid-September 2009;

7�noted that $350,000 has been allocated within the Defence Review 2009 budget for the completion of public consultations, including for the development and maintenance of the Defence Review 2009 webpage, publication and distribution of the public consultation document, conduct of the public hearings, and collation and publication of the summary document. DEFENCE "'' INWARDS EDMS ID. � �lc) • cg, Sam Gleisner Date Committee Secretary Folder No. GPQ°D...- kl Reference: CBC (09) 72 File�Yes / No� 1

Referred To. Dgke4�4e;st.41.' Distribution: (see over)

143694v1 1 Cabinet Business CBC (09) 72

Committee Copy No: -()

Summary of Paper 5 June 2009

Defence Review: Public Discussion Document and 2009 Process

Portfolio� Defence I Associate Defence � Purpose This paper seeks approval for the release of the attached Defence Review 2009 (the Review) draft consultation document.

Previous In March 2009, Cabinet agreed that the Review, which will culminate in a Consideration Defence White Paper, seek wide input and provide advice that will: • develop Defence policy priorities and strategies, and develop options for aligning Defence policy, force structure/capability, and funding; • improve organisational/operational capability and value for money of the Ministry of Defence and the New Zealand Defence Force. [CAB Min (09) 11/12]

Summary The Review is being conducted in accordance with pre-election commitments by the National and Act Parties. The terms of reference of the Review state that the Defence Assessment and White Paper will be informed, in part, by the results of public consultations. Agreement is sought to publicly release the attached draft consultation document. The draft consultation document sets out the context and process for the Review and companion studies, and provides background on the strategic environment and on current defence, roles, deployments and capabilities. The document also lists a number of key questions which may guide submissions. The process will involve a dedicated Review webpage maintained by the Ministry of Defence; distribution of 5000 copies of the public consultation document; the collection of written submissions; approximately 8-12 public meetings; engagement with academics and opinion-makers; discussions with veterans; and other surveys of public opinion. Internal consultation with existing serving New Zealand Defence Force and Ministry of Defence personnel will also be carried out.

Financial The consultation process will be met from the $350,000 budget allocated by the Implications Defence Review and from existing Defence Force and Ministry of Defence baselines.

Legislative None. implications

� 143615‘I 1 CBC (09) 72

Timing Issues It is anticipated that public consultation be completed by 30 September 2009.

Announcement The consultation process will be publicly launched by the Minister of Defence and the Associate Minister of Defence in late June 2009.

Consultation Paper prepared by MoD. Treasury. DPMC, SSC. MFAT and NZDF were consulted.

The Minister of Defence indicates that the Associate Minister of Defence has been consulted, and that discussion is not required with the government caucus and has been undertaken with other parties represented in Parliament.

The Minister of Defence and the Associate Minister of Defence recommend that the Committee: 1�note that in March 2009, Cabinet approved the terms of reference for the Defence Review 2009 and provided for a public consultation process, to be facilitated by a discussion document outlining the current status of defence policies and capabilities [CAB Min (09) 11/12);

2�note that an effective public consultation process is important for generating awareness and understanding of New Zealand's approach on defence issues and to further develop a broad national consensus on key elements of defence policy;

3�approve for release the draft consultation document attached to the paper under CBC (09) 72;

4�authorise the Minister of Defence and the Associate Minister of Defence to approve amendments of an editorial nature to the draft consultation document prior to its publication;

5�note that public consultations will be launched by the Minister of Defence and the Associate Minister of Defence in late June 2009 with the release of the public consultation document and a Defence Review webpagc;

6�note that public submissions are being sought by 24 August 2009, which will form a basis for public hearings planned for mid-September 2009;

7�note that $350,000 has been allocated within the Defence Review 2009 budget for the completion of public consultations, including for the development and maintenance of the Defence Review 2009 webpage, publication and distribution of the public consultation document, conduct of the public hearings, and collation and publication of the summary document.

Sam Gleisner Committee Secretary

Distribution: (see over)

1436150 Office of the Minister of Defence

Chair, Cabinet Business Committee

DEFENCE REVIEW 2009: PUBLIC DISCUSSION DOCUMENT AND PROCESS

Proposal

1. This submission asks Cabinet to: • approve the attached draft text of the proposed public discussion document for the Defence Review 2009; • authorise the Minister of Defence and Associate Minister of Defence to agree amendments of an editorial nature to the • document prior to publication; and • note that the public consultation process will be launched by the Minister of Defence and the Associate Minister of Defence in June 2009, and that public submissions are sought by 24 August which will form a basis for public hearings planned for mid-September 2009.

Executive Summary

2. The terms of reference for the Defence Review 2009 (the Review) state that its key outputs, a Defence Assessment and White Paper, will be informed by the results of public consultations which are to be facilitated by a discussion document. This submission seeks Cabinet approval of the attached draft public discussion document.

Background

3. On 30 March 2009 Cabinet approved terms of reference for the Defence Review 2009 (the Review). The Review is being conducted in accordance with pre election commitments by both the National and ACT Parties to undertake a comprehensive review of defence policies, capabilities, and management on taking office.

4. A key output of the Review will be a Defence Assessment to be conducted by the Secretary of Defence that will report on defence policy priorities and strategies; develop a range of costed options for aligning policy, capabilities and force structure; and examine options for improving the administrative and organisational capabilities of the Defence agencies. Analysis and conclusions from the Defence Assessment will be submitted to Cabinet by 30 November 2009, following which the Government will finalise its defence policy and release a Defence White Paper by mid-2010 [CAB Min (09) 11/12 refers],

5. The terms of reference for the Review state that the Defence Assessment and White Paper will be informed, in part, by the results of public consultations. These are to be facilitated by a discussion document outlining the current status of defence policies and capabilities, and key issues being considered in the Review. The terms of reference for the Review require the public consultation phase to be completed by 30 September 2009. 2

6. The terms of reference specify that this public consultation process is to be jointly initiated and led by the Associate Minister of Defence and me. Responsibility for the ongoing organisation, communication and management of the public consultation process lies with the Associate Minister.

7. Cabinet guidelines require all public discussion documents relating to government policy to be considered by Cabinet before a date for public release is announced. This submission seeks Cabinet approval for the release of the draft public discussion document at Annex (a).

Public Consultation Document

8. The consultation document sets out the context and process for the Defence Review and companion studies, and provides background on the strategic environment and on current defence roles, deployments and capabilities. A range of useful facts and figures relating to Defence Force personnel, the geographic distribution of camps and bases, and overseas deployments are included in the annexes. The document also lists a number of key questions which may guide submissions. Noting that New Zealand's strategic environment is made up of our land and maritime domain, the South Pacific and Australia, the Asia Pacific region and the wider international environment, the questions ask:

1. What are the current and emerging threats and challenges to New Zealand's security that the Defence Force should prepare for?

2. What is the role of the Defence Force in responding to threats and challenges in each strategic environment?

How should the Defence Force prioritise its effort across each strategic environment?

. How should the Defence Force cooperate with other international security partners in each strategic environment?

How should the Defence Force operate with other New Zealand government agencies in each strategic environment?

. What military capabilities does the Defence Force need to carry out its roles effectively, now and in the future?

When and how should military capabilities be used for non-military purposes to support the work of other (civilian) government agencies?

. What is the best organisational structure for the Ministry of Defence and the New Zealand Defence Force?

How can the Defence Force best manage recruitment, retention, training, and the role of reserves to ensure that Defence Force personnel can carry out their roles effectively? 3

10 What is the best way of managing Defence business, especially in respect of procurement, real estate, infrastructure and finance?

11 What are the best financial management procedures to meet long-term defence funding requirements?

Consultation Strategy and Process

Key elements of a proposed public consultation strategy are outlined below. The strategy demonstrates an open, transparent and inclusive approach to defence policy development. It seeks to facilitate informed debate, engagement, and contributions to the consultation process. It also seeks to provide Ministers and officials with an understanding of public views, concerns and priorities regarding specific issues under review and on New Zealand's defence policies and capabilities generally.

10. The consultation strategy is based around three distinct phases. During the first phase the focus will be on building awareness of the Review and of the consultation process more specifically, disseminating information and messages regarding its focus and objectives and opportunities for making contributions. Key elements in this phase will be the formal launch of the consultation process in late June, together with the establishment of a dedicated Review website and the publication of the public consultation document.

11. During the implementation phase of the strategy multiple channels will be employed to engage the public and specific stakeholders: A dedicated webpage will be maintained on the Ministry of Defence website containing key information on the Review and the consultation process, including the public discussion document, other background documents (including the terms of reference), frequently asked questions, and useful links, as well as an online submission form. 5,000 hard copies of the public consultation document will be distributed to public libraries, government departments, NZDF facilities, local authorities, tertiary institutions and media outlets. Electronic copies will be available on the Review webpage and will be emailed to key stakeholders with other relevant information. Written submissions will be the means by which New Zealanders are invited to express their views. Contributions will be able to be made either in hard copy or electronically via the Defence Review webpage. • Around 8-12 public meetings will be held throughout the country for members of the public who would like to speak directly about their views. These meetings are scheduled to take place in August/ September. The Review has already attracted considerable academic interest, with a number of universities planning related seminars and events. The Review Team will monitor and collate the outcomes from these events, as well as engaging directly with defence-focussed academics and opinion-makers on key issues under consideration. • More informal consultations will be conducted directly with specific stakeholders such as veterans. These groups will be encouraged to submit any formal contributions through the regular process. 4

. The Review team will also draw as appropriate on information derived from Defence Force surveys of public opinion on defence related issues.

12. In parallel with the above public consultation channels, internal consultations will be conducted with serving Defence Force and Ministry of Defence personnel.

13. The strategy concludes with an analysis/feedback phase during which input from the multiple channels will be collated, analysed and published in the form of a summary document which will inform the development of the Defence Assessment and White Paper.

Comment

14. Defence Review 2009 constitutes the first comprehensive review in a decade of New Zealand's defence policies and capabilities and of the international context within which they are set. It also represents a further concrete step by the Government to deliver on its pre-election commitments.

15. An effective public consultation process is an important means of generating awareness and understanding of New Zealand's approach on defence issues and to further develop a broad national consensus on key elements of defence policy. It also represents a significant step in preparing the way for the Government's release of its Defence White Paper in 2010.

16. The timely launch of the consultation process will be important to ensure a credible period of time is available for contributions prior to finalisation of key elements of the Defence Assessment.

Consultation

17. The attached discussion document and the consultation strategy have been developed with substantive input from relevant agencies, including the Department of Prime Minister and Cabinet, Treasury, the State Services Commission and the Ministry of Foreign Affairs and Trade. The attached draft has been considered and approved by ODESC Chief Executives.

Financial implications

18. The Defence Review budget has allocated $350,000 for the completion of public consultations. Costs for the consultation process, including development and maintenance of the Defence Review webpage, publication and distribution of the public consultation document, conducting the public hearings, and collation and publication of the summary document will be met from within this budget and existing Defence Force and Ministry of Defence resources.

Human rights

19. There are no human rights implications from this proposal. 5

Legislative Implications

20. No legislation is required for this proposal.

Regulatory impact and compliance cost statement

21. This proposal entails no regulatory requirements.

Gender implications

22. This proposal involves no gender implications.

Disability perspective

23. This proposal involves no disability perspectives.

Publicity

24. Following approval of the attached public consultation document, the consultation process will be publicly launched by the Associate Minister of Defence and me in late June.

Recommendations

24. It is recommended that Ministers:

1. note that terms of reference for the Defence Review 2009 approved by Cabinet on 30 March 2009 provided for a public consultation process, to be facilitated by a discussion document outlining the current status of defence policies and capabilities [CAB Min (09) 11/12 refers);

2. note that an effective public consultation process is important for generating awareness and understanding of New Zealand's approach on defence issues and to further develop a broad national consensus on key elements of defence policy;

3. approve the draft consultation document attached at Annex (a);

4. authorise the Minister of Defence and the Associate Minister of Defence to approve amendments of an editorial nature to the public discussion document prior to publication;

5. note that public consultations will be launched by the Minister of Defence and the Associate Minister of Defence in late June 2009 with release of the public consultation document and a Defence Review webpage; and that public submissions are being sought by 24 August, which form a basis for public hearings planned for mid-September 2009; 6

6. note that $350,000 has been allocated within the Defence Review budget for the completion of public consultations, including for the development and maintenance of the Defence Review webpage, publication and distribution of the public consultation document, conduct of the public hearings, and collation and publication of the summary document.

Hon Dr Wa p Hon Heather Roy Minister ce Associate Minister of Defence

�

Consultation on Cabinet and Cabinet Committee Submissions

Certification by Department:

Guidance on consultation requirements for Cabinet/Cabinet committee papers is provided in the CabGuide (see Procedures: Consultation) http://www.cabguide.cabinetofficeoovt.nz/Drocedures/consuttation

Departments/agencies informed: In addition to those listed above, the following departments/agencies have an interest in the submission and have been informed:

Others consulted: Other interested groups have been consulted as follows:

Name, Title, Department: s9(2)(a)

I Date: �4/Juner2009 I Signature:

• ••••VILIIII‘411.11.711 Lry 111111111110WI • Ministers should be prepared to update and amplify the advice below when the submission is discussed at Cabinet/Cabinet committee. The attached proposal: Consultation at ❑ has been consulted with the Minister of Finance Ministerial level [required for all submissions seeking new funding] [+� has been consulted with the following portfolio Ministers: �So y �1h n /1 ■ �did not need consultation with other Ministers � N'tir ({, Discussion with ■ has been or �❑ will be discussed with the government caucus National caucus 11 does not need discussion with the government caucus

Discussion with ❑ has been discussed with the following other parties represented in Parliament: other parties iiAct Party ❑ Maori Party �❑ United Future Party ■ .....„ Other [specify] (Ai', lt , �ot,, �24 �A,4 ■ �will be discussed with the following other parties represented in Parliament: ■ Act Party �■ Maori Party �❑ United Future Party ❑ Other [specify] ❑ does not need discussion with other parties represented in Parliament Portfolio Date Signature ,--/r Pfibr\4, ok 106 �I 7-001

14011v1

Cabinet CAB Min (09) 12/16 Copy No: (1 Minute of Decision

2009 Defence Review: Appointments to Panel

Portfolio:�Defence

On 6 April 2009, Cabinet:

1�noted that on 30 March 2009, Cabinet agreed to the terms of reference for the Defence Review 2009, and invited the Minister of Defence to submit a paper to Cabinet on 6 April 2009 on the proposed appointees to the panel to assist in the Review [CAB Min (09) 11/12];

2�noted that the Minister of Defence intends to appoint the following individuals to be the panel of independent advisors in support of the Defence Review 2009, for terms commencing on the date of appointment and continuing until the conclusion of the Review:

2.1�Simon Peter Wallace MURDOCH;

2.2 Martyr John DUNNE;

2.3�Robert Arnold (Rob) McLEOD;

3�noted that as public servants, Mr Murdoch (until he retires from the Ministry of Foreign Affairs and Trade) and Mr Dunne will not receive any remuneration for their membership of the panel;

4�noted that the Minister of Defence indicates that discussion is not required with the government caucus.

Secretary of the Cabinet Reference: CAB (09) 162

Distribution: Prime Minister Deputy Prime Minister Minister of State Services A,INISTRY OF DEFENCE State Services Commissioner ;NWARDS MAIL Minister of Defence i=c)NIS Chief of Defence Force 15� Secretary of Defence -older No G Minister of Women's Affairs 170-0 2- - Chief Executive, Ministry of Women's Affairs ' Ir- ! jo�Yes / No Secretary, APH 11• erred ro a("---‘�

� 142130v1 1

Cabinet CAB Min (09) 11 /12 Copy No: 2 3 Minute of Decision

This document contains information for the New Zealand Cabinet. If must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority.

2009 Defence Review: Terms of Reference and Processes

Portfolio:�Defence

On 30 March 2009, following reference from the Cabinet Strategy Committee (STR), Cabinet:

1�agreed that the Defence Review 2009, which will culminate in a Defence White Paper, seek wide input and provide advice that will:

1.1�develop Defence policy priorities and strategies, and develop options for aligning Defence policy, force structure/capability, and funding;

1.2�improve organisational/operational capability and value for money of the Ministry of Defence and the New Zealand Defence Force;

2�invited the Minister of Finance to report back to the Cabinet Strategy Committee by 30 June 2009 regarding fiscal parameters for the Defence Review 2009, in light of the government's fiscal strategy developed in Budget 2009;

3�invited the Minister of Defence to submit a paper to Cabinet on 6 April 2009, on the proposed appointees to the panel to be appointed to assist in the Review;

4�agreed to the terms of reference for the Defence Review 2009 attached to this minute.

-G6CCaa, Secretary of the Cabinet � Reference: CAB (09) 134

Distribution: Prime Minister Chief Executive, DPMC Director, PAG, DPMC MINISTRY OF DEFENCE Director, DESG iNWARCS MAIL Minister of Finance Secretary to the Treasury EDMS ID .q4'' 4/1 Minister of State Services �I' 4 - OS Date State Services Commissioner Folder No. C"'°°3C' -- t Minister of Foreign Affairs Fie�No Secretary of Foreign Affairs and Trade �c_A Minister of Defence Referred To —D e C)""A Secretary of Defence Chief of Defence Force Associate Minister of Defence Secretary of the Cabinet Secretary, STR

141923v1 Annex to CAB Min (09) 11/12

Terms of Reference Defence Review 2009

Authorisation

1. The Secretary of Defence, in consultation with the Chief of Defence Force and other stakeholders, will undertake a defence assessment as prescribed by Section 24(2)(c) of the Defence Act 1990 and will also review and report on the other matters specified in these Terms of Reference. This exercise will be known as the Defence Review 09 (the Review).

2. The Review will report to the Government its analysis and conclusions and the outcome of the consultation processes required in these Terms of Reference. Upon receipt of the Review report, the Government will finalise its defence policy. That policy will be published in the form of a Defence White Paper early in 2010.

3. These Terms of Reference have been approved by Cabinet.

Scope

4. The purpose of these Terms of Reference is to provide guidance for the Review in respect of its context, scope, method, deliverables, and timeframe.

5, The Review is required to allow major issues currently facing Defence to be addressed via a process that seeks wide input and provides options that will contribute to Government policy. The major issues are:

• How does the present and potential future strategic environment impact on the security of New Zealand? • How does Defence contribute, and may in future contribute, to the security of New Zealand, Australia, the South Pacific, the Asia-Pacific region and globally. • How does Defence advance New Zealand's foreign policy and the relationship between Defence and other Government agencies to enhance a 'whole of Government' approach? • How well do the current Defence outputs meet the actual needs now and in the near future, and how are the actual capabilities including those under consideration or development, aligned to those outputs? • Looking to the medium and longer term, what are the capabilities needed against requirements in the future and what the implications arising from that analysis?

� 141923v1 2 Annex to CAB Min (09) 11/12

• What are the key issues around Defence personnel, including training, retention, recruitment and the role of Reserves? • What is the best organisational structure for the Ministry of Defence and New Zealand Defence Force? • When and how should military capabilities be used for non-military purposes to support the work of other (civilian) government agencies? • How best can procurement, defence infrastructure and real estate be managed? • What are the best financial management procedures to meet the long term defence funding requirements?

6. The Review period is characterized by two differing imperatives. Due to the long service life of major acquisitions, the Review will consider the period from 2009 until at least 2035. However, the next decade will require the Government to address the fact that some Defence platforms and systems are reaching the end of service life and therefore, the Review is to focus in more detail on the immediate period from 2009 to 2016.

7. The overall objective of the Review is to provide advice that will enable the Government to meet its commitment to publish a White Paper in its first year of Government.

8. The White Paper will set out a framework for the defence of New Zealand through addressing New Zealand's vital strategic interests including the security of its sovereign territory and exclusive economic zone, its special relationship with Australia, the need to build security in the South Pacific, its relationships in the wider Asia-Pacific region and its contribution to the global community.

9. Further overarching objectives will be to maintain a broad base of support within New Zealand, show how New Zealand will continue to make a useful and credible contribution to our security partnerships and set out a practical, achievable and sustainable plan and planning processes that address the major issues identified in these Terms of Reference.

10. During the period of the Review itself, the Associate Minister of Defence will lead concurrent companion studies into:

• New Zealand's Defence Industry, examining options for economic improvement in the sector, • The role of the NZ Defence Force in Youth Programmes and the NZ Cadet Force; and • Voluntary National Service, including examining future options for a whole of Government strategy.

� 141923v1 3 Annex to CAB Min (09) 11/12

Context

11. The last comprehensive defence assessment undertaken in accordance with the Act, The Shape of New Zealand's Defence, was published in 1997. Defence policy since that time has been informed by The Foreign Affairs, Defence and Trade Committee of Parliament Inquiry into Defence Beyond 2000. and the May 2001 Government Defence Statement: A Modem, Sustainable Defence Force Matched to New Zealand's Needs.

12. Both the National Party and the ACT Party had pre-election commitments to • produce a defence White Paper within one year of taking office.

13. Over the last decade there has been a growing acceptance of the need for a multi-party approach to defence policy development. This has been coupled with a similar acknowledgement of where New Zealand's strategic interests lie. Beyond our shores, our first priority is regional security. New Zealand, in partnership with Australia, needs to be able to deal with any reasonably foreseeable contingency within the region. The second priority is a broader engagement outside our region. In this case, New Zealand's capability is limited and is drawn largely from the capabilities acquired for our regional role.

14. The Government acknowledges that the necessity for a review is confirmed by the changes in the global security environment over the last decade, the significant challenges facing Defence (including operational tempo, personnel and capital procurement) and the increased role of Defence in supporting whole of government goals.

15. The review process will take account of wider policy and economic imperatives, including fiscal sustainability. The current relative level of defence spending will be used as the baseline scenario.

Procedure

16. In accordance with Section 24(2)(c) of the Defence Act 1990, the Secretary will undertake a defence assessment in consultation with the Chief of Defence Force.

17. Recognising the desirability of maintaining both a political and public consensus on New Zealand's broad security interests, the Secretary will draw on input from independent experts and public consultation with key stakeholders including the Royal New Zealand Returned and Services Association and other ex-service groups, the New Zealand Defence Industry and New Zealanders and New Zealand-based groups with an interest in Defence. This consultation will involve producing a Discussion Document based on the current status of Defence to inform public consultation. The public consultation will be completed in time to inform the development of the options contained in the review.

� 141923;i1 4 Annex to CAB Min (09)11/12

18. The leadership and initiation of the public consultation process will be undertaken by both Ministers. The Associate Minister will be responsible for the ongoing organisation, communication and management of the public consultation process, although both Ministers will be actively involved in public discussion forums.

19. In undertaking his assessment, the Secretary will be supported by a panel of three independent advisers (the Panel) to be appointed by the Minister of Defence. These advisers have been selected for their experience in international relations at the political level, military matters, commercial affairs, management and organisational change. The Panel (subject to confirmation with alternates in italics) comprises:

TO BE ADVISED

20. The Panels mandate will cover the entire Terms of Reference including strategic context, structures, organisation, capabilities and procurement

21. The Secretary will consult with and invite input from the Panel throughout the conduct of his assessment. The Panel will also communicate its views on any matter directly to the Minister of Defence, and will consider issues put to it by the Minister.

23. The Secretary of Defence and the Chief of the Defence Force will ensure the Panel has the full cooperation of the Ministry and the New Zealand Defence Force. The Minister of Defence will decide on matters of process that arise during the review.

24. The Government places a particular priority on ensuring that the procurement and budget procedures within the Ministry of Defence and the NZDF are cost effective, efficient and meet best international and commercial practice. The Secretary shall engage independent expert advice with recognised competencies in these areas to analyse and review existing capabilities and procedures and make recommendations on how best to implement reform.

141923v1� 5 Annex to t;Ati Min (09) 11/12

25. Throughout the review, the Secretary will consult as required with other departments that may be affected including, in particular, those represented on ODESC, and will brief ODESC on the progress of the review at least monthly.

26. The Secretary may consult as necessary with New Zealand's security allies, partners and friends to address the issues within the scope of the Review, with particular reference to New Zealand's defence relationship with Australia.

27. Before concluding the Review, the Secretary will brief and confer with the Foreign Affairs, Defence and Trade Committee of Parliament.

28. In undertaking his review, the Secretary must seek to clarify and resolve differences of view. Where unresolved differences remain that materially affect either the policy direction or capability mix, these must be made explicit and alternative recommendations must be developed for Ministers' consideration and resolution.

29. All costs of the Review will be a charge against Vote: Defence.

Deliverables

30. The Review will provide a report to the Minister of Defence that includes advice, options and supporting background material

31. Throughout the review process, the Secretary of Defence will update the Minister of Defence on the progress of the work as part of normal officials' meetings.

Timeline and Completion

32. The Review will report to the Minister according to the following timeline:

Date Review Process 30th April Overall plan for Review including all consultation phases submitted to Ministers 29th May Release of public Discussion Document and launch of public consultation process 30thJuly Completion of analysis of New Zealand's Defence objectives including military capabilities completed and statement of those objectives for approval by Ministers. Submission to the Cabinet Strategy Committee.

su•-• ■-•th September Completion of public consultation

� 141923v1 6 Annex to CAB Min (09) 11/12

30th November Analysis (including financial implications) of the options for structure, organisation and capabilities that might meet New Zealand's Defence objectives. Submission to the Cabinet Strategy Committee. 29th January Review Complete

26th February White Paper Submission to the Cabinet Strategy Committee. 30th March White Paper Released

� •141923v1 7

Cabinet Strategy STR Min (09) 3/3

Committee Copy Number: Minute of Decision

2009 Defence Review: Terms of Reference and Process

Portfolio:�Defence

On 23 March 2009, the Cabinet Strategy Committee: 1�agreed that the Defence Review 2009, which will culminate in a Defence White Paper, seek wide input and provide advice that will:

1.1�develop Defence policy priorities and strategies, and develop options for aligning Defence policy, force structure/capability, and funding; 1.2�improve organisational/operational capability and value for money of the Ministry of Defence and the New Zealand Defence Force;

2�invited the Minister of Finance to report back to the Cabinet Strategy Committee by 30 June 2009 regarding the fiscal parameters for the Defence Review 2009, in light of the government's fiscal strategy developed in Budget 2009;

3�invited the Minister of Defence to give further consideration to the composition of the panel to be appointed to assist in the review, and to submit a paper on the proposed appointees to the Cabinet Appointments and Honours Committee in due course;

4�agreed, subject to paragraph 3 above, to the terms of reference for the Defence Review 2009, attached to the paper under STR (09) 5.

anine Harvey � Secretary Reference: STR (09) 5

Secretary's note: Subsequent to the meeting, the Minister of Defence has advised that he will be submitting a revised paper to Cabinet on this issue, which may include revised terms of reference, as appropriate.

Copies to: (see over) MIN1STRYOF DEFENCE INWARDS MAIL EDMS ID: � Date: '7G r`rIcArc"` 139 Folder No. GCt01 - I Z.. � File.�Yes / No Referred To. �(.) t ✓1

1A1 .71/1.0 1 �

STR (09) 5

Cabinet Strategy 19 March 2009 Committee Copy No: 30

This document contains information for the New Zealand Cabinet It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority,

2009 Defence Review: Terms of Reference and Process

Portfolio� Defence

Purpose This paper seeks agreement to the terms of reference for a review of Defence policy and management that will inform the development of a Defence White Paper.

Previous None. Consideration

Summary The National Party's 2008 election manifesto signalled the intention to conduct a .review of Defence policy and capability requirements, and to publish a Defence White Paper. The last comprehensive Defence White Paper was published in 1997, and there has been no substantive examination of Defence policy since 2001. i ti)�i� A Defence Review 2009 is proposed, to be conducted by the Secretary of Defence U in consultation with the Chief of Defence Force and other stakeholders, including toti..,7 -Ic� .�the public. The Secretary will be supported by a panel of three independent ui 2 (6� advisers to be appointed by the Minister. Specific issues that will be addressed as u)� part of the review are listed on page 6. .0 �. ›.<. �:: z�There will be three concurrent companion studies to the review, led by the cc i-- z�kg (4O 0,-. �Associate Minister of Defence, relating to New Zealand's Defence Industry, the cr) �0�6' >- 2�o (- 2 IErole of the NZDF in Youth Programmes and the New Zealand Cadet Force, and a' the Voluntary National Service. 0.° 10" iF0 17cc � ,.. �- �'1- — The review findings will be used to finalise the government's Defence policy. The policy direction for the next 20 to 25 years will be published in the form of a Defence White Paper later in 2009.

The draft terms of reference for Defence Review 2009 are on pages 13-18.

Baseline The total cost of the review is estimated to be $1.005 million. Implications It is proposed that the Minister of Finance be invited to report back to the Cabinet Strategy Committee by 30 June 2009 regarding the fiscal parameters for the review, in light of the government's fiscal strategy developed for Budget 2009.

141687v1 STR (09) 5

Legislative None. Implications

Timing Issues The proposed review timeline is as follows:

• a discussion document will be released, and the public consultation process will commence on 15 May 2009;

• a statement of proposed Defence objectives will be submitted to the Cabinet Strategy Committee by 30 June 2009;

• the public consultation process will finish by 30 August 2009;

• the review will be completed, and an analysis (including financial implications) of the options for structure, organisation and capabilities will be submitted to the Cabinet Strategy Committee, by 30 October 2009;

• a draft Defence White Paper will be submitted to the Cabinet Strategy Committee by 30 November 2009.

Announcement�The Minister of Defence will publicly announce the appointment of the panel, and will make subsequent announcements as required (in particular, relating to the process for public submissions).

Consultation�Paper prepared by Defence. NZDF, MFAT, Treasury, DPMC, SSC and ODESC were consulted.

The Minister of Defence indicates that the Associate Minister of Defence was consulted, and that discussion is not required with the government caucus.

The Minister of Defence recommends that the Committee:

I�agree that the Defence Review 2009, which will culminate in a Defence White Paper, seek wide input and provide advice that will:

1.1�develop Defence policy priorities and strategies, and develop options for aligning Defence policy, force structure/capability, and funding;

1.2�improve organisational/operational capability and value for money of the Ministry of Defence and the New Zealand Defence Force;

2�invite the Minister of Finance to report back to the Cabinet Strategy Committee by 30 June 2009 regarding the fiscal parameters for the Defence Review 2009, in light of the government's fiscal strategy developed in Budget 2009;

141687v1� 2 STR (09) 5

3�agree to the terms of reference for the Defence Review 2009, attached to the paper under STR (09) 5.

Janine Harvey for Secretary of the Cabinet

Copies to: Cabinet Strategy Committee Chief Executive, DPMC Director, PAG, DPMC Director, DESG PAG Subject Advisor, DPMC Secretary to the Treasury John Whitehead, Treasury State Services Commissioner lain Rennie, SSC Secretary of Foreign Affairs and Trade Minister of Defence Secretary of Defence Chief of Defence Force Associate Minister of Defence

141687v1� 3 ��

Office of the Minister of Defence

Chair Cabinet Strategy Committee

2009 Defence Review: Terms of Reference and Processes Proposal

1�The Committee is asked to approve the terms of reference for a review of defence policy and management that will inform the development of a defence white paper.

Executive Summary 2�Our 2008 election manifesto signalled our intention to conduct a review and assessment of defence policy and capability requirements, and aspects of defence management, and to publish a defence white paper. The last comprehensive defence white paper, The Shape of New Zealand's Defence, was published in 1997. In 1999 Parliament's Foreign Affairs, Defence and Trade Committee published Defence Beyond 2000, which has provided the basis of defence policy over the last decade. There has been no substantive examination of defence policy since 2001.

3�Since that time the environment within which defence operates has changed considerably, the tempo of operations is considerably greater than envisaged then and resourcing pressures on Defence are unresolved. It is therefore timely for a defence review to be carried out and for a policy White Paper to be published, although such a review would not start with the assumption that more resources are required. Rather, Ministers will be given a range of options against which they can make capability decisions.

4�The review will be conducted by the Secretary of Defence, in consultation with the Chief of Defence Force and other stakeholders including the public, as prescribed by Section 24(2)(c) of the Defence Act 1990. The Secretary will also review and report on the other matters specified in these Terms of Reference. This exercise will be known as the Defence Review 09 (the Review). The Secretary will be supported by a panel of three independent advisers appointed by me. The Terms of Reference for the review are attached to this paper.

5�The Review is required to allow major issues facing Defence to be addressed via a process that seeks wide input and provides advice that will: 2

a.�develop defence policy priorities and strategies, and develop options for aligning defence policy, force structure/capability and funding; and

Improve organisational / operational capability and value for money of the Ministry of Defence and the New Zealand Defence Force.

6�Specific issues to be addressed by the Review will include answers to the questions:

• How does the present and potential future strategic environment impact on the security of New Zealand? How does Defence contribute, and may in future contribute, to the security of New Zealand, Australia, and the South Pacific? • How does Defence advance New Zealand's foreign policy and the relationship between Defence and other Government agencies to enhance a 'whole of Government' approach? • How well do the current Defence outputs meet the actual needs now and in the near future, and how are the actual capabilities including those under consideration or development, aligned to those outputs? • Looking to the medium and longer term, what are the capabilities needed against requirements in the future and what the implications arising from that analysis? • What are the key issues around Defence personnel, including training, retention, recruitment and the role of Reserves? • What is the best organisational structure for the Ministry of Defence and New Zealand Defence Force? • When and how should military capabilities be used for non-military purposes to support the work of other (civilian) government agencies? • How best can procurement, defence infrastructure and real estate be managed? • What are the best financial management procedures to meet the long term defence funding requirements? 3

7�The Secretary will report the review's conclusions to me and I will prepare a summary and decision paper for Cabinet's consideration. When we have determined our policy position, this will be embodied in a white paper, which will also be submitted for Cabinet's approval prior to publication.

Background

8�Our 2008 election manifesto signalled our intention to conduct a review and assessment of defence policy and capability requirements, and aspects of defence management, and to publish a defence white paper. This is also the policy of the ACT Party. The review of defence policy will enable us to take a fresh look at a number of important defence issues to ensure that the New Zealand Defence Force is able to fulfil its tasks and meet New Zealand's security needs. 9�A defence assessment is a comprehensive review of defence policy objectives, the NZDF's roles and tasks, required military capabilities, and defence funding. Section 24(2)(c) of the Defence Act 1990 provides that one fundtion of the Secretary of Defence is to prepare a defence assessment "from time to time" in consultation with the Chief of Defence Force. The defence review will draw on the Secretary of Defence's assessment and will, in addition, consider expert and public submissions on the range of issues prescribed in the Terms of Reference. The review will look ahead 20 to 25 years to consider the country's needs for defence capabilities in that longer time frame. A white paper is a separate document that lays out the government's policy directions. The white paper would itself set policy dire-ctions for the next 20 to 25 years as the basis for detailed capability planning.

10�The last formal defence assessment was completed in 1997, and subsequently published as the Defence White Paper The Shape of New Zealand's Defence. In 1999, the Foreign Affairs, Defence and Trade Committee of Parliament, having undertaken a substantial exercise of review, tabled a report of its Inquiry into Defence Beyond 2000. In May 2001, the previous Government, having undertaken some policy reviews on specific issues, published its Government Defence Statement: A Modem, Sustainable Defence Force Matched to New Zealand's Needs. There has not been any substantive review of defence policy since 2001. 4

Comment

Why is a comprehensive defence review due?

11�A defence review, and its underling defence assessment, is an opportunity to update our strategic picture, and to review the alignment of our defence policy objectives with our foreign and security policy goals in light of the present and expected environment within which defence and security goals will have to be pursued. In the last ten years the international security environment has changed considerably. New and changed issues include:

the likelihood that security concerns will continue to be a preoccupation in the South Pacific, especially in respect of governments seeking assistance to maintain internal stability, and support external sovereignty; b�the growth worldwide of comprehensive interventions in complex emergencies and the deployment of unprecedented numbers of military and non-military personnel on UN and other stabilisation missions; c�shifts in the balance of power in the Asia-Pacific region, especially the growing Influence of China and India, and reactions to those changes; d�international involvement in Afghanistan and Iraq and the likely political and security consequences of that; e�increased prominence of terrorism, pandemics, transnational crime, and environmental degradation; f�- increasing interest in natural resource exploitation; g�the employment of armed forces in a widening range of roles relating to state-building, capacity building and civil action in addition to conventional combat and peace-keeping roles; h�increasing sophistication and cost of military technology; and Increasing global connectedness through the lowering of barriers to the movement of information, people, goods and services, with both positive and negative dimensions.

12�These changes produce different perceptions of threat and risk to the country and to our region, and thus to the need for armed force in the international arena. The prolongation of stabilisation missions, the weight placed on countering terrorism, the risks from a range of transnational issues such as pandemics, transnational crime and environmental 5

degradation are probably perceived differently now, and the armed forces are being employed in a far wider range of missions today than they were in the 1990s.

13�As well as these changes in the international environment, there are a number of other core issues related to the international environment and how we respond to it. These include:

• whether New Zealand defence objectives and statements of defence outputs still meet our needs in the present international environment. In the contemporary environment it is worth considering the extent to which they remain appropriate and are expressed in sufficient detail to allow proper capability planning;

• whether New Zealand's defence capabilities are appropriate, necessary and sufficient for the range of tasks required of them. The nature of deployments over the last decade, and likely to eventuate, require a detailed examination of the changing environment in conjunction with an examination of New Zealand's defence objectives could shoW gaps or redundancies in capability;

• whether funding levels allow appropriate capabilities to be met. There is no Intention that Defence present a 'wish-list' to the government. If, however, we intend Defence to be able to achieve certain capability levels we must be prepared to fund those capabilities. If we are not prepared to do that (and are satisfied that all efficiencies have been achieved within Defence) we must reduce our expectations. I expect that Defence officials will give the government a range of costed options for different levels of capability;

how we can ensure the best use of our personnel, both regular and reserves. There is little doubt that the Army especially has been stretched over the last several years. Reserve forces have been used successfully in a number of deployments. The review will examine how best we can manage regular and reserve forces to ensure that agreed capabilities are available to the government;

• whether the present higher management structure of Defence is the most effective and efficient available to the government to allow it to respond effectively to the international environment. There are many issues with the present separated model of independent Ministry of Defence and NZDF. But there were issues also with the combined approach. The review will answer authoritatively questions about the most appropriate defence management arrangements.

14�The review period is characterized by two differing imperatives. Due to the long service life of major acquisitions, the review will consider the period from 2009 until at least 2035. However, the next decade will require the Government to address the fact that some Defence platforms and systems are reaching the end of service life and therefore, the review is to focus in more detail on the immediate period from 2009 to 2016.

Our Approach to the Review

15�A consensus has emerged in recent years on New Zealand's broad security interests, the role to be performed by Defence, and — in general terms — New Zealand's requirements for military capability. It is important to maintain this consensual approach, if possible, and for this reasons we will be seeking wide input, including through public consultation.

16�The Secretary of Defence, in consultation with the Chief of Defence Force, will conduct a defence assessment as prescribed by Section 24(2)(c) of the Defence Act. The Secretary will be supported by a Panel of three advisers appointed by the Minister. These advisers will be experienced in international relations at the political level, military matters, commercial affairs, management and organisational change. Throughout the course of the review, the Secretary will brief the Panel on the issues and the progress of the work, and will invite the Panel's input. The Panel will also communicate its views-on any matter directly to the Minister of Defence, and will consult with the Minister as required.

17�The Secretary will also engage an external independent expert consultant to analyse the quality of procurement and budget procedures within the Ministry of Defence and the NZDF.

18�Throughout the review, the Secretary will consult as required with other departments that may be affected including, in particular, those represented on ODESC, and will brief ODESC on the progress of the review at least monthly.

19�The Panel will be supported by staff provided by the Ministry of Defence and/or the New Zealand Defence Force. Subject to the agreement of the Minister of Defence, the Panel may also engage expert or consultancy assistance, as it considers necessary, to inform its deliberations. 7

20�The Secretary of Defence and the Chief of the Defence Force will ensure the Panel has the full cooperation of the Ministry and the New Zealand Defence Force. The Minister of Defence will decide on matters of process that arise during the review.

21�Australia intends to complete its own examination of defence policy some time in 2009. The timing of that review means that we will be able to take into account in our own review any changes in Australia's assessment of the strategic environment or of its defence policy approaches. The scope of a review

22�There are many issues that could be covered by a review of defence policy. They range from issues of strategic direction to the detail of defence management. I have considered carefully those issues of most importance to the Defence system today and have prepared Terms of Reference for a review accordingly.

23�The proposed Terms of Reference are attached to this paper. Broadly, they require the Panel to examine issues of importance both for broad defence policy directions and for the management of Defence within that policy. 24�Areas I intend the review to cover involve answering the following questions:

• How does the present and potential future strategic environment

impact on the security off . New Zealand? • How does Defence contribute, and may in future contribute, to the security of New Zealand, Australia, and the South Pacific? • How does Defence advance New Zealand's foreign policy and the relationship between Defence and other Government agencies to enhance a 'whole of Government' approach? • How well do the current Defence outputs meet the actual needs now and in the near future, and how are the actual capabilities including those under consideration or development, aligned to those outputs? • Looking to the medium and longer term, what are the capabilities needed against requirements in the future and what the implications arising from that analysis? • What are the key issues around Defence personnel, including training, retention, recruitment and the role of Reserves? 8

• What is the best organisational structure for the Ministry of Defence and New Zealand Defence Force? • How best can procurement, defence infrastructure and real estate be managed? • What are the best financial management procedures to meet the long term defence funding requirements?

25�There will be three concurrent companion studies to the review, led by the Associate Minister of Defence. The outcome of these studies will be agreed to by both the Minister and the Associate Minister. The studies are:

• New Zealand's Defence Industry, examining options for economic improvement in the sector; • The role of the NZ Defence Force in Youth Programmes and the NZ Cadet Force; and • Voluntary National Service, including examining future options for a whole of Government strategy.

26�The Review is being set against existing financial baselines. Treasury had envisaged either increased on decreased baselines. Given the level of deployments, existing baselines seem the appropriate benchmark. The overall capability review could change baselines in either direction.

Processes

27�The- Review will conduct analysis within the Defence system and will consult widely with the public. The independent Panel will work closely with the Minister, the Secretary of Defence, the Chief of Defence Force and the professional advisers within the Defence organisations. Senior external advisers will be available to the Panel.

28�Recognising the desirability of maintaining both a political and public consensus on New Zealand's broad security interests, the Secretary will draw on input from independent experts and public consultation with key stakeholders including the Royal New Zealand Returned and Services Association and other ex-service groups, the New Zealand Defence Industry and New Zealanders and New Zealand-based groups with an interest in Defence. This consultation will involve producing a Discussion Document based on the current status of Defence to inform public consultation. The public consultation will be completed in time to inform the development of the options contained in the review. 9

29�The leadership and initiation of the public consultation process will be undertaken by both Ministers. The Associate Minister will be responsible for the ongoing organisation, communication and management of the public consultation process, although both Ministers will be actively involved in public discussion forums.

30�Within the public consultation . process there will be scope for the panel to travel to receive public submissions, to establish a web site to receive public feedback, to consult experts and to commission professional opinion polling, within the constraints of any budget constraints.

31�I propose that the Panel should determine its own procedures, but the Terms of Reference require it to work closely with the Secretary of Defence to answer the questions surrounding policy and management. To the extent that there are significant differences of opinion between the Panel and the Secretary or Chief of Defence Force on substantive matters of policy or management, those differences will be highlighted in the final report.

32�Before concluding the Review, the Secretary will brief and confer with the Foreign Affairs, Defence and Trade Committee of Parliament. 33�When I receive the Secretary's final report, I will bring to Cabinet a paper summarising the contents. This will enable Cabinet to consider options and resolve any policy issues. When we have determined our policy position, this will be embodied in a white paper, which will also be submitted for Cabinet's approval prior to publication.

Timinas

34�The Review will report to the Minister according to the following timeline:

Date Review Process 15th April Overall�plan for Review including �all�consultation phases submitted to Ministers

15th May Release of public Discussion Document and launch of public consultation process

30th. June Completion of analysis of New Zealand's Defence objectives including military capabilities completed and statement of those objectives for approval by Ministers. 10

Submission to the Cabinet Strategy Committee.

30th August Completion of public consultation

30th October Analysis (including financial implications) of the options for structure, organisation and capabilities that might meet New Zealand's.Defence objectives. Submission to the Cabinet Strategy Committee. 301' October Review Complete

30th November White Paper Complete Submission to the Cabinet Strategy Committee.

Consultation

35�The Ministry of Foreign Affairs and Trade, the Department of the Prime Minister and Cabinet, the Treasury and the State Services Commission were consulted in the preparation of this submission. The Officials Committee on Domestic and External Security Coordination has also collectively reviewed this submission and agrees with the approach.

36�Treasury proposes that, following the development of the Government's overall fiscal strategy for the 2009/10 Budget, the Minister of Finance be invited to provide fiscal parameters for the review. That proposal is presented in recommendation 2 below. Financial implications and Resources

37�The review process will take account of wider policy and economic imperatives, including fiscal sustainability. The current relative level of capabilities will be used as the baseline situation. A spectrum of possible capability options ranging from capabilities lower than those presently held to greater will be offered to Ministers. These capability options will be robustly costed. 1 1

38�Personnel resources for the Review will be drawn largely from within the MoD and NZDF. Consultants will be engaged to undertake specialist work, including providing advice on organisational and management aspects. I will require both the Secretary of Defence and the Panel to submit a fixed budget for my approval, as an early task.

39�The total cost of the review has been provisionally estimated at $1.005 million and this will largely need to be new money. I have submitted Budget bids for one-off increases in Vote Defence, output expense Policy Advice of $290,000 for 2008/09 and. $710,000 for 2009/10, and agreed with the Minister of Finance that this would be offset within the Defence Funding Package to be approved by Cabinet as part of Budget 2009.

Human rights, legislative implications, regulatory impact and compliance cost statement

40�This paper has no inconsistencies with the Human Rights Act 1993. There are no legislative implications or regulatory impacts arising from the recommendations in this submission.

Publicity

41�Publicity will be an important aspect of the review, both to signal the Government's open approach and to encourage public submissions. I propose to make a formal announcement of the appointment of the Panel and will make subsequent announcements as necessary throughout the course of the review on issues such as how the process of receiving public submissions will be managed.

Recommendations

42�I recommend that the Committee:

1. agree that the Defence Review 09, which culminates in a Defence White paper, seeks wide input and provides advice that will:

a. develop defence policy priorities and strategies, and develop options for aligning defence policy, force structure/capability and funding; and

b. improve organisationaVoperational capability and value for money of the Ministry of Defence and the New Zealand Defence Force. 12

Invite the Minister of Finance to report back to the Cabinet Strategy Committee by 30 June 2009 regarding fiscal parameters for the Defence Review 09, in light of the government's fiscal strategy developed in Budget 2009; and

2. approve the Defence Review 09 Terms of Reference attached to this paper.

Hon Dr Wayn aPP Minister of ence

Attachment: Defence Re w Terms of Reference

$/3/20-0 7 DRAFT

Terms of Reference Defence Review 2009 Authorisation

3. These Terms of Reference have been approved by Cabinet.

Scope

4. The purpose of these Terms of Reference is to provide guidance for the Review in respect of its context, scope, method, deliverables, and timeframe. 5. The Review is required to allow major issues currently facing Defence to be addressed via a process that seeks wide input and provides options that will contribute to Government policy. The major issues are:

• How does the present and potential future strategic environment impact on the security of New Zealand?

• How does Defence contribute, and may in future contribute, to the security of New Zealand, Australia, the South Pacific, the Asia-Pacific region and globally. • How does Defence advance New Zealand's foreign policy and the relationship between Defence and other Government agencies to enhance a 'whole of Government' approach? • How well do the current Defence outputs meet the actual needs now and in the near future, and how are the actual capabilities including those under consideration or development, aligned to those outputs? • Looking to the medium and longer term, what are the capabilities needed against requirements in the future and what the implications arising from that analysis?

1 3 2

DRAFT • What are the key issues around Defence personnel, including training, retention, recruitment and the role of Reserves? • What is the best organisational structure for the Ministry of Defence and New Zealand Defence Force? • When and how should military capabilities be used for non-military purposes to support the work of other (civilian) government agencies? • How best can procurement, defence infrastructure and real estate be managed? • What are the best financial management procedures to meet the long term defence funding requirements?

6. The , Review period is characterized by two differing imperatives. Due to the long service life of major acquisitions, the Review will consider the period from 2009 until at least 2035. However, the next decade will require the Government to address the fact that some Defence platforms and systems are reaching the end of service life and therefore, the Review is to focus in more detail on the immediate period from 2009 to 2016.

7. The overall objective of the Review is to provide advice that will enable the Government to meet its commitment to publish a White Paper in its first year of Government.

8. The White Paper will set out a framework for the defence of New Zealand through addressing New Zeaiand's vital strategic interests including the security of its sovereign territory and exclusive economic zone, its special relationship with Australia, the need to build security in the South Pacific, its relationships in the wider Asia-Pacific region and its contribution to the global community.

10.During the period of the Review itself, the Associate Minister of Defence will lead concurrent companion studies into:

DRAFT Context

12. Both the National Party and the ACT Party had pre-election commitments to produce a defence White Paper within one year of taking office.

16. In accordance with Section 24(2)(c) of the Defence Act 1990, the Secretary will undertake a defence assessment in consultation with the Chief of Defence Force.

1 S 4

DRAFT public consultation will be completed in time to inform the development of the options contained in the review.

20. The Panels mandate will cover the entire Terms of Reference including strategic context, structures, organisation, capabilities and procurement

21. The Secretary will consult with and invite Input from the Panel throughout the conduct of his assessment. The Panel will also communicate its views on any matter directly to the Minister of Defence, and will consider issues put to it by the Minister.

22. The Panel will be supported by staff provided by the Ministry of Defence and/or the New Zealand Defence Force. Subject to the agreement of the Minister of Defence, the Panel may also engage expert or consultancy assistance, as it considers necessary, to inform its deliberations. 23. The Secretary of Defence and the Chief of the Defence Force will ensure the Panel has the full cooperation of the Ministry and the New Zealand Defence Force. The Minister of Defence will decide on matters of process that arise during the review.

24. The Secretary will also engage an external independent expert consultant to analyse the quality of procurement and budget procedures within the Ministry of Defence and the NZDF.

(to 5

DRAFT 26. The Secretary may consult as necessary with New Zealand's security allies, partners and friends to address the issues within the scope of the Review, with particular reference to New Zealand's defence relationship with Australia.

27. Before concluding the Review, the Secretary will brief and confer with the Foreign Affairs, Defence and Trade Committee of Parliament.

29. All costs of the Review will be a charge against Vote: Defence.

Deliverables

30. The Review will provide a report to the Minister of Defence that includes advice, options and supporting background material

31. Throughout the review process, the Secretary of Defence will update the Minister of Defence on the progress of the work as part of normal officials' meetings.

Timeline and Completion

32. The Review will report to the Minister according to the following timeline:

Date Review Process 15th April Overall plan for Review including all consultation .phases submitted to Ministers • 15th May Release of public Discussion Document and launch of public consultation process. Submission to Cabinet before release. 30th June Completion of analysis of New Zealand's Defence objectives, including policy priorities and strategies, and a statement of those objectives for approval by Ministers. Submission to Cabinet. 30th August Completion of public consultation

(7 DRAFT

30th October Analysis {including financial implications) of the options for structure, organisation and capabilities that might meet New Zealand's Defence objectives. Submission to Cabinet. 30th October Review Complete 30th November White Paper Complete Submission to Cabinet.

tg CAB 100/2008/1

Consultation on Cabinet and Cabinet Committee Submissions

Guidance on consultation requirements for Cabinet/Cabinet committee papers is provided in the CabGuide (see Procedures: Consultation) htto://www.cabguide.cabinetoffice.00vt.nz/Drocedures/consuttation

Departments/agencies consulted: The attached submission has implications for the following departments/agencies whose views have been sought and are accurately reflected in the submission:

MoD, NZDF, MFAT, Treasury, DPMC, SSC and ODESC

Departments/agencies informed: In addition to those listed above, the following departments/agencies have an interest in the submission and have been informed:

•

Others consulted: Other interested groups have been consulted as follows:

Name, Title, Department:

s9(2)(a) Ministry of Defence Date: �18/March/2009 � Signature

• Ministers should be prepared to update and amplify the auvice below when the submission is discussed at Cabinet/Cabinet committee. The attached proposal: Consultation at III has been consulted with the Minister of Finance Ministerial level [required for all submissions seeking new funding]

Er/has been consulted with the following portfolio Ministers: PIP se, c_aie �r--t.,,. ∎ s4-e, c.P �0•-•-t 02_ (id not need consultation with other Ministers� Discussion with ■ has been �or �❑ will be discussed with the government caucus National caucus - , -- -- . .- —,/' • LN,e- does not need discussion with the government caucus

Discussion with ❑ has been discussed with the following other parties represented in Parliament: other parties • Act Party ❑ Maori Party �❑ United Future Party ❑ Other [specify] ❑ will be discussed with the following other parties represented in Parliament: ❑ Act Party ❑ Maori Party �❑ United Future Party ❑ Other [specify] _ioes EV not need discussion with other parties represented in Parliament Portfolio Date Signature

441,Ge.-- 0 / 3 , 01

14011v1