24. The total budgeted costs for the Major Projects included in this year's MPR have increased by $7.8 billion (or 24 per cent) since the projects received their Second Pass Approval from government. Within this increase, $4.0 billion is due to price (materials and labour) indexation and exchange rate variations, and $3.8 billion relates to real variations (such as scope changes and budget transfers between projects).14 Projects with greater than a $500 million real budgeted cost increase since Second Pass Approval comprise the MRH90 Helicopters, Hornet Refurb and Bushranger Vehicles (additional quantities/upgrades).
25. In relation to project budgeted costs in 2009-10, a significant feature compared to the previous year was the positive impact of the strengthening Australian dollar. In 2008-09, the budgeted cost of the 22 projects increased by $3.7 billion (14 per cent) as a result of foreign exchange movements. In 2009-10, foreign exchange movements had the effect of reducing the total budgeted cost for the 22 projects by $3.8 billion (or 11 per cent), although this was slightly offset by a $0.5 billion increase in the budgeted cost due to price indexation. In general, this highlights the year-to-year volatility that can arise with projects heavily exposed to foreign currency movements.15
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14 An explanation of the definition of real budgeted cost variations is included at Part 1, paragraph 2.8.
15 As Defence projects usually extend over a number of years, supplementation to project budgets to deal with labour and material price changes and foreign exchange variations is a standard budget feature.