Tony Wright, Canberra – The Federal Government is considering selling billions of dollars worth of prime defence land throughout Australia to pay for its massively expensive military commitment to East Timor.

With estimates of Australia's commitment reaching $2 billion a year, The Age learnt yesterday that Mr John Fahey's Finance Department is demanding that Mr John Moore's Defence Department urgently draw up a list of properties that could be put up for sale.

It is understood the Government believes up to $16 billion of military properties could be sold outright or on leaseback arrangements, dramatically reducing the need for the Government to dig into its Budget surplus to fund the East Timor deployment.

The Prime Minister, Mr John Howard, admitted yesterday that the East Timor crisis – and the cost of helping rebuild the shattered island state – would have implications for the Budget, but could not predict how expensive the whole operation could be.

However, highly reliable sources said the Government was working frantically behind the scenes to find revenue that would reduce pressure to make politically damaging reductions to health, education and welfare spending, or to sacrifice promised tax cuts. Defence has traditionally resisted pressure to sell large tracts of its land and buildings, but Finance officials are arguing that it must accede under present circumstances if it is to receive a funding boost.

Victorian properties being considered include Victoria Barracks in St Kilda Road, the RAAF's Point Cook facility, Watsonia Army Barracks at Heidelberg, and military land at Portsea.

Other training establishments owned by the Army, Navy and RAAF and disused military land in all states are in the Finance Department's sights, according to reliable sources.

Prime ocean-front land at Middle Head in Sydney, in several areas in and around Perth, properties in Canberra, and sites in Darwin, Queensland and Tasmania are under active consideration for sale.

The military's move towards northern Australia has left a wide range of defence properties in the southern states either under-used or vacant. However, major operational military bases would be quarantined from sale because of security considerations.

The Defence Housing Authority, which owns about 20,000 dwellings at 50 different sites around Australia, is also being targeted for privatisation, although about half its off-base homes are already in private hands on leaseback terms. The Government wanted to sell the authority last year, but then Minister for Defence Science and Personnel, Mrs Bronwyn Bishop, fought successfully against the move. The authority's market value would be likely to be more than $2 billion.

Both the Finance and Defence departments were instructed earlier this year to begin a review of defence property, but Government sources said defence reluctance had meant that terms of reference had not yet been decided.

However, the East Timor emergency, coupled with Mr Howard's belief that the defence budget must be increased from its present $11billion a year, has placed urgent pressure on the process. About three weeks ago the Government instructed the departments to accelerate their review, and political pressure has increased substantially since then.

Mr Howard told Parliament yesterday that his original estimate of $500 million to send 2000 troops to East Timor for six months would obviously rise if the deployment continued longer, and would be higher again if the number of troops rose to the 4500 he has said he would be prepared to commit.

Responding to questions from the Opposition, he said he had asked the Finance and Defence departments to provide precise projections on future costs, but the figures were not yet available. "It is no secret that this troop deployment will cost this country a lot of money," he said.

Mr Chris Richardson, the director of the respected economic consulting group Access Economics, predicted the cost could rise to $2 billion a year. He said the choices for the Government were to dig into the surplus, risking higher interest rates, cut spending on health and education, or reduce promised tax cuts.

The Financial Services Minister, Mr Joe Hockey, told Parliament that, if needed, the Government would dip into its budget surplus. "And if we have to replenish that surplus spent on East Timor by budget cuts, expenditure cuts in other areas or other forms of fiscal change then you will find out about it in due course," he said.

Mr Howard told Parliament that he believed Australia should "contribute a significant amount to East Timor's future", over and beyond the cost of the military commitment.

"It is hardly reasonable to support a country's aspiration for freedom and then run away from it when it has an appalling living standard," he said.