By Millie Muroi and Angus Delaney
NATO secretary general Mark Rutte never thought the message would be shared publicly when he texted Donald Trump after US planes bombed Iranian nuclear facilities.
“You are flying into another big success in The Hague this evening,” Rutte declared in the message, shared by Trump to his Truth Social platform. “It was not easy, but we’ve got them [NATO members] all to sign onto 5 per cent!”
Trump boards Air Force One to fly to the NATO summit.Credit: Getty Images
That means each member of the alliance has committed to spending 5 per cent of their GDP on defence, up from a current target of 2 per cent. An analysis of NATO’s published figures suggests that would mean an extra $2.52 trillion a year, up from the $1.85 trillion a year that its member states – including the US – spend now.
That amount is roughly equal to the entire GDP of Spain, a member of the alliance that is known for spending little on defence and refusing the target.
Of that target, 3.5 per cent will be dedicated to core defence spending and 1.5 per cent to broader resilience and security. However, only 22 of NATO’s 32 members have met the current 2 per cent target, raising questions about whether the bloc will reach the new threshold.
US President Donald Trump and NATO Secretary-General Mark Rutte meet in the Oval Office in March.Credit: AP
It comes as the US has pressured its allies to contribute more to security at a time of global uncertainty, including escalating conflicts in the Middle East, Russia’s ongoing invasion of Ukraine, and China’s growing military presence in the Asia-Pacific region.
But how much more will these NATO countries be paying? And how could it impact Australia, which is also facing pressure to increase defence spending?
Governments around the world agreeing to the change will need to make some tough decisions in the context of other budget pressures, says Euan Graham, a senior analyst at the Australian Strategic Policy Institute.
“How the government cuts the pie of the tax take is going to require hard, hard decisions,” Graham says.
The UK, for example, which has agreed to hit the 5 per cent target by 2035, is slashing foreign aid to pay for its additional $155 billion defence spending bill.
“That is not an announcement that I am happy to make,” UK Prime Minister Keir Starmer said of the change. “However, the realities of our dangerous new era mean that the defence and national security of our country must always come first.”
Other countries lifting their spending to meet the new target include Germany, France and Italy. They will need to boost their annual spending by $220 billion, $153 billion and $135 billion, respectively.
Earlier this month, Rutte warned NATO members that if they didn’t pledge to up defence spending to 5 per cent, “you’d better learn to speak Russian”.
But Spain, which spent just 1.3 per cent of its GDP on defence last year, refused the increase. The extra spending would force the country to “drastically raise taxes on the middle class, or severely cut the size of our welfare state,” Spanish Prime Minister Pedro Sanchez said.
The NATO agreement could see Australia dragged further into the debate over defence spending by bolstering the Trump White House’s argument that US allies can spend more on defence. US Defence Secretary Peter Hegseth has told Australia to increase defence spending to 3.5 per cent of GDP, which the Albanese has pushed back against in favour of its plan to lift expenditure to 2.3 per cent.
The Coalition went to the election promising to lift defence spending to 3 per cent of GDP by 2035-36, which the Parliamentary Budget Office said this week would cost $156 billion and add $24 billion in interest costs.
If Australia’s defence spending was lifted to 5 per cent in the same time frame, the cost to the federal budget would be $261 billion and have an additional $40 billion in interest.
Rabobank senior strategist Ben Picton said the debate was about “guns or butter”.
“The Australian government is faced with choices between increasing the defence budget to expand capability or increasing spending on social programs like the National Disability Insurance Scheme (NDIS), aged care, and childcare,” Picton said in a research note this week.
“Clearly, Australia is currently choosing ‘butter’ but retains substantial headroom in the budget to increase spending by comparison to peer economies.”
The Australian government spent about $56 billion on defence in 2024-25 – more than the $44 billion it spent on the NDIS.
Eminent economist Saul Eslake believes that no government will cut spending on social services to beef up defence. “You’d make a lot of people pissed off and it’s hard to do, which to me means you’ve got to look to the revenue side [to raise more money],” Eslake says.
But Graham says Australians would understand a cut to services – like the NDIS – if the government was “honest about the nature of the threat” posed to national security.
Both Graham and Eslake agreed Australia should increase defence spending, although Eslake disagreed with setting an “arbitrary percentage” of GDP.
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