Election 2025: Hip-pocket war drains cash for defence budget

Significant election pledges are threatening a substantial boost to the defence budget, amid warnings it could take a Dutton government until the early 2030s to drive military spending above 2.5 per cent of GDP.

Former defence minister Peter Dutton, centre, with former chief of navy Vice-Admiral Michael Noonan, left, and former HMAS Sydney commanding officer Commander Andrew Hough at Garden Island in Sydney in 2021. Picture: Defence Department

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The Coalition’s cost-of-living ­bidding war with Labor is threatening its plans for a substantial boost to the defence budget, with senior opposition figures warning it could take a Dutton government until the early 2030s to drive military spending above 2.5 per cent of GDP.

Liberal sources have warned that tough choices will need to be made to find money for urgently needed weapons and equipment after years of flatlining funding under successive governments hollowed out the navy and left the wider ADF unable to deter Chinese threats.

New missiles and lethal drones, increased specialisation of ADF reserves, and a crackdown on defence’s capability procurement section are likely to feature in Peter Dutton’s yet-to-be unveiled defence policy, on top of an already-promised extra squadron of F-35 joint strike fighters.

The US has demanded allies contribute more on defence, with senior Pentagon official Elbridge Colby urging Australia to lift military spending to 3 per cent as a share of the economy.

Opposition campaign bosses are still weighing when the Coalition’s defence policy will be ­announced, with the lead-up to Anzac Day next week looming as an option. The Opposition Leader is set to spend at least the next few days focusing on cost of living before shifting to the Coalition’s ­perceived strong suit of national security.

Labor’s former defence minister Kim Beazley has urged Anthony Albanese to boost defence spending beyond 3 per cent, but the government opted against pouring new money into the portfolio in the March budget. Under Labor’s current funding trajectory, military spending is forecast to hit 2.04 per cent of GDP this financial year, rising to about 2.23 per cent of GDP in 2028-29.

Mr Dutton has vowed to spend more on Defence than Labor, with multiple sources confirming a target of 2.5 per cent of GDP, that would require the Coalition to find an extra $15bn a year – and rising – to plough into new military equipment.

Two senior Liberals said the target was unlikely to be hit within the four-year forward estimates period, and was more likely to be reached after 2030.

One said the Coalition would get military spending to 2.5 per cent of GDP in the second half of the coming decade, but it would require “difficult choices”.

Another said: “It’s looking like a stretch over the forwards.”

Opposition defence spokesman Andrew Hastie, who ­declined to comment when contacted by The Australian, has ­previously criticised Defence Minister Richard Marles’ spruiking of long-term funding commitments as “cheques he can’t cash”.

“The money that really counts is what’s in the forward estimates, and we’re actually going backwards (under Labor) not forwards,” Mr Hastie told The Australian’s Defending Australia summit last month.

Mr Marles said that, “by ­Andrew Hastie’s own test, any new funding would need to be delivered in the next four years”. He demanded the Coalition come clean on what cuts it would make to fund its defence policy.

“Not only has the Coalition failed to deliver a shred of credible defence policy, their shadow minister is in hiding just three weeks out from an election,’ he said.

“Australians cannot trust Peter Dutton and the Liberals on defence, when their record shows they consistently made announcements without any real funding.”

Mr Dutton has announced more than $17bn in cost-of-living relief ahead of the May 3 election – including more than $11bn on tax cuts and housing support at his campaign launch on Sunday – ­eating into the Coalition’s campaign warchest.

Against that, he is promising to claw back at least $6bn a year from cutting 41,000 public servants, but those savings will take years to be realised after he confirmed there would be no forced redundancies.

Running up more debt to fund new military capabilities appears unlikely, after Treasury spokesman Angus Taylor declared on Monday the Coalition would be more fiscally responsible than Labor. “Our budget position will be stronger than Labor’s and that is possible because we’ve made the hard decisions over the last three years on measures that Labor’s taking that we think are not the right measures for Australia,” Mr Taylor told the ABC.

“That allows us then to deal with the burning issue Australians have which is the biggest reduction in their standard of living in history, worse than any other peer country in the world and that means we can deal with these short-term cost-of-living issues which gives us time to get the economy back on track, to get it growing and most importantly grow the economy faster than spending.”

AMP chief economist Shane Oliver said the Coalition had “some scope” for more spending, but its key cost-of-living measures – a $6bn cut to fuel excuse and a $10bn extension of the low-­income tax offset – were one-year measures that a Dutton government would find hard to withdraw. Mr Oliver said the Coalition’s capacity to deliver a defence budget boost had also been limited by its pledge to bank 80 per cent of budget windfalls in new future funds to pay down debt and bankroll investments in regional Australia.

“The bottom line is there’s not a lot of flexibility. We’re already looking at a budget deficit, which will be with us for a decade or so,” he said. “If they hadn’t been handing out all these other goodies, there might be more room for it.”

Former Defence official Peter Jennings said promises to spend money in the future weren’t good enough. “The most pressing need in defence is for more money now, because the existing force is being cut to pay for the future nuclear submarines. We are losing a lot of military capability very quickly,” Mr Jennings said.