All eyes are on how Anthony Albanese responds, face to face, to Donald Trump’s demand that Australia lift defence spending as a share of GDP to 3.5 per cent.
The US President’s similar first-term demand forced NATO countries to lift their defence spending, with 22 out of 32 countries now meeting the then target of 2 per cent of GDP, up from three countries in 2014.
But when the Prime Minister sits down with Trump, there is one other metric he might consider: Australia’s defence industry share of gross value add.
GVA is a measure of how much taxpayer defence money is going into the Australian economy, instead of being sent off to foreign lands through global defence contractors.
After committing $4bn to the US submarine-industrial base as part of the AUKUS deal, Albanese and Defence Minister Richard Marles might be considering this measure as an indicator of the growth and health of our own military-industrial base.
The Australian Bureau of Statistics, which uses GVA to analyse contributions of industries in the economy, released figures last month showing our defence industry accounted for just 0.47 per cent of GVA during 2023-24.
Former treasurer Joe Hockey told The Australian’s annual Defending Australia conference that GVA was important for Australia’s economy and the political optics of taxpayer funds.
“In the United States, every dollar (the government) spends on procurement, probably 80 cents in the dollar is with American companies. In the UK, probably 80 cents in the dollar spent on procurement in the UK is with UK companies. We are probably today 20 cents in the dollar.”
Hockey said if Australian-own shipbuilder Austal is sold to South Korea’s Hanwha, which has applied to Australia’s Foreign Investment Review Board for a bigger stake in the company, then “it’ll be five cents in the dollar”.
Marles, who is enthusiastic about building AUKUS in Australia and having at least some money being used for homegrown defence companies, knows part of the Australian defence spend is about lifting our own military-industrial base where appropriate. Buying off the shelf from global defence contractors might still be a better option in some cases.
Marles acknowledged on Monday the importance of lifting defence spending, but says it’s all about where you spend it that counts. “I understand that there will inevitably be a focus on a number. We benchmark other countries around the world based on their expenditure as a proportion of GDP,” he said.
“Historically, that is how we’ve done it when we have been preparing for conflict, but to simply think about a number means there is no debate around the quality of that spend.”
Defence analyst Dennis Richardson says the whole defence spending as share of GDP debate is “really a bit of a nonsense in its own way”.
“There’s been a lot of discussion recently about the size of the defence budget. I don’t think it matters a damn whether you talk in terms of a percentage of GDP, or whether you’re talking in terms of capability needs,” he said.
“If you look at the capabilities embedded in the Defence Strategic Review, and if you’re going to fund those capabilities, it’s going to take you north of 3 per cent of GDP whatever way you’re cutting.”
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