Military spending slumps to 1930s level

AUSTRALIA'S defence budget has been cut to pre-World War II levels, with spending for 2012-13 falling to below 1.6 per cent of gross domestic product, a level unmatched since the 1930s.

"It's reduced to levels not seen since the time of the Munich peace marches," said defence spending expert Mark Thomson from the Australian Strategic Policy Institute, invoking an iconic moment from the 1930s.

The fall as a proportion of GDP, the measure that matters, is far more serious than the government has admitted.

The numbers across the forward estimates mean Australia's current capability plans cannot be realised.

The switch in Labor's priorities is pivotal. Dr Thomson says there is now "a yawning gap between the means and ends" in the country's defence policy.

In effect, Labor has embraced "peace dividend" politics, cutting the defence budget to help finance its new social agendas for the disabled, the aged and families, and cash splashes justified by the resources boom, and boosting compensation for carbon pricing.

The main strategic issue is whether Labor, having declared this to be the Asian century, intends to reduce Australia to defence spending levels typified by low-growth Europe.

Dr Thomson's calculation show that defence outlays in 2013-14 are only 1.5 per cent of GDP, and in the final forward estimates year - 2015-16 - they are 1.6 per cent of GDP.

Comparable figures for other nations on 2010 numbers are: the US spends 4.77 per cent of GDP on defence, Britain spends 2.57 per cent, Germany 1.34 per cent and Spain 1.05 per cent.

Labor's decision is the biggest decline in defence spending for several decades.

The government has broken its promise to maintain an increase in defence outlays of 3 per cent in real terms for another half decade. This means Australia is more, not less, dependent on the US. While some of the force procurement delays are logical, the overall agenda lacks coherence.

"I would be alarmed if it wasn't for the fact that the government has called for a new white paper," Dr Thomson said.

He said Labor's choice in the white paper was either scale back capability plans or revive funding - yet Australia's long-run fiscal squeeze offers few grounds for thinking there will be any near-term defence spending revival.