No hiding the gap between rhetoric and reality on spending

The Australian government has wedged itself on defence. And our defence funding commitments have been called out by our great and powerful ally – the US.

US Secretary of Defence Pete Hegseth and Defence Minister Richard Marles before the Singapore Dialogue in Singapore on May 30. Picture: X

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The Australian government has wedged itself on defence. The glaring gulf between its rhetoric around our strategic circumstances and its defence funding commitments have been called out by our great and powerful ally.

It’s no longer just domestic analysts saying it, whom Anthony Albanese can dismiss with a perfunctory directive to take a hard look at themselves, but the US – the nation that underpins our ­security. The only surprising thing about Pete Hegseth’s statement that Australia should be spending 3.5 per cent of GDP on defence is that it took the Trump administration four months to get around to saying it.

The Prime Minister has framed his rebuff of the US Secretary of Defence as a show of sovereign spine, but Hegseth has a legitimate point. While the US has long underwritten Australia’s security with its own defence spending at 3-3.5 per cent of GDP, we haven’t come close to matching it.

It’s true the current government plans to put more money into defence, but there are important qualifiers around that. First, the real increases are off in the future with minimal additional funding in the near term, despite the rhetoric around urgency.

Australia’s defence spending has hovered within one-tenth of a percentage point either side of 2 per cent of GDP since 2017-18 and won’t grow past it until 2027-28. That’s a decade of stagnation. In that time we’ve seen the 2020 Defence Strategic Update, the 2023 Defence Strategic Review (DSR) and the 2024 National Defence Strategy (NDS), each intoning that our strategic circumstances have worsened since the previous ponderous document and are the worse they have been since World War II, that we need new capabilities, and that time is of the essence. But the funding hasn’t matched that narrative.

Albanese and Defence Minister Richard Marles may boast about their increases to defence spending, but they will have been in power for six years ­before we see any clear daylight ­between their funding line and the one they inherited from the Coalition.

Second, the DSR confronted three major holes in the defence budget: the massive overprogramming in the acquisition plan that Labor inherited; the debilitating ­effects of high inflation in the wake of Covid-19 that significantly devalued the defence budget’s buying power; and the additional costs of the AUKUS nuclear-powered submarine program.

The additional money the government committed in the NDS last year was only enough to fill one of those holes; it chose the third one. That means the rebuild of Defence’s acquisition program that was undertaken after the DSR had to eject about $70-80bn in planned capabilities, yet it’s still substantially overprogrammed. And the only significant new capability is the general purpose frigate (GPF) program.

Naturally, many question further increases to the defence budget (and indeed the government itself is in that camp).

Some intone with an air of gravitas and deeper insight that we should discuss what capabilities we need rather than set a percentage of GDP, ignoring the fact there has always been a lively discussion of our requirements.

Previous force-design activities have identified many of the capabilities we need, but the government has dumped them because of funding pressures. Is anybody seriously suggesting the need for maritime mine clearing has somehow disappeared?

The government’s entire defence policy is built around the importance of maritime trade for Australia, but it has allowed an essential tool for protecting it to run down with no replacement.

Similarly, air and missile defence has evaporated from the plan, despite the daily lessons from Ukraine and the Middle East. The list of cuts goes on. And there is almost universal agreement that we rapidly need to be acquiring disposable drones, cheap guided weapons and space assets but they are still fundamentally underfunded in the current plan.

So we know what we need. But we’ve also learned you can’t have them and nuclear-powered submarines on two-and-a-bit per cent of GDP. While the government describes this trimmed-down force as a “focused force”, it’s really just the force you have left when you buy nuclear-powered submarines on an inadequate budget.

Another line of argument suggests that 2 per cent of GDP would be enough if we spent it on the right stuff. That might be the case if a powerful adversary were considerate enough to attack us in just the way we were expecting.

A major power adversary will have many more capabilities than we do, which is why we seek partners, in particular the US.

It’s true Australia is a difficult place to attack due to our size and remoteness. But why would an adversary attack us precisely in the way that best suits us, for example, by sending a maritime taskforce that was just small enough for us to overwhelm it with our limited numbers of fighter planes and missiles? And then they give up and go home? Determined adversaries simply don’t do that. They would seek to degrade our defences in multiple domains and across a broad geography with weapons we currently have no counter to.

It’s true that a major power adversary will have many more capabilities than we do, which is why we seek partners, in particular the US.

That segues into another objection, namely that there is no way Australia can ever spend enough to affect the balance of power between the US and China, so let’s get away with as little spending as possible and hope things turn out for the best. While this is occasionally articulated by analysts, it is also the rationale behind Australian governments’ adherence to low defence spending. It’s a profoundly cynical argument. How is it ethical to expect people in Ohio to pay more for Australians’ security than we ourselves are? It’s also profoundly ahistorical; Australia developed sufficient military capability to make a difference in both world wars. And it undermines the principle that underpins all collective action: we benefit by working with partners, but all have to contribute commensurate with their abilities. As a wealthy middle power, we have significant capacity should we choose to exercise it.

Finally, there is the view that adherents of greater defence spending first need to identify the sources of that funding.

I’m happy to suggest some: ending negative gearing, reducing subsidies for all forms of energy generation, or even reserving some east coast gas for Australians to avoid subsidising their energy bills. That’s before we get into limiting growing social spending. But the government is well aware of these measures already. It has an entire department called Treasury whose job it is to identify them and assess their budgetary impact.

Whatever the government chooses will elicit screams from some part of the electorate. Spending more on defence in peacetime inevitably comes with domestic pain for governments, which is why they seek to get away with as little as possible (which, incidentally, shows the hollowness of statements such as building submarines and warships will spur economic growth – if the government truly believed that voodoo, it would gladly spend much more on defence).

Governments seek election so that they are in the position to make those hard prioritisation decisions. The current government’s lethargic defence spending trajectory shows that, rather than exercising that responsibility, it prefers the easy option of freeloading. Or that it simply doesn’t believe its own strategic narrative.

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Dr Marcus Heller is head of research at Strategic Analysis Australia