Defence & security, explained.
Australia will need to be more creative in the kinds of military capabilities it deploys over the next decade. (Defence Imagery)
NATO's new benchmark is a good one for Australia to adopt. But what should the additional money be spent on?
Subscribe to The Informer for monthly expert analysis, and to Events for advance notice of visiting world leaders and distinguished guests.
You may unsubscribe from Lowy Institute newsletters at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
A 3.5% of GDP defence budget: Why, how, and whatA 3.5% of GDP defence budget: Why, how, and what
Australian defence analysts have been calling for increased defence spending for some time. China’s increasingly aggressive behaviour, AUKUS funding pressures, and the growing cost of a smaller fleet of high-tech, high-cost equipment has added to the impetus for a defence budget that reaches well beyond the government's aspirations to grow spending to 2.4% of GDP by 2033-34.
A universal national service scheme would inculcate young Australians with a service ethos and an understanding that citizenship is about balancing individual and community imperatives.
It is not only Australian defence analysts who have recognised the increasing disparity between Australia’s national security aspirations and its willingness to fund them. The Trump administration has called on all its allies to hike defence spending and reduce their reliance on the US. In May, the US Secretary of Defence (now Secretary of War) Pete Hegseth demanded that Australia lift defence spending to 3.5% of GDP.
If Australia were to set a 3.5% of GDP target, three key questions would arise: why would it do so, how rapidly might it do this, and what would be the priorities for extra spending?
The 2024 National Defence Strategy says Australia faces its most challenging strategic circumstances since the Second World War, that previous assumptions about a ten-year warning time are no longer relevant, and that Australia’s security environment will continue to deteriorate. China’s behaviour since 2024, including its massive military exercises around Taiwan, its accelerating capacity growth in the space, air, maritime, land, cyber and information domains, its expanding Pacific cooperation with Russia, its collaboration with other authoritarians to learn and adapt to the lessons of the war in Ukraine, and its more overt assertiveness towards Australia demonstrate the need for higher defence spending.
At the same time, Australia’s ally, the United States, has demanded that Australia spend more on defence. The Americans, while a long way from drawing down their presence in the Pacific, are reportedly considering a shift to hemispheric defence in their 2026 National Defence Strategy.
Australia will therefore need to do much more for itself, and its neighbours, to deter aggression and fill the gaps of an American military stretched to its limit in Europe, the Middle East and the Pacific.
NATO this year endorsed new spending targets, including 3.5% of GDP on core defence capabilities and an additional 1.5% on infrastructure, civil defence, defence industry and national resilience.
This is a useful benchmark for Australia to adopt.
The current defence budget of $59 billion equates to 2.03% of GDP. A rise to 3.5% by 2035 would see the defence budget hit a figure of around $145 billion. But, given the Department of Defence’s track record of spending its budget in the past decade, major changes would be required to achieve this huge step-up in investment. As Australia’s foremost defence budget analyst, Marcus Hellyer, found in his analysis of the 2025 defence budget:
Defence hasn’t been able to hit its acquisition spending targets even before it attempts to deliver the more ambitious plan presented in the NDS…Defence hasn’t spent the money it had to in order to deliver planned military capabilities. Over the past decade, it’s fallen short by $26 billion.
Finally, what might the priorities for defence spending be?
The 2024 National Defence Strategy described the priorities: submarines; precision, long-range strike capability (including producing munitions in Australia); enhancing northern bases; growth in Defence people; new technologies for the ADF; and engagement in the Indo-Pacific. These priorities should be fully funded. Key priorities for new spending might include the following:
Australia will need to do much more for itself, and its neighbours, to deter aggression.
The mobilisation base: Mobilisation, the act of assembling and readying troops and supplies for war, is a national endeavour, and mobilisation planning is part of a national deterrent against Chinese aggression. More funding should be allocated to stockpiling munitions, fuels, medicines and strategic materials in the event Australia’s sea lanes become contested in a future conflict. Additional infrastructure for training an enlarged, mobilised ADF and basing larger numbers of foreign forces, and increasing manpower for reserve units and training institutions, would also be timely initiatives.
Speed up ADF workforce expansion: The 2024 Defence Workforce Plan describes the planned growth of the ADF to 2040. Additional funding might permit the acceleration of elements of the plan while also filling significant gaps in the existing ADF force structure, allowing the ADF to more quickly build the new kinds of units required to operate drones and counter-drone systems, as well as conduct the kinds of AI decision support and cognitive warfare operations required in the 21st century. This ADF expansion would need to be synchronised with mobilisation base initiatives.
The R&D and industrial base: Australia will need to be more creative in the kinds of capabilities it deploys over the next decade. The indigenous design and construction of aerial, maritime and ground drones is a compelling imperative. So too is development of solutions to missile and drone attacks against military capabilities and civil infrastructure (eg. how would Australia counter the kind of attacks undertaken by Ukraine in Operation Spiderweb?). While some technologies might be imported, Australia must rely more on its own innovation and production, funded from the defence budget
A national service scheme: Small, professional military institutions do not survive long in major conflicts. The ability to induct large numbers of additional people into the ADF quickly is therefore an imperative. A universal national service scheme would inculcate young Australians with a service ethos and an understanding that citizenship is about balancing individual and community imperatives.
Increasing defence spending would require cuts to domestic programs, increased government borrowing or a combination of both. Australia’s circumstances may not just be the most challenging since the Second World War, as the 2024 National Defence Strategy judged, but the worst in our history. It remains to be seen whether the current government and its next National Defence Strategy, due in 2026, are up to the challenge of communicating growing threats to the Australian people and the need for higher spending to meet those threats.
About the author
Mick Ryan
Mick Ryan is a Senior Fellow for Military Studies in the Lowy Institute’s International Security Program.
Topics
The most-pressing world events explained by Lowy Institute experts and global contributors, in your inbox, every Thursday.
You may unsubscribe from The Interpreter at any time. For information on our privacy practices and how to unsubscribe, see our Privacy Policy.
