The Abbott Government's repeated commitment to build Australia's defence spending back to 2% of GDP within a decade is welcome.
Our defence budget carries a heavy load. In the first instance it must of course provide for the defence of a whole continent and ensure that the responsibilities we have across more than 10% of the earth's surface can be met. More broadly, defence capability must underpin Australia's strategic weight in an ever more competitive region. And our spend must be of a size that assures our strategic ally, the US, that we are not simply bludging off the alliance, and that we do indeed take seriously our own rhetoric about 'self reliance'.
At its present level (about 1.6% of GDP), the budget is seriously challenged in meeting these objectives. And as Allan Hawke and I showed in the work we did on ADF posture in 2011, the challenge is not just about new-generation ships, submarines, aircraft and other equipment: there is now an additional need for catch-up spending in the unglamorous area of 'enablers' like bases, facilities and fuel supplies.
In short, a move back to at least 2% of GDP is necessary if Australia is to maintain its military standing in the region.
As Defence Minister Johnston has acknowledged, achieving this goal in the current budgetary circumstances will be a 'significant challenge', requiring as it will a real increase of more than 5% a year for each year of the decade. And for each year the figure is not met, the following years' infusions will have to be greater.
Yet it would be a distraction to regard 2% of GDP as a panacea, even if it could be achieved. [fold]
As serious guidance for defence spending, there is nothing 'scientific' about the figure. There is no body of work demonstrating that 2%, or any other figure, is the right level of spending in terms either of capability needs for defence forces generally or of proportion of a national economy.
To be sure, Australia spent more than 2% of GDP on defence consistently from 1939 to 1992, and almost reached the supposedly magic number in 2009. A number of significant countries also spend around that level (eg. China and France, according to SIPRI), and indeed in 2006 (before the GFC) NATO members committed themselves to work towards a 2% of GDP target. A number spend above 2%: the US, for instance, has spent around 4-5% over the last decade, and Singapore's ratio of defence spending to GDP, while declining from its past level of around 5%, remained at 3.6% in 2012. In the same year India, the UK, Vietnam, Russia, Taiwan and South Korea all spent more than 2% of GDP on defence, while a much larger number of countries spent significantly less than 2%, including Japan, Indonesia, Canada, Malaysia, New Zealand and most of Europe.
As an international comparator, percentage of GDP is thus interesting and, tracked over time and between countries, a useful indicator of how governments are reading their strategic circumstances. Yet comparisons based only on GDP embody the usual shortcomings of GDP as a measure of a nation's production or income.
Another, and in some ways more useful, indicator is available: namely, the percentage of government outlays or expenditure allocated to defence. This is a measure which is entirely in the hands of the government of the day, and has the additional advantage of enabling comparisons within government over time and between spending on particular sectors. In concentrating attention on the issue of where defence sits in the array of alternative uses of a government's limited spending capacity, it enables a sharper and more focused policy debate on the issue of a dollar spent on defence versus a dollar spent on social security (or even tax cuts).
On this measure, the performance of the Howard and Rudd/Gillard governments make for interesting reading. According to DIO figures, Defence's share of nominal government spending ranged from 5.3% in 2003 to 5.7% in 2007, the year the Howard era ended, and reached 5.8% in 2008 before declining to 4.9% by 2012.
The May budget will be the first test of the Abbott Government's commitment to Defence. The percentage of GDP measure is likely to be in play in public discussion, but as an accountability measure, the percentage of government outlays should be subject to no less scrutiny.
Photo by Flickr user Mark Kilmer.