By Andrew Carr, a Research Fellow at the Strategic & Defence Studies Centre, ANU, and Peter Dean, a Senior Research Fellow at the Strategic & Defence Studies Centre, ANU.

Crispin Rovere claims that both we and Ric Smith have missed the point: the purpose of setting a 2% of GDP defence spending target is alliance management, not strategy. The problem is that not only is it not strategy, its aim was never alliance management either. 

As we outlined in detail in our Security Challenges article, the GDP pledge by the Coalition started out as an eye-catching comparison between Australia's defence budget in 2012 and 1938. It was in the atmosphere of the changing regional environment and Labor's cuts and delays to Australia's defence budget in 2012-13 that the 1938 comparison was identified, and it soon captured the public debate. Tony Abbott first made the 1938 comparison on 10 May 2012 in his budget reply speech. Over the next several months the Coalition's use of the 1938 comparison slowly morphed from a way of measuring defence in GDP terms in order to attack the Gillard Government to a benchmarking of funding against GDP.

It was on 7 February 2013 that Senator David Johnston first made the 2% pledge and he explicitly stated the Coalition's inspiration was the track record of the Howard Government. The first instance we could find of the Coalition linking 2% of GDP to the NATO alliance standard was on 29 August 2013 when Johnston noted it (practically incidentally) in a debate at ASPI. This is some six months after the Coalition first identified a 2% pledge and fifteen months after Tony Abbott first raised GDP as a point of political comparison for defence spending.

Labor also came around to supporting a 2% target during this period, but it was clearly acting in response to the Coalition's arguments. In the lead up to the 2013 election neither Stephen Smith nor Julia Gillard invoked 'reassuring Washington' as the cause of their new-found support for higher defence spending. Alliance management and '2% of GDP' is a happy by-product rather than the driving force for this decision. 

This is not to say that alliance politics did not play a role.

During the 2012-13 period a number of prominent US commentators — including Admiral Samuel Locklear (Commander of US Pacific Command), Richard Armitage and Senator John McCain — commented on the decrease in Australian defence spending under Labor, though only Locklear made the NATO comparison (and he got it wrong, claiming it was 2.5% of GDP). But such comments are not new, nor were they promoted in any deliberate way by the Obama Administration to Australia. It's not clear why the Coalition and ALP in early 2013 would suddenly find themselves swayed to spend vastly more on behalf of the US alliance when the Australian Government has kept the alliance strong despite not spending 2% of GDP on defence for almost two decades.

The US (and others) has long recognised that percentage of GDP is just as bad a measure for alliance commitments as it is for setting defence policy. Back in the mid-1990s, the US recognised how crude a measure GDP really is. The 1995 US report on Allied Contributions to the Common Defense noted that 'there is no single, universally accepted formula for calculating each nation's "fair share" of the responsibility for cooperative security', and that while GDP 'is seen as a key indicator of economic well-being...national contributions assume many forms, requiring different measures and analyses.’  

The eventual adoption of the GDP figure as a short-hand assessment of measuring the 'evaluation of fair shares' in NATO revealed that the vast majority of NATO countries don't meet the standard. In 2013 only the UK, US, Estonia and Greece hit the 2% mark; the other 22 countries did not. In the Asia Pacific only one US ally, South Korea (2.6%), spent more than the NATO GDP standard. Japan's defence spending is constitutionally linked to 1% of GDP. According to the Australian Department of Defence's Economic Trends in the Asia Pacific 2014, the Philippines spends only 1.1% GDP on defence and Thailand just 1.5%.

But as we noted in our article, the GDP variable is highly misleading as a form of historical and regional comparison. Japan's 1% provides for the second-largest defence budget in the region (fifth largest in the world), Australia's 1.6 % of GDP accounts for 8% of regional defence spending, while Singapore has to devote 3.7% of its GDP to make up just 3.1% of the total regional spend on defence. GDP also does not take into account differences in the efficiency of forces, specific capabilities, force posture and structure, or the threats on which each country's military forces are focused. 

In the end, if Crispin was right and the Coalition was using its 2% target as an alliance management tool, then it has been unwise. As Mark Thompson has noted, to get to 2% of GDP in the next decade would take real growth rates of 5.3% per annum in defence spending; and even more than that if rumours about today's budget are to believed. As Paul Dibb and Richard-Brabin Smith have noted, 'there is no precedent for such sustained growth except in wartime or acute international crisis, and even then not for such an extended period.' With the current 'budget emergency' and short of a major international crisis or war, chances are that the Abbott Government won't get to 2% of GDP. So if it was an alliance management tool, it looks like the Government has set itself up for failure.

Photo by Flickr user Todd.