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How will we pay for this big-spending Defence White Paper?

How will we pay for this big-spending Defence White Paper?
Published 4 Mar 2016   Follow @NickBisley

Among defence and security wonks the release of a new Defence White Paper always prompts Talmudic parsing of the text. Three such papers in the last seven years has proven especially rich pickings for those with such a disposition. Unsurprisingly, thus far the bulk of the reflection on the latest paper has been about the big ticket items: the large capital outlays on high-end kit, the strategic disposition of the country and the country's capacity to match strategic ends and means.

Although domestic politics has been part of the conversation (principally focused on the impact of the leadership change from Abbott to Turnbull), the broad ranging bipartisanship about the direction of strategic policy and the importance of a militarily capable Australia has clouded from view the fact that this Paper marks a significant step in domestic electoral messaging for the Liberal-National Coalition, one the Coalition itself may not have noticed.

At the risk of over-simplifying, since at least 2001, the Coalition's electoral success has rested on two pillars: economic probity and a robust approach to national security. The ALP is driven to distraction by the Coalition's ability to convince electors that it is a better economic manager than its opponent. That conservatives are almost hard-wired to fiscal rectitude and economic prudence has become an article of faith among their core supporters and indeed appears to be a widely held belief, according to pollsters. Equally, whether in relation to illegal boat arrivals, terrorism or more conventional defence and security matters, the Coalition has been remarkably effective at converting a complex security environment into popular support.

The Labor government elected in 2007 was acutely aware of its perceived weakness in both these key policy areas and did its utmost to reverse this perception. This was an important part of the 2009 Defence White Paper's commitment to a much more muscular posture and the big financial commitments to support 'Force 2030'.  Labor's misfortune was to be at the helm when the greatest crisis to have hit the global economy broke in 2008. [fold]

As a result of the GFC, and the decision to adopt large scale Keynesianism to see off recession, Labor had to walk away, economically speaking, from its 2009 ambitions. This opened the door that allowed Tony Abbott's Opposition to argue that Labor 'always cuts defence' and to pursue the same core electoral message of the successful Howard years.

Upon coming to office, the Abbott Government set about making good on its claims by embarking on a new White Paper which would right the purported wrongs of ALP stewardship of defence. The centrepiece was an almost blind faith in the need to ramp spending up to 2% of GDP, a figure noted by many as magical in its qualities and not in any substantive way tied to strategic policy. It was of course a strong symbolic commitment and, notwithstanding the change in leader from Abbott to Turnbull, has been retained in the latest Paper.

Sensibly the Paper attempts to decouple spending from GDP, but nonetheless their remains a substantial financial commitment at the centre of the Paper. It's a commitment that sits uneasily with the Coalition's core electoral message. To put it bluntly, the Turnbull Government will find it difficult to argue that it is both fiscally prudent and tough on defence. Much of the new Paper frames the spending in terms of its ability to foster local industry, contribute to innovation and revive Australian shipbuilding. One cannot escape the conclusion that the Coalition has tried to put the most positive economic spin on a policy approach that does not resonate with its economic policy ambitions.

The White Paper goes to great lengths to say that the costs of the projected program have been independently verified, and we have no reason to doubt this. But it is entirely silent on how all this spending will be paid for. Given ever-growing demands on social services and health costs, the eroding tax base and projections of a long period of slow global economic growth, this absence is  striking.

The problem that seems to have eluded Coalition strategists is that the Howard era formulation of a strong national security posture and fiscal prudence was only possible because of unique circumstances in Australian economic history. The GFC and the end of the commodity super cycle will impose difficult choices for the Coalition. How will the government be able to sell the requisite tax increases or expenditure savings necessary to pay for this Paper? It will either have to take the ALP's position and squib on its ambitions, make extraordinarily difficult political decisions or borrow like crazy and hope the military Keynesians are right.

Photo by Flickr user Images Money.

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