On Tuesday the Lowy Institute released its incoming government brief, Judicious Ambition: International Policy Priorities for the New Australian Government. Here's an excerpt from the piece by Rory Medcalf and James Brown, who argue that in defence policy, the new government should do three things:

...work out what it wants the ADF to do; work out how to pay for it; and do some deep thinking about what the alliance relationship with the United States will demand of Australia in future.

To modernise the ADF, spending would need to increase substantially from its current historically low level of 1.59 per cent of GDP. More important than campaign promises by both parties to eventually return spending to 2 per cent of GDP on defence is the need to begin funding increases in the near-term, while planning for the next decade and beyond.

To reach these levels of funding, foreseeable budgetary circumstances would have to change, or the government would need to reallocate spending from other portfolios. This is a matter of political choice. The problem is that Australian governments typically prioritise defence spending only in response to crises, while what is really required is a sustained long-term increase in funding. In fact, a credible future military may cost more than 2 per cent of GDP.

But before the government can be sure how much military spending is the answer, it first needs to ask itself what it expects the ADF to do. Currently too much of Australia's thinking on military strategy is left to military planners without clear political direction about why, where and when government would want the option of using military force.

This silence is loudest when it comes to maritime strategy. The next-generation military that the last two defence white papers have envisaged for Australia is principally maritime, ranging from long-term plans for a fleet of 12 submarines to the current fitting-out of two huge amphibious assault ships that will embark specialised Army units. The fundamental questions about these capabilities are strategic: what do we want them to do, where, and why?

The promised new defence white paper needs to be a first principles review, rather than automatically defaulting to a modest adjustment based on inherited capability choices and politically pre-determined budget constraints. It should consider all options for the ADF, including those that might now seem radical and imaginative such as a much larger investment in unmanned systems. It should critically assess whether the basic structure of the ADF (essentially unchanged since the Menzies era) remains the right one. Its conclusions on force posture and capability should be publicly justified against other alternatives. It should incorporate thorough independent analysis, in a similar fashion to the US Quadrennial Defense Review.

Second, the government needs a long-term defence capability and budget plan committing the additional funds necessary to pay for a credible force structure. This would involve steadily increasing overall defence expenditure as well as providing for 3 per cent annual real growth in the defence budget just to sustain current military capability.

Without this kind of investment, the government would be forced to make some controversial and risky cuts to defence. These could involve, inter alia: reducing large numbers of senior positions in the Australian Defence Organisation or instituting an across-the-board pay freeze for a year or more; reducing the size of the Army's future armoured vehicle fleet, increasing risk to deployed troops; reducing the future submarine fleet; or cutting back the size of the future Joint Strike Fighter fleet and flying hours for pilots, a decision that would be out of step with regional trends.

Third, the new government should also do some deep thinking about Australia's alliance relationship with the United States. The alliance brings irreplaceable benefits to Australia including access to strategic deliberations, exceptional intelligence, advanced military technology and, most important of all, security guarantees. But change in Asia will re-shape the alliance. Australia's future alliance contributions will be more strategic than tactical, and will brush against direct strategic and economic interests. The new government should take the initiative in influencing the future shape of the alliance.

In this the government must comprehend two dynamics. The first is deepening military integration, involving the presence of US assets in Australia and the placement of senior Australian personnel in US commands. Here policy should be driven by political leadership, rather than emerging from the momentum of existing military connections and staff planning. The second dynamic relates to expectations of Australia as a force contributor as the United States rebalances its military and diplomatic posture to Asia, and looks for allies to share more of the regional burden.