Winning on economics means losing on national security

Prime Minister Anthony Albanese needs to make a formal statement to the Australian Parliament addressing Australia’s place in a changing world and unambiguously asking the Australian public to pay a price to defend the nation’s basic freedoms.

The statement would need to outline the painstaking weighing up of economic and national security objectives that has occurred at the highest levels over successive Australian governments, including the current one.

The bottom-line judgement of all this deliberation must be made clear: the patterns that previously shaped international politics are fading away, and a sharper-edged reality is emerging. This is characterised by China’s growing military power and the more regular use of military force by those who have it to get what they want.

The trend towards the use of military force to achieve national objectives is set to persist. Australia must do more to provide for our own security and that of the region.

We can no longer win on economics and lose on national security without fundamentally changing who we are.

In stressing the need to place a higher priority on national security and defence, it should be acknowledged that decades of relative regional stability have allowed Canberra to engage far and wide economically with little need to confront others in politico-military terms, at least in a way that would seriously jeopardise those economic ties.

This dynamic was very good for Australia for a very long time. We could, for the most part, have our cake and eat it too. But that relative stability is gone, and so is our ability to compartmentalise economic and national security policy at little or no cost to either.

With stability now needing to be regained rather than maintained, the potential costs for Australia are much higher. These higher stakes justify a collective rethink of Australia’s conceptualisation of national security in a much more volatile global context. Steady as she goes will not cut it anymore.

The prime minister should emphasise that Canberra can’t do this thinking alone. Industry, states and territories, and the Australian people all need to play a part.

The statement would also need to touch on social cohesion concerns that already affect the way in which Australian politicians talk about how and why Australia’s external environment is changing.

Laying bare the full extent of the China challenge is not going to tear Australia apart or electorally ruin the political party of the leader who does so. Far from it.

Yes, Australia is home to diverse Chinese heritage communities, and the views and sensibilities of Chinese Australians matter greatly. But if Australia fails to collectively meet this challenge, many Chinese Australians will form part of a generation of Australians full of bitterness at how the nation’s freedom and agency were lost due to inaction and risk aversion.

That prospect should be concerning from a social cohesion perspective as well.

The prime minister should reiterate that people of Chinese heritage are not China itself, and that the Chinese Communist Party is its own separate entity. Terminology matters, and the prime minister saying so only helps to bring all Australians along on the necessary journey.

It is this openness to discussing sensitive subjects that forms the basis of thoughtful national resolve. Such an effort by an Australian prime minister to lead by example would not be lost on Washington and Beijing.

From the US perspective, the Trump administration’s views of Australia’s willingness to play a larger international security role in the face of China’s destabilising behaviour and coercion are not just (or even largely) shaped by Canberra’s defence spending plans, important though they are.

The Australian prime minister grasping the nettle on the public communication piece will resonate in Washington for what it says about Australia’s capacity to come together, tolerate risk and sustain a whole of society effort under pressure.

That perceived capacity to tolerate risk impacts significantly on Beijing’s assessments of Australian resolve as well.

As I’ve previously argued, we need more open acknowledgement of Australia’s strategic vulnerability to establish a national security discussion that is broadly free of partisanship and openly accepts the long and potentially painful road ahead for Australia and the region.

The strategic outlook is far from ideal, but that is where we are.

Ongoing debate about how to defend Australia’s interests is clearly important and needs to be encouraged but a willingness to pay a price to pay to maintain our most basic freedoms is the necessary baseline for such discussions.

Making sure that Australians are not blindsided by future events and are aware of the costs involved in maintaining agency and being who we are is not creating crisis but rather making sure that necessary future decisions are easier for Australians to comprehend.

This is political leadership of the highest order, and we need it now.

‘Catastrophic failures’: Defence budget squeeze hits navy maintenance

The Defence budget squeeze has starved the Royal Australian Navy of sustainment funding. We see this in the scandalous state of two of the Royal Australian Navy’s most significant ships, revealed in an Australian National Audit Office (ANAO) report on 27 June.

The two LHD-type amphibious assault ships were troubled from the start. HMAS Canberra was handed by BAE Systems to the navy in 2014 with an astounding 6,640 defects and deficiencies. HMAS Adelaide followed a year later with 2,240 defects.

Issues came to a head in 2022 and 2023, when both ships suffered complete power failures while on humanitarian missions assisting Tonga and Vanuatu.  The ANAO reported:

Navy representatives reflected on the adverse attention on the LHDs and noted that such ‘catastrophic failures’ have negative impacts on ‘Navy’s reputation with the community, the government and international partners (US, UK), and … their confidence in the Navy to operate nuclear submarines.

The ANAO report exposes a litany of problems in Defence’s management of the LHDs’ acquisition and subsequent operation. They include issues relating to procurement, sustainment, contract management, technical workforce availability, probity and ministerial accountability.

But a theme running through the report is the pressure of funding. The Navy Sustainment Review Board, chaired by the deputy chief of navy, reported in 2019 that sustainment was underfunded in 2019–20, despite deferral of scheduled docking and an increase in the sustainment budget in the previous year. There were further concerns about sustainment requirements running ahead of budget in 2021.

In September 2022, the Defence Committee, chaired by the secretary of defence, considered a call for an additional $400 million to be provided for managing the Defence estate and information and communications technology.

To meet this requirement, the committee decided that Air Force and Navy would contribute $140 million each and Army $120 million, funded from sustainment budgets. Meeting minutes stated that: Chief of Defence Intelligence highlighted that the brief did not outline what impact the reduced sustainment funding would have on the three Services as a result of this reallocation.

The committee agreed that the services should advise, through preparedness reporting, what effect these cuts would have. This never occurred, however the deputy chief of navy was advised two months later that the growing maintenance liability for the LHDs was likely to result in urgent defects affecting mission critical systems and that there was ‘between a 97 and 99 percent chance of a system failure’ within the first 90 days of deployment.

It is the kind of raid on defence budgets that has become commonplace. A new priority appears for government or Defence. Rather than delivering fresh funding, a commitment to the new priority is made and Defence is asked to find the money from unspecified sources within its existing budget.

The ANAO report on the LHDs shows how this works in practice. The commanding officers’ weekly capability reports recorded that ‘the ships were not mission capable (for example, due to the cannibalisation of parts to support the sister ship)’.

Budgeted funding of sustainment of the LHDs from 2023–24 to 2026–27 fell short of requirements by $128 million. The Defence Finance and Resourcing Committee was informed that sustainment funding pressures across the navy was increasing the risk to their capability, with planned maintenance and engineering changes being deferred.

The committee noted in December 2023 that sustainment costs had risen at 5.8 percent a year between 2018 and 2022, while funding was indexed at only 2.5 percent. It said an increase in sustainment funding of between $960 million and $1.2 billion was needed to maintain the navy’s current level of activity.

The failure of funding to match indexation has been a problem across Defence, particularly during 2022 to 2024 when inflation rose globally. But sustainment is particularly vulnerable as plant gets older and when scheduled maintenance is repeatedly deferred. The navy’s ageing Collins-class submarines and Anzac-class frigates face fast rising sustainment costs.

A minute from the chief of navy in June 2024 reported that the navy had been identifying funding pressures since 2021 and that spending on sustainment had exceeded the budget for the previous four years. It put the shortfall between 2023–24 and 2027–28 at $2.7 billion. In October 2024, an additional $300 million was provided.

The ANAO’s conclusion was that ‘the LHDs have fallen short of meeting availability targets since 2020–21 and sustainment-related deficiencies and workforce shortfalls have given rise to risks involving critical failures in the vessels, possible damage to navy’s reputation and concerns for the sustainability of the LHDs over the long-term.’

The ANAO exposure of the mismanagement of the two single most expensive defence assets highlights the consequence of treating the defence budget as a hollow log to be tapped at will.

There is no improvement in sight. This year’s Defence portfolio budget statement shows the navy’s sustainment funding remains absolutely flat, out to 2028–29.

Albanese’s China visit: views from ASPI analysts

Prime Minister Anthony Albanese will visit China from 12 to 18 July, his office said yesterday. He’ll meet President Xi Jinping and Premier Li Qiang.

Here are ASPI analysts’ views on the visit, what Albanese and Xi may discuss, and what the trip could mean for Australia.

Justin Bassi, executive director

China’s strategic ambition makes it impossible for any government to successfully separate a trading relationship with China from the security threat it poses.

While there is no doubt the so-called differences will be mentioned in private, any sign that they are secondary to an Australian priority of increased trade and ministerial meetings will result only in greater insecurity for Australia.

The Australian government should make clear that it prioritises security, sovereignty and human rights and, to that end, is willing to risk short-term economic and diplomatic engagement. If Beijing perceives that a government is prioritising money and meetings over security and sovereignty, the relationship will forever be unequal, unjust and unsafe.

This is all in the context of China breaching international law in the South China Sea; aggressively coercing Taiwan; conducting cyberattacks and interference operations, including against Australia; arbitrarily detaining Australian citizens such as Yang Hengjun; and enabling Russia’s war on Ukraine. If our economic and technological dependencies did not exist, we would be treating Beijing like Moscow, Tehran and Pyongyang. We should be doing everything possible to remove those dependencies.

Raji Pillai Rajagopalan, resident senior fellow

Albanese’ China visit is an important step towards the government’s goal of stabilised relations with Beijing. However, the government needs to be clear-eyed about the consequences of China’s behaviour for Canberra in terms of national security and the rules-based order in the Indo-Pacific and beyond.

Despite China’s problematic belligerent behaviour, a more stable relationship may bring a certain amount of predictability to our interactions with Beijing, as well as China’s regional behaviour. But we have been burnt on more than one occasion in the past few years, including by China’s economic and trade coercion. Hopefully we have learned the right lessons.

James Corera, director of the Cyber, Technology and Security Program

China’s track record of economic coercion, data exploitation and surveillance-technology exports should shape the basis for deep tech cooperation. That means that cooperation needs to proceed with eyes wide open. As ASPI has shown, Beijing views companies such as Huawei and Hikvision as tools of state influence.

Any deals on AI, electric vehicles or digital technologies should not be viewed through a trade-only lens. Cooperation shouldn’t come at the price of embedding authoritarian control into our infrastructure or ceding future digital sovereignty to Beijing. Some argue for assessing each technology or supplier individually, but that’s reactive, inconsistent and easy to exploit. Beijing doesn’t make those distinctions. It sees all its firms as potential tools of statecraft, and so should we.

In meetings with Xi, we should expect the prime minister to approach any discussions on technological cooperation with China prioritising Australia’s national interests and security. What this means in practice is that engagement should be approached with caution, ensuring that partnerships do not compromise our technological sovereignty or align us with systems that conflict with democratic values.

Courtney Stewart, deputy director of the Defence Strategy Program

While Australian domestic audiences may focus on trade normalisation with China, regional partners will be watching for signs that Australia could be a leader in upholding the rules-based global order. A second visit to China, without a visit to Washington or sustained signalling to our partnership network, risks reinforcing doubts about Australia’s collective security interests and resolve, when collective approaches are essential to countering coercive statecraft. In a contested Indo-Pacific, how Australia engages China matters to the region’s perception of collective unity, leadership and our future.

Nathan Attrill, China analyst

What Albanese says—or doesn’t say—about Taiwan will be heard far beyond Beijing. He can’t just talk trade and leave regional security off the table— especially when peace in the Taiwan Strait is central to a stable Indo-Pacific. The prime minister doesn’t need to provoke, but he does need to be principled.

Euan Graham, senior analyst

The awkward optics of the prime minister’s likely cordial meeting with Xi Jinping, contrasting with his failure to meet US President Donald Trump, won’t help to allay perceptions in Washington that Albanese is proving to be a fickle ally.

The other awkwardness for Australia is that this will be Albanese’s second visit to China as prime minister, but earlier hopes that Xi might visit Australia appear to have evaporated—suggesting this is not a relationship among equals from Beijing’s perspective.

Fergus Ryan, senior analyst

Beijing isn’t just pitching AI cooperation; it’s laying the groundwork for long-term digital dependency. Albanese can’t afford to walk into this meeting talking tech and trade without asking who holds the power behind the platforms. We’ve seen what happens when China ignores agreements it no longer finds useful. With AI, the stakes are far higher and far harder to unwind.

Don’t let Beijing’s AI charm offensive fool us

There’s one thing China’s ambassador to Australia got right in a call to add artificial intelligence to the China-Australia Free Trade Agreement (ChAFTA): ‘China has always viewed Australia and China-Australia relations from a strategic and long-term perspective.’ That long view should concern us deeply because Beijing now is using AI to entangle our economies in ways that could become strategically irreversible.

After three years of stabilisation, China is seeking to lock in gains that go far beyond tariffs and trade volumes. The proposal to expand ChAFTA to include AI and digital technologies should be seen for what it is: a move to create asymmetric dependence in one of the most strategically sensitive domains of the 21st century.

This pitch made by ambassador Xiao Qian in the AFR is audacious, not least because it invokes a framework that China has already shown it’s willing to ignore when convenient. While ChAFTA opened access to Chinese markets in 2015, a half-decade of coercive trade actions over wine, barley, lobster and timber revealed just how little protection the agreement offers when Canberra does something Beijing dislikes.

With traditional exports such as coal or beef, Australia eventually could find alternative markets under pressure. But with AI the stakes are higher and the dependencies harder to unwind. This isn’t just a matter of economic resilience; it’s about control over the digital infrastructure that is set to underpin everything from healthcare to national security.

AI systems already operate on surveillance-driven business models and they’re becoming increasingly intrusive. In just a few years of large language model deployment, we’ve seen users move from drafting emails to confiding private anxieties, uploading sensitive work files and using chatbots for mental health support. At an individual level, that’s a privacy concern. At the scale of a society, it’s a strategic vulnerability.

Even OpenAI chief executive Sam Altman has warned conversations with AI should be treated with the same confidentiality as speaking with a doctor or lawyer. He’s advocating for a new AI privilege in court as legal precedent threatens to force AI firms to retain user conversations indefinitely; a development that, Altman suggests, undermines every promise of user trust and privacy.

Now consider what this looks like in a Chinese context: under Chinese law, firms are compelled to co-operate with the state, giving the Chinese Communist Party not only capability but also a demonstrated intent to turn commercial tools into surveillance and influence systems. The idea of integrating Chinese AI firms bound by those rules more fully into Australia’s digital ecosystem should raise alarm bells in Canberra. If Beijing recognises an AI privilege at all, it’s a privilege reserved exclusively for the CCP, granting itself unfettered access to everyone else’s data.

The situation is about to get messier. Signal president Meredith Whittaker warns that the next generation of agentic AI—tools that act autonomously on the user’s behalf—will require near-total access to your personal data. These AI assistants need root access to your messages, calendar, location and more. You’re not just giving them information; you’re providing context, intent and authority. As Whittaker puts it, it’s like putting your brain in a jar while the AI examines your most sensitive information and transmits it to the cloud.

But this isn’t merely a data security issue. It’s also about ideology: AI systems trained and tuned inside China come embedded with content moderation aligned to CCP values. These systems increasingly are exported through training packages and tech transfers to governments worldwide. If the systems are allowed into Australia’s digital infrastructure, we risk letting a foreign authoritarian power shape how our next generation perceives the world.

The fundamental difference runs deeper than regulation. Democracies and autocracies don’t just regulate AI differently, they also conceptualise it differently.

Liberal systems typically employ risk-based frameworks focused on harm prevention. Beijing, by contrast, approaches AI through a lens of social stability and ideological compliance. This divergence isn’t merely philosophical; it manifests in the algorithm itself, shaping the outputs that Chinese systems allow, filter, recommend or censor.

To be clear: not all Chinese AI systems are equally risky. Applications such as cancer imaging or tutoring software are not equivalent to facial recognition or behavioural analytics. A blanket ban would be costly and unrealistic. What we need is targeted de-risking, not decoupling for its own sake.

But let’s not be naive. AI now sits at the intersection of national security, critical infrastructure and democratic resilience. If the past decade of ChAFTA has taught us anything, it’s this: when China treats international agreements as optional, Australia ends up dangerously exposed. We shouldn’t repeat this mistake, especially not in a domain as sensitive and irretrievable as AI.

The ambassador is right about one thing: this is about the long term. The question is whether we’ll learn from the past decade’s lessons or repeat them in the most consequential technology domain of our time.

This article was originally published in The Australian.

China’s ‘Taiwanese separatist’ hotline shows expanding lawfare strategy

Beijing’s coercion campaign against Taiwan is entering a more litigious phase. While military drills and cognitive warfare remain staples of its coercive playbook, China is now intensifying the systematic use of law to target Taiwan’s democracy. It has escalated efforts to criminalise Taiwan’s elected leaders, most notably with the establishment of a public informant hotline.

This shows the extent of Beijing’s evolving lawfare strategy—the use of legal tools and judicial theatre to achieve political ends. Lawfare is now a domain of coercion for Beijing against Taiwan—one where tactics are carried out through courtrooms and clauses. The aim is clear: to isolate, intimidate and delegitimise Taiwan’s leadership under the guise of legal process.

At the centre of this campaign is Beijing’s so-called ‘Taiwan independence diehards’ list. Unveiled in August 2024, the list initially named 10 Taiwanese politicians and public figures accused of supporting separatism. Two more were added in October. The original list included Vice President Hsiao Bi-khim, Minister of National Defense Wellington Koo, former foreign minister Joseph Wu, and senior lawmakers including former speaker of the Legislative Yuan, You Si-kun. They stand accused of promoting Taiwan’s international presence, deepening ties with like-minded democracies, and—most importantly, in Beijing’s eyes—rejecting the One China principle.

Taiwanese officials designated by China as ‘die-hard Taiwan independence separatists’ in 2024.

China has not stopped at naming names. To give its blacklist legal bite, Beijing announced that those on it would face lifetime criminal liability under Chinese law. New judicial guidelines also authorise Chinese courts to try these individuals in absentia. The penalties are potential life imprisonment or even the death sentence for alleged ‘splittist’ crimes. All are banned from entering China, Hong Kong and Macau. More troublingly, these designations could lay the groundwork to justify international arrest warrants or seizures of overseas assets.

To accompany this legal offensive, Beijing has launched something creepier still: a public tip-off hotline. Hosted on the websites of China’s Taiwan Affairs Office and Ministry of Public Security, the hotline invites anyone—on either side of the strait—to submit information about the ‘criminal acts’ of these so-called separatists. This hotline is a sign that Beijing is attempting to weaponise legal intimidation at scale. By encouraging the public to participate in identifying or denouncing Taiwan’s democratic leaders, China hopes to transform its legal campaign from a state effort into a societal one.

Since its launch last year, Beijing claims its tip-off hotline has received nearly 6,000 reports, with a sharp rise in activity from March to May. Chinese officials have touted this as public support for punishing separatists, but critics warn it encourages mass surveillance and state-sanctioned condemnations. This is a standard authoritarian regime tactic: mobilise the public to isolate political enemies, all while dressing it up as civic duty.

It also reinforces the central fiction in China’s approach to Taiwan—that its claim of sovereignty over Taiwan is settled, and that Chinese law naturally extends to Taiwan’s elected leaders and citizens. This is not just a narrative problem. The more that Beijing enshrines its legal claims in state policy, and the more it builds such enforcement tools as hotlines and sentencing guidelines, the harder it becomes to walk them back. What is now lawfare could become law enforcement in the event of conflict.

The blacklist serves to stigmatise and isolate Taiwan’s most prominent voices on the world stage. The hotline seeks to spread paranoia, suggesting that anyone—from activists to journalists—could be denounced as a diehard and targeted accordingly. Together, they aim to create a climate where self-censorship flourishes, diplomacy is chilled, and Taiwan’s leaders face reputational damage abroad and personal risk at home.

Yet the effects so far may not be what Beijing intended. In Taiwan, the move has sparked rare cross-party unity. Even the opposition Kuomintang and Taiwan People’s Party—usually more circumspect in their China policy—have criticised the blacklist and denounced Beijing’s attempt to criminalise democratic discourse. Government officials on the list have largely dismissed it as an authoritarian badge of honour.

Still, Taiwan’s domestic resilience shouldn’t blind us to the longer-term risks. Lawfare is rarely about immediate arrests; it is about slow erosion. Will younger politicians think twice before criticising Beijing? Will international platforms hesitate to host blacklisted Taiwanese officials? Will Taiwanese civil society actors start asking what comments or partnerships might someday be construed as ‘separatist crimes’? These are the questions Beijing hopes will fester.

What’s more, the global response has so far been uneven. The United States rightly condemned the move as escalatory. Japan and other regional democracies have voiced concern about tensions in the strait. But the broader international community must do more to push back against this creeping normalisation of extraterritorial authoritarian law. Democracies must reaffirm that Chinese law has no jurisdiction over Taiwan’s leaders, and that those who defend freedom at home will be supported abroad.

Pacific maritime policy could mend fragmentation, increase resilience

The Pacific’s patchwork of national policies and voluntary regional frameworks often falls short of delivering unified, timely and effective responses. A comprehensive and legally binding regional maritime policy could build a more cohesive and resilient maritime governance regime.

The Pacific is renowned for its unique cultures, rich biodiversity and strategic importance. The region faces several maritime challenges that affect its environmental sustainability, economic development and security. These include illegal, unreported and unregulated fishing; climate change; transnational crime; marine pollution and growing strain on resources.

Before the turn of the century, maritime governance in the Pacific was fragmented. Each country managed its ocean spaces independently with little regional coordination. In 1999, recognising the need for a unified approach, Pacific Islands Forum leaders initiated discussions that led to the 2002 endorsement of the Pacific Islands Regional Ocean Policy. The policy was a turning point in regional ocean governance, promoting sustainable ocean management, conservation and cooperation. However, its effectiveness depended on national-level commitment and institutional capacity, leading to varied levels of implementation across the region.

To further strengthen collective ocean efforts, the Framework for a Pacific Oceanscape was introduced in 2010. This initiative aimed to deepen the regional cooperation by emphasising climate resilience, marine resource management and integrated governance approaches. A significant outcome was the establishment of the Office of the Pacific Ocean Commissioner (OPOC), which helps coordinate regional ocean initiatives and amplify Pacific voices in global ocean dialogues.

Despite this progress, the region still lacks a formal, legally binding regional maritime policy. This leaves governance fragmented: many Pacific islands still address maritime threats in isolation, often lacking cohesive strategies to deal with issues such as transnational maritime crime, marine environmental degradation and limited ocean surveillance resources.

Regional leaders have introduced complementary frameworks such as the Pacific Regional One Maritime Framework to improve coordination. But without enforceable policies, frameworks largely function as guidance documents rather than regulatory instruments.

A regional maritime policy would help to coordinate cross-border efforts, align national strategies with regional goals and eliminate jurisdictional gaps that currently enable exploitation and non-compliance. It would set clear legal parameters, operational standards, and mechanisms for joint enforcement, surveillance and information sharing, including maritime domain awareness (MDA) tools. Strengthening state capacities through shared technical expertise, training programs and access to financial resources would also be more achievable under a common regulatory umbrella.

Pacific leaders can draw from the Caribbean Maritime Security Strategy to tailor proven mechanisms to suit Oceania’s unique cultural, ecological and geopolitical context. The Caribbean strategy highlights the importance of harmonised legal frameworks, coordinated enforcement and structured implementation, all of which would significantly strengthen the Pacific’s fragmented maritime governance. The Caribbean’s emphasis on MDA through shared surveillance and real-time data exchange is particularly relevant.

In the Pacific, progress towards enhanced MDA is already taking shape through initiatives such as the Pacific Fusion Centre’s pilot MDA analyst secondee program. Currently in its second year, the program aims to build analytical capacity, promote regional information sharing and support strategic maritime assessments. This initiative represents a practical step towards fulfilling the Boe Declaration’s concept of security that emphasises the need for strengthened regional coordination and resilience.

Moreover, a legally binding regional maritime policy would empower institutions such as the OPOC to move beyond coordination into active policy enforcement and monitoring to align with the Pacific Islands Regional Ocean Policy’s strategic goals, particularly those related to ocean governance, peaceful use of the ocean, and fostering partnerships and regional cooperation. A policy informed by these frameworks would unlock greater negotiating power by improving legitimacy and attract investment in maritime innovation, green shipping and ocean research.

A regional maritime policy could also formalise the inclusion of traditional knowledge systems and local governance practices in maritime planning. Recognising and institutionalising community-based stewardship would foster more inclusive, culturally grounded and effective ocean management outcomes.

Ultimately, a unified policy framework would transform the Pacific’s fragmented approach into a dynamic and collaborative maritime strategy, protecting ocean heritage, enhancing regional peace and security and paving the way for a sustainable blue economy. The responsibility for developing a regional maritime policy would rest with the Pacific Islands Forum, with OPOC playing a central coordinating role. OPOC is well positioned to lead the drafting, consultation and implementation process, in collaboration with the Secretariat of the Pacific Community and other Council of Regional Organisations in the Pacific agencies. The office could facilitate processes that with regional priorities and member state commitments. It would ensure that Pacific island countries are not only stewards of their waters but also strategic leaders in global ocean governance.

This article is part of ASPI’s Pacific Perspectives series, dedicated to championing the assessments and opinions of Pacific island security experts. All opinions presented, including any errors or omissions, are the sole responsibility of the author.

Think about defence spending like this: when risks rise, so do insurance premiums

Australia’s strategic risk has increased significantly, and the government needs to increase its defence spending to match it.

Defence spending is the premium for Australia’s defence insurance policy—it underwrites Australia’s protection from external threats, with Australian Defence Force deployments as the insurance policy payout. And like all insurance policies, higher risk means higher premiums.

Australia’s eminent defence experts—actuaries of strategic risk—agree that higher defence premiums are needed. These include former defence minister Kim Beazley, former home affairs secretary Michael Pezzullo, former defence secretary Dennis Richardson and Sir Angus Houston.

Since January, Australia’s strategic environment has deteriorated even further due to greater external threats and greater uncertainty.

A primary reason for this is China’s demonstration of its capability and intent to directly threaten Australia with military force. In February, it deployed naval warships, including a state-of-the-art guided missile cruiser, to execute live-fire exercises around 340 nautical miles from Sydney. This effectively demonstrated China’s capability to directly threaten Australia’s heavily populated capital cities. It also provided insight into how China plans to use its growing military might.

And of course, Chinese President Xi Jinping has directed his armed forces to be ready to invade Taiwan from 2027, which is also the date that a former US chief of naval operations has set for the US Navy to be prepared for such an event. If Taiwan falls to China, an emboldened China will then have much greater leverage over other targets, such as South Korea, Japan and maybe even Australia. Much of Southeast Asia would hardly be in a position to resist China.

In recent months, major shifts have occurred in the defence posture of our closest allies. The US has made the Indo-Pacific as its ‘priority theater’ of operations, pushing Europe to the rear. Britain has upped its defence spending—its insurance premium—while reducing its Indo-Pacific deployments and renewing its focus on NATO and Europe. British defence spending will increase to 2.5 percent of GDP by 2027, with the aim of spending 3 percent by 2034.

Now Australia also needs to up its defence insurance premiums to match the increased strategic risk.

In the 2023 Defence Strategic Review (DSR), the most comprehensive reassessment of Australia’s defence posture and capability since the 1986 Dibb Review, experts independently assessed the capabilities Australia would need to defend itself. In effect, they calculated what Australia’s defence insurance premium needs to be in order to meet the enormous strategic risk that the country is facing.

The problem is that the actions recommended in the DSR are not being funded adequately or executed quickly enough to match Australia’s increased strategic needs. Houston, one of the lead authors of the DSR, has since argued that the government needs to spend 3 percent of GDP on defence to ensure that Australia’s new nuclear-powered submarines strengthen the ADF rather than displace other critical ADF capabilities.

It is essential to pay the right defence insurance premiums years in advance of trouble, because a defence insurance policy pays out not in dollars but in the form of capability such as air defence batteries to protect capital cities from enemy missile attack. Building effective capabilities takes time.

Australia is facing greater external threats, greater uncertainty and thus greater strategic risk. It must acquire the capability to defend itself in a more independent and self-reliant way. Defence spending is Australia’s national insurance policy. The higher the risk, the higher the premiums.

ASPI Defence Conference: Putting the ‘national’ in national preparedness and resilience

The ASPI Defence Conference in June highlighted the critical importance of national preparedness and resilience to Australia’s national security.

Chief of the Defence Force, Admiral David Johnston, set the stage by emphasising a pivotal shift in Australia’s strategic landscape. Noting that Australia no longer benefits from a 10-year window of strategic warning, a security ‘comfort blanket’ the nation had previously relied upon, Johnston opined that Defence had to take ‘quite a fundamentally different approach in defence’.

This compressed warning period necessitates rapid adaptability, particularly given the accelerating pace of technological change. Johnston illustrated this with the example of uncrewed systems and counter-uncrewed system technology in Ukraine, where ‘the cycle is somewhere up to 12 weeks before tech investments become irrelevant because of counter strategy’. Such dynamics challenge traditional defence planning, which has often prioritised efficiency—such as just-in-time logistics and minimal warehousing—over resilience.

Johnston argued for a recalibrated approach where ‘effectiveness or resilience is the driving judgement’ rather than efficiency alone, acknowledging heightened interconnectedness and competitiveness. Moreover, he said that we need to rethink national preparedness as part of Australia’s deterrence strategy. This means considering Australia as the homeland from which combat operations would be launched, highlighting the strategic importance of infrastructure in northern Australia, supply chains, and Defence’s integration with industry and states and territories.

Chief executive of the Group of Eight universities, Vicki Thomson, brought a vital perspective from the academic sector, underscoring the role of education and research in national security and resilience. Reminding us that ‘education is the chief defence of a nation’, Thompson pointed out that the Group of Eight universities conducted ‘more than half of our defence-related research’. Highlighting a recent example of effective university mobilisation, Thomson recounted how Australian universities rapidly deployed resources during the Covid-19 vaccination effort and assembled interdisciplinary research teams. Thomson raised the ongoing challenge of maintaining preparedness and engagement outside of immediate emergencies, and the need to rebuild the trust in academic institutions that had eroded in recent years.

Deputy coordinator-general of the National Emergency Management Agency, Joe Buffone, emphasised that Australia is already engaged in a conflict—one with nature itself. He pointed to climate change driving more frequent and intense disasters, testing community and institutional resilience. Buffone argued that this presented an opportunity to build capabilities that can integrate seamlessly with Defence in higher-end contingencies.

Buffone highlighted Australia’s unique national coordination mechanism as a model for whole-of-society collaboration, where private sector, governments, and not-for-profits operate as equal partners in disaster response. He stressed the importance of engaging civil society, noting that normal societal activities had to continue during conflicts or crises. He also highlighted the power of community resilience, noting the crucial role of volunteers and spontaneous community action during crises. Admiral Johnston concurred, noting the importance of national resilience so that Defence is not the first responder to every crisis, a necessity given the potential for Defence forces to be engaged overseas during domestic emergencies.

All panellists converged on the critical role of communication and trust in building national resilience and preparedness. Admiral Johnston likened national security preparedness to bushfire survival planning—it should be about ‘understanding and confidence’ rather than fear. He emphasised the need for credible communicators to counter disinformation and maintain public trust. Thomson echoed this, cautioning against being ‘pulled to those very loud voices at the margins’. Buffone added that communication must include all segments of society, including vulnerable populations and those less able to access or interpret complex information.

National preparedness and resilience will require a coordinated whole-of-government and whole-of-nation approach that harnesses the strengths of all sectors of society, including Defence, academia, emergency management, industry, and civil society. As Admiral Johnston summarised, ‘it is why the national in “National Defence Strategy” is probably the most important word of the three in that title’. He went on to add that ‘the community that travels well is well-educated [and] has good access to credible information’. Just as Australia talks freely of homes needing a bushfire survival plan during the lead up to summer, national security has a similar communication requirement. Admiral Johnston highlighted that ‘we need credible communicators who are trusted by the community. We need to speak openly with the community. We need to counter disinformation because we should expect, particularly when we are talking about security, there will be additional layer of confusion or array of actors who will be seeking to undermine our message or to reconfigure it.’

The next cycle of strategy development and resource allocation—leading to the 2026 National Defence Strategy and Integrated Investment Program—offers the opportunity to bring national preparedness and resilience to the fore. As Admiral Johnston noted, ‘the opportunity we have with the biennial cycle now is to keep coming back and reviewing the strategy, looking at the opportunities or where the investments are required, putting the case to government to increase the defence expenditure where we believe it is needed to meet particular outcomes’. Through trust, communication, collaborative coordination, and investment in education and research, we can hope that the 2026 cycle can build the national preparedness and resilience needed to navigate an uncertain and strategically challenging future.

Qantas hack: limits to the government’s reach

A cyberattack on a Qantas call centre, revealed last week, put cyber risk back in the headlines, as did similar attacks on Medibank and Optus. But these are not one-off shocks: they represent a new normal. Australia cannot afford to treat these threats as episodic. They are persistent and demand constant, adaptive attention.

Given the scale of the threats that confront us, we should consider whether the government can respond on its own. A triage process may allow the government to focus on the threats that matter most and the consequences that cut deepest while enabling specific sectors and individuals to step up their cybersecurity efforts.

Today’s cyber campaigns are multi-vector and highly coordinated. They target critical infrastructure, siphon intellectual property and personal data, and aim to erode trust in democratic institutions. Campaigns have grown increasingly sophisticated, driven by AI, a fractured digital ecosystem and sharper geostrategic competition. Governments, businesses and individuals are all in the blast radius.

Over two decades, big data has shifted from being a prized asset—fuel for marketing and operational optimisation—to a growing liability. Privacy risks, regulatory pressures and escalating cyberattacks have changed the calculus. But high-quality, well-governed data is indispensable: it powers AI systems that drive automation, productivity and national advantage. This tension between opportunity and risk will only intensify.

The Qantas breach, discovered on 30 June, was the result of an attack on third-party software used by the airline’s Manila-based call centre. Hackers gained access to the personal information of as many as 6 million Qantas customers.

This incident shows us what’s at stake. Vast amounts of personal data are stored in interconnected commercial cloud platforms. These systems offer efficiency, but create high-consequence single points of failure.

Malicious states and cybercriminals exploit the seams: misconfigurations, stolen credentials and weak segmentation. They operate at scale, often using automation to accelerate reconnaissance and breach. Once inside, they extract data and assemble it into coherent profiles, ready for identity theft, fraud or foreign targeting.

As cloud adoption grows and AI is integrated across sectors, the attack surface will expand. As data becomes more valuable, it will become riskier to hold. We should expect breaches to become more frequent, more damaging and harder to contain.

Meanwhile, actors such as China and North Korea are intensifying their digital infiltration of critical infrastructure—communications, energy and transport networks—as part of broader strategies to apply pressure and limit freedom of action.

This forces a rethink of what qualifies as critical infrastructure beyond physical networks: cloud storage, data brokerage and software supply chains. These are tightly interwoven into the delivery of essential services and the machinery of government. A failure in one can cascade across many.

That expansion brings pressure. Governments, including Australia’s, are spending more on cyber defence. That should remain a priority. But if the government is expected to defend an ever-growing set of targets, is it also the right actor to respond to every commercial data breach?

Large-scale hacks of commercial providers are troubling, but not every breach is equal. This may require the government to triage its efforts, reserving direct intervention for systemic or high-impact incidents and setting firmer expectations for industry to lead in cases where the risk is more contained. If the government is to focus on defending the most critical systems, this will require others to step forward.

In an environment where personal data is the payload, individuals are no longer just passive victims; they are active participants in the broader system of defence. Small actions—such as using multi-factor authentication, adopting password managers and staying alert to phishing campaigns—won’t preclude large data hacks but can significantly reduce the effect of these breaches when they occur.

But behavioural change cannot be left to individuals alone. Platforms should be required to make secure settings the default, not the exception. Governments could consider mechanisms to reward secure behaviour through awareness campaigns, subsidies or even linking security practices to insurance or identity protections. This could reframe the problem of large data hacks, shifting the focus from defending to building resilience.

Government efforts have rightly focused on raising public awareness and improving the security baseline. Measures such as mandating minimum hygiene standards and requiring breach disclosure were necessary. But in this area, it may be time to view the government less as a coordinator and more as an enabler.

In this way, the government would maintain its focus on sharing threat intelligence, technical tools and policy incentives to harden defences, but invest further in scalable, sector-specific toolkits and expanding trusted threat intelligence exchanges. When needed, it would still act as enforcer, using regulatory powers (strengthened where necessary) to compel uplift where voluntary compliance fails.

This approach could help bridge the growing gap between attacker sophistication and defender readiness, without distracting the government from its core mission of protecting systems of national significance.

The aim is not to eliminate all breaches. Unfortunately, that’s no longer realistic. Instead, it’s to limit their consequences. That shift will be critical as the threat environment becomes more complex and challenging.

Capital gaps and complacency: investment imbalance undermines sovereignty

Australia’s ability to generate breakthrough ideas has never been in doubt. But despite increasing recognition of the need for national resilience, the country still lacks a capital system built to serve strategic purpose.

The failure to translate innovation into deployable capability is not just about procurement models or research policy; it is also about capital. Specifically, the absence of a coherent financial architecture designed to support dual-use and high-consequence technologies from early development through to scaled delivery. Innovation policy without investment infrastructure is just aspiration.

Today, Australia’s investment landscape is structurally misaligned with the needs of sovereign technology developers. Risk appetites are low. Procurement cycles are slow. Incentives reward familiarity rather than mission relevance. Venture capital remains skewed toward low-friction consumer software and resource plays. Government programs favour either basic research or late-stage commercialisation. The middle—where risk is highest and impact is greatest—remains a void.

For firms operating at the intersection of research, security and systems integration, this gap is existential. They are often too early for procurement, too technical for mainstream venture, and too strategically sensitive for foreign capital. With limited options, many are forced to look offshore. When that happens, we don’t just lose ownership; we lose eligibility. Technologies developed here often become ineligible for deployment in the very systems they were intended to secure.

Australia’s foreign investment screening regime provides some guardrails. But by the time an acquisition is flagged, the upstream incentives that pushed a company to exit have already done their damage. The deeper issue is that we have not built a capital stack calibrated for sovereign needs. Without it, the innovation system will continue to select for technologies that are easy to fund, not those that are hard to replace.

This is more than an economic issue; it is a structural vulnerability. AUKUS Pillar Two assumes each partner can deliver capability at speed. But delivery depends on more than science. Without the financial capacity to scale quantum systems, autonomous platforms, cyber tools, or advanced undersea technology, Australia’s contribution will remain confined to research. We will participate in design conversations but not in delivery.

Other countries treat capital as a strategic lever, not just an economic input. The United States co-invests public dollars alongside mission-aligned venture funds to actively shape innovation markets. Britain’s National Security Strategic Investment Fund blends state and private capital to accelerate priority capabilities. Across Europe, governments are increasingly viewing strategic capital as an enabler of both competitiveness and resilience. NATO’s €1 billion Innovation Fund, backed by 24 member nations, is designed to invest in dual-use technologies for defence and security—pooled sovereign capital deployed for collective security effect.

Australia has nothing comparable. The National Reconstruction Fund and Advanced Strategic Capabilities Accelerator (ASCA) are progress, but they do not operate as instruments of capital power. Their mandates are limited. Their signals are fragmented. Neither is designed to de-risk foundational technologies that the market won’t touch, nor to crowd in private capital to areas with national consequence but low near-term return.

Instead, we rely on pilot grants, university incubators and disconnected accelerator programs—all useful, but insufficient. There is no institutional centre of gravity that aligns capital flows with strategic priorities. No mechanism to protect promising capability from early exit, or to finance the kind of long-horizon bets that national resilience demands. Without dedicated financial infrastructure, Australia will continue to underwrite research while outsourcing value creation, control and deployment.

This vacuum is made worse by cultural inertia. Governments and investors remain cautious toward security-relevant technologies, often viewing them as slow, complex, or difficult to scale. The result is a capital cycle that disincentivises innovation with long-term strategic value. We talk about sovereignty, but we fund convenience.

If Australia is serious about building sovereign capability, we need a deliberate investment posture. That means creating public-private instruments, mission-aligned venture funds, co-investment models between agencies and trusted capital, and procurement settings that reward performance and resilience—not just scale or price.

Most importantly, we must recognise that capability is not just something we develop. It is something we finance. Without a system that supports, retains and scales our most strategic technologies, we will remain dependent not just on foreign components but on foreign capital to build them.

The next phase of innovation reform must confront this directly. Capital is not neutral. It shapes what gets built and where. Until it is aligned with the national interest, we will continue to export the value of our ideas and import the technologies on which our sovereignty depends.