Tag Archive for: Defence Spending

Beyond the percentage: Australia’s defence debate needs a smarter metric

The global strategic landscape is undeniably shifting. Great power competition is reasserting itself, technological disruption is accelerating, and the familiar certainties of decades past are eroding. For a trading nation such as Australia, deeply connected to global flows and situated in a dynamic Indo-Pacific, understanding this new reality is paramount. Yet, in discussions about our preparedness, we too often default to a seemingly simple metric: defence spending as a percentage of GDP.

Such a singular figure is intuitively appealing and easily digestible for public discussion. Indeed, it can act as a powerful rallying cry to mobilise national effort and provide licence for the government to increase defence spending. But relying on this percentage is profoundly insufficient. It fundamentally misunderstands the complexities of modern defence and risks misdirecting precious resources. In a world where technological superiority and strategic agility increasingly trump sheer mass, a percentage point, while politically potent, tells us next to nothing about our actual capacity to deter aggression or defend our interests.

The latest figures from institutions including SIPRI underscore the global trend of increasing military expenditure. World military spending reached a staggering US$2.7 trillion in 2024, marking the steepest rise since the end of the Cold War and the 10th consecutive year of increases. This surge reflects heightened tensions and a widespread perception of increased insecurity. The corresponding rise in the ‘global military burden’—the share of global GDP allocated to military expenditure—provides a macro-level snapshot. However, using this figure as the primary benchmark for defence effort is deeply flawed for numerous reasons. It’s not just the amount, but the efficacy of that spending, that truly matters.

Firstly, the percentage of GDP is inherently distorted by the vast differences in national economies. A large, wealthy nation can spend a relatively small percentage of its GDP on defence and still command an enormous budget in absolute terms, capable of funding advanced research, large forces and global reach. A smaller economy, even dedicating a higher percentage of its GDP, may only achieve a fraction of that absolute spending, limiting the scale and sophistication of its capabilities. Australia, with a significant but not superpower-sized economy, faces this reality; comparing our GDP percentage directly with that of a much larger power overlooks the vast disparity in the actual funds available for investment.

Secondly, and crucially, the metric fails to account for significant differences in the cost of inputs between countries, particularly labour costs. In high-income nations such as Australia, personnel costs—salaries, training, healthcare and pensions—constitute a substantial portion of the defence budget. These costs are inherently higher per service member or civilian employee than in countries with lower prevailing wages. Consequently, two nations spending the same percentage of their GDP could have dramatically different amounts remaining for equipment acquisition, infrastructure, research or technology. A percentage point buys a different mix of capabilities depending on the wage environment.

Moreover, the character of modern conflict has fundamentally changed the strategic calculus. Today’s strategic advantage is increasingly derived from advanced technology, including cyber capabilities, artificial intelligence, sophisticated sensors and precision-guided munitions. These are expensive, high-impact capabilities. The Defence Digital Strategy and Roadmap 2024 acknowledges the need for ‘mission capable information and communication technology (ICT) able to fight and win in the digital age’. Investing in this digital backbone involves complex and costly programs that don’t fit neatly into traditional spending categories and whose effect isn’t measured by a simple GDP ratio.

The efficiency of defence spending is also completely opaque when considered only as a percentage of GDP. A nation spending a high percentage could be plagued by inefficient procurement, waste or poor strategic planning, resulting in minimal capability enhancement. What matters is the return on investment: the genuine, deployable capability generated per dollar. Without focusing on efficiency, increasing the percentage may just mean more money is misspent.

Different security threats and geographies also render a universal GDP percentage benchmark irrelevant. A nation facing primarily domestic issues has different needs than one caught in great-power competition. Geography, alliances and adversary capabilities are far more determinative than a simple economic ratio.

The metric also doesn’t differentiate effectively between various types of defence spending, including personnel, operations, procurement, and research and development. A nation focused on research and development might show a lower percentage of procurement spending today but be building significant future capability; another maintaining high operational tempo might show a higher percentage on operations. Both affect the GDP percentage differently but reflect distinct strategic priorities and timelines.

As Australia navigates a complex Indo-Pacific, the key is not a symbolic GDP percentage, but building the most effective, integrated force possible with available resources. This means rigorous strategic prioritisation: investing in capabilities directly relevant to deterring coercion in our region, including long-range strike, cyber resilience, northern infrastructure; and interoperability with partners. It demands relentless efficiency in procurement, ensuring funds translate rapidly into deployed capability. It requires sustained investment in the skilled workforce needed for complex systems, acknowledging that higher labour costs affect our spending power differently.

The real measure of a nation’s defence effort lies not in a simple economic ratio; it lies  in the strategic coherence, efficiency and tangible capability delivered by its investments. For Australia, moving beyond the GDP percentage trap and focusing on smart, targeted and effective spending is essential for safeguarding our security.

Australia’s defence budget before and after the 2009 white paper

Thanks to Michael Pezzullo’s Strategist article last month, we now know that Australia’s 2009 defence white paper foresaw our risky future and planned for it.

The white paper’s outlook for Chinese force development and the associated geopolitical risks has largely come to pass. It anticipated the world we now inhabit.

To face the changes, it envisaged Australian force expansion in five-yearly cycles that would extend into the 2030s and be informed by regular reappraisals of strategic risk. Had we stuck with the white paper’s plan, Pezzullo writes, 2025–26 defence spending would be $85 billion to $90 billion instead of the actual $59 billion. We would have an easily adjustable force structure and a level of expenditure that could pay for it.

Instead, this landmark policy was set aside when Kevin Rudd lost the prime ministership in 2010.

I can add to the story. In the years that followed the white paper, Australia and the United States thought diplomatic approaches could handle rising China. The US still wanted us to implement the 2009 white paper, but it was focused on making progress with its Strategic and Economic Dialogue with China. This occurred during my term as ambassador to the United States from 2010 to 2016.

Before we get to that, let’s go back to the 1987 defence white paper, which I delivered, which Paul Dibb wrote and which, as Pezzullo writes in another article, ‘established the self-reliant defence of Australia as the organising principle of our defence strategy.’

The 1987 and 2009 white papers both argued for a force structure that could achieve a self-reliant capability with our own resources in our area of direct military interest, covering the approaches to the continent. The explicit objective in 1987 was to be able to handle threats to Australia without imposing on the US greater burdens than the provision of equipment and intelligence, not an obligation to intervene. We wanted to be an easy ally.

The task in 1987 was much easier and far less urgent than what we must do now. China in defence terms was barely considered. In fact, we eschewed identifying any potential opponents, because the focus on the modest capabilities of our neighbours did not require naming a country.

By 2009 an opponent was identifiable and the outlook was much more severe. The force requirements for meeting it in a regional strategy were still achievable—if there was enough money and focus.

In 1987, we didn’t set resources as a fraction of GDP, though, if we had, it would have been a continuation the effort we’d maintained since the Vietnam War, 2.5 to 3.0 percent of GDP. Defence spending in 1987 was around 10 percent of the federal budget.

Resources looked adequate. For the navy, for example, there was some confidence we could buy eight submarines of what became the Collins class, replacing the six Oberon-class boats we had. When the Collins program was approved, it was for six submarines, but the submission to Cabinet noted if that number were achieved another two could be sought.

The surface fleet was more confidently projected at 17 ships, up from the 12 we had at the time. These were to be three destroyers (which were already in service), six first-tier frigates (four in service, one building and one planned) and eight new second-tier frigates of what became the Anzac class.

It was estimated that a fleet of 20 ships would be needed to cover the entrances through the archipelago north of Australia that led to our continental approaches. But it was hoped New Zealand would come up with four ships. (It eventually bought two Anzacs.) As the next decade-and-a-half proceeded, the two extra submarines were not built. The destroyers and first-tier frigates eventually paid off and were replaced with not nine ships, as expected, but three, the present Hobart-class destroyers. The surface fleet slowly declined.

The inflexion point was the 1994 white paper. We took a peace dividend from the end of the Cold War. This was despite our rejection in 1987 of the Cold War as the basis of spending. We argued in 1987 that the force structure we needed was based on regional, not global, strategic circumstances.

Moreover, the 1994 white paper changed the guidance for spending to a fraction of GDP, which it set at about 2 percent. With that much money the 1987 objective of controlling the approaches to the continent was still doable, but by 2009 the outlook demanded much more.

When the 2009 white paper was published, we were in fact below 2 percent of GDP, and the defence share of the budget was below the 10 percent we had had in 1987. Since 2009, the 1994 target has been reached only in the past two budgets. If we had reached Pezzullo’s figure of $85 billion to $90 billion for 2025–26, we would be around 3 percent.

When I was ambassador to Washington, the US constantly pressed me for Defence spending to reach 2 percent of GDP. US officials noted both the contents of the white paper and our reluctance to spend.

I used to point to an unusual position shared by the two countries’ national governments. Both had available about 25 percent of GDP to spend. With that, the US government did defence, social security, Medicare and Medicaid. Beyond those items, the federal government used funds for leveraging the states, local government and the private sector. There were no other programs on which the federal government was the major or exclusive provider.

But our 25 percent, I pointed out, covered pensions and defence and also universal health care, the universities, the 35 percent of students in private schools, a substantial subsidy for state schools and a range of social benefits (for example far more complete unemployment benefits than the US government provides). Today we could add the National Disability Insurance Scheme to the list.

A US defence secretary meeting Treasury and Congress for the upcoming year’s funds sees smiling faces. Here a defence minister sees no smiling faces.

It’s worth comparing US and Australian national-government spending of about 25 percent of GDP with the figures for European countries, including Britain, Germany, France and the Scandinavian countries, which all spend around 45 percent or more. The truth is we were nowhere near resourcing the 2009 plan.

Then there was the issue of focus. The 2009 white paper sought to prioritise our area of direct military interest in a way that no major defence policy statement had since the 1980s.

Our military had been and was heavily occupied—dramatically with East Timorese independence and then with Afghanistan and the Middle East. Our force structure needed only small adjustments for meeting these tasks. We performed as usual to very high standards and impressed our allies.

I remember a meeting in the Oval Office between prime minister Tony Abbott and president Barack Obama. Vice president Joe Biden and almost all Obama’s senior state, defence, trade and intelligence officials were present. They were ready to take us to task on fighting global warming, where they were not happy with our efforts.

But Obama began by asking Abbott for more general views on affairs.

‘Well,’ Abbott said, ‘we know that most foreign leaders who come to see you are unhappy about some aspect of US policy. We have no problems. Or there’s something they want. But we are happy with everything we get from you.’

‘But I want to tell you we think you are about to get into a lot of trouble in the Middle East [fighting ISIS in Iraq], and when you do we will be with you in numbers.’

The atmosphere deflated. How could you pressure a fellow who had said that?

I heard that, for months afterwards, whenever Obama was frustrated by allies, he’d say, ‘We need more Tony Abbotts.’

The prospective military tasks were expeditionary missions. In the first half of the 2010s, these were our focus, despite the clarity of outlook in the 2009 white paper. Except in promoting the solidity of the alliance, they had nothing to do with Australia being able to prevail in its own area of military interest. And the operations were readily achievable within the approximately 1.6 percent of GDP we were spending at the time on defence.

By 2009, China was emerging as the pacing power for the US in the Western Pacific. It was the main factor in Obama’s rebalancing of US forces to the Indo-Pacific, announced in 2011. This was the zone that Australia’s 2009 white paper addressed. China’s rise and the US pivot to Asia was the context in which the US pressured us to spend 2 percent of GDP on defence.

The Chinese forcefully objected to the 2009 white paper. Rudd rejected the complaints. There were domestic objections, too, some based on the importance of achieving satisfactory diplomatic dealings with China.

Also, with such a small fiscal pie to carve up, many people were concerned with the other pressures on the budget. Such pressures tend to be immediately politically salient. Except in a confrontation or when war threatens, defence tends not to be.

Later, the Obama administration was focussed on a process it had put in place in 2009, the Strategic and Economic Dialogue with China. To some extent this effort to deal with the China problem diplomatically took the administration’s attention away from pressuring us to implement the 2009 white paper.

Under the Sino-US dialogue, an annual meeting took place alternately in Beijing and Washington. It covered security, including the main points at issue between the two powers, such as military issues around Taiwan and US deployments in waters close to China. The nuclear ambition of North Korea was also a preponderant issue.

This dialogue with China, I reported back to the Australian government, was probably the most important diplomatic effort that engaged the US.

The 2009 white paper is worth reading again. It provided for very disciplined force-structure development on a timeline that would have met what Australia now confronts. With the reliability of the Trump administration in doubt, self-reliance in the framework of the alliance has become critical. We really do need to be able to deter hostile developments in our area of direct military interest.

We are headed towards spending 2.3 percent of GDP on defence, in large part to pay for nuclear submarines. I believe as time goes by we will move to 3 percent of GDP.

Weak tax revenue is a national security issue

Of the two things in life that are certain, defence and national security concern themselves with death but need to pay more attention to taxes.

Australia’s national security, defence and domestic policy obligations all need more money. Neither party is putting forward plans to increase revenue through tax reform. Labor put forward a budget dangling minor tax cuts to boost its election campaign, while the Coalition is now promising to increase Defence spending by $21 billion—without explaining where the money will come from.

Neither are connecting Australia’s budget to broader recognition of our deteriorating security environment, an increasingly unreliable US ally, and fracturing international trade. Without more tax revenue, we further run the risk of unsustainable national debt.

Australia can afford higher taxes to improve our security. In our ratio of tax to GDP—29.4 percent in 2022—Australia ranks 29th among 38 countries in the Organisation for Economic Cooperation and Development.

Securing our future will undoubtedly be expensive. Australia needs to improve infrastructure and national resilience, protect against and recover from climate disasters and invest in economic projects, including the multi-billion-dollar Future Made in Australia scheme. Defence and the Department of Foreign Affairs and Trade need more funds but are stuck making cuts and reallocating existing funding. Our intelligence agencies will continue to need investment to meet growing strategic uncertainty and a myriad of international and domestic challenges.

At the same time, the government cannot ignore important domestic policy areas. The public, and experts, expect more spending on education, health and industry.

We cannot do any of this, let alone all of it, without more spending. While various strategies and government documents recognise our security challenges, we are yet to translate this recognition into comprehensive budget and tax reform.

Lowering taxes is an Australian political norm, particularly around elections, and it comes at significant cost to the budget. The stage-three tax cuts passed in 2024 cost the budget an estimated $69.6 billion over the forward estimates (to 2026-27) and $308.7 billion over the medium term (to 2033-34). This is more than $50 billion higher than originally estimated.

Labor’s new cuts, announced in March, are expected to cost a further $17.1 billion over the forward estimates (to 2028-29).

So, at a time when Australia is expecting heightened risk of crises—and crises are notoriously expensive—we are cutting billions out of the budget. In the event of conflict or significant economic coercion, Australia will need to spend. In World War II, for example, Australia tripled income taxes while also borrowing massively.

Our defence, foreign and development policy and national security strategies are all designed to prevent, or prepare for, crises. With appropriate funding, we could achieve these objectives, saving lives and money.

While borrowing can help, it cannot be our only funding solution. Net federal debt is historically high at 33.6 percent of GDP. While low compared to some nations, such as the United States and China, interest on that debt is already squeezing the budget. Projections from the 2025–26 budget already have interest payments as the fastest growing annual payment over the medium term (see chart below). Current estimates show net federal debt peaking at 37.0 percent of GDP in June 2030.

Source: Australian Federal Budget 2025-26

As Australia saw with COVID-19, crises require significant spending which will likely deepen the national debt. The unsustainable US federal debt, now at 123 percent of GDP, was notably driven by war, the 2008 global financial crisis, and a lack of political will to raise taxes.

Australia can expect to face a range of possible crises—including climate or military crises—in the future. We can bolster national security while balancing the budget in peacetime if we increase taxes. Paying for security through debt should be the emergency measure, and we’re not in an emergency yet.

Higher government income is therefore a national economic security issue. While economic security is broadly underdiscussed in Australia, the 2024 Independent Intelligence Review surprisingly recommended a Treasury-led national economic security review. This review must consider tax reform on national security grounds.

In 2025-26, the government will collect an estimated $676 billion in tax revenue, of which 51 percent will be personal income tax and 20 percent company tax. Progressive tax reforms on Australia’s highest earners, capital gains, or superannuation contributions above high thresholds could add significant amounts to the budget, enabling us to quickly raise defence and security spending without drawing from elsewhere.

Large reform will be challenging, but necessary. Governments will need to carefully navigate pain points—notably more personal income tax—and focus on reforms that won’t affect most Australians, likely requiring a focus on wealthier demographics. Australia’s most significant unclaimed tax revenues are on superannuation contributions and earnings, valued at $49 billion, followed by the exemption of main residences from capital gains tax, estimated at $48 billion in 2023-24. The value of both has grown significantly faster than the overall economy in the last few decades.

No politician wants to introduce taxes, but it is becoming a national security necessity. Spending to meet security challenges and maintain government services—and standard of living—is not optional. There is room to reform taxes and shore up our prosperity, resilience and security, while avoiding burdening younger generations with massive national debt in the process.

This is not the time for increasing Indonesia’s defence spending

Indonesia could do without an increase in military spending that the Ministry of Defence is proposing. The country has more pressing issues, including public welfare and human rights. Moreover, the transparency and accountability to justify such a plan is also questionable.

The ministry proposed in January that defence spending should rise gradually to 1.5 percent of GDP by some unstated target year. The ratio has been 0.6 to 0.7 percent of GDP for the past decade, lower than that of many Southeast Asian neighbours and Indo-Pacific countries, including Japan, South Korea and India.

An increase to 1.5 percent would be subject to parliamentary approval. It could indeed significantly enhance Indonesia’s defence capabilities—for example, by modernising equipment, lifting research and development and improving welfare for military personnel.

With the extra money, Indonesia could prioritise key acquisitions such as radars, early warning aircraft, fighter jets, submarines and rescue submarines. The government could give military personnel higher performance allowances—bonuses that apply across the state sector and constitute large portions of employees’ remuneration. The armed forces’ allowance of 70 percent is low. Increasing it would help address longstanding concerns about the adequacy of military compensation.

Furthermore, Indonesia must enhance its defence capabilities given its strategic position overseeing four choke points, and concerns over airspace intrusions and maritime law violations. The current unstable geopolitical situation, especially in the South China Sea and around Taiwan, demands stronger defence.

However, such an increase must be handled transparently, accountably and with meaningful public participation, especially with 306 trillion rupiah (roughly A$35 billion) in budget cuts in other sectors. Indonesia has the democratic tools for proper oversight, but in practice the government and parliament do not attend closely to how the armed forces spend their money.

Moreover, this is the wrong time economically for increasing defence spending. The country is close to deflation and the danger to economic growth that it would bring. Prabowo is meanwhile slashing budgets for essential government activities such as healthcare, elementary and higher education, public works and infrastructure projects. Those are better places to spend any extra money that could be allocated to defence.

It isn’t at all clear that more military funding would be well spent. Indonesia lacks clear direction in defence policy. The government has yet to present a concrete plan following the failure of the Minimum Essential Force program, which concluded in 2024 with only 65 percent of the target assessed as achieved. Prabowo’s replacement program is Optimum Essential Force, but no concrete details have been announced. The public is increasingly sceptical of the administration’s ability to define a coherent defence policy.

The Indonesian Defence White Paper is outdated, being last revised in 2015. The global and regional security environment has evolved dramatically, and neighbouring countries—such as Vietnam, Malaysia and Cambodia—have updated their defence policies in that time. Cambodia, for instance, released its National Defence Policy in 2022 and its first Defence Strategic Update at the end of 2024, outlining Cambodia’s priorities such as border security, international peacekeeping and long-term reforms for its armed forces. In contrast, Indonesia appears to be lagging in addressing evolving security threats.

Indonesians have even more reason to be sceptical of rises in the defence budget as controversial military policy initiatives spark concerns about potential threats to democracy and seem to impede advancement of security sector reforms and professionalisation of the military. These include deeper influence down to the level of villages, helping with what should be a purely civil program to provide free nutritious meals, and assigning high-ranking active military officers to civilian roles. Revisions to the law governing the armed forces have added the growing suspicion about the military’s increasing role in civilian governance.

Altogether, this does not look like a good time to plan for more than doubling the armed force’s share of the national economy.

It’s (past) time to get serious about funding Australia’s defence and security

In the week of Australia’s 3 May election, ASPI will release Agenda for Change 2025: preparedness and resilience in an uncertain world, a report promoting public debate and understanding on issues of strategic importance to Australia. This is an article from the report.

The National Defence Strategy (NDS), released in April 2024, gave urgent warning that Australia’s strategic circumstances were rapidly deteriorating. It noted that the 2023 Defence Strategic Review (DSR) had warned that ‘Australia faced its most challenging strategic environment since the Second World War’, and that events had worsened since the DSR’s release only 12 months before.

In the 12 months since the NDS hit the streets, the geostrategic environment—and the strategic risks that Australia faces—have not just continued that trajectory, but have exponentially deteriorated, to the point that Australia now faces a global and regional security environment that bears little relationship to the foundational assumptions that the NDS is based on: a rules-based global order and an open, stable and prosperous Indo-Pacific.

China’s growing assertiveness, malicious cyber targeting of political and military systems and civilian ICT networks  and adversarial mercantilism  have ratcheted up to new levels, demonstrated most vividly by the recent circumnavigation of Australia by PLA Navy Task Group 107  and the no-notice live-fire drills conducted in the Tasman Sea. Beijing has warned that more such visits will occur,  and Australian naval experts argue that the Royal Australian Navy is ill-equipped for such an eventuality, with only ‘16 battle-force vessels—its smallest and oldest in decades’.

Russia’s war on Ukraine continues to eat away at the longstanding verities of the international security framework that has underpinned global stability and security in the post–World War II environment. Russia’s continued flouting of the Geneva Conventions,  attacking critical infrastructure targets in Ukraine,  including nuclear energy plants,  kidnapping and forcing of Russian citizenship upon Ukrainian citizens,  threats of nuclear war  and increasing use of paid or politically motivated agents to undertake sabotage attacks  throughout Europe have resulted in an increasing realisation that European security architecture and military capability spending are no longer appropriate and that a more general war in Europe, and potentially globally, is becoming more likely.  Prime Minister Albanese has recently ‘opened the door to sending Australian troops to Ukraine’, but military experts suggest that ‘the current operational capability of the defence forces is looking pretty thin.’

And perhaps most consequentially, the new Trump administration has flagged a more selective approach towards traditional alliance relationships, demanding of its allies that they align with US policy and intents and invest in much higher levels of defence spending  in order to justify continued US engagement and support. Absent such demonstrations, it’s becoming clear that a stultifying effect will encompass the relationship.  In speaking of Australia, Elbridge Colby, the President’s nominee for Under Secretary of Defense for Policy, declared that ‘The main concern the United States should press with Australia, consistent with the President’s approach, is higher defense spending. Australia is currently well below the 3% level advocated for NATO by NATO Secretary General Rutte, and Canberra faces a far more powerful challenge in China.’

And as Mike Burgess AM, Director-General of the Australian Security Intelligence Organisation, noted in his 2025 threat assessment:

Australia has entered a period of strategic surprise and security fragility. Over the next five years, a complex, challenging and changing security environment will become more dynamic, more diverse and more degraded. Many of the foundations that have underpinned Australia’s security, prosperity and democracy are being tested: social cohesion is eroding, trust in institutions is declining, intolerance is growing, even truth itself is being undermined by conspiracy, mis- and disinformation … Australia is facing multifaceted, merging, intersecting, concurrent and cascading threats. Major geopolitical, economic, social and security challenges of the 1930s, 70s and 90s have converged.

In the DSR, Sir Angus Houston AK AFC and Stephen Smith highlighted that ‘Defence planning is about managing strategic risk. Defence spending must be a reflection of the strategic circumstances our nation faces.’  They recommended that:

Defence funding should be increased to meet our strategic circumstances. Lower-priority projects and programs should be stopped or suspended to free essential resources which can be allocated to projects and programs that align with the priorities in the Review. Funding should be released through the rebuild and reprioritisation of the Integrated Investment Program (IIP) and reinvested into priority Defence projects, programs and activities consistent with the Review.

Against the complex,  interconnected  and existential  threat environment Australia now faces, the next government must seriously consider whether the funding commitments, set out in the NDS and the Defence Portfolio Budget Statements meet the threshold test of the DSR that spending reflect the strategic circumstances Australia now faces. And, noting that the NDS quite clearly states that Australia no longer enjoys the benefit of a 10-year window of strategic warning time for conflict, and that the ADF is not fully fit for purpose, whether we have the appropriate balance between investing in the future (with initial operating capabilities for many of the current IIP projects coming due in the 2030s through 2050s) or preparing for the present (investing in the readiness and sustainability of current units and platforms, and undertaking rapid acquisition of improvements to the force-in-being).

In ASPI’s The cost of Defence: ASPI defence budget brief 2024–2025, we suggested that the answer to those two fundamental questions was ‘No’. Justin Bassi, ASPI’s Executive Director, categorically stated that:

Australia needs to spend more on defence—and it needs to do so immediately. The strategic imperative has been firmly established in the government’s own major defence documents. The Albanese government and the Coalition opposition agree that we are in the gravest geopolitical period in generations, and this is only going to intensify … the rhetorical urgency is not being matched by action in the form of defence investment … This year’s budget priorities are not directed towards strengthening the Australian Defence Force’s ability to fight in the next decade.

In the 2024–25 Budget, the government noted that Defence funding as a proportion of GDP would reach 2.3% by 2033–34.  The majority of that funding is backloaded to the period beyond the forward estimates (out to 2027–28). In essence, Defence is receiving no additional funding for the next three years, which, as The cost of Defence noted, is a holding pattern that leaves us critically exposed to events in the near term and results in preparedness and readiness levels well below any real ability to hold an adversary at risk for a meaningful period.  The RAN has mothballed major and minor combatants to meet urgent personnel and funding challenges in other parts of the fleet, including the two Supply-class fleet replenishment oilers being out of service for an extended period (the need for a supply ship was clearly demonstrated by the PLA Navy’s recent circumnavigation, which couldn’t be followed continuously by the RAN). Meanwhile, the Australian Army is downsizing its armoured combat vehicle aspirations, and RAAF flying hours have contracted.

Raising Defence spending to at least 3% of GDP is a strategic necessity.  Doing so will help to assuage US concerns regarding our continued commitment to the alliance and help meet the Trump administration’s priorities, as the previous Chief of the Defence Force and DSR author, Sir Angus Houston AK AFC, stated, ‘[President Trump] might say increase our GDP defence spend to 3.0 per cent, but I don’t think that is a bad thing.’  More importantly, it is necessary for Australian security to deliver the necessary cash injection and funding certainty for Defence (and defence industry) to focus on the preparedness of the force-in-being, as the previous Secretary of Defence, Dennis Richardson AC, noted: ‘we must raise to 3 per cent [of GDP defence spending] to do this, because the only other way to do this is to cannibalise our other Australian Defence Force capabilities.’

The NDS states that the new strategy of denial at the heart of Australia’s national defence focuses on ‘deterring a potential adversary from taking actions that would be inimical to Australia’s interests and regional stability’.  In the current geostrategic environment, no potential adversary is going to be deterred by a paper ADF that won’t exist until well into the 2040s and 2050s. Moreover, no potential adversary will be deterred by a ‘business hours’ ADF that does not maintain credible capability for 24/7 defence of its own territory and exclusive economic zones, including in the Southern Ocean and Antarctica. A substantial investment in the preparedness—readiness and sustainability—of the ADF is mandatory if we intend to deter the actions of aggressive nations, which can rehearse their kinetic and non-kinetic offences in Australia’s own backyard and in our ICT networks. The immediate security of Australia and the safety of our citizens, including those travelling in civilian airliners across the Tasman or into Asia, necessitate that we can undertake real-time surveillance and reconnaissance and, if necessary, active, defensive and offensive counterattack measures.

Moreover, we must have not just the ability to ‘change a potential adversary’s risk assessment and therefore decision-making calculus’  by imposing cost on that adversary, but also the ability to absorb the costs of successful adversary actions aimed at Australia, whether they be economic, psychological, political or military. National preparedness—a strategic and systematic process to plan, coordinate and integrate resources and efforts across all sectors of government, the economy and society to ensure that the nation is ready to manage potential disasters, emergencies or national-security threats—does not yet exist in Australia. While the NDS makes a strong argument for the need for ‘a coordinated, whole-of-government and whole-of-nation approach [that] harnesses all arms of Australia’s national power to establish a holistic, integrated and focused approach to protect our security and advance our interests’,  the Budget doesn’t allocate any resources to make Australia’s national preparedness and resilience real.

It’s long been axiomatic in Defence rhetoric, but not in Defence’s reality, that Defence must ‘structure for war and adapt for peace’.  A decade ago, David Peever and his First Principles Review team flagged that Defence was not fit for purpose and proposed an ambitious agenda to reform Defence’s decision-making and processes to deliver on the outcomes required of it.  All of the 76 recommendations of the review were ticked off by Defence, and yet, a decade later, the DSR again found that Defence was not fit for purpose. The NDS devotes a chapter to the ‘reform agenda’,  and yet strategic and acquisition reform still eludes Defence. If Defence’s spending does rise to 3% of GDP, it will be essential that we have a Defence Department that’s able to spend that money efficiently and create substantially more combat power per dollar invested than the current organisation can deliver. Recent Senate Estimates testimony,  recruitment woes  and acquisition challenges  highlight that there’s much work still to be done to structure Defence for the uncertainties of our present, let alone the potential wars of our future.

We recommend to the next government that it undertakes four immediate actions following the next federal election.

—In the 2025–26 Budget, commit to increased funding of the defence budget to bring Australian defence funding to 3% of GDP by no later than 2026–27 and sustain that level over the next decade.

—Direct Defence to review the planned update to the NDS and the IIP, scheduled for release in 2026, with the aim of prioritising the readiness and sustainability of the current force-in-being, necessary for the 24/7 defence of the Australian theatre and our region.

—In the 2025–26 Budget, commit to funding national preparedness and national resilience measures across government, the economy and society that will ensure Australia is ready to manage potential national-security crises.

—Deliver, within three months of the election, with full implementation over the following 12 months, a public reform plan, as laid out in the DSR, to streamline procurement processes, enhance project management, reduce redundant spending and strengthen domestic defence manufacturing.

3 percent of GDP for defence is no stretch. We did 2.9 percent in the Cold War

Australia has plenty of room to spend more on defence. History shows that 2.9 percent of GDP is no great burden in ordinary times, so pushing spending to 3.0 percent in dangerous times is very achievable.

Budget watchers are quick to cite difficulties amid current pressures on revenue and expenditure. But historical data is more revealing than a nearsighted view down in the weeds of fiscal policy.

Australia just isn’t trying. For all the talk of deteriorating strategic circumstances, the defence share of GDP has been flat for half a decade, wandering between 1.9 and 2.0 percent.

The issues holding Australia back from spending more on its defence are largely political rather than economic.

The 2020 Strategic Defence Update identified an increase in geopolitical risks in our region and noted the possibility of Australia becoming involved in a major conflict without the formerly assumed 10-year warning time. As a result, successive Australian governments have made announcements about lifting defence spending through initiatives such as equipping the army with long-range missiles, expansion of the navy’s surface fleet and, most dramatically, AUKUS.

However, in terms of GDP, the proportion of total economic output that goes into current defence spending per year has not increased in recent years. It continues to hover around 1.9–2.0 percent of GDP. As shown in the chart below, Australia’s average defence spending as proportion of GDP since the Cold War ended has been 1.9 percent.

On 5 March, Elbridge Colby, head of policy at the US Department of Defense, called for Australia to spend 3.0 percent of GDP on defence. Various Australian defence and security figures, including former chief of the Australian Defence Force Angus Houston and former secretary of home affairs Mike Pezzullo have similarly called for defence spending to be lifted to 3.0 percent of GDP.

Economics writer David Uren recently explained that to lift defence spending to 3.0 percent, Australia would have to either take on additional debt, increase taxes or reallocate money from elsewhere in the government budget. All three of these options would be politically difficult.

While this is a point well made, the details of fiscal policy that usually absorb us become less useful for assessing the defence budget as we move into more unstable and dangerous times. History shows us that sustaining 3.0 percent of GDP spending over a period of time is quite achievable for Australia. The most recent example of this is the Cold War, particularly up until the 1970s.

Sources: SIPRI Military Expenditure Index and Australian government projections

As the chart shows, Australia could sustain average defence spending of 2.9 percent of GDP through the Cold War over 40 years from 1950 to 1991. (The Stockholm International Peace Research Institute dataset which the chart is based on only goes back as far as 1950, not quite the beginning of the Cold War.) This is very close to the 3.0 percent currently being advocated for. During the Cold War, Australia responded to the threat of communism expanding into South-East Asia by maintaining significant forces and often deploying these into various conflicts across our region.

This contrasts with the post-Cold War period from 1992 until now, where defence spending has averaged 1.9 percent of GDP. After the collapse of the Soviet Union, the United States and its Western allies quickly reduced military spending, enjoying a peace dividend due to reduced global geopolitical tensions. From 1986 to 1996, Australian defence spending dropped 0.6 of a percentage point from 2.5 percent to 1.9 percent of GDP. Over the next few years, defence spending remained consistently below 2.0 percent, even during the years of Australia’s involvement in the global war on terror and peacekeeping operations in our region. In 2013, defence spending reached its lowest share of GDP since 1938, just 1.6 percent of GDP.

The years since have seen great increase in geopolitical tensions, both in our region and globally. Yet defence spending as a proportion of GDP has increased only moderately and slowly since 2013, sitting at 2.0 percent in 2025. Under the government’s projections, spending will continue to slowly increase to 2.3 percent by 2033–34.

This is too little, too late. Under current budget restrictions, new defence announcements largely rely on cannibalising existing funding from sources declared to be of lesser priority, rather than on new funding. A recent example of this is the Redback Infantry Fighting Vehicle, which was cut from 450 vehicles to 129 vehicles, at a much higher per-unit cost.

The proportion of GDP should only be used as a rough guide towards spending on defence. What the money is spent on is important. However, the risk to Australian national security was no greater in the Cold War than it is now, and was arguably much lower. The fact that Australia for several decades maintained defence spending at higher levels than now shows that the country is capable of doing the same again.

Australia’s international spending reveals uneven ambition

How Australia funds development and defence was front of mind before Tuesday’s federal budget. US President Donald Trump’s demands for a dramatic lift in allied military spending and brutal cuts to US foreign assistance meant that a discussion was unavoidable. The difficult politics of increasing defence spending in Europe continues, and the British government has cut aid to pay for a rise in its defence budget.

This is an important discussion, but we ought to be considering investment in Australia’s strategic posture as a whole.

One way to measure that is the overall level of international spending. Taken together, defence, foreign affairs and trade, aid, the intelligence community and international policing total $72.05 billion for 2025–26, which is about 9 percent of total federal spending.

This share of spending has been steady at a little less than 10 percent since 1999. Attention has understandably focused on a potential lift in the defence budget. But we should think more broadly: there is a strong case that the overall level of spending on tools of ‘statecraft’ needs to rise above its steady level.

Within that $72.05 billion, defence dominates at $58.99 billion. There has been some reprofiling across the forward estimates, but this is consistent with the existing trajectory.

Time will tell whether the Trump administration decides to make an issue of this level of spending, which still hovers around 2 percent of GDP. Time will also tell whether Defence’s ambitious acquisitions program is achievable without further increases.

The official development assistance budget is $5.10 billion. This is about the same as the 2024–25 budget, adjusted for inflation. From a global perspective, with aid spending in retreat in many countries, this is welcome.

We should all recognise the particularities of Australia’s strategic circumstances. One such feature is a neighbourhood of low-income and middle-income countries. Development assistance in this context is not altruism but a strategic necessity. It helps offset risks that are born of underdevelopment, and that directly threaten Australian interests.

Moreover, experts across Southeast Asia have been clear on how Australia should respond to US aid cuts: ensuring stability in existing programs is the top priority.

The foreign affairs and trade budget is $3.91 billion. Within this, the diplomatic or foreign policy operating budget is $1.76 billion. This is a narrower measure, constructed by James Wise and originally published by ASPI. It strips out administered spending and other costs, such as IT and infrastructure, to provide a reasonable measure of Australia’s spending on diplomacy.

As Development Intelligence Lab research has previously noted, of Australia’s relevant budgets over the past 25 years, investment in diplomacy has been the most inconsistent. Although there has been no dramatic cut, projected inflation-adjusted declines in both the overall foreign affairs and narrower diplomatic budgets out to 2028 are concerning.

Australia’s intelligence community will receive a modest real budget rise to $2.05 billion year-to-year (this number excludes the Australian Signals Directorate, which is budgeted under Defence). This tallies with the recently released Smith-Maude Review, which recommends continued investment in Australia’s intelligence agencies, with focus areas including the Office of National Intelligence’s capability as a coordinating agency.

Finally, the Australian Federal Police budget (excluding domestic policing functions) is $2.00 billion, a small real decline compared to the 2024–25 budget. With the federal police now central to high-profile components of Australia’s engagement in Southeast Asia and the Pacific, such as the Pacific Policing Initiative, we can expect the federal police’s international spending to remain significant.

In short, defence spending has been bumped but its trajectory remains essentially the same. Aid, diplomacy, the intelligence community and federal policing are all at about a steady state, with modest inflation adjusted declines across the forward estimates.

The good news is that Australia has not decided to rob Peter to pay Paul. Nonetheless, the big questions remain: in 2025, do we really think that these tools should receive the same share of federal budget they received in 1999?

Things weren’t simple in 1999, and they’ve only become more complex since then. The crisis surrounding East Timor’s independence and then the 9/11 attacks in 2001 marked the beginning of complicated decades for Australian defence and foreign policy.

But Australia is now grappling with how to respond to a fraught position between China and the United States, while also trying to find a durable place among a crowd of ambitious partner nations across Southeast Asia and the Pacific. We need to properly invest in a broad range of tools to navigate this.

Defence budget doesn’t match the threat Australia faces

When Australian Treasurer Jim Chalmers stood at the dispatch box this evening to announce the 2025–26 Budget, he confirmed our worst fears about the government’s commitment to resourcing the Defence budget commensurate with the dangers Australia now faces.

A day earlier, Deputy Prime Minister and Defence Minister Richard Marles had advised that the government’s sole Defence initiative for the 2025–26 budget cycle would be to bring forward a paltry $1 billion from the 2028–29 financial year, shared across 2026–27 and 2027–28.  So, the much vaunted ‘generational investment in Australia’s Defence’ has been put off for a few more years, at least.

This marginal reprofiling of funds ($900 million additional in 2026-27 and $237 million additional in 2027-28 – so, in fact a little more than $1 billion) has been applied to submarine and missile capabilities, which continue to take up an expanded amount of defence capital expenditure

Consolidated funding for Defence, the Australian Signals Directorate and the Australian Submarine Agency in 2025–26 is estimated to be $58,988.7 million. It’s a nominal increase of $2,380.5 million (4.2 percent) over expected 2024–25 spending. Adjusting for expected inflation, as expressed by the 1.0 percent GDP deflator, the real increase will be 3.2 percent.

And to our considerable frustration, a detailed reading of the defence budget highlights that the government continues to pay only lip service to the readiness and sustainability of the current force-in-being, with the largest spending increases on capability sustainment tied to the F-35 Lightning force ($190 million) and Collins-class submarines ($235 million). While $133 million is allocated to sustainment of a new Defence Logistics program, there is little to no change overall to sustainment funding, usage and workforce from last year’s budget.

As we noted in The cost of Defence: ASPI Defence budget brief 2024–2025, the urgency of our current security environment (eloquently expressed in the independent Defence Strategic Review in 2023, confirmed by this government in the National Defence Strategy (NDS) in 2024, and made manifest by the inability to properly track the Chinese naval flotilla’s circumnavigation of Australia just weeks ago) is not being matched by resources from the public coffers.

There are four possible reasons why the government continues to stint on resources that match the threat Australia faces.

Firstly, it may not really believe that the threat is as great as it spelt itself out in the NDS. The rhetoric of Australia ‘facing the most challenging strategic environment since the Second World War’ may conceivably have been used solely as a means of mobilising some action within the government but without any real concern that Australia was becoming increasingly vulnerable.

This would certainly be backed up by this government’s actions: a focus on military capability spending almost entirely as additions to the order of battle well into the 2030s and in the 2040s, while continuing to underspend on the readiness and sustainability of current forces.

A second possible explanation is that the government may not yet trust the Department of Defence’s ability to spend more. Marles has certainly been critical of Defence, claiming that it lacked the culture of excellence necessary to deliver on the government’s agenda.

The NDS speaks to the need for both strategic and enterprise reform of the Defence organisation, and for the organisation to become fit-for-purpose if it is to gain access to the resources needed to build the force set out in the 2024 Integrated Investment Program, the long-term spending plan. This would not be the first government to hold back on funding defence until it actually sees reform resulting in a more effective and efficient delivery of Defence’s outputs.

Thirdly, the government perhaps does not want to be seen responding to the Trump administration’s call for allies to increase defence spending. There has certainly been a huge spike in anti-US, anti-AUKUS commentary since the Trump administration came to office in January.

Fourthly, the government may not believe that the politics of additional funding to Defence make sense less than two months before the election due by May. At a time when average Australians are struggling with cost-of-living challenges, and this pre-election budget seeks to allay concerns within the electorate that the Albanese government has not done enough to meet its previous election commitments to making Australians better off, funding Defence may not be seen as an election winning strategy. A February Ipsos poll shows defence being quite far down the list of concerns that face Australians.

The 2025–26 budget is, sadly, an opportunity lost. In failing to adequately fund defence, the government has lost the opportunity for at least one year to convince our interlocutors in the US that Australia is doing enough to build up its forces. As defence funding will reach only 2.33 percent of GDP in 2033–34, we are still a far from the expectation of the nominated under secretary of defence for policy, Elbridge Colby: that we will spend at least 3 percent of GDP on defence.

The budget is also a lost opportunity for Australian industry, which is becoming increasingly frustrated at slow defence procurement. More and more companies are abandoning the defence market due to the risk averse, overly bureaucratic and delayed or abandoned project cycles they are forced to deal with.  Without market signals that Defence is seriously investing in Australian industry and is committed to building the Australian national support and industrial base it needs to deliver capability, we stand to lose considerable expertise, workforce and sovereign industrial capability, that can never be replaced.

And finally, the budget is a lost opportunity for Australia’s defence and security.  Since the 2020 Defence Update, successive Australian governments have warned that the security environment facing Australia is worsening exponentially. Recent events have demonstrated just how fragile peace and stability is and highlighted the need for Australia to have a force-in-being that is prepared and ready to defend Australia. The ministerial foreword to the NDS started with the axiom that there was no ‘greater responsibility for the Government than defending Australia’.

The failure of this year’s budget to meet that responsibility will make all Australians less secure.

Awful optics: political fighting in Taiwan stalls part of defence budget rise

Political fighting in Taiwan is delaying some of an increase in defence spending and creating an appearance of lack of national resolve that can only damage the island’s relationship with the Trump administration.

The main opposition parties support the policy of President Lai Ching-te to lift spending from roughly 2.45 percent of GDP to more than 3 percent, but recently they’ve been unable to resist playing politics with the defence budget in the legislature.

Since Donald Trump has demanded that the United States’ European allies lift defence spending to 5 percent of GDP, and since Taiwan would be the frontline state in a war with China, the US is unlikely to find 3 percent at all sufficient.

Elbridge Colby, Trump’s nominee to become under secretary of defense for policy, said at his Senate confirmation hearing on 4 March that Taiwan should be spending 10 percent of its GDP ‘or at least something in that ballpark.’

The upper echelons of Taiwan’s ruling Democratic Progressive Party say they’ve understood the signal from Trump and are happy to spend cash on more weaponry. ‘We got that message and we’ll be more than happy to talk about strengthening our defence capability,’ former Taiwanese president Tsai Ing-wen told The Times.

The problem is that Taiwan’s legislature usually needs to approve major US weaponry purchases and government plans for indigenous defence capability development. But the legislature is dominated by parties that are soft on China.

Lai Ching-te was elected last year with around 40 percent of the vote, giving him control of the executive branch of government. But in concurrent legislative elections his independence-minded DPP narrowly lost its majority in the 113-seat parliament to the Kuomintang and its smaller ally, the Taiwan People’s Party.

The government and legislature have since been at loggerheads. Lai has done little to reach out and compromise, while the KMT and TPP have frequently been obstructive. Without providing evidence, the DPP says Beijing is behind their obstructions, while opposition lawmakers say Lai is too dictatorial.

There have been many brawls in the legislative chamber (real brawls, with punching, pushing and shoving) and protests in the streets. The executive branch has rejected bills passed by the legislature and sent them back to parliament for reconsideration. Taiwan’s constitutional court, an important democratic institution, had the sole power of legislative review and could act as an arbitrator. But because of one bill rammed through parliament by the opposition, the court has been temporarily paralysed.

The most worrying development came at the end of January when, hours after Trump’s inauguration. lawmakers voted to slash and freeze parts of Taiwan’s defence spending for 2025. Lawmakers cut 60 percent of the defence ministry’s publicity budget, crucial for recruitment. They also froze half the submarine program budget, 30 percent of military operations expenditure and funding for a drone industrial park.

Alexander Huang, director of the KMT’s International Affairs Department, says opposition lawmakers have cut about 1.3 percent of Lai’s proposed defence budget of NT$647 billion (AU$30.8 billion), which was originally 6.6 percent bigger than last year’s. After the cut, the rise is 5.2 percent, amid 2025 inflation expected to be about 2.0 percent. Huang notes that the frozen funds will be released once relevant government agencies give reports to the legislature, and parliamentarians are satisfied that defence projects are efficient and progressing.

Still, as far as optics go, the damage has been done. At Colby’s hearing, two US senators criticised the Taiwanese legislature’s efforts to cut defence spending. Republican senator Dan Sullivan accused the KMT of ‘playing a dangerous game’ while Colby himself found it profoundly disturbing.

For at least the past two decades, many US policymakers have pushed Taiwan to spend 3 percent of its GDP on defence, but it never reached this target. When Tsai Ing-wen took office in 2016, defence spending was just 1.82 percent of GDP, though she raised it to 2.17 percent in 2023. For many years, the budget was also not used as effectively as it could have been. For instance, until last year, conscription was only four months long, and the training was widely criticised for not being serious, looking more like a summer camp.

Lai this year plans to pass an additional special budget to push defence spending from 2.45 percent to more than 3 percent of GDP. The additional budget, which will likely be spent on US weaponry to demonstrate Taiwan’s resolve to Trump, will still need legislative approval. While mainstream KMT and TPP officials support increased defence spending, some in the opposition who are more pro-Beijing will probably object.

The blow-up between Trump and Ukrainian leader Volodymyr Zelenskyy is driving anti-Americanism in some quarters in Taiwan, especially with pro-China KMT politicians. Fu Kun-chi, the KMT’s legislative caucus whip, who has close ties with Beijing officials, pointed to the way Trump publicly scolded Zelenskyy and said Lai could be next in line.

‘Do we really have to spend 10 percent of Taiwan’s GDP or NT$2.86 trillion, on the military? Can the Taiwanese people shoulder this?” he said, according to the Chinese-language United Daily News.

Political scientists also predict it will be nearly impossible to push Taiwan’s defence budget to 8 percent or even 5 percent in the short term.

The KMT’s Huang, who is also a respected military analyst, noted that Taiwan’s overall government budget spending normally stands at about 12 percent to 13 percent of its GDP, meaning that 8 percent of GDP would amount to about two-thirds of Taiwan’s current government spending.

Huang added that it will be difficult for politicians across Taiwan’s political spectrum, including those in the DPP, to win votes if they propose higher spending and higher taxes.

Andrew Yang, a former KMT deputy defence minister, described a defence spending goal of 5 percent of GDP as ‘mission impossible.’

Well-connected Yang said some influential people in Washington were concerned about Taiwan’s political divisions. Yang said it was most important for Taiwan to convince Washington that the two sides had reached a consensus on defence so that the executive branch and legislative branch could focus on allocating resources. But while Taiwan mostly has the resolve to defend itself, all the squabbling will make this difficult.

China’s military spending rises should prompt regional budget responses

China’s defence budget is rising heftily yet again. The 2025 rise will be 7.2 percent, the same as in 2024, the government said on 5 March. But the allocation, officially US$245 billion, is just the public disclosure of what is likely far greater spending within China’s opaque system.

What we do know is that China has the second-biggest military expenditure in the world, behind the United States’. This year’s budget is another demonstration of the high goals that Beijing has set out for itself in military and geopolitical terms.

This should push others in the region to spend more on their militaries. Too many nations fear an arms race in the Indo-Pacific and beyond, whereas in fact it is just what’s needed. Beijing will keep building up its offensive power regardless of what the rest of us do. By holding down defence spending, we only put ourselves at risk.

The 7.2 percent rises in China’s defence budget for 2024 and 2025 imply a rising share of the economy going to the military. In 2024 GDP officially grew 5.0 percent (after adjustment for inflation) and is supposed to do so again this year.  Since China’s inflation rate was just 0.2 percent last year and is forecast by the Organization for Economic Cooperation and Development at 0.6 percent this year, the real rises in Beijing’s defence spending are not much below the nominal (unadjusted) budget increases. And they’re faster than GDP growth.

With conflict and tension across Europe, Middle East and the Indo-Pacific, the Stockholm International Peace Research Institute (SIPRI) estimates global military spending rose a spectacular 6.8 percent in real (inflation-adjusted) terms from 2022 to 2023, reaching US$2.44 trillion in 2023. It was the largest annual rise since 2009—though measuring defence spending is notoriously difficult, partly because the budgets of some countries, particularly China, are opaque.

In its latest China Military Power report, the US Department of Defense said China was spending somewhere between 40 and 90 percent more on defence than the public budget figure. That implies 2024 spending of US$330 billion to US$450 billion. According to the International Institute for Strategic Studies, China’s 2024 defence budget rose 7.4 percent, far outstripping the regional average of 3.9 percent.

Despite Asia’s relatively strong economic growth, the region’s share of global military spending fell from 25.9 percent in 2021 to 21.7 percent in 2024, because of wars and associated spending increases in Europe and Middle East. Additions to China’s spending as well as North Korean developments will likely drive up Asia’s share of defence spending, however. According to SIPRI, China in 2023 allocated US$296 billion to defence, 6.0 percent more than in 2022.

China’s relentless build-up has prompted its neighbours to increase their own military spending. An assessment by a few well-known China specialists last year suggested that China’s 2024 was actually US$471 billion (though their accounting methods also assessed US 2024 defence spending at US$1.3 trillion instead of the official US$825 billion).

Even if China’s neighbours accept its implausible claim to be spending less than 1.5 percent of GDP on defence, they can hardly be reassured as the capability of the Chinese armed forces grows and as that military and supposedly civilian agencies act with aggression in the region. Anyway, 1.5 percent of so large an economy would still be alarming.

As China’s economic growth slows, we should expect the defence share of GDP to continue to rise.

China likes to mention that the 2025 defence budget is the 10th in a row to show single-digit percentage growth. Yet these growth rates are still large by international standards and build on the much larger expansions of earlier years. In 2014, China had a 12.2 percent increase in defence spending, declining to 10.1 percent in 2015 and to 7.6 percent in 2016.

The opaqueness of China’s military spending is a particular cause for concern.

China usually attributes the increase in spending to the various military exercises it is engaged in as well as maintenance and upkeep of its military forces. The implication is that the increments are mostly going to salaries and pensions. It is true Chinese military personnel numbers are very large, but its equipment is improving dramatically. Just this last year, China demonstrated two new stealth fighters; a stealth bomber is in the works. And China is building a nuclear-powered aircraft carrier that will rival the latest US carriers in size.

The government’s Xinhua News Agency justifies China’s defence budget as paying for a ‘national defense policy that is defensive in nature, with its military spending mainly focusing on protecting its sovereignty, security and development interests … and the country will never seek hegemony or engage in expansionism no matter what stage of development it reaches.’

But China’s actions do not suggest a purely defensive motivation. Such claims should be no more truthful than Vladimir Putin’s claims that Russia’s military build-ups on the Russian border with Ukraine in 2021 and 2022 were only exercises.

When China sends its naval forces to intimidate neighbours and engages in military exercises that suddenly force rerouting of commercial flights, more regional countries should speak up. And the type of language that Beijing understands is an increase in our own defence spending.