Tag Archive for: Military 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.

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.

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.

Some US allies contribute, some loaf. Here’s a numerical assessment

Which US allies have paid their bills, as President Donald Trump would see things? Which, having given the United States little support in return for its security guarantee, now risk losing it?

The short answer, derived from our numerical methodology, is that only nine countries in the US’s main European and Indo-Pacific alliance networks are genuine net contributors to their partnerships with Washington. Australia, Britain and the Netherlands rank highest. Poland, Norway and France are also pulling their weight.

Sixteen countries in those alliances, though not quite free-riders, can fairly be called cheap-riders, according to our assessment, which measures allies’ commitments of blood and treasure. Another 12 may be classified as blatant cheap-riders, notably including Japan, which has the largest economy among the US’s friends.

Our assessment does not focus on Washington’s Latin American and Caribbean allies, but, if it did, they’d all be classed as cheap-riders or blatant cheap-riders.

With Trump taking the unprecedented step of linking protection with payment, our analysis aims to clarify allies’ risks of US abandonment. For the NATO and Indo-Pacific allies, this is no mere academic exercise. European NATO members face an aggressive Russia that has threatened to expand its war against Ukraine. And US allies in the Indo-Pacific confront an increasingly assertive and powerful Beijing, alongside growing nuclear and missile threats from Pyongyang.

Contrary to expectations, we found that proximity to these threats did not necessarily correlate with higher contribution to the US alliance, especially in Europe.

Within alliances that are asymmetric, as any with the US must be, weaker partners cannot fully compensate the stronger partner for protection. They’re not rich enough. But they can contribute (or, in Trump’s parlance, ‘pay’) through such actions as providing international diplomatic support, forward bases or niche military capabilities.

Trump generally attaches greater weight to more readily quantifiable measures, such as defence spending as a percentage of GDP. So we follow him, answering the bottom-line question ‘Who’s paid?’ by asking five component questions with readily quantifiable insights. We aggregate the results into an overall payment score.

First, has the ally met its defence spending targets over the lifetime of the alliance? Washington expects allies to spend at least 2 percent of GDP on defence (though Trump has floated higher standards). By doing so, allies develop properly funded independent military capabilities, reducing the US’s burden of guaranteeing their security. Higher spending also makes them more useful potential partners in US-led coalitions operating outside the alliance areas. Consistently meeting the 2 percent target, amid constant pressures on the public purse, also demonstrates a domestic political resolve that enhances the alliance’s deterrent potential. So we assess lifetime spending by comparing each ally’s total defence expenditure and GDP during its time in alliance with the US. Net contributors meet the 2 percent threshold, whereas net cheap-riders fall short.

Second, has the ally met its defence spending targets over the past decade? Military capabilities, accrued over time, atrophy without sufficient ongoing funding. Washington, for example, built a world-class navy in the American Civil War—which, after years of underinvestment, amounted to just ‘an alphabet of floating washtubs’. Correspondingly, recent defence spending provides insight into which allies have maintained the military capability and preparedness that Washington values. And, again, it shows political resolve. We assess recent spending by considering allies’ defence expenditures and GDPs since 2015 (when combat operations in the last US-led ground-war ended and when Trump’s full engagement in politics began). Net contributors meet the 2 percent threshold, whereas those falling short have either been persistent cheap-riders or, having formerly paid their dues, have now decided to take it easy.

Third, how much US weaponry has the ally purchased? Allied acquisitions of US military equipment, such as aircraft, give Washington several benefits: revenue from and longer production runs of existing systems (for example, F-16s); more work from their maintenance programs; savings from cooperative development of new systems (such as the F-35); and improved US and allied fighting strength thanks to the ease of operating common equipment. We assess weapons purchases by considering allies’ relative shares of US arms transfers and global GDP during their alliance tenure. Scores under 1 indicate comparatively limited purchases, whereas those exceeding 1 denote outsized purchases, and those above 2 show purchases that greatly favour US suppliers.

Fourth, has the ally supported US-led combat coalitions? Allied participation in military operations benefits Washington by providing international legitimation for the action and reducing the burden on the US. Alliances, however, are not wellsprings of guaranteed support: as self-interested actors, allies can decline to render aid or even defect to opposing blocs. Correspondingly, joining US-led coalitions builds good faith with Washington (and implicitly serves as down payment on reciprocal assistance). We assess participation by considering five ground-war coalitions (those for the wars in Korea, Vietnam, Persian Gulf, Afghanistan and Iraq) and five primarily air-war coalitions (in the Iraqi No-Fly Zones and campaigns in Bosnia, Kosovo and Libya and against ISIS). We allocate points according to the burden undertaken: for ground-wars, 8 points for providing frontline combat forces, 4 for supporting units, and 2 for financial assistance. For air wars (which involve less cost and risk), point values are halved. We count allies as consistently supportive if their points exceed 17 points and as reliable combat partners if they exceed 30.

Fifth, has the ally paid a blood price? Allied personnel losses, incurred while furthering Washington’s security interests, represent a shared sacrifice, one that demonstrates the highest form of loyalty (a value cherished by Trump) and implicitly serve as further down payment on reciprocal assistance. Since US-led air wars have featured minimal casualties, we assess losses by counting the number of US-led ground wars after World War II in which allies have suffered service deaths.

We generate overall payment scores by aggregating allies’ performances across all five measures. Each measure receives a 20 percent weighting, and we grant maximum points for:

—Meeting the 2 percent defence expenditure target during the period of alliance;

—Meeting it in the past 10 years;

—Greatly favouring the US in weapons purchases;

—Providing frontline combat forces for each US-led combat coalition; and

—Incurring personnel losses in each US-led coalition ground war.

Partial points are awarded relative to these maximums. Scores below 50 indicate blatant cheap-riding. Those exceeding 70 denote genuine net contributors—for example, 40 for meeting both spending targets, 20 for joining and suffering losses in more US-led coalitions than not, and 10 for outsized weapons purchases.

So, who’s paid?

The US alliance network contains few genuine net contributors, with only nine of 38 NATO and Indo-Pacific allies exceeding 70 points. Moreover, three net contributors deserve qualification: Greece and Turkey generally prioritise each other as a threat rather than NATO’s common adversary, Russia, and South Korea owes the US for its ongoing protection along with its defence during the Korean War.

The Indo-Pacific allies contribute relatively more than their NATO counterparts, averaging higher overall and component scores (apart from participation in operations, among which were three NATO-centric air-war coalitions). Compared with NATO, the Indo-Pacific alliance network also includes a greater percentage of genuine net contributors (28 percent versus 22 percent) and a much lower percentage of blatant cheap-riders (14 percent versus 35 percent).

Notable cheap-riders include Germany and Japan, because they have large economies and therefore great potential military might.

It’s also remarkable that cheap-riding is common in the countries of NATO’s Eastern European expansion. Apart from Poland, Romania and the Baltics, all are blatant cheap-riders, even though their membership has brought added burdens and risks to the alliance, including the US.

Australia is well insulated against Trump’s potential revisions to US alliance policy, which largely (and, in light of our findings, rightly) concentrate on redressing NATO’s relative underpayment. Canberra is immune to similar charges: no other ally has given Washington comparatively more blood and treasure than Australia, and the Albanese government has already begun reversing recent dips in defence spending, pledging to spend 2.3 percent of GDP by 2034. Moreover, Australia’s ‘indispensable’ strategic partnerships with other US allies remain relatively safe: Britain ranks second in terms of its alliance contributions (which bodes well for AUKUS solvency), and Japan, though a definite laggard, has been steadily boosting what Trump would see as its payments. It’s greatly lifting defence spending, increasing host-nation financial support and reinterpreting its constitution to permit collective military action.

How, or whether, Canberra’s unrivalled contributions will affect its bargaining position with Washington remains to be seen and needs supplementing with qualitive analyses (as given here for the first Trump presidency).

Australia can’t easily lift defence spending to a Trump-satisfying level

US President Donald Trump has called on NATO members to lift their defence spending from the current target of 2 percent of GDP to 5 percent.

‘They could all afford it,’ he said, warning that the United States would withdraw its guarantees of protection to Europe unless they paid up.

Trump has not opined on Australia’s defence spending, but, when he gets to consider AUKUS, he is unlikely to be satisfied. And there’s no easy way for Australia to lift its spending to a level that would satisfy him.

Australian defence spending was $53.3 billion in 2023–24, which was 2 percent of GDP. The Treasury expects it will reach 2.4 percent of GDP in 2027–28.

Russia, Ukraine, Israel and some Middle Eastern states are the only nations currently spending at least 5 percent of GDP on defence. (China’s data is too opaque to know.) In Europe, Poland comes closest, spending 4.7 percent of GDP this year. US defence spending is 3.4 percent of its GDP.

Trump’s 5 percent figure may be an ambit claim—a Financial Times report suggested he would settle for 3.5 percent. NATO will debate raising its target at its June summit.

For Australia, 3.5 percent of GDP would be $97 billion, about 75 percent more than was actually provided for defence in the budget.

Any increase in defence spending can be funded in three ways: increased taxation, reallocating money from other uses, or debt.

To get an additional $40 billion a year from taxation looks politically painful. To meet that target would require either a 12 percent increase in personal tax collections, a lift in the GST rate from 10 percent to 14 percent, or raising the company tax rate from 30 percent to 40 percent.

The federal government has in fact received an income boost of these dimensions, with total tax collections averaging 23.2 percent of GDP over the past five years, up from 21.6 percent in the previous five. However, this mostly flowed from the extraordinary profitability of resource companies, which will not be repeated.

It is more likely that company tax payments will fall short of treasury forecasts over the next few years as China’s appetite for iron ore and coal fades.

Australia is a low-taxing country—the US, Switzerland and Ireland are the only advanced nations taxing less—so an increase in taxation would not be ruinous to the economy.

It has been suggested Europe impose a defence tax to pay for military preparedness. Denmark scrapped a public holiday to help finance a higher defence budget. Without the immediate threat of Russia at war with a near neighbour, it would be hard to build the political support for such moves in Australia.

Reallocating existing spending looks just as difficult. Cutting social programs carries a high political cost, as the Abbott government learned with its ill-fated 2014–15 budget.

Most of the budget is locked in. There are 412 administered programs with payments governed by indexation. Many programs are driven by legislated entitlements, such as unemployment benefits, Medicare and the National Disability Insurance Scheme (NDIS).

The NDIS is an interesting example: it elbowed its way into a constrained budget on the false assumption costs would be held to $13 billion a year. Instead, it is at $46 billion this year—1.7 percent of GDP—and is forecast to rise to $93 billion, or 2.1 percent of GDP, by 2033–34.

Strong company tax revenue helped fund the NDIS without resorting to debt until this year. Deficits will increase as resource prices soften and the cost of the NDIS continues to rise three times faster than inflation.

Australia is a low-debt country. Its net debt of 29 percent of GDP compares with an advanced country average of 91 percent, so it could afford to borrow more. Poland has funded its expanded military with debt: its deficit is expected to reach a perilous 12.5 percent of GDP this year. There is pressure to ease the European Union’s debt rules to help lift defence spending.

There is an argument for borrowing to purchase assets, including defence equipment, the benefits of which will be derived long into the future. In extreme circumstances, debt forms part of the national security equation through the issue of war bonds.

But with the IMF warning that global government debt is becoming a financial powder keg, surpassing US$100 trillion this year, this may be the wrong time to seek the indulgence of financial markets.

The sorry conclusion is that there is no easy way to achieve the sort of increase in the defence budget that President Trump has in mind for US allies, including Australia.