What’s GDP got to do with defence?

Nothing at all, that’s what. And the government’s failure to note its shift towards diplomacy is driven by lack of money is a complete farce.

Last week’s defence white paper proposed lots of new spending on military equipment and committed Australia to returning the defence budget to 2 per cent of GDP – the same fraction as the Coalition – all without any plan to find the money, attracting hoots of derision from the experts.
The derision is entirely justified, but my question is: what’s GDP got to do with defence?
Both major parties are now committed to getting the ratio of defence spending to GDP back to 2 per cent, which is what it was during the golden years of John Howard’s prime ministership. Last year’s budget cut defence spending to 1.56 per cent of GDP – the lowest since 1938. Lips were pursed and moustaches twirled in vexation, up and down the defence establishment.
By committing themselves to a military budget worth 2 per cent of GDP, both the ALP and the Coalition are saying they will spend about $7.3 billion per year more on defence. And return the budget to surplus, and spend an extra $5 billion on DisabilityCare, and spend $6.5 billion on the Gonski education reforms.
This is all pure fantasy, unless Julia Gillard and Wayne Swan really do raise taxes and/or slash other government spending by, oh, $20 billion a year or so. Failing that, and the simultaneous appearance of a flock of flying pigs, this year’s election is fast becoming a fudge-fest from both sides of politics, with the leaders waving white-gloved hands before us and producing bunches of roses from their sleeves.
But that’s another story. The matter at hand is defence, and the proposition that spending on it should be a ratio of GDP, one-fiftieth to be precise. Some analysts argue that it should be one-fortieth (2.5 per cent) of GDP, but no one explains what gross domestic product has to do with defence.
I get that it’s a handy shorthand way of relating defence spending to the size of the economy, but that’s also an irrelevance. The measure bears no relation to either the threats posed or competing demands on the budget.
Talking about defence spending as a fraction of GDP is ridiculous. Israel spends $US15.2 billion on defence because it needs to, and probably takes no notice of the fact that it’s 6.5 per cent of GDP; the United States spends $US700 billion, or 4.7 per cent of GDP, goodness knows why (probably just because it can, although not any more); Indonesia spends $US5.2 billion, or 0.7 per cent of GDP, because that’s all it can afford.
Australia should spend what it needs to spend, and then figure out how to afford it.
And that’s the great failing of this defence white paper. It makes no attempt to relate military spending in detail to what it calls our "Strategic Outlook", nor any attempt to plan how to pay for it. The section on "Defence Budget and Finance" runs to 17 paragraphs and 676 words out of 148 pages of waffle.
What the white paper does do, and in fact seems mainly designed to do, is to position the “Strategic Outlook” in such a way that it justifies less military spending – without being honest about that, of course.
As most of the headlines have pointed out, it takes a softer line on China than the 2009 white paper, which said China’s big increase in military spending could “give the region cause for concern if not carefully explained”. The Chinese were infuriated.
This one says: “The government does not approach China as an adversary. Rather, its policy is aimed at encouraging China’s peaceful rise and ensuring that strategic competition in the region does not lead to conflict.”
Overall, the paper emphasises diplomacy: “Australia’s tradition of active middle-power diplomacy, with its focus on practical problem solving and effective implementation, will guide and underpin Defence’s international engagement.”
As Sam Roggeveen of the Lowy Institute points out, what’s missing from the white paper is any acknowledgement that this emphasis on diplomacy is driven by the lack of money. “Because we cannot afford all the insurance we would like in the form of weapons systems, we have to take on slightly more risk and, to some extent, we compensate by substituting diplomacy.”
And this while still promising to return defence spending to that arbitrary fraction of GDP – one-fiftieth.
The whole thing is a fraud: repositioning our strategic engagement towards more diplomacy and less military hardware while at the same time pretending that it’s the other way around for political reasons.
After two white papers in four years, we still don’t know what Australia’s military spending needs to be and how we are going to afford it.
One thing is for sure, though: it has nothing to do with our GDP.

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