GOVERNMENT POLICY

Changes to Australia's Defence Spending

Insights

What Has Happened?

Growing geopolitical tensions and heightened economic uncertainty - both at levels we have not witnessed since the existential threats of the 1930s and 40s - has precipitated a rather aggressive defence strategy from Australia. 


Scott Morrison has warned that Australia needs to prepare for a post-COVID-19 world that is “poorer, more dangerous and more disorder.” Australia’s new defence strategy is characterised by an increase in the Defence Budget by $270 billion over the next decade. These funds will be directed toward building a larger military focused on new missile technology, cyber warfare capabilities and high-tech underwater surveillance. Over $7 billion dollars will be allocated towards improving satellite technology, $9.2 billion on research and development for hypersonic weapons, $800 million for the Long Range Anti-Ship Missile and a potential $7 billion for unmanned submarines. 


Furthermore, over the next four years, the Australian Defence Force is expected to grow by 800 people, consisting of 650 extra personnel for the Navy, 100 for the Air Force, and 50 for the Army. These costs will account for roughly 2.3% of Australia’s GDP, a historic high. The government hopes that through building stronger deterrence capabilities, they will prevent war, and counter China’s path to global political ascendancy.

As can be observed in the graph, defence spending has largely fluctuated between 1.5% and 2% in the past decade. However, with the government’s initiation of the new defence strategy, Defence Expenditure is likely to grow to an unprecedented 2.3% of GDP.


Syllabus Links

Federal Government Budgets and Budget Outcomes

The large increases to our national defence spending is first and foremost a form of fiscal policy. Fiscal policy describes the use of the Commonwealth Government’s Budget (government expenditure and revenue) in order to achieve certain economic goals. 


More specifically however, the new aggressive defence expenditure is categorised under discretionary fiscal policy. This is where the government makes deliberate changes to spending and revenue (e.g. altering tax rates) in pursuit of a certain objective. Discretionary policy is often used to shift the allocation of resources directly and as mentioned before for the provision of public goods such as national defence and environmental protection. 


Discretionary fiscal policy differs from automatic fiscal stabilizers. Automatic stabilizers are designed to offset fluctuations in a nation’s economic activity through their normal operation, without additional intervention from the government. The progressive tax system is an example of this.  


The proposed additional $270 billion in defence spending over the next ten years is likely to contribute to Australia’s shift from a previously forecasted budget surplus of $7.1 billion (2019-20 financial year)  to a heavy budget deficit. The government projects its budget deficit  to deepen significantly by $85.8 billion in the next financial year.


Role of International Organisations

Perhaps the destabilisation of the current geopolitical world is symptomatic of the United Nations’ diminishing power. The United Nations is a global organisation that covers 193 member states and aims to promote peace and global economic cooperation. Its agenda covers the global economy, international security, the environment, poverty and development, international law and global health issues. It has collaborated with other organisations to develop international standards that facilitate trade and international agreements that enforce human rights and political freedoms. 


Fractured relationships between global powers has largely stemmed from China’s quest for hegemony over the Indo-Pacific region. This has manifested in their annexation of territory, manipulation of domestic policies and use of large scale cyber attacks. However we have not witnessed any responses from the United Nations in relation to this. Moreover, our call for an inquiry into the origin of the coronavirus was met with hostile economic retaliation from the Chinese government (substantial tariffs on Australian exports). The United Nations has not questioned this either. The United Nations diminishing power is potentially attributable to its lack of enforceability and the ‘veto power’ that nations like China possess which effectively enable them to dismiss any substantive resolution. 


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