Australia’s defence spending must reflect worsening strategic outlook

In 1946, US President Harry Truman, addressing Congress on the state of the Lend-Lease program, observed: ‘On balance, the contribution made by Australia, a country having a population of about 7 million, approximately equalled that of the United States to Australia.’ Actually, that’s not quite right. Our contribution exceeded that of the US. We forgave the Lend-Lease debt at the end of the war.

In my lifetime in politics, American presidents have frequently praised us. They do it well. But of all the quotes I have seen, that one made me most proud. It means during that war in which we perceived an existential threat, we handled it and reliably assisted our ally. Usefully, Peter Dean, one of the writers on the current defence strategic review team, has written heavily on the period.

It has to be remembered that, particularly at the outset, we were not popular in Washington. Supreme allied commander General Douglas MacArthur was widely disliked. Our message of focus on the Pacific was not well regarded by those of the ‘beat Hitler first’ orientation. Australia’s fighting qualities evident in the Middle East weren’t comprehended, our industrial capability was unknown and our new embassy in Washington’s struggle for shipping allocation annoying. The South West Pacific Area struggled for priority in the Pacific theatre.

But in early 1941 Australia had been at war for 18 months. A comprehensive war production industry, often confronted by British industrialists’ hostility, had been built up since 1919. By 1941 it was coming up to speed. It was close to fully equipping six divisions with heavy equipment for a Middle Eastern battlefield but switched rapidly to concentrate on production we needed for jungle fighting in the Pacific.

By 1945, we were supplying almost all the war production needs of our principal ally in the region for food and clothing, ammunition and other war goods. This production effort was backed up by a major scientific industry collaboration for every facet of jungle and island warfare. With single women conscripted for the civilian workforce, and married women pressured, Australia was the most mobilised belligerent of World War II. Speaking to America on 14 March 1942, Prime Minister John Curtin said, ‘On the one hand we are ruthlessly cutting out unessential expenditure so as to free men and women for war work, and on the other, mobilising womanpower to the utmost to supplement the men … We have no limit.’

By 1942–43, Curtin and Treasurer Ben Chifley had lifted defence expenditure to 34% of GDP. Around 70% of the federal budget was devoted to defence. This mountainous effort appears in our minds as sepia tinged. If we are to sustain a grip on the continent, we have to understand the dimensions of it. However, in day-to-day public discourse on spending issues, defence spending rarely makes it into the mix.

Most of what we now concentrate on is a product of a massive shift of funding burdens—many of which were previously state responsibilities—on to the federal government that followed the centralisation of tax collection during the war and a demonstrated potency of the national character of federal government capabilities.

When I was ambassador to the US, I was constantly nagged to lift Australia’s defence spending to 2% of GDP. In our defence, I would point out that our governments basically received around the same public-sector-to-GDP ratio—about 25%—as American governments did. Their 25% funded defence, social security (pensions), Medicare and Medicaid. Other spending tended to be either of an emergency character or leveraged the states and private sector.

Our federal public sector funded pensions, universal healthcare, the 35% of school students in the private sector and a considerable amount to state schools, universities, supporting parents’ benefits, unemployment benefits, an array of other social spending to which I could now add the National Disability Insurance Scheme, as well as the type of leveraging the Americans do with their state government programs, particularly in infrastructure.

That list is not exhaustive, but it leaves a lot of ministers unfriendly to Australia’s small defence budget (around 5.5% of total outlays), unlike the US where national security is a preoccupation.

Of all constraints on the defence strategic review team, financial resourcing is the most difficult to deal with.

Australians are not aware how comparatively straitened our public sector is. Even in the wake of Covid-19 it amounts to 27% of GDP. That figure in austerity Britain is 43%; in Germany, 48%; in France 52%; and in the Scandinavian nations, around the mid-60%s. Yet when it comes to social spending, they are our models.

If our defence spending were to receive around the US figure of 3.5%, it would be transformative. It is unlikely to happen, but some movement towards it is essential. If we were at our defence spending level achieved in the 1980s—2.3% of GDP—that would amount to $4 billion extra a year.

We now have a more impressive and better resourced military than we had in 1939. Our equipment is vastly more sophisticated and complex, and has much longer time impacts on production. More to the point, our capable and professional services look to our allies with whom they train and integrate. Yet circumstances demand the Australian Defence Force look to different equipment and in large numbers: missiles, smart mines, cyber capabilities, drones and uncrewed equipment in all domains. And we need to consider innovative locations and deployments.

Outside defence we need to build national resilience involving other federal departments, the states and territories, and the private sector. We have many innovative defence capabilities invented and deployed in other industries. We also have to resolve our fuel storage capacities. We need a bigger merchant shipping fleet.

If the review team does this properly, we are going to have to expect the bulk of the report to be classified. Publicly it is likely to be quite bland, pointing at directions rather than details. Given the accepted end of the concept of 10 years’ warning time ahead of a major conflict, we need to be increasingly restrained with information about capabilities.

Above all, we need to develop our old defence consciousness. When I was a youngster in the 1950s our family moved into the house we were brought up in. It had an air-raid shelter in the backyard. It was beautifully constructed with deep stairs down to the shelter, which contained useful bunk beds. Of course, we never used it at night. It could have taken everything but a direct hit.

Remember that we federated in 1901 to defend ourselves. Defence’s current share of 5.5–6% of today’s federal budget doesn’t cut it.