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Intergenerational report reveals mixed bag for Defence spending over long-term

The latest intergenerational report has revealed a mixed bag for Defence spending over the next four decades, raising questions about the nation’s capacity to fund its national security and defence obligations in the era of great power competition.

Whether from a rapidly approaching demographic cliff, the rise of artificial intelligence, and the economic impacts of automation and the green-energy transition or the ever-looming threat of great power competition, Australia, like much of the developed world, faces a string of unprecedented challenges over the coming decades.

The Albanese government’s recently released intergenerational report comes just months after the Albanese government’s Defence Strategic Review (DSR), which was described by Deputy Prime Minister and Defence Minister Richard Marles as the most consequential review and transformation of Australia’s defence and national security capabilities since the Second World War.

In many ways, the Albanese government’s Defence Strategic Review has broken the mould of Australian defence and strategic planning, a marked departure from the Defence of Australia-era which championed continental-focused defence posture and ensuing force structure.

Setting the scene, Prime Minister Anthony Albanese stated at the launch of the DSR, “We confront the most challenging strategic circumstances since the Second World War, both in our region and indeed around the world. That’s why we’re investing in our capabilities and we’re investing, too, in our relationships to build a more secure Australia and a more stable and prosperous region.

“It is the most significant work that’s been done since the Second World War, looking in a comprehensive way at what is needed. It demonstrates that in a world where challenges to our national security are always evolving, we cannot fall back on old assumptions,” Prime Minister Albanese said.

At the core of the Defence Strategic Review is the broader reorientation of Australia’s tactical and strategic focus, away from Coalition-supported counterinsurgency operations in the Middle East or low-intensity, humanitarian interventions across the South Pacific towards a broader focus and conceptualisation of the Indo-Pacific.

This renewed focus on a broader concept Indo-Pacific is driven in large part by a number of key findings in the Defence Strategic Review, namely, “Australia’s strategic circumstances and the risks we face are now radically different. No longer is our alliance partner, the United States, the unipolar leader of the Indo-Pacific. Intense China–United States competition is the defining feature of our region and our time. Major power competition in our region has the potential to threaten our interests, including the potential for conflict. The nature of conflict and threats have also changed.”

Despite this proposed reinvigorated and radical shift from previous Australian strategy and doctrine based in the fundamental reimagining of the Indo-Pacific as a region, for many, the rubber is yet to hit the road, begging the question, has anything really changed?

Well, based on the long-term projections and analysis highlighted in the intergenerational report, not much.

Short-term increase, but not a lot of long-term growth

Despite the rhetoric highlighting the government’s intent and contentious decisions like the scaling back of the multi-billion LAND 400 Phase 3 Infantry Fighting Vehicle program, a mounting list of long-term expenditure, largely tied to Australia’s planned acquisition of a conventionally armed, nuclear-powered submarine fleet ultimately spells significant trouble for the future of Australia’s defence capabilities.

“The government is investing more in our national security, with spending on defence (excluding operations) expected to increase from around 2.0 per cent of GDP in 2022–23 to around 2.3 per cent of GDP in 2032–33, its highest share of GDP since around the end of the Cold War … AUKUS will deliver significant long-term strategic benefits for Australia and the region. While these efforts will strengthen the combined industrial capacity of the three AUKUS partners, they also present significant fiscal, technological, and workforce challenges,” the report states.

Unpacking this further, the report highlights that while there would be an initial increase over the forward estimates (until approximately 2027), at least following a decline (largely blamed by the government on the costs associated with inflation) with a plateau of spending at approximately 2.03 per cent of gross domestic product.

The report details this increase from 2027, stating, “This increase reflects the government’s commitment to implementing the Defence Strategic Review to ensure Australia is positioned to respond under these complex strategic circumstances. Defence spending is then assumed to remain steady at 2.3 per cent of GDP from 2033–34 to the end of the projection period (2062-63).”

This funding reality seems to fly in the face of the rhetoric articulated in the Defence Strategic Review and the recognition that the regional power dynamics and the balance of global power devolves.

The report highlights this and the associated funding challenges now facing the Albanese government and subsequent Australian governments out to the 2062-63 timeframe, stating: “The window of opportunity to deal with potential threats is narrowing as the pace of military modernisation in the Indo-Pacific region accelerates.

“In a fiscally constrained environment, the government will need to prioritise which national security measures best meet security needs to effectively respond in these challenging strategic circumstances. The DSR outlined an ambitious reform agenda for the Australian Defence Force’s posture and structure to strengthen national security and ensure readiness for future challenges,” yet the government rhetoric remains committed to funding the ADF to an adequate level.

Critically, all of this seemingly flies in the face of the Government’s admission in the Defence Strategic Review, that “Defence must have the funding it needs to deliver this enhanced capability. To this end, Defence funding will increase over the next decade above its current trajectory to implement the Review, including the delivery of the conventionally-armed, nuclear-powered submarine program through AUKUS.”

In this case, where is this additional funding?

Policy leavers and pulleys

The government equally faces the challenges of building holistic national resilience across the national economy and for the Australian people in response to the mounting grey zone warfare and great power competition now radically reshaping the global and regional balance of power.

The report highlights the true costs associated with developing national resilience in the modern context, stating, “Developing national resilience is an additional pressure on government funding separate to funding for defence. Protecting Australian business, information and trade will require industry and governments to adapt and collaborate in responding to existing and emerging vulnerabilities in cyber, supply chains and technology.”

However, the intergenerational report highlights the major economic, political, and strategic impact of great power competition on the Australian public and way of life, with the incentive on Australia’s role in maintaining the status quo in the Indo-Pacific.

“Maintaining stability in the Indo-Pacific region through diplomacy, development assistance, trade and building defence capability remains Australia’s primary strategic objective framing national security funding. These investments will continue to reinforce internationally agreed rules and norms and build on existing mechanisms to settle international disputes,” the intergenerational report states.

Maximising the opportunities for Australia’s economic prosperity and stability in the face of the Indo-Pacific’s own economic rise is also another key priority identified by the government’s report and requires a radically different policy approach given the enduring struggles, and some would say, failures of traditional policymaking to overcome these challenges, with the report highlighting: “Integrating all available tools of national power – economic, diplomatic, industrial, intelligence, cyber and military – will encourage greater flexibility and burden sharing across the national security community and strengthen its capacity to respond to new and emerging threats. Demographic change and workforce constraints will limit recruitment and retention across the intelligence community, the Australian Defence Force and defence industry, particularly in shipbuilding.”

This approach echoes statements made by Opposition Defence spokesperson, Andrew Hastie, who recently said, “Governments need to be involved and support industry. The UK, US, Taiwan, Japan, and South Korea have vibrant industries because their governments have supported them through different incentives and direct support. They pick winners and work closely with business and industry. And they aren’t squeamish about it. It’s a reality of the world we live in. We need to wake up to it.

“The message is clear: the great game is afoot. And the way to win is by rebuilding resilience and self-reliance. We need strategic leadership from government, business, and our partners to create these industries and value chains,” Hastie said.

Final thoughts

Importantly, in this era of renewed competition between autarchy and democracy, this is a conversation that needs to be had in the open with the Australian people, as ultimately, they will be called upon to help implement it, to consent to the direction, and to defend it should diplomacy fail.

This requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers and elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

Expanding and enhancing the opportunities available to Australians while building critical economic resilience, and as a result, deterrence to economic coercion, should be the core focus of the government because only when our economy is strong can we ensure that we can deter aggression towards the nation or our interests.

This also requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers, elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

Additionally, Australia will need to have an honest conversation about how we view ourselves and what our own ambitions are. Is it reasonable for Australia to position itself as a “middle” or “regional” power in this rapidly evolving geopolitical environment?

Equally, if we are going to brand ourselves as such, shouldn’t we aim for the top tier to ensure we get the best deal for ourselves and our future generations?

Source: Defence Connect