Home World Business The one very expensive Tony Abbott promise that Malcolm Turnbull is keeping

The one very expensive Tony Abbott promise that Malcolm Turnbull is keeping

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A key boast in Scott Morrison’s 2017 budget speech was: “Tonight, we announce we will deliver $75 billion in infrastructure funding and financing over the next ten years.” That was much smaller than the budget’s other capex splurge.

Elsewhere in the budget papers was a pledge for $200 billion in defence capital “investment”. And that’s just part of the cost of keeping one particularly expensive Abbott-era economic promise: to spend two per cent of GDP on defence.

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Tony Abbott’s defence spending legacy

Abbott, when he was opposition leader, pledged to increase defence spending to 2 per cent of GDP – a promise the coalition is keeping. Michael Pascoe comments.

Morrison’s speech didn’t spell out what it means in dollars, just that: “In 2020-21, we will meet our commitment to increase defence spending to two per cent of GDP, three years ahead of schedule.”

The May budget committed to increasing the defence spend to $34.6 billion this financial year, rising by 21 per cent to $42 billion in four years’ time – and given the track record of defence acquisitions and operations, there’s a fair chance both those figures will end up higher. Presumably the government intends that spending to continue to rise by what they hope nominal GDP growth will be, so the total defence spend over the decade could nudge half a trillion dollars.

Over the next decade, the total defence spend could hit half a trillion dollars. Over the next decade, the total defence spend could hit half a trillion dollars. Photo: Jason South

(If $42 billion is 2 per cent of GDP in 2020-21, GDP would be worth about $2.1 trillion – some 24 per cent more than today’s $1.7 trillion or so.)

Nowhere in the budget papers is there any explanation of why we should spend exactly two per cent of GDP on defence. It’s another random “rule of thumb” that has the ability to seize limited attention spans, like the Treasury secretary’s belief that government spending should be limited to 25 per cent of GDP.  (Most members of the exclusive sovereign AAA club spend considerably more than that.)

Total Opposition tactics

The two per cent rule seems to have resulted from Abbott’s Total Opposition tactics. In the coalition’s time-honoured tradition of beating the defence drum, Hockey and Abbott used the spending-as-a-percentage-of-GDP measure to try to paint the Gillard government as weak on defence.

As explained by Andrew Carr, senior research fellow at the ANU’s Strategic and Defence Studies Centre, the opposition seized on the slogan that our defence spending – as a percentage of GDP – had fallen to its lowest level since 1938. In a fact check published by The Conversation, Carr agreed that, yes, 1.59 per cent of GDP in 2013-14 was indeed the lowest since 1.55 per cent recorded in 1938.

The Abbott government pledged to spend two per cent of GDP on defence. The Abbott government pledged to spend two per cent of GDP on defence. Photo: Alex Ellinghausen

He then went on to demonstrate that the measure was rather meaningless and actually quite stupid.  That did stop both the Liberal and Labor Parties subsequently adopting the two per cent ambition.

“In recent years, measuring how much the Australian government spends on Defence as a percentage of GDP has become increasingly popular,” Carr wrote.

The budget papers don't explain why we should spend exactly two per cent of GDP on defence. The budget papers don’t explain why we should spend exactly two per cent of GDP on defence.  Photo: Christopher Pearce

“But, as a look at the Howard government’s experience shows, it’s not a good measure for understanding whether the government is increasing or decreasing the defence budget, let alone spending enough to protect the nation.

“Over the life of the Howard government, the Defence budget doubled from $10.4 billion to $19.9 billion. Yet for six of the 11 budgets the Coalition handed down from 1996-2007, as a percentage of GDP Defence spending fell to the lowest level since 1938.

“How could that be possible? Simply because while Defence spending went up, Australia’s GDP went up even faster.

“Meanwhile the Rudd government in 2009 spent 1.94% of GDP on Defence, far above the high water mark of the Howard government. Partly this was because of new funding, but mainly it was because a drop in Australia’s GDP from the Global Financial Crisis. In short, this measurement is more tied to the nation’s economic performance than government investment in defence.”

For that matter, actual 2013-14 spending on was probably higher, in keeping with the spending of recent decades. And 1938 was not a particularly cheap year for defence – contrary to the impression the sloganeering tried to give.

The ‘magic number’

Boasting about the two per cent “magic number” may have as much to do with the government’s civil war as Australia’s defence. Tony Abbott can go charging off with a preference for even-more-expensive nuclear-powered submarines, but Turnbull can point to the two per cent slogan and rest easy.

As it stands, reaching the big spend target appears to owe as much to regional politics as any defence white paper. That’s “regional” as in local elections, not the broader geographical region of our strategic interest.

When the $200 billion capex isn’t going on joint strike fighters to fit in with American interests and submarines capable of operating in the South China Sea, it’s buying votes as good ol’ government employment programs. Industrial policy of subsidising car makers has been replaced by industrial policy of subsidising boat and ship building.

It can be a very expensive way of saving Private Pyne. Again, given the track record of major defence projects, we could end up spending more than the promised $200 billion on things that go bang.

From a strategic point of view, the turbo-charged defence spend contrasts with the cuts to foreign aid. If we don’t do our usual kowtowing to America’s perceived strategic priorities, threats to Australia’s regional interests are more likely to come from issues better combated with aid than semi-operational F-35s.

But there’s no Abbott-era rule of thumb for that.

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