China’s Defense Spending Growth Continues Apace

Japan has broken its post-war commitment to keep military spending below 1% of GDP, with last year’s outlays lifting spending to 1.08%. Its spending of US$53.9 billion is only 64% more than Australia’s US$32.8 billion, although its population is five times greater, and its geopolitical challenges are much more immediate.

SIPRI’s data also underlines the US concerns that Taiwan has not been doing enough to secure its future. Taiwan’s spending has drifted lower as a share of GDP from 2.12% in 2012 to 1.61% last year. After allowing for inflation, Taiwan’s military spending has risen by only 7.8% in the last decade, one of the smallest increases in the region.

Facing a similarly threatening neighbor, South Korea, by contrast, spent the equivalent of 2.72% of GDP on its military last year. Inflation is having an effect on the real value of military budgets around the world. SIPRI noted that a nominal 2.9% increase in South Korea’s military spending last year became a 2.5% fall, after allowing for inflation.

Across the region, India is the second largest military spender, followed by Japan, South Korea, Australia and Taiwan. Australia’s spending is two and a half times greater than Taiwan’s, although the population size is similar.

While most nations in the region are focused on China’s rising military strength, the Russian invasion of the Ukraine has brought an increase in spending in Europe and in the US.

The US retains by far the largest military with spending of US$812 billion last year—almost three times that of China. Its commitment of 3.45% of GDP is one of the largest in the advanced world, exceeded only by Israel (4.5%) and by both Russia (4.06%) and the Ukraine (33.5%).

The new appreciation of the threat from Russia has led to an increase in military spending in Western Europe (3% after inflation). The SIPRI estimates, which include military aid provided to Ukraine, show particularly large post-inflation increases last year in Finland (35.6%), Sweden (12%), Netherlands (12.4%), Belgium (12.9%) and Denmark (8.8%). Germany’s spending was up 2.3% while French spending was steady, and the United Kingdom was up 3.7%.

At the recent International Monetary Fund meeting in Washington, its managing director, Christina Georgieva, warned that the ‘peace dividend’, which the global economy has enjoyed since the end of the cold war in the late 1980s, was disappearing. ‘No more can we take peace for granted. Russia invading Ukraine is not only a tragedy for the Ukrainian people; it is a tragedy for the global community because it sends a message that defense expenditures have to go up. The peace dividend is gone.’

Globally, military spending peaked at around 6.3% of world GDP during the Vietnam war in the 1960s. By 1985, it was still at 4.2% of GDP, however following the dissolution of the Soviet Union, global spending dropped to 2.2% of GDP by the end of the 1990s and has largely remained there.

The funds liberated by lower defense spending were redirected in most nations towards welfare, education, and infrastructure. Australia displayed a similar trend. Military outlays peaked at 3.8% of GDP in 1968 during the Vietnam War but had fallen to 2.5% by 1985. Spending then drifted lower, touching 1.6% of GDP by 2013 as the government sought savings to bring the budget back to balance following the global financial crisis.

That pressure for savings meant that the recommendations of the 2010 defense white paper, including its call to replace the Collins submarine fleet, were not acted on.

The problem for the Albanese government in lifting defense spending is that the budget is still deep in deficit, despite near record prices for Australia’s principal commodity exports. Paying more for defense or anything else can only be achieved by increasing borrowing, which would not be a sustainable source of finance if export prices were to fall. The alternative is higher levels of taxation, however neither side of politics is prepared to engage the public in that debate.

David Uren is an ASPI senior fellow. This article is published courtesy of the Australian Strategic Policy Institute (ASPI).