Posted by Greg Sheridan has an interesting piece in The Australian today on the decline in defence spending. His central claim is that cuts to defence in the Budget means that our defence spending, as a percentage of GDP, will be lower than at any time since 1938.
His graph though didn’t allow a proper analysis of recent funding because WWII pushed the scale so high that any changes since Vietnam were almost indiscernible.
So here is a graph of funding since Vietnam. I have used real dollars, not % of GDP, because that is probably a more accurate measure of our actual force capability.
I was surprised to find that the preconception that the Coalition spend more on defence than Labor really does hold true. Growth in defence spending, in real terms, under Fraser was 3.9%, under Hawke-Keating 0.5%, under Howard 3.7% and under Rudd-Gillard it is heading for 1% by 2014.
The Rudd-Gillard period is interesting though. Rudd began with big increases in defence spending, 11.2% in 2008 and 6.7% in 2009. Rudd also promised 3% real growth in defence spending until 2017-18 in his 2009 defence white paper. This growth is represented by the red-outlined, white bars in the graph.
Since then defence spending has been flatlining, and the $4 billion in budget cuts announced this week, will make it go into reverse and decline by 8% by 2014. The shaded red bars represent defence spending before the budget cuts.
(I have updated the ASPI Almanac with the cuts from Budget paper no. 2. There is another $2.1 billion cuts that I have not been able to include in this chart because ASPI’s figures only go to 2014.)
These cuts mean that defence spending will fall $6.5 billion short of Rudd’s 3% white paper target in 2014. Perhaps Rudd’s target was unrealistic but spending will still be $4.5 billion less in 2014 than if the Rudd-Gillard government had kept the Howard government growth rate of 3.7% since 2007.
What is the most concerning aspect of these cuts is that they seem to based on the government’s political needs to deliver surpluses not Australia’s security needs.
ricardian ambivalence 
Interesting, and very nice graph. What software birthed it?
Thanks. Just excel on a macbook. But the principles behind the design come from this book, which is very good.
http://book.flowingdata.com/
How, as an economist, you can perceive defence cuts as anything other than a good thing is beyond me. What are these security needs that require resources transferred away from productive uses? Are you really an economist?
Sorry I have been away so I haven’t responded.
I am an economist but I think that is one of the problems with economists, they often display a naive ignorance of power and strategy.
Basic game theory models tell you why defence spending is important.
Thanks for your response. I didn’t mean to sound condescending. I am not saying that defence spending is unimportant. However, you would have to rely on some more than the embroidery of game theory to convince me that there isn’t currently an over-expansion of that sector. (I know it’s a blog and you are not expected to write a peer-reviewed paper.)
Cheers!
Feel like overlaying a graph depicting Australian/global economic growth over the same period?
Also, I notice the largest individual increase in defence spending was made by Labor, in 2008.
What would be more meaningful is a chart showing the relativity of defence expenditure to government revenue, which should reflect an increasing percentage of revenue nearing 20 percent from around 2008 hitherto. All government outlay has to be funded from revenue so if that shrinks, so should an absurdly unrealistic defence budget. Relating defence expenditure to GDP is just smoke and mirrors stuff.
i think you have over-egged it – the govt chooses the ratio of Rev to GDP, and it does not move about all that much.
I think it would be nonsensical for government to adjust defence spending just because revenue fell away. Defence should be planned over decades not the economic cycle.
In any case, why should defence spending be pro-cyclical when so many other parts of the govt’s spending is not.
I agree with you on defence to GDP spending. That’s why I used real spending in $ terms.