ASPI's Justin Bassi on the latest 'Cost of Defence' report
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When politicians talk about global affairs and the region, as you know, 10 years ago, even five years ago, phrases like regional stability, what do we have to do to maintain global and regional stability? We don't have global or regional stability anymore. Now it's a matter of saying how do we regain it?

We need to be upfront with Australia that the war in Europe impacts Australia, the war in the Middle East impacts Australia. Everything China is doing around the region from circumnavigating us, live fire exercises, pressure over Taiwan, aggression in the South China Sea against the Philippines and others, daily cyber attacks,

that all affects us. Welcome to this special short episode of Stop the World, the ASPE podcast. I'm David Rowe. And I'm Olivia Nelson. ASPE this week released our annual cost of defence report, which assesses how Australia's investment in defence matches the strategic challenges the nation faces. And to give our listeners a taste of the findings, ASPE's executive director, Justin Bassey, runs through some of the key points.

And Dave, the numbers are no doubt huge. $53.5 billion this financial year, $56.1 billion next financial year. It's a lot of money at a tough time, no question. But it's unfortunately a business-as-usual approach to a world-knowing crisis and conflict, as the report states.

However unpalatable to taxpayers, we need to spend more, spend sooner and spend better. The alternatives are much worse. That is indeed the message, but Justin will break it down for us in more detail. Just before we hand over Liv, I've got to ask. At ASPE, we sometimes refer to the cost of defence as the COD. So does that mean I can call this episode the COD pod? Absolutely not, Dave.

This is David Rowe. I'm here with ASPE's Executive Director, Justin Bassey. Justin, thanks for coming on Stop the World. Let's talk cost of defence. Looking forward to it, Dave. Now, look, I'm going to give you a bit of a lead in here. Australia is increasing defence spending, certainly. The government reasonably points to that. But what tends to get missed is a secondary consideration, which is the trajectory of the increase. Now, the

Defence Strategic Review put out a couple of years ago said that defence funding should be increased, quote, to meet our strategic circumstances. So it's really the second part of that sentence that we need to focus on for a moment. I went back and checked when...

The first formal mention of 2% of GDP as a target for Australia's defence spending happened and that was the 2013 Defence White Paper put out under the then Gillard government. They committed to increasing defence

funding towards a target of 2% of GDP when, quote, fiscal circumstances allow. Tony Abbott then went to the 2013 election pledging to lift spending to 2% of GDP within a decade. Now, I think back to 2013 and I sort of dream of the strategic circumstances we had then. It was post-Al-Qaeda. It was pre-ISIL. It was a full year before Xi Jinping came and spoke in the Australian parliament about

It was before Russia took and occupied Ukraine. So as a bit of a runway for you, Justin, just talk me through what needs to happen with defense spending. What does the cost of defense report find on that, both in terms of the total that needs to be spent and when we need to spend it?

thanks dave i i think you set out the strategic circumstances very very well and simply and why you always need to look at your defense budget in the context of what those strategic circumstances are what you set out is that all the way back in 2013 australia along with other countries were looking at a defense spend of two percent of gdp as a target

NATO had that same target. Obviously, we know that NATO didn't, many of the nations within NATO didn't reach that target.

What we saw with the Defence Strategic Review in 2023 was a very standard but important statement that said there should be an increase in defence spending to meet what our strategic circumstances are. And the government's own assessment that, with which I agree, and which is bipartisan across government and opposition over the last several years,

is that, unfortunately, Australia faces an increasingly dangerous time. And in fact, it is the most dangerous times since the end of World War II. That being the case, if that is the assessment, and it's not just our assessment here at ASPE, that is the government's own assessment.

Once you make that assessment as a government, you then have to say, if we're living in more dangerous times than we were previously, we need to counter them and we need to increase the resources and the investment into our defence and security to meet those more dangerous times.

And the problem is that while we are absolutely seeing an increase in defence spending, and for many years Australia can be very proud of carrying its fair share of the security burden, but we are not seeing the increase necessary today to meet what the government is saying are the dangers that we face. So in the 2025-2026 financial year, we are set, Australia is set to spend 2.05%

of GDP on defence. So that is 2025, 2026. So you go back to your statement that the

The Gillard government in 2013 was saying they would head towards 2% from 2013. In a period where, as you set out, we had begun to defeat al-Qaeda, we hadn't yet at that point seen the rise of ISIL, and state-on-state conflict hadn't come back the way we, of course, see it now. Since then, we have had not just Russia take control,

We have had the full-scale invasion by Russia of Ukraine. We have got war in the Middle East. We've got a rising China that is threatening to unify Taiwan. It is aggressively invading.

each day acting out against the Philippines in breach of the Hague ruling in relation to the South China Sea. We ourselves were circumnavigated by the PLA Navy. So all these circumstances that go towards the assessment that the government has made requires, you would think, more of a spend.

2.05%, the Prime Minister and the government correctly point out that they are looking to increase our spending. And they refer to an increase in spend to around about 2.33%. But importantly, that is a projection to what the spend will hopefully be in 2033-34. Again, almost 10 years away. Well, I mean, eight full financial years.

in budget terms away from where we are now. We're still bumping around the 2% mark, which was first talked about, as I say, 12 years ago. So just quickly, what do we need to spend urgently now? Well, let me rephrase that. What do we need to buy urgently now in order to meet the nearer term risk?

We are under-investing in cheap mass-produced capabilities like drones and counter drones. And those capabilities, we are needing to learn the lessons of what we do see around the world, including the conflict in Ukraine.

We are seeing how important those mass-produced and cheaper capabilities are. And those are the areas that Australia should be not just looking at how Ukraine and Russia are using them, but we should be saying we have situations

several great companies, small to medium companies that can specialize in these, that do specialize in these capabilities. And we should be investing in those types of capabilities too. We should also be bringing forward some of the other capabilities that we had previously set in the longer term when we didn't have the strategic circumstances. At the same time, of course- Such as?

Well, we should be looking to do our integrated air and missile defence systems more quickly. There are a range of other capabilities that, of course, does take a

a lot of money, requires a lot of investment, but we do have the ability both to work with our partners, but also to work with our own companies locally so that we can have that very important combination of working with our allies and working with Australian companies to get that sovereignty that we need. And yet a huge portion of the defence budget right now is being soaked up by

by the costs, the long-term costs of meeting, of developing those exquisite platforms which won't come online until years, you know, we're talking about 2030s and early 2040s there in the case of the Orcas submarines. I mean, just to play devil's advocate for a moment, if we're talking about no longer having a business as usual approach, it almost feels a bit like

big expensive exquisite platforms costing hundreds of billions of dollars in this case of the AUKUS Pillar 1 program that almost feels like a business as the usual approach to um to defense capability

What's the argument? What do we say to people who say, look, you know, I mean, Orca submarines, lovely to have, but a long way off, really risky. There are so many things that can go wrong with it. It's going to cost, I forget the figure now, $360, whatever it was, $70 billion. Are we not better off just putting that on ice for the time being and spending more on those urgent things now?

It's a very legitimate question and it's an important debate and we should be having the debate publicly. But it is not the case that if we simply said, if the Australian government said, well, we're going to terminate the AUKUS partnership and not going to proceed with the nuclear submarines, that there would suddenly be more money available this year to be able to put into those underinvestments in cheaper mass-produced capabilities. Why? Because, as you said, these exquisite capabilities

that we are spending a lot of money on

are due to come into fruition in the late 2030s, into the 2040s. So it's the next generation effectively. And that's where a lot of that money, that $368 billion will be coming from, will be spent. And then, of course, sustainment, once we have those capabilities, costs a lot of money. It is often, of course, put by some commentators and those concerned by the cost. Why can't we get, why do we need the Orca submarines at that expensive $368 billion cost?

Again, it's a really important question and there should be more discussion on it. Here is my best answer for that, is that we did choose a cheaper option. Australia did choose a cheaper option in 2016 to go with the attack class French diesel submarine, but not because it was slightly cheaper than the nuclear option. In 2016, there was firstly no nuclear powered attack.

a submarine option. But secondly, the assessment from defence and security experts accepted by the government was that the diesel submarines could be developed that would be regionally superior and meet the defence operational needs that Australia had.

And therefore, you didn't need to go to the more expensive, exquisite capability of nuclear submarines. But in the years after that decision, the realities of China's military and technological rise meant that that assessment changed. And the assessment was given to government to say that diesel submarines were not going to meet Australia's defence standards.

operational needs. Now, once the government receives that advice that says you're going to be spending already a lot of money on this particular capability, but it's not going to be the capability that you need, it's not going to be fit for purpose, then a government has to make a decision to say, are we going to put still a lot of money into this particular capability knowing that it's not going to do the job?

Or are we going to make the decision to spend a bit more money to get the capability that is required for our defence and security? And so that's why in this case, unfortunately, more money is required to get the capability that we need. But even knowing that, that that is a more expensive capability that we're going to get in the 2030s, 2040s, 2050s, doesn't change the fact that we need more money spent now, not waiting for that capability 10, 20, 30 years into the future. Okay.

Okay, so we need them, in short. I mean, we're making a reasonable calculation that they will be militarily relevant in the late 2030s, early 2040s, and look, we're just going to need them. And yes, and I think it's also important because the other argument that is given, not just from cost, is to say, well, with the way that technology is going, is it possible, or it is possible, that those nuclear submarines themselves might not meet our operational needs the way that was assessed in relation to diesel submarines? Yes.

Is that possible with the technological changes? Sure. But it's not actually the exact capability that we're talking about today that is vital. The AUKUS partnership is the crucial element because as technology develops, the whole point of being together with our US and UK allies is to ensure that we can continue developing ourselves. And so that if there is that technological change, as a partnership, AUKUS will change a

along with it. And also remembering that notwithstanding technological change, China as our strategic adversary who is leading that technological change, that is worrying our security and defence officials about what our capabilities are and whether Chinese technology will be supplanting our own superiority and America's own superiority,

China is not stopping its own development of these types of platforms. They don't just have nuclear-powered submarines. They've got nuclear-armed submarines, and they're making more of them. So if we're wrong, the whole world is wrong, basically, because everyone's gambling on the same thing here.

One of the challenges for any government is explaining why they're asking the nation for some of its hard-earned dollars and why they're spending those dollars the way they are. Nobody wants to pay more tax, of course. Nobody wants to see cuts to some other area. It's a pain.

areas of spending like welfare, healthcare, education, these sorts of things, they deliver benefits to people day in, day out. Defence is a little bit different. It's more like an insurance policy, if you can put it that way. I mean, I hate paying house insurance. It's $2,000 a year. It bugs me to hell, but it's going to be much, much worse if my house burns down or if I get broken into or whatever. So explain, well,

I guess the other question is, of course, we don't want to fight a war. A war would be catastrophic. It would be catastrophically expensive. Just talk me through what's the strategic purpose of spending on defence now? What are we actually trying to achieve in the future with that money?

The strategic purpose of investing in defence is to avoid war, is to deter war. The key is that when people say, oh, well, there is conversations about defence, therefore people are warmongering. It's the actual, the exact opposite. And the evidence throughout the last 100 years

hundred years, is that it is where nations and groups of nations underinvest in defence that actually then reduces deterrence. It actually incentivises aggressors to act at will, and it leads to a conflict or a war-type situation where, as you say, whatever money you have saved by underinvesting in defence, you then spend tenfold

And so, for example, you don't just have to look to the 1930s where there was a formal policy of disarmament at the same time Germany was rearming. That led to World War II. We have seen the decade leading into Russia's full-scale invasion of Ukraine.

that too many of the NATO countries decided to underinvest in defence and didn't reach that target of 2% of GDP spend on defence. And it effectively said to Putin, well, I am not deterred from doing whatever I like or

All of the little pressure that he and Russia was putting on areas, testing the boundaries, there was very little pushback. In fact, the signs that he was getting from many European countries was that he would get away with more and more because those other countries wanted to have a relationship with Russia, particularly in relation to Russian energy and gas.

And that the irony, of course, is that from February 2022, when Russia invaded Ukraine, all the money that those European countries had saved by not investing in defence, losing deterrence and incentivising Putin into invading. Well, there are no arguments now around 2%.

In fact, a majority of these NATO countries are talking not just 3%, but they're going to the next NATO meeting talking about 5% of GDP. I think Poland is already on track to get there, isn't it? That's right. It's in the 4%. That's right. And if you have to get into a conflict situation, it's not even talking about 5%. You're talking about spending 15%, 20%, 25% of your GDP on...

defence. So it really is important for people to understand that yes, it is of course hard for governments. Governments have got a very, very tough job to manage a budget, particularly when there are economic downturns. And sometimes, unfortunately, defence is an easy one not to invest in because we're able to say, "Oh, isn't Australia lucky? We're not in Europe, we're not in the Middle East, we're not at war, therefore maybe we can save a bit of money on defence in the next few years."

But invariably, though, that's when you start getting yourself into trouble. And just at a time that the potential for needing to deploy the ADF is rising, we are under-investing in defence in the short term. Okay. All right. Look, I strongly urge our listeners to check out the Cost of Defence report. You can find it online at aspie.org.au. Justin, we will leave it there because this is really just a quick taster to get people to listen.

Do you want to add something else? Thank you. You saw my face. Just to say that goes to your last question around how does a government put more investment in defence while having to make some other decisions around taxation or where other sectors might need to have more cuts or be more frugal in to be successful and to be effective?

Governments have to take the public along with them. And that's why a communication strategy, a narrative is just as vital as the capability. We need to be more upfront with our society that unfortunately the world isn't a safe place. We no longer, when politicians talk about global affairs and the region,

As you know, 10 years ago, even five years ago, phrases like regional stability. What do we have to do to maintain global and regional stability? We don't have global or regional stability anymore. Now it's a matter of saying, how do we regain it? We need to be upfront about

with Australia that the war in Europe impacts Australia, the war in the Middle East impacts Australia. Everything China is doing around the region from circumnavigating us, live fire exercises, pressure over Taiwan, aggression in the South China Sea against the Philippines and others, daily cyber attacks,

That all affects us. That's just China. Of course, just a few weeks ago, we had Pakistan and India. Their tensions fled up to nuclear-armed nations. So the world is, at the moment, a very unstable place. We need to be up front with the public to say we need to act in a way that is going to do everything possible to avoid a situation where Australia has to involve itself in a conflict. And that needs not just diplomacy.

As we're seeing with Putin right now, the attempt to charm him out of withdrawing from Ukraine or the attempt to negotiate by giving him all carrots and no sticks doesn't work. Hard power is necessary to deter. It is also required, Dave, that unfortunately if deterrence fails, you need to be prepared as a nation.

And we're seeing it again in Europe that they not only did they lose to Terence, but they initially weren't prepared for the war that they now have. We should be doing all those things at once.

Okay, thanks, Justin. That's a really important point. And let me just quickly add that one issue the Cost of Defence Report does really helpfully address is that this is not just an issue for the military. Yes, we pay for a professional military. They are our primary instrument of hard power. They're very important in that way. But it's not like...

something you outsource, where you just pay somebody to go and deal with it. It's not like hiring a tradie to come in and fix your toilet or something else in your house. You don't just pay to make a problem go away. This is a whole of nation responsibility, a whole of nation enterprise. We need to work on our national preparedness, our national resilience together, and we need to remember that that involves all 27 million of us.

Justin, thank you for coming on Stop the World. Great chat. I urge people to go and look up the report. Thanks, Dave. Thanks for listening to this special short episode of Stop the World. We'll be back with another episode next week. Ciao.