Trump demand on Australian defence spending would leave $200b crater in budget
Washington: Meeting the Trump administration's demand for Australia to boost defence spending to 3.5 per cent of GDP would cost the federal budget a whopping $210 billion extra over a decade, according to analysis of Parliamentary Budget Office figures by this masthead.
The Trump administration ratcheted up pressure on Australia and other Indo-Pacific allies on Friday, again calling for an increase defence spending to 3.5 per cent of GDP after being emboldened by an agreement from its NATO partners.
The mounting pressure from Washington on Canberra to spend more on defence comes as the Albanese government grapples with the ballooning cost of the National Disability Insurance Scheme, and calls from the states for more money to be spent on health.
White House press secretary Karoline Leavitt told this masthead: 'If our allies in Europe and our NATO allies can do it, I think our allies and our friends in the Indo-Pacific region can do it as well.' She said she would leave discussions of specific countries to the president.
The administration has already asked Australia to lift defence spending to 3.5 per cent from a projected 2.33 per cent by 2033, something the government says it is assessing. But the NATO decision to move to 5 per cent makes it more difficult for Australia and other partners, such as Japan, to refuse.
Modelling prepared by the independent Parliamentary Budget Office for the opposition on its policy to move to 3 per cent of GDP suggested the overall cost would be approximately $156 billion, and add $24 billion in interest costs. Moving to 3.5 per cent by 2035-36 would cost an estimated $182.5 billion, with an extra $27 billion in interest payments – a total of $207.5 billion.
At present, Australia spends just over 2 per cent, or about $56 billion per year, on defence but the acquisition of nuclear submarines and frigates, for example, $56 billion per year and is expected to rise to $100 billion over the next eight years.
'The developments at NATO suggest that the president and his team will be very keen that allies in the Indo-Pacific region follow a similar pattern in a commitment to increase defence expenditure,' said Arthur Sinodinos, a former Australian ambassador to the US, who is now at The Asia Group and co-chair of the AUKUS Forum, a group for AUKUS-related businesses.
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