Australia has plenty of room to spend more on defence. History shows that 2.9 percent of GDP is no great burden in ordinary times, so pushing spending to 3.0 percent in dangerous times is very achievable.
Budget watchers are quick to cite difficulties amid current pressures on revenue and expenditure. But historical data is more revealing than a nearsighted view down in the weeds of fiscal policy.
Australia just isn’t trying. For all the talk of deteriorating strategic circumstances, the defence share of GDP has been flat for half a decade, wandering between 1.9 and 2.0 percent.
The issues holding Australia back from spending more on its defence are largely political rather than economic.
The 2020 Strategic Defence Update identified an increase in geopolitical risks in our region and noted the possibility of Australia becoming involved in a major conflict without the formerly assumed 10-year warning time. As a result, successive Australian governments have made announcements about lifting defence spending through initiatives such as equipping the army with long-range missiles, expansion of the navy’s surface fleet and, most dramatically, AUKUS.
However, in terms of GDP, the proportion of total economic output that goes into current defence spending per year has not increased in recent years. It continues to hover around 1.9–2.0 percent of GDP. As shown in the chart below, Australia’s average defence spending as proportion of GDP since the Cold War ended has been 1.9 percent.
On 5 March, Elbridge Colby, head of policy at the US Department of Defense, called for Australia to spend 3.0 percent of GDP on defence. Various Australian defence and security figures, including former chief of the Australian Defence Force Angus Houston and former secretary of home affairs Mike Pezzullo have similarly called for defence spending to be lifted to 3.0 percent of GDP.
Economics writer David Uren recently explained that to lift defence spending to 3.0 percent, Australia would have to either take on additional debt, increase taxes or reallocate money from elsewhere in the government budget. All three of these options would be politically difficult.
While this is a point well made, the details of fiscal policy that usually absorb us become less useful for assessing the defence budget as we move into more unstable and dangerous times. History shows us that sustaining 3.0 percent of GDP spending over a period of time is quite achievable for Australia. The most recent example of this is the Cold War, particularly up until the 1970s.
Sources: SIPRI Military Expenditure Index and Australian government projections
As the chart shows, Australia could sustain average defence spending of 2.9 percent of GDP through the Cold War over 40 years from 1950 to 1991. (The Stockholm International Peace Research Institute dataset which the chart is based on only goes back as far as 1950, not quite the beginning of the Cold War.) This is very close to the 3.0 percent currently being advocated for. During the Cold War, Australia responded to the threat of communism expanding into South-East Asia by maintaining significant forces and often deploying these into various conflicts across our region.
This contrasts with the post-Cold War period from 1992 until now, where defence spending has averaged 1.9 percent of GDP. After the collapse of the Soviet Union, the United States and its Western allies quickly reduced military spending, enjoying a peace dividend due to reduced global geopolitical tensions. From 1986 to 1996, Australian defence spending dropped 0.6 of a percentage point from 2.5 percent to 1.9 percent of GDP. Over the next few years, defence spending remained consistently below 2.0 percent, even during the years of Australia’s involvement in the global war on terror and peacekeeping operations in our region. In 2013, defence spending reached its lowest share of GDP since 1938, just 1.6 percent of GDP.
The years since have seen great increase in geopolitical tensions, both in our region and globally. Yet defence spending as a proportion of GDP has increased only moderately and slowly since 2013, sitting at 2.0 percent in 2025. Under the government’s projections, spending will continue to slowly increase to 2.3 percent by 2033–34.
This is too little, too late. Under current budget restrictions, new defence announcements largely rely on cannibalising existing funding from sources declared to be of lesser priority, rather than on new funding. A recent example of this is the Redback Infantry Fighting Vehicle, which was cut from 450 vehicles to 129 vehicles, at a much higher per-unit cost.
The proportion of GDP should only be used as a rough guide towards spending on defence. What the money is spent on is important. However, the risk to Australian national security was no greater in the Cold War than it is now, and was arguably much lower. The fact that Australia for several decades maintained defence spending at higher levels than now shows that the country is capable of doing the same again.
You’re absolutely right to point out that the U.S. has historically sustained high defense spending during periods of geopolitical tension. During the Cold War (especially in the 1950s-1980s), defense spending often exceeded 5% of GDP, with peaks near 10% during the Korean and Vietnam Wars. Even in “peacetime” phases, it rarely fell below 4% until the post-Soviet 1990s “peace dividend.”
The 2.9% figure you reference likely comes from the late Cold War (e.g., 1988-89), when Reagan-era buildup wound down and GDP growth was strong. Today, NATO’s 2% guideline makes 3% seem ambitious—but historically, it’s modest for a global superpower facing:
- A revanchist Russia
- China’s military expansion (defense budgets nearing 2% of GDP, but PPP-adjusted spending may rival the US)
- Emerging threats (cyber, hypersonics, AI warfare)
Key context:
- GDP Growth Matters: In a 28Teconomy(2023),328Teconomy(2023),3840B—but if GDP grows, the burden eases. Cold War spending was high partly because GDP was smaller.
- Alliance Burden-Sharing: Only 11/32 NATO members hit 2% in 2023. If Europe did more, US could focus on Asia.
- Efficiency Debate: Critics argue waste (e.g., F-35’s $1.7T lifecycle cost) is bigger than budget size.
Bottom line: 3% is fiscally manageable (below New Deal or COVID stimulus levels) if prioritized—but requires political will to trim other spending or accept higher deficits. The real question is whether it’s being spent effectively to deter 21st-century threats.
