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With debate once again focusing on the nation’s rate of defence spending, Major General (Ret’d) Mick Ryan AM is calling for some out of the box areas to be priority for us to hit the new NATO floor of 3.5 per cent of GDP.
Washington’s growing demands for higher Australian defence spending have stirred unease in Canberra, reflecting discomfort with President Donald Trump’s blunt diplomacy and a deeper reluctance to accept that America can no longer shoulder the global burden alone.
This has placed Australia in a delicate dispute with its principal ally, as the government signals both a continued commitment to the post-war order and an insistence that it alone will decide how much to invest in defending it.
Since 1945, the United States has underpinned global stability through military dominance, economic dynamism and institutions such as the IMF, World Bank and NATO.
This Pax Americana contained communism, deterred conflict and built a rules-based order that delivered unprecedented prosperity. Yet by the late 20th century, American primacy was under strain from the rise of rival powers, economic volatility and growing domestic division.
Today, Washington finds itself overstretched and increasingly impatient with allies it sees as failing to pull their weight.
Australia has long relied on the alliance for its security and prosperity, but the Indo-Pacific is now the centre of strategic competition. Canberra, like other regional partners, is being pressed to take on more responsibility. Trump’s return to the White House has sharpened this pressure, with his administration making it clear: allies must pay more for their own defence.
Prime Minister Anthony Albanese, however, has resisted calls for a dramatic lift in spending. He continues to back the trajectory set out in the 2023 Defence Strategic Review and the 2024 Integrated Investment Program and National Defence Strategy, which project spending at 2.33 (or is it 2.8 per cent?) per cent of gross domestic product (GDP) by FY2033–34.
Responding to US Defence Secretary Pete Hegseth at the Shangri-La Dialogue, Prime Minister Albanese emphasised that Australia would set its own defence priorities, pointing to an additional AU$10 billion already committed to capabilities and regional partnerships.
Since the 2020 Defence Strategic Update and Force Structure Plan, Australia has shifted towards advanced capabilities, including long-range strike, cyber defence and conventionally armed, nuclear-powered submarines.
This reflects a recognition that Canberra must help preserve peace and stability in the Indo-Pacific while continuing to uphold the pillars of the post-war order.
Yet the debate remains shaped by the long-standing problem of “budget driving strategy” rather than strategy setting the budget, a legacy of Cold War-era doctrines centred on continental defence and long “warning times”.
Current projections of 2.3–2.5 per cent of GDP by 2033–34 fall well short of President Trump’s reported expectation of a 5 per cent floor for NATO allies.
For Australia, the challenge is balancing alliance credibility with national autonomy, while managing fiscal constraints. At the same time, the rise of emerging powers such as India and Indonesia and the disruptive activities of non-state actors like the Iranian-backed Houthis highlight the fragility of the existing order.
In this contested environment, Canberra must decide how far it is prepared to go in meeting American demands and whether its defence strategy will finally be allowed to drive the budget, rather than the other way around.
Adding further fuel to the ongoing debate is Major General (Ret’d) Mick Ryan AM in a piece for the Lowy Institute’s Interpreter, titled A 3.5% of GDP defence budget: Why, how, and what, in which he outlined how he believes Australia can reach 3.5 per cent of GDP for defence spending and what the boost in funding could be spent on.
Ryan began his analysis stating, “Australian defence analysts have been calling for increased defence spending for some time. China’s increasingly aggressive behaviour, AUKUS funding pressures, and the growing cost of a smaller fleet of high-tech, high-cost equipment has added to the impetus for a defence budget that reaches well beyond the government’s aspirations to grow spending to 2.4 per cent of GDP by 2033–34.”
It is important to understand that these calls are not happening in isolation, rather there is an increasing choir of “like-minded” nations, including the United States, Japan, South Korea, the United Kingdom and others who are expecting that Australia will lift its own rate of defence spending, in line with the global and regional deterioration.
Mounting pressure
The debate over how much Australia should spend on defence has become sharper in recent years, particularly as Washington has pivoted from assuming global security leadership to pushing its allies to carry more of the load.
The Trump administration has signalled that the era of the United States absorbing most strategic and military costs is drawing to a close, something most of Australia’s policymaking community and public seem at great pains to accept.
For Canberra, this creates a challenging moment: how to maintain alliance credibility, uphold regional security and yet remain sovereign in making defence choices especially around spending. US Secretary of Defence Pete Hegseth has recently urged Australia to lift defence spending to 3.5 per cent of GDP as soon as possible.
This is well above Australia’s current level, which sits a little over 2 per cent of GDP. However, Australia’s government, led by Prime Minister Albanese and Defence Minister Richard Marles, is resisting that high-water mark.
While the government has committed to raising defence spending to about 2.3 per cent of GDP by FY2033–34, and the opposition has proposed 2.5 per cent by 2030, moves towards anything like 3.5 per cent are seen as a major leap.
Creative accounting and missing the forest for the trees
A critical strand of commentary emphasised that looking at defence spending as a share of GDP is useful for signalling or benchmarking but is a crude measure in many ways.
As Lowy Institute analyst Sam Roggeveen wrote in one recent piece, “Don’t get too hung up on the figures – measuring defence spending as a percentage of GDP is a ropey business.”
Another article argued that the long-standing target of 2 per cent of GDP has always been more about alliance management than strategy. For example, Andrew Carr and Peter Dean observed that the 2 per cent benchmark “helps the US to manage the very excuse implied … ‘other US allies aren’t pulling their weight, so why should we?’”
They pointed out, however, that defence planning grounded in Australia’s own strategic circumstances might, in fact, require levels well above 2 per cent.
A game of trade-offs
Australia’s strategic posture has evolved under its Defence Strategic Update and force structure plans. Key priorities now include resisting coercion, enhancing capabilities in long-range strike, bolstering cyber defence, maritime security, and delivering on AUKUS (including conventionally armed nuclear-powered submarines).
Costs are high, lead times are long and many projects scheduled late in the decade.
One core challenge is balancing ambition with political and fiscal reality. Shifting from a doctrinal posture rooted in continental defence and long “warning times”, Australia is now wrestling with quite different regional dynamics: a more aggressive China, a less predictable US posture and the rise of asymmetric threats.
But does the danger of military attack justify spending jumping to 3.5 per cent? Some analysts caution that unless threat assessments change sharply, spending beyond 2.5 per cent might be hard to sustain without cutting elsewhere or increasing revenue.
Where to from here
The picture that emerges is one of mounting pressure, cautious resistance and competing priorities. Alliance expectations are front and centre, with Washington pressing hard for Australia to lift its defence budget to 3.5 per cent of GDP – a steep jump from current levels. Canberra, however, is choosing a more measured path.
Government projections point to moderate increases over the next decade, with spending rising to somewhere between 2.3 and 2.5 per cent of GDP by 2030, well short of what the US is demanding.
Yet focusing only on percentages risks missing the bigger picture. As analysts regularly point out, measuring defence spending as a share of GDP is a blunt tool. It may carry symbolic weight and help manage alliance politics, but it tells us little about actual capability, readiness or the health of the industrial base needed to sustain the force.
Numbers alone cannot capture whether Australia’s strategy and spending are properly aligned.
At the same time, the strategic environment is becoming more dangerous. Concerns are growing across public and policy circles about coercion in the Indo-Pacific, the reliability of allies if America shifts its focus, and the disruptive potential of non-state or asymmetric threats.
These anxieties are slowly reshaping Australia’s defence posture, with greater emphasis on long-range strike, cyber resilience and undersea capabilities.
Public opinion is also shifting, though unevenly. A narrow majority of Australians now support higher defence spending and major projects like the acquisition of nuclear-powered submarines continue to enjoy broad backing.
But the picture is not uniform: support varies by age, geography and political affiliation, and there remains a sizeable minority that is sceptical of pouring more into the defence budget.
Even where support exists, there are practical limits. Big-ticket programs like AUKUS submarines or advanced strike systems take years – sometimes decades to deliver and must compete with other pressing national priorities.
Any rapid rise to 3.5 per cent of GDP would require significant borrowing, tax increases or cuts elsewhere in the budget. These fiscal, industrial and political constraints mean that even if the will exists, the way forward is far from simple.
In the end, Australia’s defence debate is caught between the weight of alliance expectations, the realities of limited resources and the uncertainties of a changing strategic environment.
The challenge for Canberra will be to find a balance that strengthens capability and credibility without overstretching national means.
Final thoughts
For Australia, the coming years will be about navigating between expectations and limits.
Can Canberra meet the US demand without undermining domestic priorities? Will strategic reviews translate into capability on the ground and on time?
And perhaps most importantly, will Australia develop its own criteria for what defence spending is sufficient, grounded in its unique strategic circumstances, rather than simply responding to external pressure or benchmarks?
If Australia can maintain clarity in what it needs to defend and when and with what capabilities, it will be in a stronger position to argue for its chosen level of spending.
But if the debate remains framed only in terms of GDP percentages, with “3.5 per cent” as a mantra, the risk is that big numbers dominate political discourse without matching capability or clarity of strategy.
Or simply put, Australia will continue to go around in circles at a time when we can ill afford to.
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at
Stephen Kuper
Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.
