2 Percent Defence GDP Promises Article May 2023

VOTERS – Beware the Defence 2%-ers


New Zealand voters go to the polls in October. The policy lottery has begun with a range of pre-budget announcements from the Government on defence and the first party policy announcement – from the ACT Party – in its alternative budget.

ACT is promising to increase defence spending over the next four years to 2% of GDP. They envisage front end loading of operating spend to sort out personnel issues while capital will be increased toward the end of the four-year period to give Defence time to decide what they want and order it.

If you asked the average person in the street about defence funding, they would tell you that the NZDF has got billions from the government. They might add that, with all the new equipment, it is in the best position ever except for personnel numbers but that’s no-one’s fault really. It’s just the economy. Others, if asked about spending more would reply “Haven’t we spent enough already?”

The fact is we do not spend enough on defence when it is viewed in the context of national security and the long lead times (think 8-10 years) required to increase capability. However, expressing defence spending as a percentage of GDP isn’t a useful measure. The 2% of GDP target often referred to is simply a message sent out from the US to its allies years ago to try to get NATO members to front up and not assume the US would foot the bill for everyone. We could spend twice the amount we currently do and still not achieve the desired outcome. That’s because of the ‘multiply by zero effect.’ Spending $5b annually, for instance, on the Navy without addressing other battlespace capabilities would not improve national security and would actually detract from it.

The right amount of money to spend on Defence is a function of our national security strategy – something that doesn’t exist. Is our strategy to be aligned with others and if so, what arrangements are in place for them to protect NZ? Should we be more self-reliant in case our allies don’t come? Should we adopt a position of armed neutrality like Ireland and Switzerland? This would not stop NZ participating in UN peacekeeping operations. It would, however, require a much more capable force than the current NZDF. A paper is available on NZ’s national security posture options.

One of the biggest problems in extracting best value out of Vote Defence Force is the government’s accounting method. Observers worldwide are bemused by the fact that the money for defence is allocated then a significant proportion is taken away in depreciation and capital charge. Defence, like schools and hospitals, must be asset heavy. They can’t just sell a ship or find other work to balance the books.

In 2017-2018, over 30% of Vote Defence Force was clawed back in depreciation and capital charge. That amounted to nearly $385m and recurs annually with slightly different numbers. To keep the force running operationally, the Defence Minister has to go into each budget round trying to get one-off top ups which is ‘churn’ pure and simple. The recent top up by the current government of $419 million is an example of that. That ‘wage increase’ just takes NZDF personnel back to the point in market terms that they were in 2017.

When Defence takes on expensive new platforms like the P-8s, they will take a corresponding hit on operating funds because of this. It’s unsurprising that the cost of holding a war reserve or back up training areas is prohibitive. If the Defence Estate (land and buildings) and a Contingency Reserve Stock were ‘owned’ by NZ Inc instead of Defence, a significant financial burden would be lifted and improved capability would result.

A progressive government would exempt the NZDF from these elements of the relevant legislation.

Any party that proposes to increase defence spending has my support in principle. But a party like ACT that is against wasteful spending must surely see the folly in the way they are presenting this. This policy appears populist rather than objective about national security.

The New Zealand Defence Force will happily take the extra money. Then they will go back to business as usual, guided by the 100+ strategists all working on how to ‘win’ that money off other groups within defence and the larger security sector.

That will only change when voters make it so. Ask candidates and their parties for a clear explanation of how they will enact a national security strategy for New Zealand and how their budgetary proposals support that.

UNCLAS Patreon and BuyMeACoffee Prompt
UNCLAS Patreon and BuyMeACoffee Prompt