The Federal Government is weighing up a "guns or butter" economy with the dire strategic threat outlook likely to see a rise in defence spending above current levels.

Defence spending is already expected to peak marginally above the 2 per cent of GDP spend threshold by the end of financial year but department analysts are for the first time since the Cold War looking at whether it should be base set higher.

It is understood those internal discussions have been held since last year with the department sent back to crunch numbers in the wake of the Defence Strategic Update delivered by Prime Minister Scott Morrison.

Internal Department analysts noted Australia had not seen a "conflation of global and strategic uncertainty" in a generation, largely bought on by China's militarisation build-up and regional aggressive posturing and COVID-19.


Defence is set to get a major funding boost. Picture: Brandon Murray/Defence
Defence is set to get a major funding boost. Picture: Brandon Murray/Defence


Defence spending was dramatically cut in 2013 to 1.56 per cent, the lowest level since 1938, forcing the shelving of ambitious expansion plans which in the past 24 months it has urgently tried to catch up.

That will include more cash pushed toward acquisition and sustainment and less on workforce.

The "guns or butter" is a macroeconomic view where a balance is reached in national GDP spending between defence and civilian needs including health, education and infrastructure, largely influenced by strategic military imperatives.

Former government defence, intelligence and foreign affairs adviser and foremost strategists Dr Alan Dupont said there was no doubt China's militarisation program had made the case that it needed to go up and pronto.


China tensions are driving demand for more money in defence.
China tensions are driving demand for more money in defence.

"The big change has been China, not just China's rise but the militarisation, it's assertiveness and the fact it's conducted this big modernisation of its military over the past 20 years," Dr Dupont, the CEO of geopolitical risk consultancy Cognoscenti Group said.

"The amounts of money they are spending and its capability that is the big game changer, the fact that our relationship with China has turned down not just us but the West generally means there is now a case point to increase defence spending.

"Where it would have been hard to make this case even 12 months ago it's been such a shift of thinking now around this that's why I think that substantial increase in spending now is definitely on the agenda where as before, 12 months ago, I think it had virtually no chance of getting up."


Dr Alan Dupont. Picture: Supplied
Dr Alan Dupont. Picture: Supplied


But Dr Dupont said it may not necessarily be in this federal budget to be handed down next week, as a federal election looms potentially by year's end.

"I think there is a reasonable prospect now that the government may be prepared to spend more than 2 per cent of GDP but they might be reluctant to do anything before the next election, because they have to manage the COVID thing and secondly because they've got to be hesitant to go to the next election with more money in the defence box when people are crying out for money elsewhere."

That said, he added he believed the case had been made and particularly so with the government bolting on Australian defence industry involvement on as many acquisitions or productions as possible.

Defence spending this year is expected to be $42.2 billion.

Originally published as Defence push for 'guns over butter' Budget boost