China, India and Japan are leading a surge in military spending in the Asian region with geopolitical tensions pushing South Korea, Australia and Taiwan, among others, to follow suit.

China’s military spending now exceeds the combined outlays of the next 25 biggest nations in the region, for which there are reliable estimates, according to the Stockholm International Peace Research Institute’s (SIPRI) annual survey ^[1]. It does not make estimates for Vietnam or North Korea.

The survey shows China lifted military spending by 4.2% (after allowing for inflation) last year to the equivalent of US$298 billion. With a fast-growing economy, China has been able to lift spending each year for almost three decades while the military outlays recorded by SIPRI have been trending lower as a share of GDP, currently standing at 1.6%.

China’s spending growth has outstripped that of other nations in the region, rising by 75% over the last 10 years. The average across the rest of the region has been 33%. Ten years ago, China’s military spending was the same as the combined outlays of the next five biggest nations: India, Japan, South Korea, Australia, and Taiwan. In 2022, China’s spending exceeded that of the next five nations by US$70 billion.

SIPRI records that Australia’s spending has been trending lower, dropping from 2.1% of GDP in 2016 to 1.9% last year. The 2020 defence strategic update ^[2] noted that the defence budget had been ‘decoupled’ from measures of GDP so that it did not have to be adjusted for every shift in the economy, however it remains a useful benchmark for comparison. Defence minister Richard Marles has confirmed plans to lift spending to 2.2% of GDP and raised the possibility it may have to rise further.

The new defence strategic review ^[3] did not quantify the cost of its recommendations but noted that managing the defence budget would be difficult given severe pressures on maintaining the defence workforce and funding both existing capabilities and those it has recommended. It noted that ‘defence spending must be a reflection of the strategic circumstances our nation faces’.

The SIPRI database shows that India lifted its military spending last year by 6% (after allowing for inflation) while Japan increased its spending by 5.9%. India is managing tensions with both China and Pakistan and spends the equivalent of 2.43% of GDP on its military. India’s spending is seven times greater than Pakistan’s although it also devotes 2.63% of GDP to its military.

Japan has broken its post-war commitment to keep military spending below 1% of GDP, with last year’s outlays lifting spending to 1.08%. Its spending of US$53.9 billion is only 64% more than Australia’s US$32.8 billion, although its population is five times greater, and its geopolitical challenges are much more immediate.

SIPRI’s data also underlines the US concerns that Taiwan has not been doing enough to secure its future. Taiwan’s spending has drifted lower as a share of GDP from 2.12% in 2012 to 1.61% last year. After allowing for inflation, Taiwan’s military spending has risen by only 7.8% in the last decade, one of the smallest increases in the region.

Facing a similarly threatening neighbour, South Korea, by contrast, spent the equivalent of 2.72% of GDP on its military last year. Inflation is having an effect on the real value of military budgets around the world. SIPRI noted that a nominal 2.9% increase in South Korea’s military spending last year became a 2.5% fall, after allowing for inflation.

Across the region, India is the second largest military spender, followed by Japan, South Korea, Australia and Taiwan. Australia’s spending is two and a half times greater than Taiwan’s, although the population size is similar.

While most nations in the region are focussed on China’s rising military strength, the Russian invasion of the Ukraine has brought an increase in spending in Europe and in the US.

The US retains by far the largest military with spending of US$812 billion last year—almost three times that of China. Its commitment of 3.45% of GDP is one of the largest in the advanced world, exceeded only by Israel (4.5%) and by both Russia (4.06%) and the Ukraine (33.5%).

The new appreciation of the threat from Russia has led to an increase in military spending in Western Europe (3% after inflation). The SIPRI estimates, which include military aid provided to Ukraine, show particularly large post-inflation increases last year in Finland (35.6%), Sweden (12%), Netherlands (12.4%), Belgium (12.9%) and Denmark (8.8%). Germany’s spending was up 2.3% while French spending was steady, and the United Kingdom was up 3.7%.

At the recent International Monetary Fund meeting in Washington, its managing director, Christina Georgieva, warned that the ‘peace dividend’, which the global economy has enjoyed since the end of the cold war in the late 1980s, was disappearing. ‘No more can we take peace for granted. Russia invading Ukraine is not only a tragedy for the Ukrainian people; it is a tragedy for the global community because it sends a message that defence expenditures have to go up. The peace dividend is gone.’

Globally, military spending peaked at around 6.3% of world GDP during the Vietnam war in the 1960s. By 1985, it was still at 4.2% of GDP, however following the dissolution of the Soviet Union, global spending dropped to 2.2% of GDP by the end of the 1990s and has largely remained there.

The funds liberated by lower defence spending were redirected in most nations towards welfare, education, and infrastructure. Australia displayed a similar trend. Military outlays peaked at 3.8% of GDP in 1968 during the Vietnam War but had fallen to 2.5% by 1985. Spending then drifted lower, touching 1.6% of GDP by 2013 as the government sought savings to bring the budget back to balance following the global financial crisis.

That pressure for savings meant that the recommendations of the 2010 defence white paper, including its call to replace the Collins submarine fleet, were not acted on.

The problem for the Albanese government in lifting defence spending is that the budget is still deep in deficit, despite near record prices for Australia’s principal commodity exports. Paying more for defence or anything else can only be achieved by increasing borrowing, which would not be a sustainable source of finance if export prices were to fall. The alternative is higher levels of taxation, however neither side of politics is prepared to engage the public in that debate.