My last article canvassed whether New Zealand should increase defence spending to 2% of GDP, and what would a decision entail. Since then, the case to do so has become stronger. However, this also means developing a clear understanding of how best to undertake this goal.

What would be the priorities and over what time frame would such a plan be implemented? Would it be possible to get a cross party political sign up to this plan?

To answer the second question first. It would only be possible to get cross party political sign up if the increase could be staged in such a way so as to not disrupt overall government spending plans. Defence is never the first priority of the New Zealand electorate. Other things matter more, particularly education and heath spending. Therefore, any increase in defence spending has to be phased in such a way so as not seriously affect other government priorities.

To get a sense of the scale of the task, an increase to 2% of GDP from the current 1.5% is an increase of $1.5 billion above the current level of defence spending.

Delivering the whole of such an increase in defence spending in one year would take up most of the annual new allowance in government spending, which is typically up to $3 billion per year, excluding inflation. Even if the increase to 2% of GDP is evenly spread through to 2030, the annual increase would still need to be around $200 million each and every year. This is between 7 and 10% of all of the projected annual increase in government spending.

This is probably not realistic. Neither the Prime Minister or the Finance Minister, whether the government is National led or Labour led, would be prepared to make such a commitment.

Much more likely would be a commitment to 5% of the annual new allowance. This would be between an extra $100 and $150 million on defence per year, excluding inflation. It is worth noting the increase is cumulative. An annual increase of $100 million per year represents an extra $800 million in 2030, due the baseline effects, and would lift defence spending to 1.7% of GDP.

Some may ask why I started by answering the second question first. Surely the approach should be to work out what capabilities defence needs, then tailor defence spending to that. My reasoning is based on political experience. Even if the case can be made out to increase defence spending, it still has to fit within the competing priorities of government. Ministers would baulk at defence consistently taking 7 to 10% of the annual increase in government spending. Five percent is much more likely to be achievable.

If we accept this premise, then it will be possible to match capabilities to the available budget. In my last article I argued that it will only be possible to expand on existing capabilities, not introduce major new capabilities, at least not of the scale of a traditional air combat force.

Some things would have to be done soon, if they are to be done at all. A decision to increase the Poseidon P 8 fleet from four to six (or to five) would have to be made within the next two or three years, before the end of the production of the aircraft. Similarly, a decision to purchase surplus Australian NH 90 helicopters or the purchase of additional fixed wing aircraft.

Replacing the Project Protector fleet can be made after 2025. These ships will be around 25 years old in 2030. However, the nature of the ships is such that they need not take a decade to procure and then bring them into service.

Building the Army to a force of 6,000 personnel is something that would be progressively achieved. An additional training intake in each year would build numbers to around 6,000 by 2030.

The overall cost of these decisions is reasonably manageable. The replacement of the Project Protector fleet would be the most expensive, costing up to $1.5 billion, depending on the specification of the ships. The overall cost of all these decisions would be in the order of $3 billion.

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Spread over eight years, the additional cost requires an additional $100 million each and every year. These procurements will be additional to the existing capital plan.

As ever, the real challenge is beyond 2030 and it is the replacement of the ANZAC frigates. No matter what the choice of the replacement combat ship, the cost won’t be less than $1.5 billion per ship. If only two ships are purchased, then this will fit within the existing capital plan.

Defence spending at 1.7% of GDP, with the expansion of the NZDF as suggested above, will readily allow the replacement of the ANZAC frigates on a one-to-one basis. Increasing the combat fleet to three ships will require a further increase in defence spending from 1.7% of GDP to 1.8% of GDP.  

It is worth noting that when the ANZAC frigates were purchased in the 1990s, the New Zealand population was four million. By the 2030s the population will be six million. The same comment could also be made about the size of the Army and the numbers of aircraft in the Airforce.

In relative terms the NZDF has been progressively shrinking since the 1990s as a percentage of both the population and the economy, the recent change to NATO accounting standards notwithstanding. The sort of increases envisaged here will restore the relative size of defence, both in terms of personnel and overall capability, to where it was at the turn of the century.

Some readers will recall that in the 1990s, New Zealand had a small air combat force of A4 Skyhawk aircraft. At the beginning of the 1990s, New Zealand spent 2% of GDP on defence, but this had declined to less than 1.5% of GDP by the end of the 1990s. At this point the air combat force was fundamentally unaffordable. The 35-year-old A4 aircraft were not replaceable except by what was virtually a gift of ten-year-old F 16s.

To re-establish a small, one squadron, air combat force of new F35s would cost $4 billion in capital with ongoing annual costs in the region of $500 million. This would push up the defence budget to beyond 2% of GDP. The same arguments about the utility of such a capability, given the cost, would be as applicable today as they were in the 1990s.

New Zealand can afford an appreciably enhanced defence force that will cost less than 2% of GDP. The increase in both capability and cost can be spread over the next decade, so that Ministers are not faced with the prospect of defence squeezing out other expenditure that is likely to have greater appeal both to the government and the public.

Over the last decade the strategic environment has changed sufficiently to justify an increase in defence spending. The government’s own defence policy documents clearly testify to this change. That rhetoric now has to be translated into a tangible increase in military preparedness.