Australia budget keeps defence spending commitments

Significance

With an election due soon, the governing Liberal-National Coalition’s pledge to ring-fence the defence spending commitments made in 2016 was under some pressure. However, defence spending in fiscal year 2021/22 will grow by over 4% in real terms and stay above the symbolic level of 2% of GDP.

Impacts

• Growing popular and bipartisan concern with Chinese aggression is a conducive environment for increased defence spending.
• Low interest rates and a stronger Australian dollar are also supporting sustained levels of defence expenditure.
• Washington may increase pressure on Australia to conduct freedom of navigation exercises in the South China Sea.
• Major business groups are concerned that increased criticism of China in national politics will produce yet more punitive backlash.