How much the Government will need to spend on defence to hit target
Defence spending jumps around from year to year, shooting up in years when big capital purchases like new planes or frigates are made, and crashing down again in years when they are not. It also jumps around depending on who you ask.
The World Bank, which publishes good internationally comparable data, put New Zealand’s defence spending at 1.2% of GDP in 2023, below Australia, which was spending 1.9%. That data is based on estimates from the Stockholm International Peace Research Institute (SIPRI).
Data from Treasury, however, put defence spending at 0.7% for the same year.
By the World Bank measure, a lift of 0.8% of GPD to hit the target would cost $3.6 billion in the next fiscal year – the year that will be funded by the next Budget. Lifting spending by 1.3% to hit 2% Treasury’s calculation would mean would mean spending an additional $5.85 billion.
These are vast sums of money – particularly when the Government cancels projects like the iRex Interislander ferry replacement project or scales back the Dunedin Hospital rebuild for costing too much when both of those projects cost about $3b each.
The cost is one reason why Luxon is perhaps keen to stress he will take defence spending “close” to 2%, without necessarily hitting it. Hitting 2% would mean spending about $8.5b in total in the next fiscal year. In the current fiscal year, the Government will spend about $22.3b on education and $5.1b on housing.
The next step will be the release of the Defence Capability Plan, a far-reaching document that sets out the kit the New Zealand Defence Force will need for the coming 15 years. The plan process was begun under Labour and inherited by the new Government, which had initially looked to bring the plan forward, before slowing things down.
“As we put more money in, I want to make sure we’ve got a really good strategy and part of that is making sure that we’re very inter-operable with Australia, for example, that we’ve got some real capability, that we’re respected around the world,” Luxon told RNZ.
An obvious area for joint procurement with Australia was the purchase of new frigates, with the Anzac frigates currently due to be replaced.
Luxon said the plan was “close to” being signed off.
“I want to make sure we’ve got a very good bottom-up build defence capability plan that we can add to and accelerate over time, but importantly we’re building capability that actually augments and works alongside the Australian Defence Force as well,” Luxon said.
“We will need to spend more money on defence, and we will do that.”
There have been questions over how much funding would be attached to the plan, given it stretches 15 years into the future.
Finance Minister Nicola Willis confirmed today the plan would be funded in stages.
“The Defence Capability Plan will require some funding,” Willis said.
“I have been engaged in conversations in which I have been very supportive of the need to increase funding for the New Zealand Defence Force.”
Labour leader Chris Hipkins said he supported defence spending but that the 2% target was “arbitrary”.
“An arbitrary target around percentage of GDP is not where we should be aiming. The question that New Zealanders should be asking and that the New Zealand Government should be asking is ‘what’s the capability that we need in our defence force’, and that will cost as much as it will cost,” Hipkins said.
He cited big, costly decisions like replacing the Anzac frigates and getting an icebreaking capacity in the Navy.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.