A Royal New Zealand Navy Kaman SH-2G Super Seasprite helicopter on board HMAS Anzac during Exercise BERSAMA GOLD 21. Photo / ADF
A Royal New Zealand Navy Kaman SH-2G Super Seasprite helicopter on board HMAS Anzac during Exercise BERSAMA GOLD 21. Photo / ADF
Opinion by Thomas Coughlan
Thomas Coughlan, Political Editor at the New Zealand Herald, loves applying a political lens to people's stories and explaining the way things like transport and finance touch our lives.
The Government announced a plan to lift defence spending to 2% of GDP by next decade.
The plan includes new aircraft purchases but will not see the ANZAC frigates replaced.
Labour was broadly supportive of the plan, but leader Chris Hipkins said he wanted to see details of funding in the Budget.
OPINION
The Defence Capability Plan released on Monday is the latest in the series of steps that have slowly, then suddenly, reoriented not just how much New Zealand spends on defence, but the team, if there is such a thing, that we spend it with.
When a Government announces a significant amount of new spending, it helps to ask two questions: what we’re getting and how we’re paying for it. In this case, a third question might be added: how the Government chooses to announce it.
The ailing Boeing 757s will be replaced, costing between $600 million and $1 billion; other, smaller vehicles (including light armoured vehicles) get $600m-$1b in funding; and replacing maritime helicopters will cost $2b plus.
The big story is the fact the Government has chosen not to begin replacing the two Anzac frigates, Te Mana and Te Kaha, in the first part of the plan, instead opting to spend up to $600m to keep them going.
The Anzacs were jointly procured with Australia in the 1990s. Joint procurement allowed the two countries to solidify the interoperability of their two Defence Forces – that is especially important for New Zealand, which has a small force that is often needed to easily plug into Australia’s much larger military.
Australia is currently replacing its Anzacs, as part of an A$11b ($11.9b) project to replace them. The Australian Navy plans to buy three vessels initially. There had been speculation New Zealand might be part of that procurement, adding on an order of its own.
That will not occur – at least not now (Australia wants the first ships delivered by 2029). Defence Minister Judith Collins briefed her Australian counterpart Richard Marles about the plan on Monday. It’s unclear whether Australia is disappointed NZ has backed away from that joint procurement project.
Delaying replacement is understandable. The frigates recently underwent upgrades, which the Government will want to get some use out of – and if Australia’s numbers are anything to go by, replacing them will be costly, especially as militaries around the world pivot to smaller, cheaper, more nimble technology like drones and away from large costly platforms like frigates.
Lifting spending so much is significant in and of itself. For half a decade now, we have heard politicians telling us the world is no longer as safe as it once was – this plan picks up from Labour’s defence investments, showing that both sides of the House are willing to back that assessment with money.
Asutralia was briefed on the plan before it was announced. Defence Minister Judith Collins, Australian Defence Minister Richard Marles, Foreign Minister Winston Peters, Australian Foreign Minister Penny Wong. Photo / Thomas Coughlan
Part of what we are getting won’t be defined in terms of kit, but in the bragging rights associated with the spend itself. That’s quite something from a Government that tries to make a virtue out of measuring spending by outcomes, rather than spending large amounts of money for the sake of it.
In the case of the 2% figure, which Prime Minister Christopher Luxon confirmed was a “target”, this level of spend (maybe) buys you a place in the United States’ good books. The US has long made 2% of GDP a target for its Nato allies. The Government believes getting to this level of spending will be looked on with favour by the US, which may have spillover effects in trade and diplomacy. After the carnage of last week, finding such favour seems both more urgent – and more unlikely.
The other question is whether the Donald Trump Administration will believe us. American Presidents have heard promises to hit the 2% target over the medium to long term before.
Then there’s the language in the Defence Capability Plan documentation that echoed this pivot, speaking of “enhancing the Anzus alliance” and acting as a “force multiplier” with Australia. This language, particularly the resurfacing of the Anzus alliance, has been criticised by some in the past, including former Prime Minister Helen Clark, for subtly aligning New Zealand more with the US than in the past.
Collins defended the language on Monday, saying NZ’s alliance with Australia flowed from the Anzus alliance. The US suspended its obligations to New Zealand under that alliance over the nuclear-free policy, but the alliance remains operable between New Zealand and Australia. That may be true, but it doesn’t explain the sudden enthusiasm for citing it. Defence Minister Ron Mark, who served in the Labour-NZ First coalition, cited the arrangement in a 2018 readout after a meeting with his Australian counterpart Marise Payne.
How do we pay for it?
None of the $12b plan is funded in the traditional sense. The funding will be doled out as each project goes to Cabinet and gets sign-off. That means that in the short term, you can assume that most of the investments in the plan will be funded, because the Government that drew up the plan will be the one that agrees to the spending to fund it.
Over the long term, that commitment becomes less certain – what does appear certain, however, is that defence spending will go up. Labour leader Chris Hipkins said he would comment on how the plan was paid for when he sees the Budget in May, but he broadly agreed with the plan as it stood on Monday, seeing it as an extension of Labour’s 2019 plan.
The Government had produced its own way of calculating the spend as a percentage of GDP, based on a popular international measure, produced by the Stockholm International Peace Research Institute.
It shows spending is at a slightly higher level than if you simply take Treasury’s commonly used calculation of defence spending. A chart, released by the Government, shows spending peaking in about 2032 and 2033, hitting levels not seen since the early 1990s. This is significant not just for the Defence Force, but for the whole Government – perhaps the whole country.
Defence spending in New Zealand and around the world accounted for a large proportion of government spending during the Cold War, as the threatening international environment required the Government to stay on a war footing. After the Cold War, defence spending as a percentage of GDP plummeted – falling by more than half between 1990 and the mid-2010s.
What did the Government do with all this spare cash? It spent it. Taxes were cut, government spending as a share of the economy fell, and the share of social spending on things like health increased.
By one measure (not the one the Government used), defence spending was 7% of all government spending in 1972 and 5.1% in 1995 – it was just 2.2% last year. Health was 13.1% of government spending in 1985 – it was 21% last year.
They call this the “peace dividend”. Peace is cheap. And the long peace of the past few decades has given us lower taxes, higher disposable incomes, and better social services.
The peace dividend is now reversing out.
If the figures in this plan turn into real spending, that means additional money will need to be found somewhere.
Luxon said on Monday the plan can be funded from within the current spending track. That in itself is telling. It means additional money won’t be found in the form of increasing allowances. It suggests that whatever money can’t be found by taxing some charities will be directed at the Defence Force in a way New Zealanders aren’t used to seeing.
That is capital spending that would otherwise be spent on schools, hospitals, and transport (traditionally the biggest winner). With Treasury assuming new capital spending each year of less than 1% of GDP over the forecast period ($3.625b in new capital spending per Budget) – this plan has made an incredibly tight capital programme even tighter.
Either that, or much of this kit will be procured as a public-private partnership. It suggests that over the next few years, the Government may increasingly rely on sweating existing assets to direct a greater portion of existing money at the Defence Force.
Whether that’s a prudent investment or not, only time will tell, but if we really are rearming, then New Zealanders can expect to see the effects of that not just in the shape of an increasingly well-funded Defence Force, but in the strained schools and hospitals that pay for it.
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.
