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Big defence spending decisions on the horizon for new government
The Roche Review will be reporting back mid 2024 and its recommendations will take time to implement. That gives New Zealand’s new government a year or two to get its ducks in a row, writes Wayne Mapp.
With the election now over, the question arises as to the orientation of the new government’s foreign and defence policy. Will anything change from the last six years?
Throughout the election campaign, the new Prime Minister, Christopher Luxon, made a virtue of New Zealand having a bipartisan defence and foreign policy. These statements were largely made in respect of the fundamentals, being a commitment to New Zealand’s Five Eyes partners, especially Australia, to the nuclear free status of New Zealand and to the independent foreign policy.
The latter point was made with specific reference to having a balanced relationship with China, something that is strongly held by both National and Labour.
Mr Luxon also placed particular emphasis on trade policy, promising to ramp up the action for new trade agreements, most particularly with India.
Defence policy only merited a passing mention. Mr Luxon committed to expenditure of 2% of GDP over the longer term, but this was not seen as an immediate priority. Over the next three years defence expenditure is likely to remain the same, or even decline, given that major new capital expenditure is unlikely to occur prior to the next election.
National’s partners in government are a little more forthright in their expectations for defence. Both Act and New Zealand First want defence expenditure to increase to 2% of GDP, but with greater urgency than National. However, given that National is 80% of the new government and that economic issues have the highest priority, it seems likely that this will be an issue for 2025 and beyond.
Two immediate international crises have enabled a reaffirmation of New Zealand’s foreign policy positioning. The Ukrainian war meant that New Zealand continues to be firmly identified as part of the West. Only western nations have come to Ukraine’s aid. New Zealand has played a useful role in providing nearly 200 military trainers deployed to the UK.
In addition, there has been several million dollars provided in logistical support. More recently the Gaza crisis meant New Zealand was firmly on the side of Israel, although also providing humanitarian aid for the civilian population of Gaza. In both cases New Zealand’s positioning was essentially the same as the rest of the western world.
Both the major political parties, Labour and National, were essentially of one voice when it came to New Zealand’s positioning on both the Ukraine and Gaza. However, National has been more forthright, a luxury afforded when in opposition. In government, both major parties are more aware of the nuance required on foreign policy. The same will also apply to National’s coalition partners. Act and New Zealand First will be more constrained in government, especially if either of them have ministerial roles in defence or foreign affairs.
The fact that both major political parties have made a virtue of bipartisanship in defence and foreign policy, has also enabled them to be somewhat neglectful of New Zealand’s responsibilities. This is most evident in defence, where there has been very little political pressure by either party on the other to increase expenditure.
Defence spending reached a peak of 1.5% of GDP in 2020. This was largely due to the substantial capital expenditure on the new P8 Poseidon and C130J Hercules aircraft. Since then expenditure has been on a downward track, largely because there hasn’t been any significant capital expenditure. The current level of defence expenditure is 1.3% of GDP and expenditure is likely to drop further, at least as expressed as a percentage of GDP.
Although foreign policy and defence barely figured in the election campaign, to the point there wasn’t even a question on Israel in the last Leader’s debate, once National is in government, defence will be not so easy to ignore. There are pressing capital decisions that will need to be made, most notably around the Navy.
The Defence Review chaired by Sir Brian Roche is due to report back in mid 2024. Inevitably it will take some time to digest its recommendations. It is almost certain that the Review will recommend a serious programme of capital purchases. These will need to be progressed during 2025 and 2026. Given that the focus in 2024 will be on the economy, the government will welcome the breathing space that the consideration of the Review will provide.
Nevertheless, National’s coalition partners will provide some pressure on the government to act in 2025 and 2026, and not interminably delay important decisions.
The Review’s major recommendations will undoubtedly be around replacing the two ANZAC frigates and the Project Protector ships. The total cost to replace these ships will almost certainly be in the region of $10 billion. However, the time cycle for the replacement of the ships will be able to be spread across two or three terms of government. On that basis, the annual cost is more like $1 billion, a similar level of the annualised cost of the purchase of the P8 Poseidon and the C130J Hercules.
In short, this is well within the capacity of the likely budgets of the new government to accommodate, particularly when the first block of expenditure won’t arise in the first two years.
The new government is facing a more challenging international environment. There will be expectations, particularly from New Zealand’s closest partners, that New Zealand will take account of that, particularly with respect to future defence budgets. However, there is time to plan for this. The Roche Review will be reporting back mid 2024 and its recommendations will take time to implement.
The recommendations will undoubtedly set a pathway for increased expenditure on defence, most notably around major capital purchases. This expenditure won’t arise immediately. A prudent government looking into the late 2020’s and early 2030’s will be able to responsibly plan for the increases in expenditure that will be required.
