Arbitrarily increasing defence spending would be a tremendous waste of money. Here's why

There were reports this week that NATO members are expected to raise defence spending until they spend 5 per cent of GDP on defence.

This would include almost doubling spending on defence platforms and assets (from 2 per cent of GDP to 3.5 per cent of GDP) and committing a further 1.5 per cent of GDP on defence-related investments including cyber security.

The Treasurer pushed back, saying Australia had already taken significant steps by boosting spending to 2.3 per cent of GDP.

He is right to rebuff this target, but not because Labor's defence spending commitment is sufficient for the job.

The better reason to reject arbitrary spending levels for defence against GDP is that they tell you almost nothing about the defence capabilities Australia has - or the appropriateness of our defence spending arrangements.

In truth, if Australia was to expand its defence spending but continue to spend it in the same way, there is little guarantee of a genuine improvement in our position.

Unfortunately, the reality is that both sides of politics have allowed industry concerns and state government parochialism to dominate defence needs when it comes to procurement.

There is no better example than our submarine program.

Defence ministers continue to insist it is imperative for Australia to have the capability to design and manufacture submarines.

This has led to us adopting risky, bespoke submarine designs, creating expensive orphan submarine classes (ones that are used by only one country).

Risky procurements like orphan submarines inevitably run over time and over budget. There is also the potential for significant redesign and development costs - especially when those designing and constructing the submarines are effectively learning on the job.

The terrible troubles that plagued the Collins Class for the first decade after it was commissioned were a case in point. The fact that we have made so little actual progress on the Collins replacement more than 15 years after the replacement project was first announced is further testament to that fact.

Australia is now looking at a path of manufacturing nuclear submarines, an even more complex industry development task than the one we embarked on in the 1980s with the Collins.

If Australia wanted to a see an actual return from investing money in industry development, we'd be better off committing to improving the US supply chain for Virginia Class submarines.

At least, we'd know from the beginning that those companies can build and deliver a submarine.

This is not at all guaranteed should we commit to building an entirely new sub here.

Given the risks of cost and time blowouts are well known, why do governments like Australia persist with such a risky procurement strategy?

The answer is simple: politics.

When it comes to defence spending, there is enormous political pressure from states like South Australia and Victoria to use defence dollars to conduct industry policy.

In the case of the submarines, Australia's defence needs have been running a distant second to the need to commit to spending the money in Adelaide.

Instead of focusing on how to get the best value capabilities for the money being invested, or ensuring that Australia can fulfil its required defence goals, the states compete to outbid each other for federal defence dollars to be spent in their state.

The point is not that Australian defence industry is incapable of producing quality defence equipment; it's that spending the money in Australia for its own sake does nothing for defence.

In fact, a disturbing percentage of our defence spending amounts to little more than money laundering handouts to the state governments.

In that sense, we are right to push back against NATO and the US. Our approach shouldn't be to raise defence spending, it should be to improve defence capability to meet the tasks required of us.

In practice, this means two things.

First, Australians need far more clarity on what our defence force is actually for.

Without greater clarity on what we are hoping to achieve in the defence space, it is all but impossible for people to understand whether we are headed down the right path.

In a world where there is enormous competition for every dollar of government spending, the defence establishment must be as vocal as any other interest group as to why it needs more money.

Second, we must genuinely commit to acquiring the capabilities that will best enable us to achieve the goals we have set for our defence force.

This may mean some politically unpopular decisions need to be made. So be it. Our politicians are not elected to compete with each other over who can give the most money to the states.

In an environment of genuine threats to Australia's safety, we must be ruthless in culling projects that are not meeting our needs.

This change in approach should enable us to be far more agile in our defence planning.

At the moment, because we are beholden to state government interests, we are committing to defence expenditure decades in advance that may or may not be wasted by the time it is spent.

It is clear there has been a significant change in global attitudes to defence and, in particular, defence spending.

This is an opportunity for Australia to start taking the issue of defence more seriously.

However, throwing tens of billions more dollars at the existing system would be a terrible way to do that.