NATO bowed to Trump's defence demands. It'll cost them 19,800 fighter jets

The Age

25-06-2025

Governments around the world agreeing to the change will need to make some tough decisions in the context of other budget pressures, says Euan Graham, a senior analyst at the Australian Strategic Policy Institute.
'How the government cuts the pie of the tax take is going to require hard, hard decisions,' Graham says.
The UK, for example, which has agreed to hit the 5 per cent target by 2035, is slashing foreign aid to pay for its additional $155 billion defence spending bill.
'That is not an announcement that I am happy to make,' UK Prime Minister Keir Starmer said of the change. 'However, the realities of our dangerous new era mean that the defence and national security of our country must always come first.'
Other countries lifting their spending to meet the new target include Germany, France and Italy. They will need to boost their annual spending by $220 billion, $153 billion and $135 billion, respectively.
Earlier this month, Rutte warned NATO members that if they didn't pledge to up defence spending to 5 per cent, 'you'd better learn to speak Russian'.
But Spain, which spent just 1.3 per cent of its GDP on defence last year, refused the increase. The extra spending would force the country to 'drastically raise taxes on the middle class, or severely cut the size of our welfare state,' Spanish Prime Minister Pedro Sanchez said.
The NATO agreement could see Australia dragged further into the debate over defence spending by bolstering the Trump White House's argument that US allies can spend more on defence. US Defence Secretary Peter Hegseth has told Australia to increase defence spending to 3.5 per cent of GDP, which the Albanese has pushed back against in favour of its plan to lift expenditure to 2.3 per cent.
The Coalition went to the election promising to lift defence spending to 3 per cent of GDP by 2035-36, which the Parliamentary Budget Office said this week would cost $156 billion and add $24 billion in interest costs.
If Australia's defence spending was lifted to 5 per cent in the same time frame, the cost to the federal budget would be $261 billion and have an additional $40 billion in interest.
Rabobank senior strategist Ben Picton said the debate was about 'guns or butter'.
'The Australian government is faced with choices between increasing the defence budget to expand capability or increasing spending on social programs like the National Disability Insurance Scheme (NDIS), aged care, and childcare,' Picton said in a research note this week.
'Clearly, Australia is currently choosing 'butter' but retains substantial headroom in the budget to increase spending by comparison to peer economies.'
Loading
The Australian government spent about $56 billion on defence in 2024-25 – more than the $44 billion it spent on the NDIS.
Eminent economist Saul Eslake believes that no government will cut spending on social services to beef up defence. 'You'd make a lot of people pissed off and it's hard to do, which to me means you've got to look to the revenue side [to raise more money],' Eslake says.
But Graham says Australians would understand a cut to services – like the NDIS – if the government was 'honest about the nature of the threat' posed to national security.