Sunday, 19 July 2015

New Zealand’s Military Expenditure

A few weeks ago Bryce Edwards wrote an interesting column called ‘New Zealand’s Military future[i]’. He provided links to numerous recent articles which discussed the current government’s Defence Review, and the question of how much New Zealand should spend on its military. The most prominent commentators Edwards linked to were Chris Trotter and Karl du Fresne, both of whom argued that New Zealand should seriously consider increasing its spending on “defence”.

I’m going to declare my cards very clearly before going any further: I think that increasing New Zealand’s “defence” spending is both wrong and absurd, and I agree with commentators like Bob Jones and Richard Jackson that New Zealand’s “defence” budget should be zero dollars. I think that a much better and more historically appropriate term for “defence spending” would be “offence spending”. But for the purposes of this blog article I am going to strive to put my ideological position to one side. I will use the neutral term “military spending”, and I will refrain from making any comments about imperialism, nationalism, how nasty and dangerous China might be in the future, and so on.

Instead, I will focus very narrowly on some claims both du Fresne and Trotter make about the size of New Zealand’s military spending and how it compares to other countries. Both commentators blithely and confidently claim that New Zealand doesn’t spend very much at all on its military, especially in comparison to its major allies: the US, UK and Australia. Trotter says:

… the third big question is: How much are we willing to pay? The answer, historically, is "not very much[ii]".

Du Fresne says:

But by world standards our defence spending is low: just 1 per cent of GDP, compared with Australia (1.6 per cent), Britain (2.2) and the United States (3.8). All four countries have cut defence spending in recent years, but New Zealand's commitment has consistently been far weaker than that of its friends[iii].

To check out these claims, I downloaded the latest SIPRI Military Expenditure Database[iv] and looked at the data. Without claiming to be any kind of authority on this subject, it is fairly clear that the SIPRI database is the most frequently referred and robust source of data for these sorts of questions.

I’ll start off with some statistics which back up du Fresne and Trotter’s claim. Here is a table which compares New Zealand’s military spending in 2014 with the US, UK and Australia. There are three ways of looking at the data: military spending as a percentage of GDP (%GDP), in raw $NZ 2014 and per capita. The raw $NZ are in billions and I have rounded to the nearest hundred billion. The per capita figures are in current $US.

2014 Military spending
$NZ (billions)
Per capita
New Zealand
United States
United Kingdom

Very obviously New Zealand’s figures are considerably less in all categories, for all three of these countries. It’s surely debatable whether those three countries are suitable or relevant countries to choose for comparison. I will come back to this point at the end of the article, and make some different comparisons. But for now I will simply acknowledge the indisputable fact that New Zealand spends far less on its military than do the US, UK and Australia. 

The statistic most commentators seem to focus on is the %GDP measure. This proportion is not affected by exchange rates, inflation or other complicating factors. It gives us a rough idea of the ‘military burden’ of each country. If we graph the SIPRI data for New Zealand’s %GDP military spending for the period 1988 – 2014, we get the following:

Again this backs up the claims made by Trotter and du Fresne – it looks like New Zealand’s military expenditure has halved from around 2.4% of GDP in 1988 to around only 1.2% in 2014. If we graph the data for the US and Australia alongside, the sense that New Zealand is a miserly weakling with pacifist tendencies appears even stronger:

There was a time prior to 1991 when New Zealand’s military burden was proportionally higher than Australia’s, but the following years clearly show Australia valiantly maintaining itself just under 2%, while New Zealand progressively slacks off, getting closer and closer to a pathetic 1%.

So what is wrong with these comparisons and this sort of reasoning? One obvious problem is the fact that GDP tends to grow each year. Holding to a fixed GDP percentage actually involves an increase in spending in real terms. Can we look at the raw data of dollar amounts spent on military each year instead? Yes, but we encounter problems to do with inflation. The raw figures for New Zealand produce this graph:

Because of inflation, it looks like New Zealand has increased its military spending massively over the same time period. Dealing with inflation for these sorts of large sums is a tricky problem. Military spending involves a whole host of different types of cost: wages and salaries of personnel, buildings, weapons, food and clothing. Inflation rates are different for all of these sectors, and it would be a very laborious task to rigorously correct for these factors. I avoided these complexities and converted the raw numbers into 2014 $NZ using the Reserve Bank Inflation calculator. The most robust and probably reasonably accurate measure is the ‘General (CPI)’ version of inflation, which takes into account inflation across different sectors like buildings, food, transport and so on. I also worked out the inflation corrected figures under the ‘Wages’ setting. The note for this setting says “Hourly wage in dollars (private sector, ordinary time) from Quarterly Employment Survey, Statistics New Zealand.”. Military expenditure on wages and salaries are public sector not private sector, but because wages and salaries make up a big proportion of the total military budget each year I have included this measure for comparison. Here is the inflation adjusted graph, in constant 2014 $NZ:

Using the CPI inflation adjusted figures, we can analyse the time series in terms of constant $2014(NZ): 

  • There’s a fairly sharp decrease in military spending between 1989 (around 3.2 billion) and 1993 (around 2.5 billion). This decrease coincides with the end of the cold war, and is part of a common international pattern.

  • Spending stabilises in the period between 1993 and 2005, hovering around 2.5 billion.

  • Spending fluctuates between 2005 and 2014, but with a clearly increasing trend. The lowest point in this period happens in 2012, when military spending was about 2.65 billion.

  • The 2014 total (2.9 billion) is not much less than what New Zealand spent just before the end of the cold war in 1988 – 1989 (3.2 billion). If the increasing trend in the current period continues, military expenditure will catch up to and possibly exceed cold war period expenditure in real terms within a few years.

If we look at the patterns in military expenditure for the United States in constant $2011, we get a very different graph (the amounts are bigger by a scale of hundreds). But the historical trends actually match up reasonably well: a sharp decline just after the end of the cold war and throughout the 1990s, followed by an increase in spending post 2001 (the obvious marker being 9/11). The dip following 2010 is presumably a consequence of the global financial crisis – but note how the total spending in 2014 is very close (slightly bigger) to what it was in 1988:

What if we compare the inflation adjusted figure for New Zealand’s military spending in 1988 with military spending in 2014? Looking at the graph, it is the opposite way around from in the US: spending in 2014 is slightly less than what it was in 1988. New Zealand spent $282,089,385 less on military expenditure in 2014 than it did in 1988. In percentage terms military expenditure went down by 8.9%. For the reasons given above we cannot be completely confident about the robustness of these figures because of the complexities surrounding inflation correction. Using the inflation adjusted figure with the ‘wages’ setting gives a quite different result: a decrease of 24.5%. My guess is that the truth is somewhere between the two figures, and most probably closer to the more relevant CPI adjusted calculation of 8.9%. This is a radically different comparison from the one we started with, which made it look like New Zealand had halved its military spending over the 1988 – 2014 period.

Instead of comparing our military spending with other much bigger and more wealthy countries, what if we compare our military spending with other forms of government expenditure? I’ll pick on the year 2014, which according to the SIPRI database saw New Zealand spend $2.9 billion military dollars. How does $2.9 billion compare ….

  •  To the 2014 Health budget of $15.6 billion: Military spending is 18.5% of health spending

  • To the 2014 Education budget of $12.8 billion: Military spending is 22.6% of education spending

  • To the expected government contribution of $15.4 billion to the Christchurch rebuild: Military spending in just one year is 18.8% of the total expected government contribution to the Christchurch rebuild[v].

In 2014 the Green Party put out a discussion paper called ‘Schools at the Heart[vi]’. This includes four big multi-million dollar projects which target extra funding at poorer schools. It includes 20 new ECE centres, school lunches, a school nurse for each low decile school, free after school and holiday programmes, and school hub co-ordinators. The total annual cost of all of these measures put together is $115.1m. The military budget for 2014 would pay for this scheme 25 times.

To conclude my discussion of New Zealand’s piddly, undernourished and virtually non existent military spending, I would like to choose three different countries for an alternative comparison. I’m going to choose the three countries which joined New Zealand in the top four most peaceful countries, according to the 2014 Global Peace Index put together by the Institute for Economics and Peace.[vii]These countries are (in order of peacefulness): Iceland, Denmark, Austria and New Zealand. Here are the SIPRI stats:

$NZ billions
Per capita
New Zealand

New Zealand is not the most gung ho, tooled up ready-for-action country on this list, but she comes in at a fairly decent 2nd place after Denmark. Austria wimpily trails a fairly distant third place, with a gap of over $100 per head of population less spent on guns, tanks, helicopters and so on. Iceland is so miserably poor and peaceful we have lost sight of it altogether.

New Zealanders, especially those most worried about our military expenditure (such as Chris Trotter and Karl du Fresne), can take heart from these statistics. In the global race towards ever more massive sums being spent upon weapons and various other militaristic items, New Zealand will surely not be amongst the front runners. We don’t have a hope of getting anywhere near countries like the US, UK or Australia. Whatever happens to us however, we can be confident that we will definitely not be last in the race.

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