On the morning after the Federal Budget I posted a version of the above graph along with some basic numbers describing what’s going on. Today, my final analysis of the budget is launched. Not much has changed after a fortnight. Nominal defence spending will grow by $2 billion next financial year (2015-16) to $32.1 billion, representing a year-on-year increase of 4.5%. As a share of GDP, defence spending will amount to 1.93% next financial year—but it would have been below 1.8% without foreign exchange supplementation and funding for deployments, and even less if nominal GDP growth met expectations.

At the time of the budget, I outlined a possible path to spending 2% of GDP consistent with the government’s promise. It involved annual real growth of 4.5% from 2018-19 onwards. But a smarter approach would be to start now with smaller steady annual increments of 3.3% real—shown as a black plotted line on the graph above. This would make it easier for Defence and industry to manage the growth. Indeed, it would defy common sense to cut the budget next year (as set out in this year’s budget) and then rebuild. Why make a difficult task more difficult than need be?

Of course, there are fiscal realities to be taken into account. This year’s budget saw the projected date of a federal surplus slip by twelve months, from 2018-19 to 2019-20. This constitutes a risk to defence funding, irrespective of when the government begins the climb up to 2% of GDP. There’s a binary political calculus about surpluses and deficits. At the moment, it’s easy to boost defence spending because the opportunity cost isn’t a foregone surplus. But later in this decade the choice could be between reneging on defence funding, or going to an election without having delivered a surplus. No prizes for guessing the outcome.

Taking the fiscal situation into account, it makes even more sense to continue increasing defence funding next year. Bringing investment spending (which is relatively mobile) forward from the end of the decade into the next couple of years could actually help the government achieve a surplus when the time comes. Of course, care would be needed to avoid creating unmanageable peaks and troughs.

Balancing defence funding with fiscal imperatives is only one of the challenges facing Defence and the government. To start with, there’s a White Paper to deliver. As we observed last year, 2% of GDP in the 2020s is a lot of money compared with the scale of Australia’s current defence force. Chances are that the White Paper will present an ambitious vision for the future force. Let’s hope that a planning process constrained by nothing more than an arbitrary fraction of GDP comes up with a sensible plan for the future. The risk is that proposals of lesser worth will make it over the line simply because money’s available. Defence’s planners certainly won’t be offering to hand money back.

There’s also a basket of technical issues to be resolved. It’s easy to promise that defence spending will be a certain share of GDP in a certain year. But foreign exchange movements and the vagaries of economic growth make it difficult to construct a funding model that does so without lumbering Defence with financial risk. Basing defence funding on a percentage of GDP means that future funding is contingent upon volatile changes in nominal GDP (which is linked to our terms of trade) and similarly volatile fluctuations in foreign exchange rates.

To cut a long story short, the sensible approach would be to fix a funding envelope with GDP share as a planning benchmark, and then adjust the envelope to ensure that its buying power is maintained against the buffeting of foreign exchange and inflation. An inflexible link to GDP share would be a disaster. On a year-by-year basis, it could equally flood Defence with cash it doesn’t need or deprive it of adequate funds to operate.

Apart from the White Paper and its (hopefully transparent) funding commitment, 2015 is set to be a big year for Defence. We’ve been promised a new Defence Capability Plan, a new Defence Industry Policy Statement, a new Naval Shipbuilding Enterprise Plan and, at the end of the year, a decision on Australia’s next submarine. At the same time, Defence is about to undergo its second major reform program in a decade.

Along the way there are several other challenges to be surmounted, including:

• Increasing the number of people in the ADF following four straight years of undershooting target levels by between 1,000 and 2,000 personnel, while lumbered with a controversial below-inflation pay outcome for the force.
• Managing a major reform program, including a wholesale revamp of the capability development process while advising the government on two of the largest defence projects ever; the Future Submarine and Future Frigate.
• Rescuing the beleaguered $9 billion Air Warfare Destroyer project while charting a long-term way ahead for naval shipbuilding, including the fate of the government-owned ASC.

Meanwhile, the ADF remains active in Afghanistan and its role in Iraq is expanding. It’s going to be a big year indeed.

ISIL is having considerable success in employing public social media platforms for recruitment and propaganda. In Australian cases like Jake Bilardi and Mehmet Biber, we’ve seen the social media component playing a role in the radicalisation and recruitment process.

We’re also seeing a lot of engagement by Australian foreign fighters and Islamist extremists online in terms of posting their own content: such as Facebook posts, YouTube clips, Tweets and photos.

There’s been some success in disrupting a small amount of the extremist propaganda on YouTube and Facebook. Twitter is trying (through user reports) to crack down on this engagement.

It was therefore pleasing to note that our Attorney-General’s department recently met with these companies to discuss cooperation to restrict extremist material.

But it’s really a case of ‘whack-a-mole’ when it comes to trying to stop extremist online propaganda; we’re not going to censor our way out of the problem.

So it’s good news that this week’s federal budget provided $22m to combat terrorist propaganda and counter violent extremism.

The government’s stated objective is ‘to challenge terrorist organisations’’ lies and propaganda online. This will make it harder for terrorist groups to attract vulnerable Australians, particularly young Australians, through the internet and social media.’

It’s not yet clear who’s going to produce the high volumes of online counter propaganda on social media that’s required to make a difference here. But there’ll be a need for some government risk taking, with community groups and others having to produce the necessary counter messages at a fast rate. In this context, American counterterrorism expert Peter Bergen recently noted that satire can be a powerful weapon to deflate ISIL’s claims to be the vanguard of the new caliphate.

I agree with the findings of Roslyn Richardson in an ASPI study on this problem. After she spoke with young Muslims in Sydney about Australia’s online efforts in countering violent extremism she concluded that it’s best to support local initiatives with small grants:

‘Where possible, government agencies should support existing popular community-driven anti‑violence online campaigns rather than prioritising the development of new websites to counter violent narratives…. Government agencies should directly engage with the young people involved in popular initiatives and investigate ways to support them and their campaigns where possible.’

Roslyn did, however, caution that with government support there’s a real risk that this may undermine the credibility of the message. She reported that many of the young Muslims she spoke with ‘simply weren’t interested in visiting government websites on a regular basis’.

They appeared to be especially reluctant to visit websites countering violent extremists when they’re government-badged. Richardson found that these sites ‘hold little appeal among young Muslim audiences and should be aimed at other target groups instead, including community leaders’.

I’m not so sure about this last point: just because it’s an Australian government ‘messenger’ doesn’t automatically mean the message will be discounted. It would, I suspect, more often than not depend on whether the message itself resonates with the target audience.

But there’s no doubt that governments—both federal and state—will need to work harder at shaping the messages they deliver to ensure they’re credible.

Even if the messages are credible, however, it’s still going to take time to see what might or mightn’t work in countering online extremism in Australia.