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In the decade preceding 2001-02 Defence funding remained relatively stable in real terms. Increases over this period, evident in graph 4.4, reflect maintenance of the Defence funding base against inflationary and unfavourable foreign exchange influences.
Graph 4.5 reflects the significance of both employee costs and the investment in specialist military equipment and infrastructure in delivering Defence capability. Increases in operating costs in 2001-02 and 2002-03 are attributable to the enhanced operational tempo associated with operational undertakings such as those occurring in East Timor and the war on terrorism.
Defence spending by Australia’s traditional strategic partners, the United States of America and the United Kingdom, has been declining subsequent to the end of the Cold War. Over the period 1992-2001, the United States of America and United Kingdom defence expenditure as a proportion of GDP declined from 4.8% to 3.2% and from 3.8% to 2.5% respectively. These downward trends may stabilise as a result of the events of 11 September 2001 and a changing strategic picture. The United Kingdom, for example, has recently concluded its 2002 spending review, which has resulted in a planned spending increase of some $10b over the period 2002-03 to 2005-06. Australia's defence expenditure as a proportion of GDP is shown in graph 4.6.
From a regional perspective, Australia has tended to spend more on defence than its neighbours. The ASEAN nations (Association of South East Asian Nations - Indonesia, Malaysia, Singapore, Thailand, Philippines and Vietnam), all spend less than Australia (table 4.7).