Taiwan’s defense spending set to top NT$1 trillion for first time

Taiwan has proposed its first defense spending plan above NT$1 trillion, a move experts say would strengthen the country’s defense capabilities but raises concerns over resource allocation and investment in emerging technologies.

2027 defense spending

President Lai Ching-te (賴清德) said on Aug. 17, after being briefed on the Executive Yuan’s 2027 central government budget proposal, that Taiwan’s overall defense spending — including annual and special budgets — would reach NT$1.1225 trillion (about US$35.4 billion) while remaining above 3% of GDP. 

The Executive Yuan approved the central government budget proposal on Aug. 20 and announced that the defense package would be submitted to the Legislature for review by the end of August.

The proposed 2027 defense budget is NT$173 billion higher than the amount originally proposed for 2026, while military investment is set at NT$259.1 billion, an increase of NT$97.5 billion from this year.

Using the same GDP calculation basis applied when the 2026 budget was proposed, the proposed spending would account for 3.93% of GDP. Using the August 2026 government forecast of NT$37.3 trillion for 2027 GDP, however, the figure would be about 3.01%, according to the Executive Yuan.

Maj. Gen. Yen Ming-te (嚴明德), head of the Ministry of National Defense’s budget department, said at an Aug. 20 news conference that the main budget increases reflected payment schedules for indigenous naval construction and asymmetric capabilities, adding NT$97.5 billion in military investment.

Additional operating expenditures will support the procurement of equipment parts, baseline stockpiles, maintenance capacity, basic ammunition replenishment and denial-related facilities, Yen said.

He identified four priorities in the 2027 defense budget, including building the “Taiwan Shield,” developing unmanned capabilities, strengthening defensive forces and continuing the indigenous naval construction program. 

Lai reiterated the planned spending level during a memorial ceremony on Aug. 23 marking the 68th anniversary of the 823 Artillery Battle, calling for cross-party and public support for the defense plan. 

Strategic signals

Kuo Yu-jen (郭育仁), director of the Institute of China and Asia-Pacific Studies at National Sun Yat-sen University, viewed the planned NT$1.12 trillion in defense spending as a signal that Taiwan will not become a security “free rider.”

Kuo told TCN that the plan carries at least four strategic messages. 

Kuo said the plan demonstrates to the United States that Taiwan is willing to assume responsibility for its own defense, signals to Beijing Taiwan's determination to strengthen self-defense, and assures nearby partners such as Japan and the Philippines that Taiwan takes security threats seriously.

Domestically, Kuo said, it also tells the military, Coast Guard, police and civil-defense systems that the government is prepared to invest in comprehensive defense capabilities.

Chieh Chung (揭仲), a strategic scholar at Tamkang University’s Graduate Institute of International Affairs and Strategic Studies, told TCN that the budget largely reflects Taiwan’s preparations for a potential rise in China’s military threat around 2035.

A new normal for defense spending

Kuo said that as Taiwan’s economy and tax revenues grow, higher defense spending is a natural trend, and spending above NT$1 trillion would become the norm.

He said defense spending should not be judged solely by its nominal amount, but also by its share of GDP and total government expenditure, as well as its relationship to the pace of growth in external threats.

China continues to expand both its defense budget and military capabilities, Kuo said. Even if Taiwan raises defense spending to roughly US$30 billion, a substantial gap would remain compared with the People’s Liberation Army’s resources.

Taiwan therefore must continue investing in defense capabilities and should not assume that a record-high budget alone is sufficient to meet the threat, he said.

Chieh likewise said defense spending above NT$1 trillion is likely to become routine. Lai has set a goal of raising overall defense spending to 5% of GDP by 2030, and even if that target is not ultimately reached, the overall budget will still need to rise substantially, he said.

In addition to the military’s force-building and readiness needs, Chieh said U.S. concern and pressure regarding Taiwan’s defense investment are also important drivers of continued budget growth.

Resource imbalance

While welcoming the first trillion-dollar defense plan, Chieh said Taiwan should pay attention to a growing imbalance in resource allocation.

He said spending on weapons procurement and research and development should ideally remain at a 1:1 ratio with operations and maintenance spending. Such a balance would ensure that newly acquired equipment has qualified personnel to operate it, sufficient fuel to function and necessary maintenance support, Chieh added.

However, he said the balance has shown signs of deterioration in recent years. For 2027, weapons research, development and procurement spending includes NT$259.1 billion in annual military investment and NT$218.2 billion in annual allocations under Defense Ministry-administered special budgets, totaling approximately NT$477.3 billion.

By comparison, operations and maintenance spending — covering personnel training, fuel purchases and equipment maintenance — is set at NT$224.7 billion. The ratio of weapons procurement and R&D to operations and maintenance would therefore rise sharply from 1.71:1 in 2026 to 2.12:1 in 2027, Chieh added.

“The imbalance is worrying,” Chieh said.

Force-building priorities

Kuo said Taiwan began more clearly incorporating the risk of Chinese military adventurism into its security planning following Russia’s full-scale invasion of Ukraine in 2022 and China’s large-scale military exercises after then-US House Speaker Nancy Pelosi visited Taiwan.

He said Taiwan’s defense preparations can broadly be grouped into four areas, which are developing asymmetric capabilities, improving defense resilience, reforming reserve forces and strengthening responses to gray-zone coercion.

Chieh said the key elements of the latest defense plan include building the “Taiwan Shield,” improving the ability to sustain operations and stabilizing volunteer military manpower.

The planned Taiwan Shield is intended to address possible changes in the threat posed by the PLA as it completes a range of force-building programs, Chieh said. Beyond ballistic missiles, cruise missiles and long-range rockets, Taiwan may also face large-scale drone swarms supported by artificial intelligence-enabled command systems.

Taiwan must therefore integrate air defense, missile defense and counter-drone capabilities at an early stage, he said.

Chieh added that, in his assessment, US naval and air forces might not enter areas near the first island chain immediately if a Taiwan Strait conflict occurs. 

Taiwan, he noted, must be able to sustain itself independently for a period of time, requiring not only stockpiles of supplies, spare parts and ammunition, but also social resilience and public morale.

If society cannot maintain basic functions and stability, the ability to sustain prolonged operations will be difficult to achieve, he said.

Manpower issue

Measures to improve compensation and reduce attrition among volunteer personnel are also critical, Chieh said. 

He pointed out, Taiwan must retain sufficient volunteer personnel as the core of its forces and as the foundation for wartime command, operations and maintenance systems.

Kuo similarly said Taiwan faces a manpower shortage closely linked to its declining birth rate. He said Taiwan should use automation, unmanned systems and AI-assisted capabilities to reduce the need for large numbers of personnel in certain platforms, surveillance systems and command networks.

Citing Japan’s planned Sakura-class offshore patrol vessels as an example of automation and reduced-manning design, Kuo said “Taiwan could draw lessons from similar approaches.”

Challenges ahead

Kuo said Taiwan’s next phase of defense investment should place greater emphasis on the systematic use of artificial intelligence in defense and military operations.

Drones are currently often regarded as expendable asymmetric weapons. But lessons from the war in Ukraine and rapid developments in AI, cyber, electromagnetic, space and undersea warfare show that unmanned systems and AI are becoming increasingly important on to modern battlefields, he said.

Taiwan has proposed concepts linking AI with command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), but Kuo said concrete planning and resource allocation remain insufficient.

He also said the government should more clearly define, prioritize and categorize spending on defense resilience and gray-zone responses, both of which cover a broad range of activities. 

Kuo indicated that authorities should specify which programs are core capabilities and which are secondary or supporting measures, to prevent budget proposals from becoming overly broad or unfocused.

Kuo added that the roles of the Coast Guard, police and civil-defense systems are changing under Taiwan’s evolving defense framework.

The Coast Guard, for example, has traditionally been primarily a maritime law-enforcement agency. But as gray-zone coercion intensifies or a crisis shifts toward wartime conditions, it could become a frontline response force. Beyond increasing resources, the government should reassess its mission, training, compensation and institutional incentives, he said.

On arms sales from the US, Kuo said that even if Taiwan increases its defense budget, weapons deliveries will still be affected by U.S. industrial capacity, wartime consumption and the international political environment.

The availability and replenishment of precision munitions, in particular, cannot be resolved solely through Taiwan’s budget increases, he said. Taiwan must also balance indigenous defense production, supply-chain resilience and external procurement strategies.

Expanding the benefits

From a strategic perspective, Kuo said Taiwan’s defense investments will have limited effect if they cannot be linked with security cooperation involving nearby countries such as Japan and the Philippines.

Although Taiwan lacks formal diplomatic relations with either country, it can still establish more substantive security coordination through specific exchange and cooperation mechanisms involving naval, air, ground and coast guard forces, he said.

Taiwan should avoid allowing political constraints to unnecessarily limit such cooperation, Kuo added.