Anthony Albanese is digging his heels in on lifting defence spending as the US heaps more pressure on its allies to increase their share.

NATO members agreed to spend five per cent of their economic output on defence and security, after calls by US President Donald Trump.

The boost has led to more pressure on Washington’s Indo-Pacific allies to do the same, with White House press secretary Karoline Leavitt saying countries such as Australia should follow suit.

“If our allies in Europe and our NATO allies can do that, I think our allies and our friends in the Asia-Pacific region can do it as well,” she said.

Analyst Andrew Carr said defence spending was a “hedge against a potential future” that could result in money being wasted or a nation harmed without the extra resources during wartime.

“Given where we are now in the kind of worsening strategic environment, including in our region, there’s probably a good reason for increasing spending faster even than it was proposed in 2023,” the ANU Strategic and Defence Studies Centre senior lecturer said.

The defence strategic review, released two years ago, found more funding will be required and must match the strategic circumstances Australia faces.

Dr Carr said Australia had made a significant investment over the past 14 years in defence that amounted to a “near doubling” of spending in real terms.

NATO nations will be expected to spend 3.5 per cent of their gross domestic product on core defence and a further 1.5 per cent on broader security.

This includes adapting infrastructure for military use and protecting energy sources.

Australia’s defence spending is set to rise from two per cent of GDP now to 2.3 per cent by 2033/34.

Appearing frustrated by repeated questions on whether Australia should increase its defence budget, the prime minster said the plan – which was taken to the federal election – will be followed through.

“What we’re doing is making sure that Australia has the capability that we need. That’s what we’re investing in,” he told reporters in Sydney on Friday.

“We’ve increased it by $57 billion over the medium term and by more than $10 billion in the short term as well.”

Spain objected to the spending pledge and flagged it did not intend to meet the five per cent target.

Mr Trump warned the European nation its exports could be slapped with fresh tariffs by the US if it did no commit to the alliance’s commitment on defence spending.

Asked if he was concerned Australia could face a similar threat from the US president, Mr Albanese played down the prospect.

“I’m not going to comment on things between Spain and the United States. What my job is is to look after Australia’s national interest, that includes our defence and security interests,” he said.

Foreign Minister Penny Wong is preparing to fly to the US for talks with US Secretary of State Marco Rubio.

The meeting with Mr Rubio will be part of discussions between the foreign ministers of Quad alliance nations, which includes Japan and India.

Quad foreign ministers previously met in January, with the alliance focusing on issues in the Indo-Pacific.

Opposition defence spokesman Angus Taylor said boosting spending levels was not about doing what the US wanted.

“This is not about being bullied,” he said.

“This is about being doing the right thing for our great country, and that’s what we want to see.”

The US and China have signed an agreement on trade, President Donald Trump said, adding he expects to soon have a deal with India. 

Commerce Secretary Howard Lutnick told Bloomberg TV that the deal was signed earlier this week. Neither Lutnick nor Trump provided any details about the agreement.

“We just signed with China the other day,” Trump said late on Thursday. 

Lutnick said the deal was “signed and sealed” two days earlier.

It follows initial talks in Geneva in early May that led both sides to postpone massive tariff hikes that were threatening to freeze much trade between the two countries. Later talks in London set a framework for negotiations and the deal mentioned by Trump appeared to formalise that agreement.

“The president likes to close these deals himself. He’s the dealmaker. We’re going to have deal after deal,” Lutnick said. 

China has not announced any new agreements, but it announced earlier this week that it was speeding up approvals of exports of rare earths, materials used in high-tech products such as electric vehicles. Beijing’s limits on exports of rare earths have been a key point of contention. 

The Chinese Commerce Ministry said Thursday that Beijing was accelerating review of export licence applications for rare earths and had approved “a certain number of compliant applications.” 

Trade unionists, business leaders and welfare advocates are among the confirmed guests for the federal government’s economic summit.

August’s productivity roundtable will include ACTU secretary Sally McManus, Business Council of Australia chief executive Bran Black, Australian Council of Social Service head Cassandra Goldie along with productivity commissioner Danielle Wood.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar and Australian Industry Group head Innes Willox are also confirmed, as is ACTU president Michele O’Neil and Council of Small Business Organisations of Australia chair Matthew Addison.

The summit will look to find ways to boost flagging levels of productivity in the economy.

“Each participant will play an important role in helping to shape our national reform priorities to boost productivity, strengthen our resilience and improve budget sustainability,” Treasurer Jim Chalmers said.

“This initial group includes leading voices from business, unions, the community sector and our key economic institutions.

“This is a representative group that we’re asking to provide ideas and build and advance consensus around them.”

It comes after the treasurer extended an invitation earlier in the week to opposition counterpart Ted O’Brien.

The summit will be held over three days in Canberra.

Dr Chalmers said the roundtable would include opportunities for state and territory representatives to contribute, as well as those on the cross bench in federal parliament.

“More invitations will be issued in tranches and in due course as the agenda takes shape,” he said.

“We will bring additional stakeholders, experts and representative groups to the roundtable, including for specific days, sessions and topics.”

Members of the public are also urged to offer ideas, with submissions open until late July.

“We welcome proposals to improve productivity, build economic resilience in the face of global uncertainty, and strengthen budget sustainability,” Dr Chalmers said.

The ideas would need to meet criteria including being in the national interest, be positive for the federal, as well as being specific.

Experts are concerned about Australia’s lagging growth in productivity – a key economic measure of efficiency and long-term driver of improved living standards.

The Business Council’s chief executive said he looked forward to providing practical solutions the productivity challenge.

“Productivity growth is the best way to sustainably lift living standards for all Australians, which is why it is critical that there is constructive engagement between all stakeholders,” Mr Black said.

Australia’s economy is tipped to strengthen over the next few years despite the uncertain global backdrop, but may stagnate without serious tax reforms.

While Australia’s economic growth hit speed bumps early in of 2025 from Cyclone Alfred, other weather events and a dip in government spending, Deloitte Access Economics is optimistic the pace of economic growth will accelerate over the coming quarters.

“Conditions are improving,” the economic services company said in a report released on Friday.

“Real wages are grinding higher (even if it will be around 2030 before pre-pandemic purchasing power is restored), interest rates are declining, and inflation is no longer preying on consumers’ wallets or their psyche.”

That suggests consumer spending will pick up, despite the jarring effects of Donald Trump’s second US presidency and other global concerns weighing on confidence, the report states.

Construction activity will also be a source of economic strength, with a significant lift in dwelling activity expected across 2026 as the industry works through a backlog of projects and reforms to regulations and zoning take effect.

The quarterly report forecast Australia’s gross domestic product would grow by 2.1 per cent in 2025/26 and 2.4 per cent the following year, up from the 1.4 per cent GDP growth in the year to March 2025.

The forecast is roughly in line with estimates from the Reserve Bank, which predicted in May that Australia’s GDP would grow by 2.2 per cent in 2025/26 and 2.2 per cent the following year.

The Deloitte report forecasts the central bank will cut interest rates by a total of half a percentage point over the rest of 2025, and again in 2026.

It predicts 2025 will be the nadir for the Aussie dollar, buying just an average of 63.60 US cents, from 66 US cents in 2024.

But it forecasts the Aussie will buy an average of 64.70 US cents in 2026, 67.4 US cents in 2027 and 68.70 US cents in 2028.

However, Deloitte Access Economics partner and report co-author Stephen Smith warned globalisation, financialisation and technology change that had permanently boosted Australian living standards were fading.

Australia couldn’t rely on the global economy to drive prosperity, he said.

Mr Smith said one of the most significant levers to drive investment, productivity and efficiency was the tax system, which hadn’t been reformed in a quarter-century.

“Since then, the Australian economy has lost its dynamism and competitive edge,” he said, adding it was encouraging the federal government had recently raised the topic of tax reform.

Asian shares have hit their highest level in more than three years  as they tracked a Wall Street rally, though the dollar struggled on concerns about the Federal Reserve’s independence and expectations for early rate cuts.

Stock indexes worldwide look set to end the week on a positive note, with worries about tensions in the Middle East and uncertainty over tariffs and trade deals on the backburner for now.

MSCI’s broadest index of Asia-Pacific shares outside Japan touched its strongest level since November 2021 early in the session. It last traded 0.2 per cent higher and is set to clock a 3 per cent gain for the week.

Japan’s Nikkei jumped 1.5 per cent and surpassed the 40,000 mark for the first time in five months.

Reasons for the upbeat mood included news that Washington has reached an agreement with Beijing on how to expedite rare earth shipments to the United States.

US Treasury Secretary Scott Bessent also said on Thursday that he has asked Republicans in Congress to scrap the Section 899 retaliatory tax proposal from their tax and spending bill after Washington reached an agreement with Group of Seven industrial countries.

“That was something that had been making some investors, especially foreign investors, nervous when that provision was passed by the House. So if that provision gets removed, then that allays one of the concerns from foreign investors,” said Khoon Goh, head of Asia research at ANZ.

“The accumulation of these various… positive developments all helped to contribute to the buoyant market mood we’re seeing.”

European futures also gained, with EUROSTOXX 50 futures and DAX futures both up 0.6per cent, while FTSE futures advanced 0.16per cent.

US stock futures were little changed, though Wall Street had on Thursday closed near record highs, further supported by expectations of imminent Fed rate cuts.

Much of the focus for markets over the past two sessions has been on the prospect of an early change of guard at the Fed, after the Wall Street Journal reported that US President Donald Trump has toyed with the idea of selecting and announcing Fed Chair Jerome Powell’s replacement by September or October.

That knocked an already battered dollar even lower as traders fretted about an erosion of Fed independence and as they moved to price in more US rate cuts this year.

The dollar languished near a 3-1/2-year low on Friday and was headed for a 1.4 per cent weekly loss, its largest decline in over a month.

For the year, the greenback is already down more than 10 per cent and if it stays that way in the next few days, that will mark its biggest first half-year fall since the start of the era of free-floating currencies in the early 1970s.

Against a weaker dollar, the euro was perched near its highest in over three years at $1.1688. Sterling rose 0.03per cent to $1.3730.

“Trump’s desire to ‘shadow’ the Fed using a designated replacement for Chair Jay Powell isn’t a good way to promote the perceptions of integrity and autonomy in US policymaking and, by extension, that of the reserve currency status of the US dollar,” said Thierry Wizman, global FX and rates strategist at Macquarie Group.

Adding to the Fed cut bets has been a raft of weaker-than-expected US economic data, with attention now shifting to Friday’s release of the core PCE price index, the US central bank’s preferred measure of inflation.

US Treasury yields were steady in Asia after falling the previous session, with the two-year yield at 3.7418per cent and the benchmark 10-year yield last at 4.2554 per cent.

In commodities, oil prices were set for a weekly decline with the Iran-Israel ceasefire holding and easing concerns over Middle East supply risks.

Brent crude futures were up 0.41per cent at $68.01 a barrel while US crude rose 0.46per cent to $65.53 per barrel on Friday, but both were headed for a fall of more than 10per cent for the week.

Spot gold fell 0.23per cent  to $3,320.25 an ounce.

Anthony Albanese has pushed back on calls for Australia to lift its defence spending, despite mounting pressure from the US to do so.

NATO allies agreed to lift spending on defence to five per cent of national gross domestic product after talks in the Netherlands, following calls by US President Donald Trump for the boost.

The increase has increased pressure on other US allies to do the same, with White House press secretary Karoline Leavitt saying countries like Australia should follow suit.

“If our allies in Europe and our NATO allies can do that, I think our allies and our friends in the Asia Pacific region can do it as well,” she said.

The federal government has agreed to lift its defence spending from two per cent of GDP to 2.3 per cent by 2033/34.

Despite appearing frustrated by repeated questions on whether Australia should further increase its defence budget, the prime minster said the current plan – which was taken to the federal election – will be followed through.

“What we’re doing is making sure that Australia has the capability that we need. That’s what we’re investing in,” he told reporters in Sydney on Friday.

“We have increased our defence investment. 

“We’ve increased it by $57 billion over the medium term, and by more than $10 billion in the short term as well.”

The lone hold-out on NATO nations’ five per cent increase was Spain, which said it could not meet the pledge.

Mr Trump warned Spain that its exports could be slapped with fresh tariffs by the US if it didn’t commit to the security pact’s defence commitment.

Asked if he was concerned Australia could face a similar threat from the president, Mr Albanese played down the prospect.

“There’s a big focus on Spain at this area of East Hills today (where the press conference took place),” he joked.

“We will invest in whatever capability we need. When it comes to economic issues, I  met with the Treasury Secretary of the United States just a week ago.

“I’m not going to comment on things between Spain and the United States. What my job is is to look after Australia’s national interest, that includes our defence and security interests.”

Meanwhile, Foreign Minister Penny Wong is preparing to fly to the US for talks with US Secretary of State Marco Rubio.

The meeting with Mr Rubio will be part of talks between the foreign ministers of Quad alliance nations, which also include Japan and India.

Quad foreign ministers previously met in January, with the four-country alliance focusing on issues in the Indo-Pacific.

The federal opposition has also been vocal in calling for a boost to the defence budget amid global uncertainty.

Opposition defence spokesman Angus Taylor said an increase of defence spending above 2.3 per cent of GDP was needed.

“We do need to get our defence spending up to meet our own plans and to make sure that we have the agility and the delivery that is absolutely necessary in this new world,” he told ABC Radio.

“(The country’s defence strategy) is not properly funded at a time when authoritarian regimes are flexing their muscles in ways they haven’t since the Second World War.”

European Union leaders have discussed new US proposals for a trade deal, with Commission President Ursula von der Leyen not ruling out that tariff talks could fail and saying “all options remain on the table”.

Time is running out for the bloc to find a common position before a respite from higher tariffs threatened by US President Donald Trump expires on July 9, which could hammer exporters from cars to pharmaceuticals.

The EU’s two biggest economies were apparently at odds at the Brussels summit.

German Chancellor Friedrich Merz urged the EU to do a “quick and simple” trade deal rather than a “slow and complicated” one.

But in a separate briefing, French President Emmanuel Macron, while also wanting a quick and pragmatic trade deal, said his country would not accept terms that were not balanced.

All tools must be used to ensure a fair deal and if the US baseline rate of 10 per cent remained in place, then Europe’s response would have to have an equivalent impact, he said.

“Our goodwill should not be seen as a weakness,” Macron added.

Von der Leyen said the EU had received the latest US document on Thursday for further negotiations and the bloc was still assessing it.

“We are ready for a deal. At the same time, we are preparing for the possibility that no satisfactory agreement is reached,” she told reporters. “In short, all options remain on the table.”

The bloc is already subject to US import tariffs of 50 per cent on its steel and aluminium, 25 per cent for cars and car parts along with the 10 per cent tariff on most other EU goods that Trump has threatened could rise to 50 per cent without an agreement.

The European Union has agreed, but not imposed, tariffs on 21 billion euros of US goods and is debating a further package of tariffs on up to 95 billion euros of US imports.

Among the EU rebalancing options is a tax on digital advertising, which would hit US giants like Alphabet Inc’s Google, Meta, Apple, X and Microsoft and eat into the trade surplus in services the US has with the EU.

The EU leaders also discussed ideas to carve out a new form of trade cooperation with Asia-Pacific countries, including Australia,  that would be a way of reforming what they see as an ineffective World Trade Organisation.

Merz said the idea was in its early stages but could include mechanisms to resolve disputes, as the WTO was meant to do.

“You all know that the WTO doesn’t work any more,” he said.

The EU summit follows  a NATO meeting this week that agreed to drastically raise defence spending in the military alliance but left some European countries finding it difficult to pay, and Spain explicitly demanding an opt-out.

The EU bloc also has to tackle a raft of other issues, including its support for Ukraine and the prospect of EU membership for a country still at war against nuclear-armed Russia. Hungary is firmly opposed.

Ukrainian President Volodymyr Zelenskiy had urged the EU to pass a new sanctions package on Russia targeting its oil trade and banks, as well as to give a clear signal on his country’s EU accession.

Before the start of the summit however, Slovakia’s Prime Minister Robert Fico said he would block a vote on the sanctions until his country’s concerns on gas supplies were addressed.

Congressional Republicans have removed the so-called revenge tax provision from President Donald Trump’s big bill after a request by Treasury Secretary Scott Bessent.

The Section 899 provision that was nixed would have allowed the federal government to impose taxes on companies with foreign owners, as well as investors from countries judged as charging “unfair foreign taxes” on US companies.

The measure was expected to lead many companies to avoid investing in the US out of concern that they could face steep taxes. But the removal of the provision adds a wrinkle to Republicans’ plans to try to offset the cost of the massive package.

Bessent said in an X post that he made the request to lawmakers after reaching an agreement with other countries on the OECD Global Tax Deal. He said that after “months of productive dialogue,” they would “announce a joint understanding among G7 countries that defends American interests.”

Senate Finance Committee Chairman Mike Crapo, and House Ways and Means Committee Chairman Jason Smith,  said they would remove the provision. But, they noted, “Congressional Republicans stand ready to take immediate action if the other parties walk away from this deal or slow walk its implementation.”

The removal of the provision will provide “greater certainty and stability for the global economy and will enhance growth and investment in the United States and beyond,” Bessent said in his post.

An analysis by the Global Business Alliance, a trade group representing international companies such as Toyota and Nestlé, estimated that the provision would have cost the US 360,000 jobs and $55 billion annually over 10 years in lost gross domestic product.

Republicans are rushing to finish the package this week to meet the president’s Fourth of July deadline for passage.

Earlier ,the Senate parliamentarian advised that a Medicaid provider tax overhaul central to the spending bill does not adhere to the chamber’s procedural rules.

Guidance from the non-partisan Senate parliamentarian Elizabeth MacDonough is rarely ignored.

Republicans were counting on big cuts to Medicaid and other programs to offset trillions of dollars in Trump tax breaks, their top priority. Additionally, the parliamentarian advised against various GOP provisions barring certain immigrants from health care programs.

Republicans scrambled Thursday to respond, with some calling for challenging, or ever firing, the parliamentarian, who has been on the job since 2012, though GOP leaders dismissed those views. Instead, they worked to revise the various proposals. 

“We have contingency plans,” said Majority Leader John Thune.

Friday’s expected votes appeared to be slipping, but Thune insisted that “we’re ploughing forward.”

Democrats, who are unified against the package as a tax giveaway for the wealthy at the expense of American safety net programs, said the procedural decisions would devastate the GOP package.

Trump hosted House Speaker Mike Johnson and other GOP lawmakers at the White House joined by truck drivers, firefighters, tipped workers, ranchers and others that the administration says will benefit from the bill.

“We don’t want to have grandstanders,” Trump said of the GOP holdouts. 

At its core, the big bill, which has passed the House and is now being revised in the Senate, includes $3.8 trillion in tax breaks that had been approved during Trump’s first term, but will expire in December imposing a tax hike if Congress fails to act. 

Senior Republicans said they would try to revise the provision to make it acceptable, perhaps by extending the start date of any changes. 

French President Emmanuel Macron is taking a tough stance as European leaders meet in Brussels to discuss new US proposals for a trade deal, with time running out for the bloc to find a common position before a tariff respite expires on July 9.

Macron warned that if the baseline tariff rate of 10 per cent remained in place then Europe’s response would have to have an equivalent impact.

European Commission President Ursula von der Leyen said on Thursday the EU had received the “latest US document” for further negotiations on tariffs.

“All options remain on the table,” she told reporters following the summit.

“We are assessing it (…) Our message today is clear. We are ready for a deal. At the same time, we are preparing for the possibility that no satisfactory agreement is reached. This is why we consulted on the rebalancing list and we will defend the European interest as needed,” von der Leyen said

European leaders were deciding whether they want to push for a quick trade agreement with President Donald Trump’s administration or keep fighting for a better deal, with Europe’s two biggest economies apparently at odds.

Chancellor Friedrich Merz of Germany had earlier this week said the EU must push for a “faster” and “simpler” deal, while French officials argued the Commission should take a firmer stance and target US services.

President Emmanuel Macron on Thursday said that France wants a quick and pragmatic trade deal with the United States but that his country would not accept terms that were unbalanced.

All tools must used to ensure a fair deal, the French president said.

“Our goodwill should not be seen as a weakness,” Macron said.

Trump has threatened to hike tariffs on EU goods to 50 per cent unless a deal is found next month.

The EU summit follows a NATO meeting this week that agreed to drastically raise defence spending in the military alliance but left some European countries finding it difficult to pay, and Spain explicitly demanding an opt-out.

Aside from tariffs, the EU bloc also has to tackle a raft of other issues, including its support for Ukraine and the prospect of EU membership for a country still at war against nuclear-armed Russia. Hungary is firmly opposed.

Ukrainian President Volodymyr Zelenskiy had urged the EU to pass a new sanctions package on Russia targeting its oil trade and banks, as well as give a clear signal on his country’s EU accession.

Australian superannuation funds have been spared a multi-billion dollar hit after Treasury Secretary Scott Bessent announced the US would drop a so-called “revenge tax” on foreign investors.

The super industry had been ringing alarm bells over section 899 of President Donald Trump’s proposed big beautiful bill, which would have raised taxes by up to 15 percentage points on foreign entities in retaliation to “unfair taxes” other countries had imposed on US companies.

But Mr Bessent revealed the section would be removed from the bill in a social media post early on Friday, after a deal was reached with G7 nations allowing the US to back out of a global minimum tax rate.

“After months of productive dialogue with other countries on the OECD Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests,” he wrote on X.

“OECD Pillar 2 taxes will not apply to U.S. companies, and we will work cooperatively to implement this agreement across the OECD-G20 Inclusive Framework in coming weeks and months.

“Based on this progress and understanding, I have asked the Senate and House to remove the Section 899 protective measure from consideration in the One, Big, Beautiful Bill.”

The announcement was met with a sigh of relief from the $4.2 trillion Australian superannuation industry, which would have been particularly exposed to the tax, given it holds more than $600 billion worth of US assets.

Modelling conducted for the Association of Superannuation Funds of Australia by consulting firm Mandala found it could have cut $3.5 billion from returns over the first four years.

Treasurer Jim Chalmers raised Australia’s concerns about the tax during a phone call with Mr Bessent on Wednesday, when he told reporters he was hopeful of positive development in the coming days.

“We do not want to see our investors and our funds unfairly treated or disadvantaged when it comes to developments out of the US Congress,” he said. 

“And once again, I’m very grateful to Scott Bessent for hearing me out and for also undertaking to make what progress he can to try and resolve these issues.

“I’m confident he understands these issues.”

In a speech in June, Future Fund chair Greg Combet said US investments were a less attractive proposition for the sovereign wealth fund, in part because of the proposed tax hike contained in Mr Trump’s “big beautiful bill”.