Leading defence analyst Mark Thomson has warned in his annual post-budget report that with defence pay set to grow at 2 percent a year, military personnel might find other sectors more attractive where pay is forecast to grow more quickly.

In his briefing paper, which is widely regarded as the most comprehensive independent reckoning on defence spending, Dr Thomson, of the Australian Strategic Policy Institute, found that the government "maintains a credible path" to keeping its promise of spending 2 per cent of GDP on defence by 2023.

However only on Wednesday, the nation's top defence official, Dennis Richardson, questioned whether 2 per cent of GDP would be enough, given the sharp rise in military spending expected in Asia in the coming decades.

"This ... will raise questions - not now but well down the track - whether we will be able to continue to meet our defence needs with around 2 per cent of GDP," Mr Richardson, the secretary of the Department of Defence, said.

On the below-inflation ADF pay rise - which the government was forced to sweeten after a huge backlash - Dr Thomson found that non-officer Australian personnel were paid better on average than their overseas counterparts.

Officers were on par with the rest of the world except for the most senior brass - the three and four-star ranks – who were "much better" paid than those overseas.

But given average wages growth was going to be 2.5 per cent or 2.75 per cent over the next three years, the government was "counting on ADF members sticking around despite increasingly better prospects in the civilian economy".

He said that for the past four years, the ADF has fallen short of its target manpower by between 1000 and 2000 people.

"This might simply reflect poor workforce planning. Let's hope so," he concluded. "The alternative is that ADF employment was losing its lustre prior to the latest workplace arrangement. If that's what's happened, it's one hell of a time to be experimenting."

Dr Thomson concluded in his 264-page report that the strategic picture remains grim, saying that "not since the since at least the end of the Cold War has it been so easy to paint a disturbing picture of the global strategic landscape".

But with the economic future also dicey, Australia must choose whether it wants to feel economically or strategically safe, he said.

On the overall budget, Dr Thomson found that Defence received a 4.5 per cent spending boost going into 2015-16, meaning $32.1 billion will be spent on Defence next financial year.

However the additional $2 billion largely covers foreign exchange fluctuations – with the falling Australian dollar making it more expensive to buy equipment from overseas – and the cost of operations in places such as Iraq and Afghanistan. Neither of these funding boosts help Defence's bottom line.

Without these additions, the share of GDP spent on Defence would have been below 1.8 per cent rather than the 1.93 per cent it has now reached.

Dr Thomson also issued a warning on naval shipbuilding, saying that the local industry had to prove it could build ships and submarines at close to an internationally competitive price before the nation signs up to billions of dollars in naval construction at home.

The Abbott government is currently grapping with how – and where - to build new fleets of submarines and frigates.

"With so much extra money sloshing around due to the 2 per cent of GDP promise, the very real risk is that we'll end up expanding the navy to meet local industry's demand for work," he said. "The tail will wag the dog, and the taxpayer will pick up the bill for creating a monopoly shipbuilder."