The increase in military budget is not just for new arms. There's also the matter of inflation and needed increase in salary/pay, benefits, new/replacement facilities, etc. The ROC government gave a 3% raise in 2001 and 2005, but has said that there won't be a raise in 2006-2007.
The ROC military hopes to have 60% volunteer + 40% conscripted force by 2008. The expected monthly salary for a volunteer is around $35,000 NT, less for conscripts. For comparison purpose, 35,000 NT is slightly more than what a Taxi driver in Taipei makes in a month on average.
The shift from conscript to volunteer force will cause a rise in salary/pay requirements, plus benefits, pension, retirement $, etc. I have a few family members who were career military in ROC Army until retirement. One of their benefit packages include government-subsidized savings account with 18% interest rate. In comparison bank CD deposits rarely pays over 6%. That's one heck of an expensive subsidy for the ROC government.