2.5% in 1906, 3.5% in 1912. I do not contradict you to that regard, Kakania's armed Forces would have desperately needed more funding, Especially when it came to preparing general Mobilisation (there weren't Even enough Boots and uniforms for the called up Men).
But: the Habsburgs had a Long history of Deficit spending and bankruptcys. Also fiscally, they couldn't compete with the Other Powers. Funneling Money Away from Other means was Even more hurtful in Austria-hungary which needed to develop its Infrastructure still more than e.g. Germany.
Yes, A-H is weaker than Germany, USA or UK, and the A-H could have had a vastly better military. Not enough to beat Russia one one on one, but much, much more competitive. I tended to look at the old artillery and lack of ammo, and your list of issues is also true. So are the command issues. So are the ethnic issues. A-H was fortunate its main enemy, Russia, had many of the same issues. An A-H that has to fight a German or French quality Army has some additional challenging issues.
The spending levels are so low for A-H, that they get a huge bang for the buck on spending. Just small things like Lviv and Pvov only having modern guns would do wonders. Or for that matter, having another major fortress city to anchor the eastern front. While it would be a large amount of gold to pay for it, when spread over 15-20 years, the spending is quite manageable. Or just adding a few more corps. Each Germany army cost about 250 million German marks per year, so to add a extra A-H corps is probably 50 million marks per year, or one extra mark per person per year. (Note: I am assuming a bit cheaper due to being less heavily equipped than the German Army). For less than 5 marks per year per person, we can have another full Army with modern equipment in Galicia. So even when the idiot Conrad looks at his two plans (WP Russia, WP Balkans) and makes the wrong choice, it the east is ok. And if he takes WP Russia and chooses the send the 2nd east, he has two extra armies to the east, and things go much better. Just think of Wiking Conrad turns east, but with another Army pushing to cutoff west Poland. (Note: Yes, If A-H is stronger, it is likely Russia goes on a defensive WP or just backs down.) And the 250 million marks greatly exaggerates the costs. There was chronic unemployment and immigration to other Continents from Galacia, so the spending on wages and locally produced supplies will act much like a development program. I don't know where the extra guns would be produced at, but this also likely either stimulates either the A-H or German economy.
Now you are right that infrastructure is also a good thing to invest in, many things that help the economy (more RR, Haber Bosch plant - fertilizer was desperately needed prewar, Hydro electric dams) will also boost military performance indirectly.