The Australian federal budget shows defence will receive a significant increase in funding over the next decade under the new National Defence Strategy and Integrated Investment Plan.
The budget papers, issued on 14 May, include a chart comparing the proposed funding with the spending profile projected ahead of the 2022 election, when the AUKUS deal had been struck but no additional resources arranged.
It shows that defence is now due to receive a total of $718 billion over the 10 years to 2032–33, up 11 percent from the $647 billion envisaged in the 2022 Pre-Election Fiscal Outlook, a politically independent document prepared by the Treasury.
The increase in funding starts slowly but gets larger over the decade, so that by 2032–33, defence is projected to have $96.5 billion to spend, which is a massive 17.1 percent more than was provided for the same year in 2022.
Last year’s budget, which was handed down shortly after the Defence Strategic Review called for a sweeping overhaul of Australia’s military capabilities, was criticised for providing no additional funding over the four-year budget period, other than compensation for a fall in the value of the Australian dollar. With no compensation for inflation, which was then running at 6 percent, defence was falling behind.
The only increase last year came beyond the four-year budget period, with a provision for an additional $30 billion from 2027–28 and beyond. With the passage of 12 months, the first of that spending is now within the budget horizon. The budget provides $67.4 billion for defence in 2027-28, a 10.6 percent jump from 2026–27.
The budget also incorporates an additional $1.7 billion for shipbuilding over the four-year budget period, which is part of the government’s $11.1 billion response to a review of the navy’s surface fleet, announced in February.
The cost of implementing the National Defence Strategy and its associated spending plan, the Integrated Investment Program, over the budget period is an additional $5.7 billion, rising to $50.3 billion over the decade.
Over the next 10 years, defence spending will average an annual increase of 6.6 percent, delivering a real increase ahead of inflation. Treasury predicts consumer-price inflation will fall to 2.75 per cent this year and next, and then average 2.5 percent beyond that.
The government faces a series of other spending pressures, with the cost of the National Disability Insurance Scheme forecast to keep rising at an average 9.2 percent a year over the decade and absorbing more than defence. Interest costs are predicted to rise by an annual average of 9.9 percent over the decade, while aged care, hospitals and Medicare all face costs rising at average rates of between 5.7 and 6.5 percent.
Over the next four years, the defence share of the federal budget will rise only marginally from 6.1 to 6.2 percent. However, other arms of government are receiving smaller shares. Education’s share of the budget will fall from 7.1 per cent to 6.8 per cent, while the health share drops from 15.5 percent to 14.8 percent.
As indicated with the release of the National Defence Strategy and Integrated Investment Plan last month, the increase in government funding goes only part of the way to covering the cost of the major planned investments.
The $50.3 billion in additional budget funding over the decade hardly covers the cost of the submarines, which the investment plan said would be greater than $50 billion over the decade.
The budget funding will have to be supplemented by a further $73 billion in cuts to existing programs to fund the $330 billion total investment in new equipment over the decade.
Cuts include the reduction in the number of infantry fighting vehicles and cancelling the purchases of a fourth squadron of F-35A fighters and two joint support ships, however a full list has not been published. The cuts are likely to include many minor deferrals and reductions in the scope of purchases, however $73 billion is a lot to take out of the existing investment program.
Total defence spending is now expected to rise to 2.3 percent of GDP by 2033–34, up from 2.1 percent this year. The government had flagged that spending would reach 2.4 percent, however an upgrade in Treasury’s forecast for nominal GDP means that the percentage will now be slightly less.
There has been little change in the Australian dollar’s exchange rate since the mid-year budget update last December so the budget does not include any of the compensation that inflated last year’s defence resourcing. The Australian dollar did fall over the latter half of 2023, which meant there was an additional $2.5 billion provided by the Finance Department to offset the additional cost of equipment purchased abroad, however this was included in the 2023–24 additional estimate statement.