Cometh the moment, cometh the man goes the old saying. And the moment has certainly come. We have seen an unbroken string of destabilising and threatening international events over the past decade. Their impact on Australia’s security has been consistently acknowledged by a steady stream of strategic policy documents issued by Australian governments of both parties, which proclaim a need to develop greater defence capability faster.
The latest in this chain of events is perhaps the most disruptive of all to the comfortable certainties that marked Australia’s strategic environment since World War II, namely the return of President Donald Trump with an agenda of fundamentally disrupting the post-war order that was, ironically enough, created by the USA.
US partners and allies around the world are scrambling to adjust, with the Europeans enacting significant changes to their strategic policy settings in terms of scale and speed of defence spending.
In contrast, the position of the Australian Government has been one of silence in the face of Trump’s threats to partners and allies. So it’s not surprising we see no parallels with Europe’s adjustments to the new reality in the 2025-26 Defence Portfolio Budget Statements released yesterday as part of the Commonwealth budget.
The PBS’s Strategic Direction Statement makes it very clear that the document sets out the next step in the delivery of the Government’s 2024 National Defence Strategy released a year ago. Or in other words, Trump has changed nothing in the Government’s defence plans.
The dollars
Let’s unpack what that means for Defence dollars. The estimated consolidated Defence budget (i.e., for the Department of Defence, the Australian Signal Directorate, the Australian Submarine Agency) for 2025-26 of $58,988.7 million, or near enough to an even $59 billion. That’s an increase of $2,380 million over the estimate for 2024-25 (noting that with this budget being released very early in order to beat the coming election, there’s still a lot of 2024-25 left to run), which is an increase of 4.2% in nominal terms, but only 1.0% in real terms once we take inflation into account.
Is there any new money here? Minister for Defence Richard Marles has stated that the Government is investing an additional $10.6 billion in defence over the forward estimates. However, this is all money that was announced as part of the NDS. Readers will recall the Government’s frequent references to $50.3 billion in additional funding over the decade starting in 2024-25. $5.7 billion of that was in the forward estimates starting in 2024-25.
It’s not completely clear what the profile of the $50.3 billion is from 2028-29 onward. But the early years had very little additional money—a depressing fact that many commentators picked up on. Indeed, the only increase to 2024-25 beyond the funding line released as part of the 2016 White Paper was $400 million, a 0.7% increase that bore no resemblance to the seriousness of our strategic challenges.
In order to reach $50.3 billion from this slow start, it has to grow at a rapid rate. Now we’ve moved a year down the track, 2028-29’s additional funds of $5.3 billion have moved into the new forward estimates. So the $5.7 billion has now become the $10.6 billion mentioned by Richard Marles.
No new dollars
As noted, this is all part of the NDS funding line announced last year. We should also note that all of the $50.3 billion in additional funding is dedicated to nuclear-powered submarine program and general purpose frigates—with the exception of $1 billion that was intended to accelerate new capabilities. It’s never been clear what that $1 billion is acquiring or when it is being spent.
Here’s the additional funding provided last year as part of the NDS.
Table 1: Additional funding in the National Defence Strategy
| 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 | Total | |
| 2024-25 FEs | 400 | 770 | 730 | 3,800 | 5,700 | |
| 2025-26 FEs | 770 | 730 | 3,800 | 5,300 | 10,600 |
In this year’s budget, one might have had the forlorn hope that the Government might attempt to change this lackadaisical picture. Unfortunately rather than seizing the moment, we have only seen minor tweaks. First, $1 billion has been reprofiled from 2028-29 with half going into 2026-27 and the other half going into 2027-28. That’s a good start but hardly transformational.
Another adjustment also looks at first sight like it is moving more money forward, with $700 million moving from 2027-28 to 2024-25—but we should read the fine print. In plain English (and with apologies to actual accountants), this is simply an accounting treatment to provide Defence with sufficient working capital ‘to address existing expenditure commitments already incurred/recognised such as pre-payments [see PBS page 18, Table 4b, note c].’ It’s not new money and it’s not about acquiring additional capabilities earlier. Essentially it’s a cash flow measure intended to keep Defence’s capital fund solvent. That’s why we’ve put it in brackets in Table 2 below.
Table 2: Funding adjustments in the 2025-26 PBS
| 2024-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 | Total | |
| NDS additional funding (i.e., the starting point) | 400 | 770 | 730 | 3,800 | 5,300 | 11,000 |
| Working capital adjustment | [700] | -700 | 0 | |||
| Re-profiling for acceleration | 500 | 500 | -1,000 | 0 | ||
| Net effect | [700] | 500 | -200 | -1,000 | 0 | |
| PBS 2025-26 plan | [1,100] | 770 | 1,230 | 3,600 | 4,300 | 11,000 |
When the dust has settled, we can see there’s been no actual increase to the financial year that is ending beyond the original rather humble $400 million. Similarly, the coming financial year is still at only $770 million above the 2016 White Paper funding line. So Trump’s upending of the world order has made no difference to last year’s NDS plan that only increased 2024-25 and 2025-26’s combined funding by around 1%.
Percentage of GDP
For those interested in defence funding as a percentage of GDP, 2024-25 is coming in at 2.03% and 2025-26 is estimated at 2.05%. This continues the defence budget’s run of being within one-tenth of one percentage point of 2.0% of GDP that started in 2017-18, again belying the Government’s claim that it has transformed defence spending.
SAA has noted previously that according to projections based on various budgets over the past decade, the defence budget should have hit 2.21% or even 2.39% of GDP by 2025-26. However, due to rapid GDP growth caused by high inflation, the defence budget has stagnated as a percentage of GDP despite its continued real growth. The bottom line is that predicting the defence budget as a percentage of GDP is a mugs game.
Incidentally, SAA has argued that the Australian Government should put the defence budget on a rapid trajectory to 3% of GDP. Since the 2024-25 defence budget is around $56.6 billion and 2.03% of GDP, getting to 3% would be an increase of around $28 billion in current day terms. Since the Government’s anticipated deficit for 2024-25 is $27.6 billion, 3% is broadly equivalent to doubling the current deficit. It’s not surprising that substantial increases to the defence budget are not an appealing prospect and will require substantial moral courage.
The Big 3: acquisition, operating/sustainment and personnel spending
On the division of the Defence Department’s budget between the Big 3 of acquisition, operating/sustainment and personnel spending, the estimates for 2025-26 broadly continue the pattern of the past several years. Acquisition is estimated at 32.7%, operating/sustainment at 37.4% and personnel at 29.9%.
That’s bad for the achievability of Defence’s Integrated Investment Plan. According to the 2016 White Paper, acquisition spending should have hit 39.2% this year. Despite Defence consistently falling short of its growth targets, the 2020 DSU increased the long-term target to 40% and the 2024 NDS doubled down again aiming to get to 42%. So there is still a very long way to go from 32.7%, and based on Defence’s historical performance, at some point soon magic will have to happen. That puts the deliverability of the future force structure into question.
Figure 1: The Big 3
People numbers
On personnel, there’s some slight glimmers of hope. Over 2024-25 the ADF’s personnel numbers have grown by around 600. But that only means that in the nine years since the 2016 White Paper, the ADF’s numbers have grown from fifty-eight-thousand-and-something to fifty-eight-thousand-and-something and it still hasn’t made up ground lost since 2020-21.
Since Defence has made little progress towards its longer term personnel targets, it has finally revised those targets in line with reality. The target for 2025-26 is now only 59,373, down 5,159 from the previous goal of 64,532. But while that target may be more achievable increase of 523 from where the ADF is now, it does raise the question of how the ADF will operate a force structure that it previously thought it needed 64,532 people for when it only has 59,373 (assuming it hits its recruitment and retention goals).
Regardless of whether one thinks $59 billion is enough, it is the number we have, and the PBS sets out how it will be spent this year. As always the PBS has lots of data on the individual groups and services as well as the largest projects and sustainment lines. We’ll aim to cover those in SAA publications over the coming weeks including a more detail report to be released on Tuesday 8 April. In particular, we’ll look at the shipbuilding program that is already eating everyone’s lunch but not delivering until well into next decade.