Defence budget going backwards fails despite worsening strategic circumstances

Defence’s core funding will go backwards over the next three years, new analysis reveals, despite the Albanese government’s warnings of unprecedented strategic circumstances.

Australian Army Infantry Fighting Vehicles, Hanwha Defense Australia Redback(left) and the Rheinmetall Defence Australia KF-41 Lynx, stand ready to board HMAS Adelaide at HMAS Kuttabul, NSW. *** Local Caption *** The choice between Hanwha's Redback and Rheinmetall's KF41 Lynx represents the biggest acquistion in Army's history, costed at up to $27.1 billion. Sea transportability trials come at the end of two years of extensive field user testing of the two vehicles, with a recommendation to go to government for a decision next year.

Defence’s core funding will go backwards over the next three years, new analysis reveals, despite the federal government’s warnings of unprecedented strategic circumstances.

The Australian Strategic Policy Institute found the May budget reduced Defence’s core funding by $1.5bn through to 2025-26, compared to that previously budgeted.

While the government has pledged to lift Defence funding from 2027-28, ASPI warned the planned budget boost needed to be brought forward to pay for key capabilities.

The defence strategic review, released ahead of the May budget, warned the Australian Defence Force was “no longer fit for purpose” as China undertook “the largest and most ambitious” military build-up of any country in the past 80 years.

But, despite Defence Minister Richard Marles warning “we have no time to waste”, ASPI said Defence was facing an unprecedented budget “squeeze” as it sought to deliver new capabilities ordered by the government.

“The only increase in Defence funding since the budget in March 2022 is $4bn in compensation for the fall in the value of the Australian dollar, which has pushed up the cost of its imported equipment,” ASPI’s budget brief said.

“Excluding that, this year’s budget provides $1.5bn less to Defence over the next three years than the budget last March.”

Defence faces a massive task to reprioritise its funding plan to accommodate establishment costs for the promised nuclear submarine program, and an array of new capabilities demanded by the defence strategic review.

ASPI notes “quite a significant” gap between the review’s rhetoric and the 2023-24 Defence budget.

“With no budgetary relief in the short term, Defence will need to accommodate the impacts of inflation, DSR initiatives and nuclear-powered submarines within its existing budgetary envelope,” it said.

“Should an increase in Defence funding not manifest in the short to medium term, it would generate significant risk to Defence’s ability to develop the integrated, focused force required to meet our strategic circumstances.”

The funding pressure is compounded by roaring inflation, which is rising at its fastest rate in more than 30 years.

ASPI said the budget had placed Defence in a “short-term holding pattern” as it waited for more funding.

But it warned: “The reality of the geostrategic environment, and the rapid development of technology and Defence capability needs, mean the investment in Defence cannot wait for the medium term and needs to be brought forward.” The ASPI budget analysis highlighted falling personnel numbers.