Defence orders brutal budget cuts as AUKUS and frigate costs soar
Air Force chief warns of project delays and reduced flying hours as soaring AUKUS submarine costs force Defence into severe budget cuts.
Defence is being ordered to delay projects, slash maintenance costs and cut workforce spending in a severe austerity drive, as the soaring costs of nuclear submarines and new shipbuilding programs undermine the nation’s readiness for conflict.
Days after Donald Trump declared “full steam ahead” for the AUKUS pact, the Australian can reveal the Chief of the Air Force, Stephen Chappell, has initiated reviews of capability and sustainment costs as part of a service-wide push to “mitigate overspending” and “address budget challenges”.
In a separate edict, Chief of the Defence Force David Johnston has capped the number of days ADF reservists can work at 150 a year, down from 200.
The directives come despite the Albanese government’s claim to be making “the biggest peacetime increase in Australia’s defence spending” on record, and warnings by Defence officials of a heightened risk of conflict in the next five years.
In his meeting with Anthony Albanese in Washington this week, the US President provided a ringing endorsement of the AUKUS pact and gave the Prime Minister a pass on lifting defence spending from its current 2 per cent of GDP to the 3.5 per cent he had demanded of other allies.
“I’d always like more, but they have to do what they have to do. You can only do so much,” Mr Trump said.
The presidential reprieve comes amid defence industry warnings that new weapons and equipment procurements are being slowed or cancelled as the government focuses on a small number of big-ticket capabilities including the $368bn AUKUS submarine program.
Air Marshal Chappell said in a recent directive to personnel, obtained by The Australian, that a review of “capability priorities” would be undertaken to guide air force investments and “ensure in-year affordability”. “This may include project delays, scope reductions and divestments,” Air Marshal Chappell said.
A second review would examine “sustainment priorities”, with the service chief flagging cuts to aircraft flying hours through “reduction in rates of effort”. He said a “reduction in operational platforms/systems” was also under consideration.
“Air force must continue to implement measures to optimise ways of working, reduce cost and ensure every dollar spent focuses on delivering air force’s contribution to the integrated, focused force,” Air Marshal Chappell said.
At the same time, new figures provided to the Senate have put the cost of the navy’s troubled Hunter-class frigates at $5.9bn per ship – about four times the cost of one of the US’s workhorse Arleigh Burke destroyers. When design work and other program costs are included, the price of each vessel rises to an astonishing $9bn.
AUKUS costs are also ballooning, with the May budget revealing the submarine program will consume more than $3.3bn of taxpayers’ funds this financial year – nearly a decade before the first of Australia’s promised Virginia-class boats is due to enter service.
The Albanese government has pledged to increase the defence budget by $5.7bn over the next four years, and $57bn over the decade. The figure will be bolstered by a promised $12bn towards upgrades to Western Australia’s Henderson shipbuilding precinct.
But defence spending will rise by just $770m in 2025-26 and $730m the following year, according to the budget papers, requiring belt-tightening across the force.
Former defence official Marcus Hellyer, a longtime defence budget analyst, said it was curious to see the government claiming record defence spending when it was “talking about parking air planes”.
Dr Hellyer said that despite the government’s long-term funding promises, it was still sticking closely to the funding line set by the former Coalition government.
“We’re four years into the Albanese government’s tenure and all of the real, meaningful increases to the defence budget that they talk about are still out in the future,” he said. “To say there are record increases to the defence budget I think is not completely accurate.
Certainly there are not record increases to the defence budget in terms of percentage of GDP, which is still hovering around 2 per cent. We haven’t broken out of that kind of rut that the budget has been in for about seven years now.”
Dr Hellyer said the cost-cutting drive was the “opportunity cost to the ramping up of the SSN (submersible ship nuclear) program”. “This is forcing defence to assess its priorities and unfortunately what seems to be happening is that existing capabilities are being sacrificed to pay for these future capabilities,” he said.
Australian Industry and Defence Network chief executive Mike Johnson said the government needed to boost defence spending urgently to ensure the country maintained a sovereign and self-sufficient defence industry. “The stark reality for many small and medium enterprises in the defence sector is that despite increases in defence spending, much of this has gone either to AUKUS or the Guided Weapons and Explosive Ordinance program, leaving traditional areas of Defence underfunded,” Mr Johnson said. “This has seen orders slow down or work cancelled.”
Comment was sought from Defence Minister Richard Marles but was not available by deadline.
Acting opposition defence spokeswoman Michaelia Cash said that with the nation facing its worst strategic environment since World War II, “the last thing Australia can afford is for Labor to be grounding aircraft, shelving capability and slashing reserve days”.
“Experts continue to warn that Labor’s underfunding of defence risks leaving Australia with a paper defence force, which lacks the capability, people and readiness to respond when it matters,” Senator Cash said.
“This is now a desperate situation that demands immediate action. We don’t have the defence spending required to even support the government’s own Defence Strategic Review. Australia must lift its defence spending to meet the realities of the threat environment we face and to ensure our Defence Force is ready, capable and properly funded.”
Greens defence spokesman David Shoebridge said the newly disclosed cost of the Hunter-class frigates was “scandalous” and “clearly hides a lot of the real expense”. “These frigates, if they ever get to water, will be some of the most expensive warships on the planet,” he said. “Other countries are manufacturing far bigger and better-equipped ships for a fraction of the price.”
The order to cut sustainment costs comes four months after the Auditor-General savaged Defence for its management of the Canberra-class landing helicopter docks.
He said poor maintenance had left the vessels riddled with defects that had caused instances of “critical failure”, and placed long-term availability and reliability at risk.
The Australian Strategic Policy Institute warned after this year’s May budget that the government’s focus on AUKUS and other future capabilities, together with its “business as usual” defence budget, risked leaving the ADF “ill-prepared for current threats”.
The May budget said defence’s annual spending would rise to nearly $59bn this financial year, or about 2.04 per cent of GDP, rising to a forecast $61.8bn the following year, or about 2.06 per cent of GDP. Just 32 per cent of the budget has been allocated to acquiring new weapons and equipment – well under the 42 per cent target Labor wants to hit by the end of the decade.
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