Federal Budget 2025: Insatiable AUKUS gobbles up more funding and workforce

Defence is struggling to get new capabilities into service and keep its ageing warships and submarines in the water as the AUKUS program devours a growing share of funding.

Australia’s AUKUS investment continues to eat up a significant chunk of defence spending. Artwork by Emilia Tortorella.

Defence is struggling to get new capabilities into service and keep its ageing warships and submarines in the water, as the AUKUS program devours a growing share of funding and personnel from across the enterprise.

The budget papers show defence’s annual spend is set to rise to nearly $59bn this coming financial year, or about 2.04 per cent of GDP, rising to a forecast $61.8bn the following year, or around 2.06 per cent of GDP.

More substantial rises are planned in the following two years, to $67.3bn or about 2.14 per cent of GDP in 2027-28, and $74bn or around 2.23 per cent of GDP in 2028-29.

The numbers represent record spending on defence, but just 32 per cent of its budget is going towards acquiring new weapons and equipment – well under the 42 per cent target Labor wants to hit by the end of the decade.

As Anthony Albanese prepares to call a May election, the government has opted against recasting its budget to meet the Trump administration’s demand to lift the defence budget to 3 per cent of GDP, or getting into a khaki bidding war with Peter Dutton, who has vowed to spend “much more” on military capabilities.

And as the Prime Minister raises the prospect of supplying defence personnel to a peacekeeping force in Ukraine, the government also unveiled $360m over five years to restart the Australian embassy in Kyiv.

Despite growing strategic challenges, including the recent circumnavigation of Australia by a heavily armed Chinese flotilla, the navy’s Collins-class submarines, Anzac frigates and Hobart-class destroyers are on track to complete just 73 per cent of their planned operational hours this financial year.

Defence Minister Richard Marles opens the Sovereign Combat Systems Collaboration Centre at Saab Australia. Picture: NewsWire / Dean Martin

The air force’s F/A-18F Super Hornet fighter jets are also set to fall short of their availability targets, achieving an estimated 78 per cent of budgeted flying hours this financial year. Its F-35 joint strike fighters are performing better and on track to achieve 90 per cent of their forecast hours.

There is no new money in the budget to fast-track much-needed new weapons such as lethal drones and air defence systems, despite calls for the government to heed the lessons of the Ukraine and Gaza wars, where the capabilities have proven vital.

The AUKUS nuclear submarine program is expanding rapidly more than seven years out from the promised arrival of the nation’s first Virginia-class submarine, consuming an estimated $2.8bn this financial year, rising to a predicted $6.8bn in 2028-29.

The Australian Submarine Agency is sucking up human resources to manage the program, growing to 665 personnel this financial year, a forecast 883 in 2025-26, and a planned 1000 the following year.

The budget papers reveal the government has already spent $346m on planned life-extending upgrades for the Collins-class submarines to commence in 2026, which The Australian revealed are set to be significantly scaled back, threatening a capability gap before the navy begins to operate nuclear submarines.

They also reveal that as of June 30, taxpayers will have spent an astonishing $5.7bn on the troubled Hunter-class frigates, with work only just beginning on the first hull. The program’s approved budget for just three ships is $26.06bn, putting the cost of the vessels at a whopping $8.6bn each.

The budget papers disguise the extent of Defence’s workforce crisis after the government reset its personnel targets last year. The budget papers show the uniformed force stands at 58,850 – revised down from nearly 63,600.

The budget is in line with Labor’s long-term plan to increase defence spending by $50bn over the coming decade. But Richard Marles said on Monday the government was accelerating $1bn in funding for unspecified capabilities.

Finance Minister Katy Gallagher said the move to bring forward the funding was based on defence’s capability requirements.

Treasurer Jim Chalmers said Labor’s defence budget was “rising dramatically” towards a forecast 2.33 per cent of GDP by 2033-34.

He said if the Coalition wanted to increase defence spending it needed to say where the money would come from.