The 2025-26 Defence budget was supposed to come in at $58.9 billion but it actually came in at $63.2 billion, around $4 billion higher than forecast, much of which was spent on the nuclear submarines program.
Budget papers show spending on the nuclear submarine plan was budgeted at $3.1 billion but actually came in at $5 billion through additional payments to the US and UK to uplift their submarines industrial base.
This funding in what’s termed as bring-forwards from later years, bumped up the total defence budget, with the curious result that, in comparison, the defence budget for 2026-27 has actually dropped back to $62.6 billion.
According to the traditional calculation method, defence spending for 2025-26 hit 2.13 per cent of Gross Domestic Products GDP), the highest for many years.
But that meant the defence budget for 2026-27 declined to 2.02 per cent of GDP.
Marcus Hellyer, head of research at Strategic Analysis Australia said an interesting thing about this year’s budget documents was what they revealed about last year.
“The budget has changed substantially. What has actually happened over the past year is the government has brought forward a lot of money from outer years into 2025-26. That increase is pretty substantial,” he said.
“That meant that the budget for 2025-26 hit $63.2 billion. Somewhat perversely it looks like the budget is decreasing as we go into 2026-27 but that is really an artefact of all of this money being brought forward from later years into 2025-26.”
About $2 billion of the funding brought forward has been directed to enhancing broad defence capabilities. The rest has contributed to a remarkable increase in spending on the nuclear submarines program, rising from $3.3 billion to $5.3 billion.
“A lot of that was simply cash contributions to the US and UK to boost their submarine industrial bases. We haven’t reached the end of those contributions,” Hellyer said.
In a federal budget devoted to responding to cost-of-living pressures, fuel security and taxation reforms, defence rated just a line and a half in Treasurer Jim Chalmers’ speech.
“We’re investing an additional $53 billion over the next decade in our defence force to keep Australians and our region safe,” he said.
The Budget appeared bereft of significant capability announcements following the flurry of announcements over the preceding month.
That included $126.9 million to establish solid rocket motor (SRM) production, $2.3 billion over a decade for additional HIMARS vehicles and long-range PrSM guided missiles, $750 million for 268 new Bushmaster vehicles for Army, $7 billion over a decade for enhancing defence counter-drone capabilities and $176 million for 40 new Bluebottle uncrewed surface vessels.
Defence Minister Richard Marles said the 2026-27 Budget delivered on the Albanese Government’s recently released 2026 National Defence Strategy (NDS) and Integrated Investment Program (IIP), outlining an additional $14 billion over the next four years and $53 billion over the decade.
“As the Government has made clear, we identify the capabilities we need to keep Australians safe and we fund them appropriately,” he said in the media statement accompanying the budget papers.
“The 2026 National Defence Strategy builds on the Government’s strong track record in Defence investments. Together with the additional investments in 2024, the Albanese Government is investing a record additional $30 billion over the forward estimates and $117 billion over the decade.”
Marles said that brought total defence funding to $887 billion out to 2035-36.
“This additional investment from the Albanese Government through the 2024 NDS and the 2026 NDS is the largest peacetime increase in defence spending in our nation’s history.”
Budget papers show a planned uniformed defence force of 63,345 personnel and 20,169 public servants in 2026-27, rising to 67,466 in the permanent force by 2029-30 and 69,000 in the early 2030s.
The documents note that the defence workforce is growing but maintaining the required growth across all the services remained a priority.
Defence will continue to improve recruitment and retention by initiatives such as widening eligibility criteria and recruitment of PNG residents and Five Eyes nationals living in Australia.
Marcus Hellyer said to give credit where it was due, Defence was finally making good progress on ADF personnel after years of diminishing recruiting and escalating separation which left the force about 5,000 short.
“Based on what we see today in the budget documents, they are well ahead of the new targets. The ADF has grown by about 3,000 people over the last couple of years,” he said.
Budget data shows aircraft and helicopter annual flying hours, with Airbus Tiger attack helicopters flying 1,236 hours in 2025-26, 450 in 2026-27 then none at all, the type is retired from ADF service.
As the Tigers fly off into the sunset a year earlier than anticipated, new AH-64E Apache flight hours ramp up from 540 in 2025-26 to 2200 in 2026-27 and 5,800 by end of decade when all 29 are in service.
The Army’s C-27J Spartan transport aircraft are a casualty of the 2026 NDS, with the type to be retired and replaced by a so far unspecified platform. Until then, Spartans will keep on flying around 5,000 hours a year.
The budget papers note spending of $287 million on acquisition of additional MQ-28A Ghost Bat uncrewed collaborative combat aircraft and development and delivery of a Block 3 prototype. Under Project Air 6015, the project will focus on transitioning aircraft to the RAAF.
The Guided Weapons and Explosive Ordnance (GWEO) enterprise now has its own projects, termed GWEO 2087 and GWEO 2092 with total estimated spending of $730 million in 2026-27.
GWEO 2087 aims to stand up domestic manufacture of GMLRS, Naval Strike Missiles (NSM) and forging of large calibre munitions. GWEO 2092 aims to lift ADF inventory of priority missiles.
Budget papers also show the first significant spending on the new General Purpose Frigates (GPF), with the first three to be acquired from Japan through Project Sea 3000, costing $649 million in 2026-27. Construction of vessel one will start in 2026-27, for delivery in 2029.
The six Collins-class submarines continue to be defence’s most costly capability, with a sustainment bill of $921 million in 2026-27. Collins sustainment was deemed a Product of Concern in December 2024, with Navy and contractors working to meet performance targets.