Capital expenditure on defence

IBISWorld forecasts capital expenditure on defence to rise to $14.9 billion in 2025-26, representing a 7.2% strengthening relative to the previous year. The Federal Budget 2025-26 paves the way for significant growth in capital expenditure on defence, which will be driven by several factors. The "Future Made in Australia Agenda" is leading this growth by prioritising investment in cutting-edge defence technologies. These advanced products and systems require substantial capital for development and acquisition. Additionally, the budget reflects the government's commitment to modernising the Australian Defence Force (ADF) as outlined in the 2025 National Defence Strategy. The new strategy lifts total funding and keeps the decade-long capital ramp-up on track, with $1 billion set to be brought forwards to 2025-26 to accelerate delivery of near-term, priority capabilities, as upgrading existing equipment and acquiring new capabilities necessitate a significant capital injection. Rising global tensions have had an outsized influence on budget allocation, with the government prioritising national security through increased defence spending. Finally, inflationary pressures are a major factor as the rising cost of materials, labour and logistics means that previous budget allocations no longer go as far as they did in the past, necessitating greater capital expenditure to achieve outlined goals.

In recent years, capital expenditure on defence has fluctuated, primarily because of major global events like the pandemic, overseas conflicts and changing government policy. Spending was trending upwards in the years before the pandemic, as the Federal Government committed to raising expenditure on defence to 2.0% of GDP by 2020-21. Significant investments through the Integrated Investment Program and the 2016 Defence White Paper supported capital expenditure. The Australian Air Force's fighter fleet upgrade also injected capital expenditure into defence over the past decade. In August 2019, the program's first stage, intending to invest over $3 billion in new equipment and training over the next two decades, commenced. The first stage included $500 million to be spent over four years on new weapons, body armour and other equipment for Australia's eight special forces units.

In 2022-23, spending priorities shifted following the signing of the AUKUS pact and the election of a new administration. The defence partnership introduced a series of long-term obligations, prompting adjustments to short-term funding settings. The incoming government argued that its predecessor had over-committed to certain defence programs, noting that many projects required more realistic funding. As a result, several initiatives were identified for scaling back or cancellation, including reduced plans for infantry fighting vehicles and the complete removal of commitments to acquire 30 self-propelled howitzer guns. The review also redirected investment towards programs better aligned with a changing global security landscape, such as cybersecurity, artificial intelligence and quantum computing.

As policy priorities have shifted under the 2025 National Defence Strategy, capital expenditure on defence equipment and machinery has risen as a share of total expenditure on defence. Overall, IBISWorld forecasts capital expenditure on defence to expand at an annualised 4.3% over the five years through the end of 2025-26.