ASPI has published The cost of Defence every year since 2002. The series has, year after year, assessed what governments said they would do against what the books showed. It’s the type of scrutiny that simultaneously strengthens transparency over, and the social licence for, spending to meet the current, emerging and future threats facing the nation.
The 2026 edition is published in a different strategic environment from any of its predecessors. Global conflict and tension are now so entrenched that they no longer mark a temporary period of disruption or deteriorating circumstances, but a long-term era of instability and insecurity in which further conflict is a credible possibility.
There’s no question that a huge body of work is being undertaken. The 2024 and 2026 National Defence Strategies (NDSs) named the strategy of denial as the cornerstone of Australian defence policy. The accompanying integrated investment programs reshaped almost every line of the previous decade’s plans. AUKUS has moved from announcement to execution. The rotational US–British submarine presence at HMAS Stirling begins next year. The first Virginia-class submarine is scheduled to arrive in 2033. The first sovereign nuclear-powered attack submarine (SSN-AUKUS), on the current trajectory, should be built by the early 2040s. The strike enterprise is being transformed. The integration of air and missile defence has begun. The northern bases program has started. The maritime fleet is being redesigned. The land force is being reorganised.
Still, questions remain about implementation, readiness and risk mitigation, including by the government itself, which announced in December 2025 a new Defence Delivery Agency to reform acquisition and sustainment activities.
Our job is to test the defence budget against the strategy.
In this year’s federal Budget, the treasurer placed defence inside a wider resilience pillar, alongside fuel security, critical minerals and the sovereign capability agenda. That doctrinal choice matters. It folds the question this report has always asked (whether the defence appropriation matches the strategy that the government has declared) into a wider one about the funded reality of Australia’s national defence. The 2026 edition takes that hook and tests it against the Budget.
What the Budget shows is partial success. The government has committed to one of the most significant decades-long force restructurings in the country’s peacetime history. The work of the decade ahead is to convert that commitment into delivered capability.
Our review of the 2026–27 Budget and Defence Portfolio Budget Statements (PBS) suggests a pattern. The Budget presents a clear strategy, with structured spending and delivery set for the long term, which is positive for those looking for long-term commitments rather than either quick fixes or stop–start processes. But it also reveals some cuts and delays and, in several major capability investment streams, an approvals gap between the investment announced and actual funded delivery of capability. That pattern is consistent enough that our central judgements are summarised early: the program is necessary and broadly correctly sized, if late to deliver; the government’s defence strategy isn’t constrained by a blindness to the threats or lack of willingness to commit; constraints are found in the workforce, the industrial base, the integration across capabilities, the institutional follow-through over multiple electoral cycles, and a dangerous inconsistency in allies working together to deter China and the group of authoritarian regimes it leads. Those constraints will be relaxed but not removed by additional money alone.
This year, the Australian government shifted to using the NATO model to determine Australia’s defence spending as a share of GDP and outlined that Australia would hit around 3.0 percent by 2033. Transitioning to the NATO model is sensible to ensure that Australia can be more easily compared to like-minded democracies. However, it will take some time to transition to that model and, for now, benchmarking the Budget against the old model is a useful and simple guide, so we’ve taken that approach.
The Defence portfolio has spent the better part of a decade hovering inside a narrow band either side of 2.0 percent. So, if the strategic case for such spending existed in 2013 and 2016 (confirmed and made more urgent in the assessment of the 2026 NDS that the coming years are the most dangerous since the end of World War II), that case would warrant higher spending now. The government and intelligence agencies are telling us that we live under greater threat now than we did at any point in the Cold War. Its own Defence Strategic Review and NDSs have said the Australian Defence Force isn’t yet fit for purpose for managing the current strategic environment. The arithmetic of the 2026–27 Budget hasn’t yet caught up with the strategic case that the government has itself articulated.
The Budget reality is understandable: the global economy is weak and cost-of-living pressures are high. But history has shown that any short-changing of defence and security investment now will result only in higher costs later. Europe has been living that reality since the Russian invasion of Ukraine in 2022, which followed years of defence neglect, leading to a failure of deterrence.
The GDP percentage is a useful yardstick, but it’s not the focus of this report. The operative measure is what the money buys: the capability delivered, the platforms acquired, the workforce trained and retained, the ADF sustained, the operations conducted and the readiness held against the strategic environment that the NDS describes. A defence budget that sat at 3.0 percent of GDP but converted poorly into capability would be a worse outcome than a defence budget that sat at 2.0 percent and converted efficiently. The percentage is the input. The capability is the output. The challenge is the Defence portfolio’s capacity to turn one into the other. That’s what most of this report evaluates.
The report’s purpose is not to answer every question about each Defence project. The Defence PBS continues the trend mentioned in last year’s The cost of Defence regarding the increasing opacity of program and capability-level transparency. The report is an aid to the public conversation about Australia’s defence, helping readers to demystify the Budget papers and allowing them to judge for themselves whether the defence budget is achieving bang for buck and is reflective of the reality of the threats that the nation faces. ASPI has, for 25 years, kept faith with our charter responsibilities to provide alternative and contestable advice on major strategic and defence policy issues and to nourish public debate and understanding of those issues. That tradition continues here.