About A$17.4 billion of the Australian government’s promised A$53 billion increase in headline defence spending over the next 10 years remains uncertain. Of the uplift promised by the National Defence Strategy (NDS) a month ago and reaffirmed by Treasurer Jim Chalmers in his 12 May budget speech, only A$35.6 billion of additional funding has been visibly earmarked for Defence.
Within the numbers, the government is again accelerating funding for the nuclear submarine program, spending more up front than it had previously planned.
Elsewhere, rises in defence spending are mostly backloaded: they’ll tend to come late in the 10-year timeframe.
Australia generally discusses defence spending in three timeframes: the immediately upcoming financial year; the upcoming four years, called the forward estimates; and, much more vaguely, the upcoming 10 years.
Of the A$35.6 billion that has been identified, only a fifth, A$6.8 billion, is in the forward estimates. That A$35.6 billion is itself only two-thirds of the headline increase of A$53 billion over the decade. The remaining third, about A$17.4 billion, will come from alternative financing mechanisms – perhaps private capital, employed by contracting for services instead of paying up front – and the Contingency Reserve, as Budget Paper No. 2 indicates. The Contingency Reserve is effectively the government’s allowance for decisions that it expects to be made.
Either way, the money isn’t guaranteed, and Defence is unable to make commitments against it. Since its creation in 1987, the Contingency Reserve has typically been used to fund unexpected expenditure.
Ultimately the forward estimates, which cover 40 percent of the next decade, are getting 20 percent of what new defence funding has appeared in the budget, and, apart from 2026–27, even that money is only semi-reliably on its way. The major increases in projected spending are, as last year, deferred to the latter years of the forward estimates, and the great bulk of the spending in the NDS and its accompanying Integrated Investment Program is beyond that.
The forward estimates do line up with the year-by-year funding profile in the NDS if allowance is made for three new movements. One is the usual adjustment for exchange-rate variations. The Treasury gives and takes so that Defence neither wins nor loses as the Australian-dollar value of imports moves around. So this adjustment should make no difference to prospective military capability.
Another is A$2.8 billion in savings that Defence is expected to make over the forward estimates by spending less on consultants, contractors and other things that aren’t covered by public servants’ salaries. This is a real tightening of the belt: it is applied on top of the A$1.5 billion of savings imposed in the last budget update.
The third new movement is most interesting. A$1.8 billion is being brought into 2025–26 from the forward estimates, almost all for the nuclear submarines. Of that money, a notable A$1.1 billion is coming from 2027–28. This follows another bring-forward of submarine money that was announced in December.
The budget that these numbers describe is front-loaded only in the sense that the nuclear submarine program continues to spend faster than expected. If you look back at estimated 2025–26 spending in the previous budget update, in December, you’d guess that Project DEF 1 (the submarines) would have drawn down A$5.86 billion of its approved budget by the end of 2025–26. Yesterday’s budget, however, indicates it’s now going to have spent A$1.5 billion more than that.
Managing Defence’s broad portfolio of acquisition projects isn’t easy at the best of times, and this kind of mobile cost pressure can hardly be helping. While the 2026 NDS has provided a firm foundation for capability development, delivery will be the real test over the financial year to come.