The current debate on Defence funding, sparked by our 29 May report The Cost of Defence: ASPI Defence budget brief 2025–2026, and a subsequent US request for Australia to spend more, has swung between a call for increasing funding as a percentage of GDP and a call for making individual funding decisions on specific capabilities that the nation needs.

As demonstrated by The Cost of Defence, both sides of that debate are, in fact, right. The report set out specific and necessary capability recommendations that would immediately require spending of at least 3 percent of GDP. That ratio is not merely arbitrary; it has concrete justification.

The defence share of GDP is a widely adopted metric, a standardised way of comparing the effort a country puts into its defence. Indeed, the deputy prime minister highlighted in his launch of the 2024 National Defence Strategy and associated spending plan, the Integrated Investment Program, that ‘Defence spending as a proportion of Gross Domestic Product [is] projected to increase to around 2.4 per cent by 2033–34’.

Expressing defence spending as a percentage of GDP shows how much of a nation's overall productive capacity is allocated to defence. This provides context that absolute spending figures cannot. It also allows for meaningful comparisons between countries of different economic sizes. Without this normalisation, comparing the defence budgets of, say, the United States and Australia would be misleading. Targets for defence shares of GDP, such as NATO's 5 percent, also help guide discussions about burden-sharing among allies.

Further, the GDP-share metric helps assess the affordability of defence spending for a given economy, and highlights the opportunity costs and trade-offs a nation makes between defence and other public purposes. And tracking this percentage over time reveals shifts in a country's strategic priorities or responses to changing security environments, in ways that absolute financial figures cannot. An increasing percentage indicates heightened perceived threats or a more assertive foreign policy, while a decrease suggests lessened threat perceptions or a shift in domestic priorities.

But increasing defence spending to a percentage of GDP without a clear understanding of the strategic and capability needs of the military is strategically and economically unsound. Throwing money at defence without understanding what that money buys results in waste and inefficiency and undermines military strategy. It was for this reason that the Integrated Investment Program was created in 2016, providing a sensible strategic and financial approach to the key elements of spending needed to deliver and sustain Australia’s defence capabilities. Maintaining a 10-year Integrated Investment Program (the period for the initial version ending in 2026) facilitates whole-of-capability and whole-of-life decision making.

But we should also be careful to ensure that governments do not fixate on major capital acquisitions alone. Kit isn’t everything. The Australian Defence Force’s force structure and capability comprises equipment (such as ships, submarines, aircraft and armoured vehicles), information and communications technology systems (such as fixed and deployable networks and communications systems), infrastructure (such as airfields, port facilities and training areas), trained people (including ADF, Australian Public Service and contracted personnel) and the defence industry and national support base that delivers all of these elements.

The chief of the defence force, Admiral David Johnston, said in June that the Department of Defence is fully expending its budget and that Defence is providing frank advice on the need to increase defence expenditure based on an appreciation of the strategic environment, the military strategy, and the budget necessary to deliver that strategy. In giving that vital advice, the department will need to say not just what major equipment is needed to create the future defence force but also what the sustainment and preparedness costs are for the ADF as it’s currently configured.

A detailed review of this year’s Cost of Defence report would aid the department and the government in their thinking. This year’s report provided a rigorous prescription of both the current preparedness and sustainment opportunities as well as the specific capabilities that should get accelerated consideration and funding as part of the next revision of the National Defence Strategy and public Integrated Investment Program, due in 2026 (Recommendation 5).

What follows in this article is a precis of The Cost of Defence’s capability recommendations and some additional details on possible solutions to aid the government and department. Introducing and bringing forward these necessary capabilities would automatically increase defence spending sooner.

Integrated Air and Missile Defence (IAMD)

Despite investments such as the $500 million for the Joint Air Battle Management System under project AIR 6500, which serves as the brains of the IAMD system, and a $7 billion agreement with the US for Standard Missile acquisitions, The Cost of Defence identified significant gaps that remain in Australia’s planned IAMD system. The timeline to bring the system into operation is too long, so the report advocated for fast-tracking acquisition of proven land-based interceptor missile systems and air defence batteries (p.109), which would be vital for defence of deployed troops, forward bases and homeland military and national facilities. Such systems should be able to deal with longer-range threats, such as intermediate and medium range ballistic missiles, as well as short-range threats. Encouragingly, the government recently purchased AIM-120C3 Amraam missiles for Nasams and has test-fired AIM-9 Sidewinders from Nasams launchers. But missiles of both types are suitable for dealing only with short-range, slower threats—not DF-26 ballistic missiles, hypersonic missiles, such as DF-27, or air launched ballistic or cruise missiles.

Protecting the three northernmost Australian air bases, the east and west fleet bases, the major joint facilities and several of the strategic and operational headquarters would require 20 to 30 missile batteries. This calculation is based on the US’s use of two Patriot batteries to defend the Al Udeid Air Base in Qatar during the recent conflict with Iran and Ukraine’s use of upwards of 25 surface-to-air batteries across a geographically dispersed area to defend against Russian attacks. (Australia is 13 times larger than Ukraine.) The cost of a Patriot missile battery (for example) is US$1 billion per battery and missiles of the improved PAC-3 MSE version are estimated to cost around $3.7 million to $4.1 million each.

Long-Range Strike Capabilities

Noting that recent operational usage of long-range strike missiles by the US has far exceeded planning requirements, The Cost of Defence recommended accelerating and expanding procurement of long-range precision strike munitions—including PrSM ($3.5 million per missile), Tomahawk ($2 million per missile for Block V), LRASM ($3.24 million per missile), JASSM-ER or JASSM-XR (around $1.5 million per missile), or some combination of these weapons—to build sufficient stockpiles for protracted high-intensity conflicts (p.119). The GWEO enterprise should be placed on a priority funding trajectory and weapons stockpiles should be expanded by orders of magnitude if the ADF is to be able to sustain combat operations beyond an opening salvo.

Autonomous Systems

The Cost of Defence also recommended rapid procurement and deployment of autonomous platforms in air, sea and land domains to address the ADF’s lack of mass and its workforce limitations (p.52, p.118, p.141). High lethality drones that have been proven on today’s battlefield include the Switchblade 600 loitering munition (costing tens of thousands of dollars per unit) and first person view drones (modified commercial drones costing as little as a few hundred dollars and up to a few thousand dollars). More complex drone systems, such as the MQ-28A Ghost Bat, Ghost Shark UUV, Bluebottle USV, and Speartooth UUV could also be fast tracked to support battlefield innovation and persistent surveillance in Australia’s approaches. Similarly, counter-drone capabilities, for air, surface and sub-surface environments, should be accelerated for immediate deployment. Examples are the Electro Optic Systems Slinger system (which aims to destroy drones at a cost between $155 and $1,550 per shot) and DroneShield's RfPatrol, DroneGun, DroneSentry-X and DroneSentry-C2.

Space-based surveillance and communications

To ensure that IAMD, long-range strike and autonomous systems can deliver on their potential, The Cost of Defence recommended considerable additional funding for sovereign space capabilities for command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) (pp.119–121). Defence on 26 June issued a request for information for project SPA 9102, though the request solely addresses the narrowband satellite communications component—specifically, electromagnetic interference for a single geostationary-orbit narrowband satellite operating in the ultra high frequency band. A sovereign space-based intelligence and surveillance capability and sovereign launch capabilities remains necessary to assure access and strengthen space resilience.

Cyber and electromagnetic warfare (EW)

The Redspice program commits $9.9 billion over a decade to enhance cyber capabilities. However, current personnel and capability levels remain inadequate. The report recommended expanding offensive cyber forces and advanced EW systems (pp.122–123). Potential additional investments in cyber and EW that could be accelerated include ramping up highly specialised offensive cyber tools and platforms (potentially an additional $500 million to $1 billion over five years for dedicated teams, infrastructure and development), acquisition or co-development under AUKUS Pillar Two of a new class of advanced airborne, naval, or ground-based EW platforms beyond current projects like the MC-55A Peregrine (costing perhaps cost $1 billion to $5 billion per platform type, depending on complexity and number) and next-generation cyber warfare training and simulation tools to create a highly realistic, large-scale cyber warfare training environment and advanced simulation capabilities (potentially costing in the hundreds of millions for initial setup and ongoing sustainment).

Multi-domain integration (MDI)

Operational effectiveness demands increased integration of offensive and defensive cyber capabilities, advanced C4ISR systems, IAMD, resilient space assets, and emerging domains such as financial and political warfare (p.141). Investment in multi-domain integration could total tens of billions over the next decade, including expanding cyber personnel (low billions), C4ISR backbone ($5 billion to $15 billion), IAMD systems ($10 billion to $30 billion), and establishing a financial and legal warfare unit ($100 million).

Defence Infrastructure

Upgrading and sustaining bases, particularly in northern Australia, is essential for force projection, operational readiness and resilience. The Cost of Defence recommended additional investments of $5–10 billion for northern base upgrades, $3 billion to $5 billion for estate resilience initiatives (including base hardening, climate adaptation and renewable energy), and $2 billion to $4 billion for logistics infrastructure (pp.131–138).

Naval Shipbuilding and Sustainment

The government’s commitment to naval shipbuilding is foundational. However, The Cost of Defence recommended additional workforce development, sustainment in northern Australia, and integration of uncrewed systems as requiring further focus. Sustained multi-year funding in workforce training, local sustainment capacity and accelerating uncrewed vessel integration (hundreds of millions to low billions of dollars) is critical for timely capability delivery.

Workforce Development and Retention:

The ADF aims to grow from about 58,850 personnel to 69,000 by the early 2030s, with total defence workforce planned to reach 100,000 by 2040. Despite a $5.7 billion four-year and $50.3 billion decade-long commitment, recruitment and retention challenges persist, especially in science and technology, cyber, engineering, logistics and defence industry (p.86–90). Additional spending on workforce analytics ($50 million to $100 million), training and upskilling ($500 million to $1 billion), recruitment modernisation ($200 million to $400 million), retention programs ($100 million to $200 million annually), and industry collaboration ($50 million to $150 million) over five years is necessary to meet capability delivery expectations.

Sustainment of current capabilities and war stocks

Adequate funding for maintenance and sustainment of existing ships, aircraft and vehicles is critical to avoid a hollow force. Sustainment funding and munitions stockpiles are growing modestly but must keep pace with operational demands, especially for submarines, surface combatants and land systems (pp.91–93, and p.47). Moving the dial on the current sustainment funding, such that the ADF’s operational units moved from current levels of preparedness to a 24-7 always-ready force would require an increase in sustainment funding of up to 50 percent (approximately $9 billion per annum).

Beyond the Defence funding base

The Cost of Defence also recommended that the government commit to funding national preparedness and national resilience measures across its own operations, the economy and society to ensure that Australia would be ready to manage potential national-security crises (Recommendation 2). This would be in line with the recent NATO decision to allocate 1.5 percent of GDP to protect critical infrastructure, defend networks, ensure civil preparedness and resilience, innovate, and strengthen the defence industrial base. Australian investments in national resilience and preparedness could include:

—A dedicated national fund for critical infrastructure resilience upgrades, potentially $100 million to $300 million per year for grants or co-investment with industry for specific physical and cyber resilience projects (for example, hardened facilities, redundant systems and advanced cybersecurity tools).

—Cybersecurity uplift for smaller and regional utilities, with grants to subsidise cybersecurity training, managed security services, and secure-by-design solutions, potentially in the order of tens of millions of dollars per year.

—Investment in physical resilience and hardening of key nodes of critical national infrastructure from physical attack, sabotage and extreme weather events, potentially $500 million per annum. This could include redundant power supplies, backup communication systems, physical security enhancements (fencing, surveillance) and climate-resilient design.

—Spending on combatting misinformation and disinformation, including investment in capabilities to detect, analyse and counter foreign interference and disinformation campaigns that seek to undermine social cohesion and trust in institutions, potentially tens of millions of dollars annually.

—Spending on community civil preparedness and resilience, through community education, training and volunteer programs that would revitalise civil defence concepts, first-aid training and local emergency planning, along with equipping community hubs with essential supplies. A sustained national program could potentially cost tens of millions of dollars per year.

The 2025 Cost of Defence report did not simply argue for an increase in the percentage of GDP spent on Defence. Rather, it questioned whether the current trajectory of defence funding and capability delivery was enough to deter potential adversaries and protect Australia's interests in an increasingly volatile Indo-Pacific. It also provided a suite of recommendations on the specific capabilities and resources Defence should accelerate to meet the challenges we face today as well as prepare for tomorrow. On the basis of the capabilities needed to defend Australia and Australia’s interests, recognising both the deteriorating international environment and domestic budget pressures, the report recommended the government acquire or improve defence capabilities to an extent that would see spending reaching at least 3 percent of GDP in 2026–27.

On the basis of the clear need for the capabilities set out in The Cost of Defence and restated here—whether considering new systems, such as counter-drone capabilities, or bringing forward existing projects that are currently programmed too far into the future—Australia would end up spending a far higher fraction of GDP on defence. A frank and fearless military strategic appreciation, followed by an objective capability needs analysis focused on both today’s threats and tomorrow’s, followed by a resource bid reflective of both the threats and the ADF’s capability needs, would see Australia spending a lot more. In the most dangerous period since the end of World War II, a nation cannot limit its defence strategy to either GDP percentages or capability proposals alone. The two go hand in hand. The government should consider these recommendations to ensure that the ADF has everything it needs, when it needs it, to defend our nation.