Capital expenditure on defence

IBISWorld forecasts capital expenditure on defence is expected to rise to $11.9 billion in 2024-25, representing an increase of 6.3% on the previous year. The Federal Budget 2024-25 paves the way for a significant rise in capital expenditure on defence. Several factors drive this increase. The "Future Made in Australia Agenda" prioritises investment in cutting-edge defence technologies, requiring substantial capital for development and acquisition. Furthermore, the budget reflects the government's commitment to modernising the Australian Defence Force (ADF) as outlined in the 2024 National Defence Strategy. Upgrading existing equipment and acquiring new capabilities necessitate a significant capital injection. Also, rising global tensions influence budget allocation, with the government prioritising national security through increased defence spending. Finally, inflationary pressures are a major factor. Because of inflation, the rising cost of materials, labour, and logistics means the allocated budget won't go as far, requiring increased capital expenditure to achieve planned goals.

Over the past few years, capital expenditure on defence has fluctuated, mainly because of the pandemic and changing government policy. Spending was trending upwards 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 in the wake of the signing of the AUKUS pact and the election of a new Federal Government. The defence pact has committed the Federal Government to a raft of long-term commitments, prompting changes in short-term funding. The Federal Government argued that the previous government had over-committed to defence spending priorities, signalling that many obligations needed to be adequately funded. The Federal Government identified several defence spending programs that could be scrapped or scaled back to ensure that long-term commitments were adequately funded. These cuts included scaling back plans to build infantry fighting vehicles and cutting entirely commitments to acquire 30 self-propelled howitzer guns. The review also redirected funding towards programs that reflected a changing global situation, like cyber security, artificial intelligence and quantum computing.

As policy priorities have shifted under the 2024 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 a compound annual rate of 2.9% over the five years through 2024-25.