Australia is falling behind its allies in defence spending, despite facing one of the most volatile strategic environments since WWII, new research from a leading think tank shows.
The Melbourne-based Institute of Public Affairs (IPA) recently released an analysis highlighting the country’s continued underinvestment in defence.
Australia has maintained defence spending at just 2 percent of GDP since 2021—well below the average of comparable nations.
This trend persists even as federal government spending reaches its highest level in nearly four decades, excluding pandemic-related expenditures.
By contrast, other OECD countries have increased their defence budgets, with an average spend of 2.42 percent of GDP.
The most recent federal budget indicates that it could take nearly a decade for Australia’s defence investment to reach 2.3 percent of GDP.
The IPA also pointed to growing regional tensions, including Chinese live-fire drills near Australia and New Zealand.
Meanwhile, the United States has called on allies to increase defence spending to between 3 and 5 percent of GDP.
The UK, despite its smaller landmass and closer proximity to allies, currently spends 2.26 percent and has committed to reaching 3 percent in the next parliamentary term.
“Australia cannot continue to free-ride off allies, particularly the United States, when it comes to our own defence,” said John Storey, director of Law and Policy at the IPA.
“Over the next decade, increasing Australia’s defence investment to at least 3 percent of GDP would provide an additional $206 billion investment in defence. This far surpasses the government’s inadequate plan, which amounts to just $50.3 billion.”
Defence Investment, Structural Reform
The IPA argues that raising defence spending to at least 3 percent of GDP is both feasible and necessary.
According to Storey, the proposed $206 billion (US$131 billion) investment would cover stockpiling munitions and equipment, increasing defence personnel, and strengthening supply chains and domestic manufacturing—key components for ensuring self-reliance during a potential conflict that disrupts external supply routes.
Last year, the Albanese government announced an additional $50.3 billion for the Australian Defence Force (ADF), with a further $10.6 billion in forward estimates. In total, $57.6 billion is set to be allocated to defence over the next decade.
Marc Ablong, a visiting senior fellow at the Australian Strategic Policy Institute (ASPI), described raising defence spending to at least 3 percent of GDP by 2026–27 as a “strategic necessity” and urged that it be sustained for the next decade.
“Against the complex, interconnected and existential threat environment Australia now faces, the next government must seriously consider whether the funding commitments, set out in the National Defence Strategy (NDS) and the Defence Portfolio Budget Statements meet the threshold test of the Defence Strategic Review (DSR) that spending reflect the strategic circumstances Australia now faces,” Ablong said.
“In essence, Defence is receiving no additional funding for the next three years, which ... is a holding pattern that leaves us critically exposed to events in the near term and results in preparedness and readiness levels well below any real ability to hold an adversary at risk for a meaningful period.”
He added that higher defence spending would help reassure Washington of Canberra’s commitment to the alliance, especially in light of evolving U.S. strategic priorities.
ASPI has also recommended that the Department of Defence review the planned 2026 updates to the NDS and Integrated Investment Program (IIP), with a focus on enhancing the readiness and sustainability of the current force-in-being to ensure continuous regional defence.
In addition, it called on the government to include national preparedness and resilience initiatives in the 2025–26 budget, spanning across government, the economy, and society, to better prepare for potential national security crises.
ASPI further recommends delivering a public reform plan within three months of the next federal election, with full implementation over the following year.
This plan, as outlined in the DSR, would streamline procurement, improve project oversight, eliminate redundant spending, and strengthen Australia’s domestic defence manufacturing sector.
“A substantial investment in the preparedness—readiness and sustainability—of the ADF is mandatory if we intend to deter the actions of aggressive nations, which can rehearse their kinetic and non-kinetic offences in Australia’s own backyard and in our ICT networks,” Ablong said.
“The immediate security of Australia and the safety of our citizens, including those travelling in civilian airliners across the Tasman or into Asia, necessitate that we can undertake real-time surveillance and reconnaissance and, if necessary, active, defensive and offensive counterattack measures.”
