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.