Australia Defence Spending Market Size, Share and Forecast Trends - Growth Analysis and Outlook Report (2026-2035)

How is the Australia defence spending market structured, and where is it heading?

Quick Answer

The Australia defence spending market covers the consolidated budget of the Department of Defence, Australian Signals Directorate (ASD), and Australian Submarine Agency (ASA). Every dollar spent on acquiring platforms, sustaining equipment, paying the ADF workforce, funding the AUKUS submarine programme, and running cyber intelligence flows through those three entities. For FY 2025-2026, the consolidated defence spending market sits at AUD 58.99 billion, or 2.05 per cent of GDP: the tenth consecutive year of real growth. Growth is driven by the 2024 National Defence Strategy, the AUD 330 billion Integrated Investment Programme, AUKUS Pillar One (AUD 53-63 billion over the decade), and the AUD 21 billion sovereign Guided Weapons and Explosive Ordnance (GWEO) programme. The defence spending market is projected to reach AUD 96.13 billion by 2035 at a 5.0 per cent CAGR, anchored to the 2.4 per cent GDP target.

Market Overview

Ten consecutive years of real growth is what the FY 2025-2026 Portfolio Budget Statements confirm when you strip away the political framing. At AUD 58.99 billion, Australia's consolidated Defence portfolio grew 4.2 per cent in nominal terms, but ASPI and Strategic Analysis Australia both calculate real growth at just 1.0 per cent once inflation is accounted for. The defence spending market settled at 2.05 per cent of GDP, barely budging from the narrow 1.9 to 2.1 per cent band it has occupied since FY 2017-2018.

What makes the defence spending market genuinely interesting is not the current year's budget but the trajectory. On 17 April 2024, the government committed AUD 330 billion in capability investment through the first-ever Integrated Investment Programme: the largest single defence procurement commitment in Australia's peacetime history. The catch is timing. The really significant money arrives after FY 2027-2028, well beyond what the forward estimates can confirm. Until then, the defence spending market is running on the pre-existing funding line, topped up by modest NDS increments near-term.

Three forces are pushing the Australia defence spending market forward over the forecast period. First, the 2024 National Defence Strategy adopted a Strategy of Denial and directed a wholesale conversion of the ADF from a balanced force into an integrated, domain-spanning one. Second, AUKUS is consuming an accelerating share: the PAES FY 2025-2026 updated DEF 1 submarine spending to almost AUD 4 billion, up AUD 602 million from the March PBS. Third, Australia is building a sovereign missile manufacturing industry for the first time, backed by up to AUD 21 billion under the 2024 GWEO Plan. None of these three programmes existed in their current form five years ago.

Key Market Trends and Insights

• South Australia's defence industry outpaced every other state in FY 2023-2024: Adding AUD 425 million in GVA and 1,300 new jobs in a single year per ABS ADIA. The driver is Osborne Naval Shipyard simultaneously hosting Hunter-class frigate construction under BAE Systems, Collins-class submarine sustainment under ASC, and early groundwork for SSN-AUKUS.
• AUKUS is the fastest-growing line item: PAES FY 2025-2026 updated DEF 1 (nuclear-powered submarine) expenditure to almost AUD 4 billion, an increase of AUD 602 million on the March PBS figure of AUD 2.75 billion. The PBS FY 2024-2025 forward estimate of ~AUD 4.97 billion for FY 2027-2028 remains indicative.
• Sovereign missile manufacturing moved from ambition to operational in 2025: The Lockheed Martin GMLRS assembly facility at Port Wakefield was on track to commence production by end of 2025. The Kongsberg NSM/JSM factory at Williamtown is under construction with full rate production targeted for 2028. Live firings of Naval Strike Missile, Standard Missile 6, and Tomahawk were confirmed in 2024, followed by LRASM and Precision Strike Missile in 2025.
• Defence industry employment hit 69,400 in FY 2023-2024, growing 9.1 per cent: Nearly four times the 2.5 per cent pace of total economy employment growth. The ABS ADIA FY 2023-2024 recorded GVA of AUD 11.9 billion, a 12.4 per cent increase.
• AUKUS Pillar Two advanced capabilities are reshaping procurement: AI, autonomous systems, hypersonics, quantum, and electronic warfare under Pillar Two drove AUD 1.0 billion in near-term NDS acceleration funding for autonomous systems and long-range fires.

Australia Defence Spending Market Size and Forecast

Key Takeaways: Australia Defence Spending Market

AUD 330 Billion IIP: The Largest Peacetime Capability Commitment Australia Has Made

When Richard Marles stood at the National Press Club on 17 April 2024, he announced what the government called an historic investment in Australia's defence. The 2024 Integrated Investment Programme allocated AUD 330 billion for capability procurement over the decade to FY 2033-2034, with AUD 765 billion in total portfolio spending across the same period. An additional AUD 50.3 billion was committed above the existing budget line: AUD 38.2 billion from FY 2027-2028 for IIP capabilities, AUD 11.1 billion for the surface combatant fleet, and AUD 1.0 billion to accelerate autonomous systems and long-range fires near-term. ASPI has been direct in noting that resourcing is not yet matching the rhetoric.

AUKUS: AUD 53 to 63 Billion Decade Programme, Already Running Ahead of Schedule

No programme defines the defence spending market over the forecast period more than AUKUS Pillar One. The 2024 IIP commits AUD 53-63 billion over the decade for nuclear-powered submarines and associated infrastructure: roughly one-fifth of the entire IIP budget. Spending is accelerating faster than original forward estimates suggested. The PAES FY 2025-2026 updated planned DEF 1 expenditure to almost AUD 4 billion, an increase of AUD 602 million on the March PBS figure of AUD 2.75 billion. The PBS FY 2024-2025 forward estimate of ~AUD 4.97 billion for FY 2027-2028 remains indicative. Both the ASA's AUD 397.6 million operating budget and the ASD's AUD 2.478 billion REDSPICE-driven budget sit alongside the submarine programme.

Sovereign Guided Weapons: From Ambition to Production in 2025

The 2024 GWEO Plan committed up to AUD 21 billion for sovereign missile production. In 2025, the programme crossed from ambition to operational reality. The Lockheed Martin GMLRS assembly facility at Port Wakefield, South Australia, was on track to commence production by end of 2025. The Kongsberg NSM/JSM factory at Williamtown is under construction with full rate production targeted for 2028. Live firings of Naval Strike Missile, Standard Missile 6, and Tomahawk were confirmed in 2024; LRASM and Precision Strike Missile in 2025. A sovereign missile industrial base that didn't exist five years ago is now taking shape.

Key Insight

The disconnect between rhetoric and funding is the defining tension in the Australia defence spending market. The 2024 NDS calls for a transformation of the ADF at scale and pace, but the FY 2025-2026 PBS shows real growth of just 1.0 per cent. Significant funding is back-loaded beyond FY 2027-2028, which creates genuine execution risk: industry needs workforce and capacity now to deliver later. ASPI's assessment is that strategic ambitions outpace near-term resourcing, and the next mid-term budget update is the moment to watch.

Key Trends and Recent Developments in the Australia Defence Spending Market

FY 2025-2026 Portfolio Budget Statements, May 2025

The PBS released in May 2025 set the consolidated Defence portfolio budget at AUD 58.99 billion: nominal growth of 4.2 per cent but real growth of just 1.0 per cent after inflation. The acquisition share of the DoD budget was 32.7 per cent, against a 42 per cent long-term target. Forward estimates climb to ~AUD 65.5 billion in FY 2026-2027, ~AUD 72 billion in FY 2027-2028, and ~AUD 74.1 billion in FY 2028-2029 (PBS Table 4a). The PAES FY 2025-2026 subsequently reduced forward estimates by a net AUD 2.6 billion.

2024 National Defence Strategy and Integrated Investment Programme, 17 April 2024

The 2024 NDS adopted National Defence as its framework: a whole-of-government, whole-of-nation concept that directs the ADF's transformation from a balanced force into an integrated, focused one across maritime, land, air, space, and cyber domains. A Strategy of Denial replaced the previous force structure logic. The IIP allocated AUD 330 billion over the decade to FY 2033-2034. The surface combatant fleet doubled in size under the Independent Analysis of Navy's Surface Combatant Fleet, with 11 Mogami-class general purpose frigates (SEA 3000) joining six upgraded Hunter-class frigates (SEA 5000).

AUKUS Milestones: Geelong Treaty and Rolls-Royce Components

The 50-year Geelong Treaty signed with the United Kingdom in July 2025 locks in the SSN-AUKUS pathway through the 2040s, providing a legal and financial framework designed to endure generations. In February 2026, Australia secured AUD 310 million in long-lead nuclear propulsion components from Rolls-Royce Submarines. The AUD 3.9 billion Submarine Construction Yard at Osborne is progressing; the Collins-class Life-of-Type Extension begins in 2026. AUKUS Pillar Two is advancing AI, autonomous systems, hypersonics, quantum, and electronic warfare initiatives in parallel.

Australia Defence Spending Market Segmentation

Market Breakup by Capability Domain

• Maritime (Submarines and Surface Fleet): The largest and fastest-growing segment of the defence spending market, consuming roughly one-third of the IIP. AUKUS (AUD 53-63 billion over the decade), Hunter-class frigates (SEA 5000), Mogami-class (SEA 3000), and Collins-class LOTE.
• Land Forces: Armoured vehicle programmes, long-range fires, and sovereign missile production. The AUD 21 billion GWEO Plan and AUD 1 billion near-term autonomous systems acceleration are concentrated here.
• Air Combat and Aerospace: F-35A sustainment, E-7A Wedgetail, MC-55A Peregrine, MQ-28 Ghost Bat autonomous aircraft, and the Triton unmanned maritime surveillance fleet.
• Cyber, Space, and Intelligence: ASD's REDSPICE programme (AUD 9.9 billion) is the backbone. Space Command continues to expand, and the ASD FY 2025-2026 allocation of AUD 2.478 billion reflects sustained cyber intelligence investment.

Market Breakup by State

• South Australia: Leading the defence spending market in GVA growth. Osborne Naval Shipyard hosts Hunter-class frigate construction, Collins-class sustainment, and early SSN-AUKUS work. AUD 425 million GVA addition and 1,300 new jobs in FY 2023-2024.
• Western Australia: The Henderson Defence Precinct is becoming Australia's second sovereign naval shipbuilding hub, with AUD 12 billion already committed and tens of billions more expected. Hosts eight domestically-built Mogami-class frigates.
• New South Wales: Largest concentration of defence industry employment. Kongsberg NSM/JSM factory at Williamtown and Lockheed Martin space operations at Mascot.
• Queensland: Hosts the ghost bat MQ-28 development and major Army land capability programmes. Townsville is the major Army base.
• Victoria: The Geelong Treaty signing anchored Victoria's role in AUKUS; BAE Systems and Thales operations are concentrated here.

Competitive Landscape and Key Players in the Australia Defence Spending Market

The Australia defence spending market is structured around a small group of global primes, sovereign industrial operators, and an expanding base of SME suppliers. The 2024 NDS emphasis on sovereign capability has strengthened the position of domestic primes alongside the global majors.

BAE Systems Australia

Prime contractor for the Hunter-class frigate programme (SEA 5000) at Osborne Naval Shipyard. One of the largest defence companies in Australia. Significant capability across maritime, air, land, and cyber.

Lockheed Martin Australia

F-35A sustainment lead; GMLRS assembly at Port Wakefield (on track for end-2025 production); Aegis combat system provider; major AUKUS and missile programme participant.

ASC (Australian Submarine Corporation)

Sustains the Collins-class submarine fleet at Osborne; partner in the SSN-AUKUS construction pathway. A Commonwealth-owned entity central to sovereign submarine capability.

Thales Australia

Major defence electronics, communications, and land systems provider. Significant presence in Lithgow (small arms and munitions) and across Australia's sovereign ammunition supply chain.

Kongsberg Defence Australia

Building the NSM/JSM missile factory at Williamtown, NSW, with full rate production targeted for 2028. A cornerstone of the sovereign missile industrial base.

Other significant players include Boeing Defence Australia (Wedgetail, Ghost Bat), Saab Australia, Raytheon Australia, Rheinmetall Defence Australia (armoured vehicles), Airbus Australia Pacific, and domestic SMEs providing sovereign industrial capability.