Australia launches $25 billion defence overhaul

Australia has embarked on its most significant military build-up since World War II, committing more than A$25 billion to a sweeping overhaul of its defence capabilities. The move comes in response to growing concerns over regional security, particularly China’s expanding military presence and increased pressure from the United States for allies to boost defence spending.

The expansive programme includes investments in autonomous aerial and underwater drones, nuclear-powered submarines, advanced warships, and the transformation of key shipyards. It marks a strategic pivot toward greater self-reliance and readiness in what officials say is the most dangerous security landscape in generations, Financial Times reports. 

“Australia faces the most complex, in some ways, the most threatening strategic landscape that we have had since the end of the second world war,” Defence Minister Richard Marles said in August.

The defence overhaul follows a landmark strategic review that warned of growing "major power strategic competition" in the Pacific, led by an increasingly "ambitious" China. In recent months, Chinese naval exercises just hundreds of nautical miles off Australia’s eastern coastline have underscored the urgency of enhancing national defence.

Prime Minister Anthony Albanese is expected to meet US President Donald Trump on October 20, with defence spending and Indo-Pacific security high on the agenda. The US has long called for allies like Australia to shoulder more of the regional security burden.

“The urgencies are clear,” said Kurt Campbell, the former US deputy secretary of state, in remarks to the National Press Club in Canberra.

Among the major contracts, Australia has selected Japan’s Mitsubishi Heavy Industries as the preferred bidder for a A$10 billion deal to build up to 11 Mogami-class frigates. This forms part of a broader A$55 billion surface fleet upgrade, which also includes Hunter-class frigates to be built in Adelaide by the UK’s BAE Systems.

To support this shipbuilding drive, the government has committed A$12 billion to upgrading the Henderson shipyard near Perth, a facility previously used for building superyachts. It will be retooled to produce the Japanese-designed warships and support future servicing of nuclear submarines.

In the air, Australia is trialling the MQ-28A “Ghost Bat” drones under a A$1 billion contract with Boeing. These “loyal wingman” drones, designed to accompany manned aircraft, represent the first domestically developed military aircraft in over 50 years. They are part of a A$4.3 billion push to strengthen Australia’s aerial drone capabilities.

At sea, the government has locked in a A$1.7 billion contract with US defence company Anduril to develop a fleet of autonomous underwater vessels — dubbed “Ghost Sharks” — which will be manufactured in Sydney. Marles described the vessels as a high-end strategic asset: “This is a lethal capability. This is the world’s leading capability in terms of a long-range, uncrewed autonomous underwater system.”

Additionally, US defence firm Leidos was recently awarded a A$46 million contract to supply operations systems for a decade-long, A$1.3 billion counter-drone programme.

Luke Yeaman, chief economist at Commonwealth Bank, projected that defence spending would climb from about 2% of GDP today to 2.25% by 2028, with a longer-term increase to 3% expected as expenditures under the AUKUS pact — involving the UK and US — come into full effect. Under AUKUS, Australia will acquire nuclear-powered submarines for the first time, with total costs estimated between A$268 billion and A$368 billion by 2050.

Still, some argue the pace of investment remains insufficient.

“Defence spending is still lax,” said Steve Baxter, founder of defence investment fund Beaten Zone Venture Partners. “The strategy is right but it’s not been funded.”

Others have raised concerns that too much of the budget is tied up in conventional naval forces, such as frigates and submarines, which may be vulnerable in modern warfare scenarios. Sam Roggeveen, director of the Lowy Institute’s International Security Program, said the government should instead prioritise fortifying northern Australia, which is more exposed to potential threats.

The defence buildup also brings into focus Australia’s delicate balancing act with China — its largest trading partner — even as it deepens security ties with the US and Japan. Restoring economic ties with Beijing was a key success of Albanese’s first term, but analysts say the government is walking a tightrope.

“The government is torn between different political goals — the relationship with China but also deterring China,” said Andrew Carr, senior lecturer in the Strategic and Defence Studies Centre at The Australian National University.

Carr also criticised the lack of public engagement on the implications of Australia’s new defence posture.

“There’s no discussion on trade-offs between guns and butter or public support for the costs to society if war breaks out,” he said. “Unlike Japan and Taiwan, Australia was not accustomed to the idea of hostilities close to its shores.”

By Sabina Mammadli