Federal Budget 2025: Labor says the world is a ‘dangerous place’, but plays the defence budget safe

Labor has resisted requests from the Trump Administration and a concerted push from experts to rapidly bolster defence spending in the next few years, despite acknowledging the world is now a “more dangerous place”.

Tuesday’s Budget confirms the Government will spend $56 billion in the upcoming year on defence, and $305b over the entire forward estimates.

By mid-2029, based on the size of the economy the budget is built on, per-GDP spend will reach 2.15 per cent.

That is set to grow to 2.33 per cent by 2033-34, short of the 2.4 per cent previously promised by Labor and well below calls for three per cent by top Trump official Elbridge Colby earlier this month, who said Canberra should lift defence spending to three per cent of GDP.

“Australia is currently well below the three per cent level advocated for NATO by NATO Secretary-General (Mark) Rutte, and Canberra faces a far more powerful challenge in China,” he said.

The Coalition has pledged to gazump Labor on defence spending and is weighing up lifting spending to 2.5 per cent of GDP by 2029.

Asked why the Government hadn’t heeded calls to invest more in the defence budget, Treasurer Jim Chalmers said Labor had already bolstered spending by a “very substantial amount”.

He called for the Coalition to explain how it would pay for anything more than what is currently modelled.

“We’re doing what we can to invest in capability, that’s a huge and high priority of this government,” he said.

“That’s not reluctant. We are doing that in recognition of pressures, the global economy and the world more broadly is a dangerous place right now, and it is casting a dark shadow over the world and our own deliberations.

“And that is why a substantial increase in defence spending is so important.”

The Government has brought forward $1b in extra funding to 2026-27 and 2027-28 to speed up construction of Perth’s base for US nuclear-powered submarines, buying new frigates, and boosting missile stockpiles.

A number of defence experts have advocated for an increase to defence spending, although some in the community have cautioned against using a percentage per GDP as a goal.

Speaking ahead of the budget, former defence chief Chris Barrie said focusing on the per-GDP spend was a “lazy economics” approach to defence, and the focus should instead be on ensuring money was being well spent.

“I’m not sure a lot of the defence spending currently on the list is appropriate to an Australia that cares about the region,” he said.

“I think we need to think again, reset our priorities, make sure we’re putting our budget allocations in the right spots and not be driven by how many per cent of GDP.

“We need to be asking ourselves” What is it we need to be able to do? What is it we need to equip ourselves with? How are we going to get there?”

Within the budget, the Government has allocated $61.7 million this year to spend across multiple portfolios as part of the nuclear-powered submarine program. It includes $28m for DFAT to provide “international policy advice and diplomatic support” for the AUKUS agreement.