Federal Budget 2026: Foreign spending pivots to Pacific as competition for strategic influence intensifies

The Federal Budget has pivoted foreign spending away from global organisations to help fund more programs in the Pacific as the competition for strategic influence the region intensifies between China and Australia.

Defence diplomacy in the region spending included $600 million over four years for the Papua New Guinea (PNG) – Australia Mutual Defence Treaty and to expand defence infrastructure investments in the area.

It included greater infrastructure to support integration between defence forces and a pilot program to recruit PNG citizens into the ADF.

More than $33.2m was allocated to the Australia-Indonesia relationship across the next four years after the signing of the Jakarta Treaty in 2026.

The funding will support cultural and language exchange, strengthening economic ties, and improving Indonesia’s civil maritime capabilities.

Prime Minister Anthony Albanese is also expected to make regular trips to the neighbouring nation, with $3.4m set aside in the Budget to establish an annual leadership dialogue with President Prabowo Subianto.

While Australia’s aid budget remained mostly the same, the allocation wasn’t expected to keep up with inflation over the forward estimates.

The Albanese Government also revealed it would be cutting $111m from global multilateral organisations — including the United Nations Development Programme, the Global Partnership for Education, UNAIDS and the Pandemic Fund — to free up extra cash for the Indo-Pacific.

Australia is also pushing ahead with its support to establish PNG’s National Rugby League franchise among others as a soft diplomacy measure in the region.

Tuesday’s Budget revealed the government was tinkering with the tax settings for any local staff and players of the upcoming PNG Chiefs team to ensure they have income tax exemptions.

The changes to the tax laws are expected to cost $5.4m over the next four years.

Other big ticket items included $550m over a decade to help the region establish and maintain climate-resilient infrastructure, as well as $167.3m across four years to help development in Nauru.

Pacific Island Affairs Minister Pat Conroy said it was about Australia “stepping up as a trusted partner” as countries in the region are face growing pressures from climate change, economic disruption and global instability.

“We are prioritising targeted investments that back Pacific priorities, strengthen local resilience and support long-term development,” he said.

“Australia’s engagement in the Pacific is grounded in trusted partnerships, respect and our shared interest in a peaceful, stable, prosperous region.”

Other measures include continuing funding for the ABC to produce content for and about the region, with $14.4m allocated over two years. As well as $5.5m to support anti-money laundering operations and $900,000 for law and justice programs in the region.

Australia has also exempted eligible Pacific Island and Timor‑Leste applicants from a doubling of visa application charges for temporary graduate visa applicants.

The measure was included in the Budget to help the government raise revenue, with an estimated increase in receipts by $1.2 billion over the five years from 2025–26.

Treasurer Jim Chalmers made no apology for defence and foreign spending during his post-Budget National Press Club address on Wednesday.

“Well, the world’s a dangerous place, and I think big investments in national security make a lot of sense,” he said.

“First of all, I recognise that national security and economic security are effectively the same thing now, and nothing comes cheap in defence if you’re serious about making Australians safer.”