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June 2, 2026
DEFENCE SPENDING TOTAL INFLATED WITH $10BN WELFARE PAYMENTS, $2bn AGENCY FUNDING
The Albanese government has been accused of "cooking the books" by using more than $10bn in veterans' welfare payments and $2.1bn in intelligence agency funding to bolster its headline "defence spending" figure.
A breakdown of the government's calculations that lifted defence funding from 2 per cent of GDP to a claimed 2.8 per cent under NATO accounting rules includes more than $18.5bn this financial year in expenditure not administered by the Department of Defence.
The revelation comes as Northern Territory Chief Minister Lia Finocchiaro, who will speak at The Australian's Defending Australia summit on Tuesday, argues that the federal government has overlooked and undervalued the NT's role in the nation's defence and security planning.
Labor changed the way it calculated defence funding earlier this year after the US demanded Australia boost its military budget to 3.5 per cent of GDP "as soon as possible". But it was vague on exactly what it had included in its numbers, amid an imprecise definition from NATO itself on what it classified as defence spending.
Figures provided to The Australian following a Freedom of Information request show the government is including $2.8bn in defined-benefit military superannuation entitlements in its calculations this year, as well as $10.3bn in income support administered by the Department of Veterans' Affairs, and $63m for the Defence Housing Agency. It has also included large slices of funding for ASIO, the Australian Secret Intelligence Service, the Department of Home Affairs, the Office of National Intelligence, and the national intelligence watchdog, the Inspector General of Intelligence and Security.
The figures reveal that defence funding under the NATO measure is forecast to fall to 2.6 per cent of GDP for the coming two financial years before returning to 2.8 per cent in 2028-29.
NATO guidelines say retirement payments to veterans and civilian defence employees can be classified as defence expenditure but are silent on whether welfare payments to former military personnel or intelligence agency funding should be included.
Defence budget analyst Marcus Hellyer said Australia, like most of NATO, was "frantically cooking the books" to meet US expectations on defence spending.
He said that, although the NATO standard included military pensions, it did not include veterans' income support payments such as those administered by the DVA.
"The US, when it expresses its defence spending as a percentage of GDP, doesn't include the Veterans' Administration," Dr Hellyer said.
He said the inclusion of intelligence funding went beyond the NATO guidelines, arguing that the government's numbers were "massively overstated".
"The other thing is the NATO goal is 3.5 per cent of GDP," Dr Hellyer said.
"We're still well short of 3.5 even when you cook the books."
Opposition defence spokesman James Paterson accused the government of using "dodgy accounting tricks" to embellish its defence budget.
"It is absolutely astonishing that we are only now learning how the Albanese government has calculated its newly-claimed higher defence spending, but given the details I can see why they refused to disclose (the figures) earlier," Senator Paterson said. "The lion's share of the claimed increase is pensions and superannuation. While these are important they don't acquire new capability, fund operations or contribute to sustainment and maintenance of existing platforms."
Senator Paterson said some of the expenditure claimed by Labor as defence funding was "frankly, just dubious".
"Unless (Defence Minister) Richard Marles plans to deploy the Inspector General of Intelligence and Security to war, it's hard to see how that could possibly be classified as defence spending," he said. "If the government wants to be judged by the NATO standard they should at least commit to the NATO objective of 3.5 per cent of GDP. The fact they won't is revealing."
Mr Marles has argued Labor is making "the biggest peacetime increase" to defence funding on record, announcing an extra $14bn in extra funding over the coming four years, and $53bn over the decade. But it has only allocated $6.8bn in the budget, with the remainder to be raised from the private sector or through offbudget government investments.
Mr Marles' spokeswoman said: "We have always made decisions based on what capabilities are required to keep Australians safe, and we fund them appropriately.
"If others want to use GDP as an indicator then it's best to compare apples with apples, and that's using the NATO formula. Either way you look at it, the Albanese government's investment in defence is going up over the decade, it's going up over the short term, and it's going up right now."
According to the government's numbers, Australia's defence spending will reach 3 per cent of GDP under the NATO standard by 2033-24.
US Defence Secretary Pete Hegseth who last year issued the demand for Australia to lift defence spending to 3.5 per cent of GDP told the Shangri-La Dialogue in Singapore on Saturday that Australia was "stepping up" to fund collective defence, unlike other US allies.
"Together, we are expanding the rotational presence of US forces and collaborating to ensure our defence industrial base to build and sustain weapons required for a high-end fight, " Mr Hegseth said. "We appreciate Australia's investment in real combat power and the commitment to integrate more deeply with the US joint force."
It was revealed at the same conference that the AUKUS agreement had been altered and Australia would no longer get a brand new Virginia-class submarine off the US production line in 2038, as planned. It will instead get another in-service boat like those due for delivery in 2032 and 2035, the AUKUS partners revealed.
Mr Marles said the change would make the $368bn submarine plan cheaper and simpler, eliminating the training and maintenance burden of operating different Virginia-class variants.
"This is a complicated endeavour," he said.
"In the context of that, simplicity comes at a premium. I cannot overstate the significance of that, both in terms of the submariners who are operating them, but also the people who are working on them to sustain those submarines."
Strategic Analysis Australia director Michael Shoebridge said the change was driven by the US, rather than Australia.
"The actual story is the US wants the new, more capable, easier-to-maintain Virginias for itself, and it's doing this despite all the billions we're handing over upfront," he said.
He said the vacillating over the program came as China roared ahead with its construction of nuclear-powered attack submarines, building 10 in the past five years.