BMI View: The Australian government plans large increases in defence spending over the next decade, inorder to modernise the ADF - in particular the navy - amid rising threats linked to East and South ChinaSeas territorial disputes, regional military build-ups, terrorism and cybercrime. Large-scale procurementprogrammes will be carried out over our forecast period to 2026 - most of which will be covered by foreigndefence companies, due to Australia's still-limited military industrial base. That said, we see significantpotential for expansion of the domestic defence sector in the longer term, as local companies - for whichgovernment support is strengthening - benefit from technology transfer agreements tied to military importcontracts.
The government has reiterated its commitment to raising defence spending to 2% of GDP, amid growingthreats from terrorism, regional military build-ups, tensions surrounding the East and South China Seasterritorial disputes and cybercrime. According to its current budget model and our GDP projections, thiswill occur by 2019. The government has decided to 'de-couple' its defence spending from GDP growth,which means that even if economic expansion slows, the military budget will still increase according to2016 Defence White Paper plans.