In an era described by authorities as the most dangerous since the end of World War II, the 2025/26 defence budget misses a "crucial opportunity" to prepare Australia's military and defence industrial base for future challenges, according to an analysis released by the Australian Strategic Policy Institute (ASPI) on Thursday.
But Prime Minister Anthony Albanese has hit back at the report, noting his government had conducted a defence strategic review and would lift expenditure to about 2.3 per cent of GDP within the decade.
"(The institute) need to have a look at themselves and the way they conduct themselves in debates," he told ABC radio on Thursday morning.
"It's predictable and what we're doing is getting on with the defence assets and providing the investment for those assets to be upgraded."
The government has committed to bringing forward $1 billion in funding, though the report says no "significant uplift" is expected until after 2028/29.
The nation's strategic environment was deteriorating rapidly, the report's principal author and former Home Affairs department deputy secretary Marc Ablong said.
"Australia faces a real risk of being left behind at the very time when the potential use of the ADF as a military force is rising," he told AAP.
The government needs to urgently reform Defence so it can better collaborate with industry, said Mr Ablong, who is a senior fellow of the institute.
He said the nation needed to acquire capability fast, and attempts to "Australianise" everything through modifications took time, introduced risk and added costs.
The report recommends the government commit to funding national resilience measures across the economy and society to ensure Australia is ready to manage potential national security crises.
It also calls for improved transparency and for Defence to increase its public messaging.
In the information war, Australia needs a defence communications strategy to combat nations with propaganda expertise.
"The bureaucracy is being beaten by loud voices amplified by foreign adversaries," the report said.
Mr Ablong said Defence culture should be overhauled, with the biggest change being an embrace of risk, while labelling it's decision making process "too slow".
He said the military had struggled to integrate women and minorities.
Defence was also failing to get maximum productivity out of its people as they treated the "workforce as a number rather than as human beings".
On the Chinese navy ships that circumnavigated the country earlier in 2025, Mr Ablong said the nation should have "made it difficult", whether they left Australia's exclusive economic zone or not.
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