Australia's strategic posture in the Indo-Pacific is shifting rapidly, and Deputy Prime Minister Richard Marles' visit to Jakarta this week illustrates the complex balancing act facing Canberra. Meeting with Indonesian Defence Minister General (retired) Dr Sjafrie Sjamsoeddin on March 11 and 12, Marles announced expanded regional defence cooperation that extends beyond bilateral arrangements to include Japan and Papua New Guinea, signalling Australia's intent to build a network of partnerships capable of managing a more contested region.
The timing of this announcement carries strategic weight. Just weeks earlier, HMS Anson, a Royal Navy Astute-class nuclear submarine, arrived at HMAS Stirling on Garden Island near Perth on February 22. It marked the first time a UK nuclear submarine has undergone maintenance in Australia, a practical demonstration of AUKUS cooperation that goes beyond rhetoric. Australian personnel worked alongside Royal Navy engineers on maintenance tasks, hydraulic systems, and in-water engineering, building the skills and interoperability that will be essential when Australia begins constructing its own nuclear-powered submarines by the end of this decade.
These developments signal the increasing integration of Australia into a Western security architecture designed to deter, rather than accommodate, Beijing's military expansion. Yet beneath the announcements about partnerships and capability milestones sits a harder question: can Australia afford the modernisation it needs while maintaining its commitment to regional relationships?
Australia's defence spending currently stands at approximately 2 per cent of GDP, equivalent to roughly $59 billion for 2025-26. The US Department of Defense, however, has made clear its view that this is insufficient. During the 2025 Shangri-La Dialogue, US Defence Secretary Pete Hegseth explicitly called on Australia to increase defence spending to 3.5 per cent of GDP, reflecting American assessment that Australia's current trajectory does not match the strategic challenge presented by Chinese military growth. China's military buildup is now occurring faster than at any time in peacetime history, with the People's Liberation Army achieving capabilities in certain domains that challenge Western assumptions about air and naval superiority in the Pacific.
The centrality of AUKUS to Australia's strategic posture creates immediate budgetary pressures. The nuclear submarine programme, once estimated at $368 billion, now dominates Australia's long-term defence investment planning. Nuclear submarine spending surged from $475 million to $2.8 billion annually, with further increases projected. The government has signalled that the next National Defence Strategy and Integrated Investment Program will outline the path to expanded capabilities, yet the hard arithmetic of defence spending means choices between competing priorities.
The Indonesia announcement matters in this context because regional partnerships offer Australia ways to extend its strategic influence without bearing all costs alone. The potential defence training facility on Morotai island in Indonesia's North Maluku province, for instance, could serve as a hub for multinational capacity-building. Closer coordination with Indonesia, which sits astride critical sea lanes, offers leverage against Chinese military expansion without requiring Australia to unilaterally fund every capability gap.
What Marles did not discuss in Jakarta, because it remains unresolved, is whether the Australian government will accept the US recommendation to lift defence spending. The political difficulty is real. Australia faces competing pressures: ageing infrastructure, healthcare costs, and education funding all compete for fiscal attention. Reaching 3.5 per cent of GDP would require approximately $30-40 billion in additional defence spending over time, an increase that would reshape the federal budget.
The strategic implications are significant. Australia's regional partnerships, from Indonesia to the Philippines to Japan, depend partly on confidence that Canberra is genuinely committing resources to the alliance system. A gap between Australia's strategic rhetoric and its defence investment would eventually be noticed by both allies and adversaries. Conversely, the government faces domestic criticism that defence spending diverts resources from social priorities.
For now, the establishment of the Submarine Rotational Force-West at HMAS Stirling from 2027, combined with expanded regional arrangements, represents Australia's attempted answer: build integrated alliances with key regional partners while pursuing the long-term AUKUS programme that promises genuine strategic autonomy in the 2030s. Whether that strategy survives budget realities remains to be seen.