Defence Chief Warns Australia Must Achieve Sovereignty by 2035 as Industry Faces ‘Perfect Storm’
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Australia must accelerate development of a self-reliant defence industry by 2035 or risk compromising national security in an increasingly volatile region, the head of the country’s peak defence industry body warned Wednesday.
Mike Johnson, chief executive of the Australian Industry and Defence Network, told the National Press Club that despite a record $59 billion defence budget this year, nearly $10 billion is flowing offshore while small and medium-sized manufacturers face mounting pressures from cancelled contracts, slow procurement and new U.S. tariffs.
“Australia stands at a crossroads,” Johnson said. “The global environment is more uncertain and contested than at any point since the Second World War.”
His stark assessment comes as the government projects defence spending will reach $67 billion by 2027-28, yet remains stuck at around 2% of GDP with real growth at just 0.8% in 2025-26. Johnson argued the percentage metric misses the point.
“We need to figure out what will provide the Australian warfighters with an asymmetric capability,” he said. “That should be the budget.”
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Trump Tariffs Hit AUKUS Partnership
The Trump administration’s recent trade moves have added unexpected costs to Australia’s defence plans. A 10% general tariff on Australian goods, plus 50% on aluminum, steel and copper, now applies to defence exports between AUKUS partners.
“How does that make any sense?” Johnson asked. “To add costs to what is already a $368 billion enterprise.”
He called the tariffs “detrimental to US, UK and Australian defence industry at a time when unity has never been more important.”
The trilateral AUKUS partnership aims to deliver nuclear-powered submarines to Australia, with the first Virginia-class vessels expected from the U.S. before domestic production begins in Adelaide. Johnson said the program will create 20,000 Australian jobs over 30 years.
Local Industry Squeezed Despite Budget Growth
AIDAN represents roughly 700 small and medium enterprises employing 60,000 people across defence manufacturing, maintenance and innovation. Johnson said these companies face a funding crunch despite headline budget increases.
“If the cost of goods has increased by a CPI rate, do we know that the $49 billion that is left over has matched that CPI rate for what we’re buying for Australia’s warfighters?” he said. “I haven’t seen any analysis come out on that.”
He cited cases where Australian companies have sold intellectual property overseas rather than navigate what he described as prohibitive barriers to doing business with Defence.
“Some SMEs offer their wares to overseas allies first because it is often easier than doing business with defence in Australia,” Johnson said. “The attitude by some Australian defence divisions seems to be, go and prove your product overseas and then we can talk.”
Seven-Year Space Program Cancellation Hits Suppliers
Johnson pointed to the recent cancellation of a satellite program after seven years of industry investment as an example of procurement dysfunction.
“I’m aware of a lot of our members that were involved in that program over seven years,” he said. “Seven years of investment in people and personnel and training and capability to walk away from it because it gets cancelled is abhorrent.”
The prime contractor on that program reported losing $300 million, costs Johnson said will ultimately be passed on through other contracts.
“Nobody’s going to walk away from that sort of a loss and say, OK, we understand this is a government requirement,” he said.
Drone Investment Offers Blueprint
The government’s $10 billion commitment to drone and counter-drone technology over the next decade represents the kind of sustained investment Johnson advocates. He named DroneShield, Sypaq Systems and Electro Optic Systems as Australian innovators entering global markets.
“The Ukraine war and the change in character that war is bringing through the use of autonomous systems has seen capable and innovative Australian SMEs flourish,” he said.
Ukraine’s use of uncrewed systems particularly impressed Johnson. He noted the country has destroyed 40% of Russia’s naval fleet despite having no navy of its own.
“Whether they fly or whether they’re in a maritime domain, I think uncrewed systems is probably the key one there,” he said.
Procurement Reform Demands
Johnson outlined specific policy changes AIDAN wants to see, starting with mandating minimum percentages of defence contracts for Australian SMEs.
“This would be separate from the current Australian industry capability plans that the primes or overseas based companies have to fulfil,” he said.
He called for more open tenders, binding commitments for Australian content in every defence program, and an annual independent audit of compliance with transparent public reporting.
The organization also wants Defence to revamp its industry development strategy, due for renewal in 2026, to explicitly prioritize SME contributions to sovereign capability.
“Contracting templates are simply too complicated, particularly if you’re an SME supplying a simple item to the ADF,” Johnson said.
Risk Aversion Stifles Innovation
In response to questions, Johnson described Defence’s reluctance to take on risk with unproven Australian technology.
He detailed one case where an autonomous system offering “16 different points of clarity and asymmetric advantage” went through three evaluation stages, only to have Defence officials suggest the company sell it to a prime contractor first.
“Why are you adding money onto this?” Johnson said. “Why are you adding cost for the Australian warfighter?”
In another instance, Defence asked a vendor to demonstrate technology alongside 26 competitors, effectively requiring the company to reveal its intellectual property.
“IP protection needs to be a thing in Australian industry,” he said. “Why would any business go and say, this is how you do this? They’ve just lost their advantage, and so has the Australian warfighter.”
AUKUS Pillar 2 ‘Drifting’
While supporting the AUKUS submarine program, Johnson expressed SME frustration with the partnership’s technology-sharing component, known as Pillar 2.
He cited a recent report by the Australian Industry Group finding Pillar 2 was “drifting” and recommended refocusing on fewer, more effective capabilities.
“There has been frustration among SMEs with accessing the opportunities available,” Johnson said.
Many AIDAN members have entered technical assessment processes run by HM Naval Base in Perth to qualify for submarine supply chains across all three AUKUS nations. But Johnson said SMEs struggle to understand why billions flow to U.S. and UK industry while domestic programs face cuts.
“If government can afford to spend almost $10 billion on US and UK industry, then surely it can find the dollars to adequately fund Australian defence industry,” he said.
Manufacturing Decline Threatens Resilience
Reserve Bank of Australia data shows manufacturing’s share of Australian output dropped from 13.6% in 1990 to 5.9% today, with exports falling from 13.6% to 8.1% over the same period.
Johnson told the Press Club this erosion of industrial capacity threatens Australia’s ability to sustain military operations in a crisis.
“Manufacturing strength is the backbone of resilience,” he said. “Without it, sovereignty is just rhetoric.”
He warned that Australia’s 10-year defence planning horizon no longer matches the security environment, where conflict timelines have compressed.
“The government needs to figure out what’s likely out of those, reverse engineer that, figure it out into a budget, figure that budget out, and then tell us what the demand is,” Johnson said.
Energy Costs Squeeze Producers
Rising electricity and gas prices compound challenges for defence manufacturers, Johnson said. The federal government is considering subsidies, though Australian Energy Regulator controls retail electricity pricing.
Cash flow particularly constrains SMEs, where profit often arrives only in the final months of 12-month contracts.
“If anybody cancels that program before month 11, they’ve lost their profit,” Johnson said.
Workforce and Supply Chain Gaps
Johnson stressed that building sovereign capability requires more than major platforms.
“Under every big ticket item, there’s a thousand small items,” he said. “There is a lot of maintenance and ongoing repair that goes onto a product.”
He called for an industrialization strategy to ensure sufficient skilled workers, noting AUKUS alone needs 20,000 new employees over three decades.
The organization is pursuing international partnerships to secure export opportunities for Australian SMEs, including engagement with UK and U.S. defence stakeholders and multiple state governments.
Bottom Line
Johnson framed sovereignty as a choice between continued reliance on global supply chains or taking control of Australia’s defence future.
“We can continue down the path of dependency, hoping that global supply chains and alliances will always deliver what we need, when we need it, or we can take control of our future,” he said. “The race for sovereignty has already begun. The question is, will we finish it in time?”
Finance Minister Katy Gallagher recently updated the definition of Australian business in Commonwealth procurement rules. Johnson wants those changes extended to defence contracts to ensure genuine local ownership and control.
“What was missing, and as applies in most other countries, was any requirement for local ownership or local board control of decisions,” he said.
AIDAN celebrated its 30th anniversary Tuesday evening, with Johnson emphasizing the organization’s consistent mission across decades of political change.
The Defence Industry Development Strategy identifies seven sovereign priorities including aircraft maintenance, naval shipbuilding, land systems, guided weapons manufacturing, autonomous systems, battle space management and systems assurance.
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