The national budget deficit stands at nearly $45.5 billion. But the country's treasurer, Deputy Prime Minister Wayne Swan, aims to move into a $1.5 billion surplus for fiscal year 2012-13, which starts July 1.
The Defense Department's effort to help the country's coffers move into surplus will be to shave nearly $5.45 billion off the defense budget over the next four years of which around $971 million will be cut in 2012-13.
The department said savings of $1.3 billion have been approved by rescheduling, re-scoping or canceling "a small number of projects." This includes saving around $900 million by delaying for two years the acquisition of 12 Joint Strike Fighters following delays to the project in the United States.
Facing cancellation is the purchase of the self-propelled howitzer and proceeding with additional towed artillery -- expected to save around $220 million.
About $438 million of savings has been targeted through reductions in administrative costs including travel, outsourcing and consumable items.
Another $360 million will be saved by cutting about 1,000 civilian defense employees. But "care will be taken in this program of reductions to not reduce standards of service in priority areas of defense including support to operations," the statement said.
Early retirement of the C-130H aircraft should save $250 million because of high maintenance costs for the aging fleet.
"Current activities undertaken by the C130H aircraft fleet will be redistributed across the remaining air force air-mobility fleet, including C-130Js, C-17s and the replacement for the Caribou aircraft," the Department of Defense said.
Minister for Defense Stephen Smith also said funding has been preserved "for essential new capabilities not envisaged in the 2009 Defense White Paper." This includes the new amphibious heavy lift ship Choules and the Interim Humanitarian and Disaster relief ship Skandi Bergen, two additional C-17 heavy-lift aircraft and 101 more Bushmaster vehicles.
However, procurement of Australia's 12 next-generation submarines will go ahead with an initial $214 million set aside for detailed design studies given the green light.
The studies for construction of the subs -- a $40 billion project in the next 30 years -- will include design, scientific and technological studies and a future submarine industry skills plan.
French naval shipyard DCNS, German firm Howaldtswerke-Deutsche Werft and Spanish shipyard Navantia will conduct military off-the-shelf design studies, initial design studies for an updated Collins-class submarine and analyze options and capability modeling by the United States.
The work will consider propulsion and energy storage, signatures and stealth performance, combat systems and hydrodynamics, propellers and pumpjets.
Next year the government likely will decide on combat systems, torpedoes, sensors and other weapons with first-pass approval set for late 2013 or early 2014.
Construction of the submarine will begin following the second pass approval in 2017.
But government critics are questioning the Labor government's commitment to build the entire submarine fleet in Adelaide, even if an off-the-shelf design is selected, a report in The Australian newspaper said.
Opposition treasury spokesman Joe Hockey said a $214 million commitment toward early design work should not rule out overseas construction of the submarines.
"Either that's $200 million that is going to be wasted or else the government is going to have a proper analysis of whether there are alternatives to having these submarines manufactured in Australia," he told ABC radio.
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