Planners are scrambling to save the U.S.-made Lockheed Martin F-35 joint strike fighter project, along with 12 new submarines in a project, which could cost up to $36 billion.
The desire for austerity has opened rifts between the Australian Ministry of Defense and the military.
The government of Prime Minister Julia Gillard is seeking cuts of $5.5 billion over the next four years, which defense officials warn are proportionally greater than at any time in the past eight decades and the biggest cuts in percentage terms since the end of the Korean War, The Australian Financial Review reported Wednesday.
The Australian government is also coming under increased pressure from Washington, which has made it clear that it expects its allies to increase spending to counter the rise of China instead of pruning defense budgets.
Australian National University Professor of strategic studies Hugh White said: "With so many other big promises already gnawing at the surplus, and real strain on revenue, the government simply cannot afford to commit to large increases in defense spending. So the easiest thing for it to do would be to shelve the whole thing."