Australia will continue with huge arms purchases despite scepticism over new submarines and strike fighters and expected cuts of billions of dollars in next week's budget.
But while repeating its commitment to an Australian-built fleet twice the size of its present, troubled force of six Collins class submarines, plans for F35 Joint Strike Fighters have been delayed and the army's new self-propelled artillery has been axed.
The two measures will save A$1.6 billion ($1.95 billion).
"Defence will make a contribution to the budget bottom line, so yes, there will be more in the budget," Defence Minister Stephen Smith said.
Prime Minister Julia Gillard said the cuts would not affect front-line troops and there would be no impact on operations in Afghanistan, East Timor and the Solomon Islands.
But withdrawal from the three major foreign deployments is at present being planned, part of a changing strategic picture that Gillard said would be reflected in a new defence white paper next year.
Addressing fears that the withdrawal would lead to a reduction in the defence force similar to the cutbacks that followed the end of the Vietnam War, Gillard said uniformed numbers would not be cut.
Smith said planners would not ignore strategic realities as they had after Vietnam.
New shifts in power were yesterday spelled out in a force posture review that underlined defence views that Australia needed a potent force able to project power in the region.
Since the last white paper in 2009 the nation has approved projects worth A$13.5 billion, including a fleet of Globemaster strategic airlifters, two amphibious vessels the size of aircraft carriers, new air defence destroyers, and upgraded F/A18 Super Hornet jets to cover an air combat gap until the planned Joint Strike Fighters arrive.
Australia plans to buy up to 100 of the jets. Following major problems and delays and claims it is the wrong fighter for Australia, the US has put back its own delivery date. Smith said Australia would follow suit.
Gillard also dismissed criticism and concerns over plans to build 12 new submarines to replace the ageing and trouble-plagued Collins class, which have never met expectations and which can rarely manage to put more than two boats in the water at once.
The navy also has huge problems in finding sufficient crews.
But Gillard said the new fleet would go ahead: "In our strategic environment we need strong maritime capabilities and that's why we need a potent submarine force."
Australia will spend up to A$40 billion assembling the new submarines in South Australia, with A$214 million committed yesterday to "exhaustive" studies to avoid the mistakes of the Collins class.
The review concluded that a direct attack on the nation was unlikely and threats to resource projects "should not be exaggerated", but that the region faced military modernisation characterised by the spread of ballistic missiles, cruise missiles, submarines, strike aircraft, electronic warfare systems, cyber operations and counter-space systems. It recommended the upgrading and hardening of air force bases in the north and west, the development of Broome as a forward operating base for the navy, and a master plan embracing greater US activities and presence.
This included the use of the major fleet base near Perth by US submarines and aircraft carriers.
The review said New Zealand remained an important ally, particularly for operations in the South Pacific and East Timor, and that Australia should beef up its presence in the Antarctic as interest in resources grew.