Australia will delay or axe major military projects, reduce its civilian defence staff, stretch forces to cover emerging gaps, and cut the amount of military exercising to prune spending.

Defence Minister Stephen Smith has also confirmed plans for an early departure of most Australian troops from Afghanistan, and the likely withdrawal next year of Australia's remaining troops in East Timor and the Solomon Islands.

Within 18 months, the return of the Diggers would stop the huge drain of the nation's biggest overseas deployments, which between them will over the next year cost a projected A$1.83 billion ($2.34 billion).

But the Defence Force will step up its operations against people smugglers, boosted by a new Customs and Border Protection vessel based at Ashmore Reef off Western Australia, a main interception point for asylum seekers from Indonesia.


Another new 6500-tonne, ice-strengthened ship will enter Customs and Border Protection service in 2016 to patrol the Southern Ocean to extend operations against illegal fishing.

Australia will also spend heavily on aid in the Pacific to boost stability and security in the neighbourhood, including a four-year, A$97 million programme using Federal Police to help local counterparts lift skills and capabilities.

Canberra's aid focus will remain heavily in the Asia-Pacific region, aimed not only at lifting health and living standards but also to counter increasing largess and influence from China and other, newer, players.

Although delaying by a year a planned increase in the aid budget from 0.35 per cent of gross national income to 0.5 per cent, total aid spending will rise by more than A$300 million to A$5.2 billion, increasing within four years to A$7.7 billion.

About 70 per cent will be allocated to the region, extending beyond the Pacific islands to Indonesia, Afghanistan, Vietnam, the Philippines, Bangladesh, Pakistan and Cambodia.

In the Pacific, aid spending will increase by about 37 per cent to A$1.6 billion in the next two years. Papua New Guinea, the Solomons and Vanuatu will be the biggest recipients.

But the demands of the Government's need to haul in spending by A$33 billion over the next year to fund a projected A$1.5 billion surplus has hit the military hard. Defence had previously been largely insulated from cuts as Australia embarked on a massive overhaul and expansion of its capabilities, spelled out in the last white paper in 2009.

Since its publication the Government has approved studies and project development for programmes worth almost A$13.5 billion, including the first 14 Joint Strike Fighters for the Air Force, and new helicopters, trucks, artillery, military satellites and artillery. Smith said that despite scepticism it would be able to find the money, the Government remained committed to plans for a A$40 billion fleet of 12 new submarines, the rest of up to 100 Joint Strike Fighters, new transport and maritime patrol aircraft, air warfare destroyers, and the two huge new amphibious ships now being built.

He said even with funding cutbacks, planning for these projects would continue. But economic reality has hit home.

Smith said the acquisition of 12 Joint Strike Fighters would be delayed by two years to save A$1.8 billion, new self-propelled artillery had been axed, and 1000 civilian defence jobs would go. Older C130H Hercules transports will be retired early, with their work spread across the fleet of newer C130J aircraft, C17 Globemasters and - eventually - replacements for the Air Force's now-retired Caribous.

Further delays will affect planned successors to the ageing Orion maritime patrol aircraft, new combat vehicles for the Army, and proposed drones. The Army will also be forced to reduce the use of its new M1A1 Abrams tanks and upgraded M111 armoured troop carriers, and the Navy has been ordered to "review and reprioritise" its activities.

* A A$300 million increase in the aid budget to A$5.2 billion.
* Pacific aid spending to rise by about 37 per cent to A$1.6 billion.
* Operations against people smugglers and illegal fishing to increase.
* A$97 million, four-year police training programme in the South Pacific.