The new 'Defense Industry Policy' supports a sustained increase in defense spending of three per cent per annum in real terms through to the year 2015/16.

Procurement of major capital equipment alone is planned to increase by almost 30 percent over the next decade. Expenditure is expected to reach $50 billion with $20 billion going to new acquisitions and $30 billion for sustainment.

It builds on the 1998 Defense and Industry Strategic Policy Statement and identifies a number of challenges in the cost-effective delivery of equipment to Australia's military.

For example, the policy claims technology is increasing in complexity and cost while the suppliers of IT are consolidating.

Central to the framework is support for local industry and the SMB sector while multinationals should have a local presence. Around one-third of defense spending is directed to the SMB sector.