Prime Minister Julia Gillard speaks to the media during a joint press conference with Defence Minister Stephen Smith and Defence Materiel Minister Jason Clare at Parliament House Canberra on Thursday 3 May 2012.

"Defence will make a contribution to the budget bottom line" ... Defence Minister Stephen Smith. Photo: Alex Ellinghausen

AUSTRALIA would be able to defend itself and its regional interests despite planning to slash defence spending by almost $5 billion in next week's budget, Julia Gillard said last night.

The Prime Minister said none of the cuts, which include delaying for two years the purchase of 12 Joint Strike Fighter aircraft, would impede Australia's military capability. She said the separate announcement yesterday to build 12 submarines starting in 2017 would enhance that capability.

''We will maintain an Australian Defence Force able to protect our interests and help maintain the peace and stability of our region,'' she told a Global Foundation Summit dinner.

A defence budget analyst from the Australian Strategic Policy Institute, Mark Thomson, said: ''This is potentially the largest cutback to defence spending since the end of the Vietnam conflict.

''Are the political and economic benefits of going back into surplus worth the pain that Defence will feel? … That's a value judgment about whether Australia needs more or less defence in the 21st century.''

With the government striving to turn a $40 billion-plus deficit into a surplus of about $1.5 billion next financial year, Tuesday's budget will save almost $5 billion from Defence over four years primarily by delaying projects and shedding civilian jobs.

The largest single saving will be $1.6 billion over four years caused by pushing back by two years until 2017 the acquisition of 12 of the 24 Joint Strike Fighter aircraft ordered from the US.

A further $225 million will be saved by cancelling the planned purchase of self-propelled artillery pieces and instead persisting with guns that need to be towed.

Other acquisitions under threat include the plan to purchase 33 more multi-role helicopters, provide a dozen Super Hornet jet fighters with an electronic warfare capability, and replace the RAAF's DHC-4 Caribou transport plane, which were retired in 2009.

Ms Gillard and the Defence Minister, Stephen Smith, said the number of military personnel, their entitlements, their equipment, and operations in Afghanistan, Timor and the Solomon Islands would be quarantined.

Nor would the cuts affect the increased joint co-operation with the US Marines, navy and air force on Australian soil that was announced when Barack Obama visited Australia last year.

These assurances raised the likelihood that the Defence Department will have to match the job-shedding of other public sector departments and by retrenching civilians.

The Opposition Leader, Tony Abbott, gave the government the green light to axe jobs in the Defence Materiel Organisation recently by saying the DMO did not need 7000 workers because its British equivalent had 4000.

Also yesterday Ms Gillard announced the commissioning of another Defence White Paper, just three years after the completion of the last one. She and Mr Smith also released the Australian Defence Force Posture Review which recommends an increased focus on military bases in the nation's north and west.

The government has long planned to build or buy 12 new submarines to replace the six ageing and troubled Collins Class submarines, the last of which is due to be mothballed in 2031.

Ms Gillard said $214 million would be spent on a study to ensure the mistakes of the Collins Class - including no provision for maintenance or sustainment of the subs when built - were not repeated.

The opposition's defence spokesman, David Johnston, said the cuts would affect Australia's ability to defend itself, including its large mineral deposits.

The cuts mirror significant defence spending reductions in the US, Britain and other Western nations smarting from the effects of the global economic downturn and the costs over a decade of fighting two large-scale land wars.

But Dr Thomson said: ''It's worth noting that countries like India and China are not [cutting defence] so there's nothing inevitable about what we did. This is a choice the government made and our fiscal situation - compared with our allies - is decidedly rosy.''

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