The Government has followed up on its defence white paper with a big funding boost for the military, making it one of the big winners of the 2009 budget.
But defence will also be required to boost administrative efficiency and start showing savings as soon as next year.
Defence has been asked to look for savings of $100 million in 2009/10, $200 million in 2011/12 and a mammoth $1.7 billion in 2012/13.
Beyond 2015/16, as the efficiencies take hold, defence will start returning money to the federal budget.
The white paper, released on May 2, guaranteed 3 per cent real growth of the defence budget out to 2017/18 plus indexation of 2.5 per cent to cover rising costs.
That takes the 2009/10 defence budget to about $25 billion.
The Government will also provide additional funding for current operations, with $1.4 billion to cover the cost of Australia's escalating activities in Afghanistan and the Middle East.
Australia's military role in Iraq is set to end from July 31, but a 120-strong security detachment will remain in the country to guard the embassy and diplomats at a cost of $62.2 million.
Defence Minister Joel Fitzgibbon said the task of delivering on the white paper commitments started with the new funding model taking effect from July 1.
"This funding model will impose discipline on defence spending and remediate the chronic under-funding that has been inherited from the previous government while ensuring defence can purchase the military equipment outlined in the white paper," he said in a statement.
He said efficiency improvements would produce savings of $20 billion over 10 years.
"This savings program is achievable but requires a firm commitment to implementing these reforms," he said.
"Defence must manage its budget better in the future and deliver improved taxpayer value for defence dollars."
Mr Fitzgibbon said the budget funded new artillery, light vehicles and improved small-arms for the army, initiatives to counter improvised explosive devices plus an enhanced satellite communications capability.
Further details of white paper spending on equipment will be outlined in the soon-to-be-released Defence Capability Plan.
The budget also revealed that serving personnel will receive a pay rise, although details are yet to be released.
Work will also start on a new Cyber Security Operations Centre to monitor cyber threats and provide response assistance across government and critical infrastructure.
The budget also provides very significant spending on the upgrading of defence facilities and bases across the country, with more than $500 million to be spent in Queensland and $270 million in NSW.
AAP