Transcript
Welcome. Today's webinar is a first look at the Department of Defense's(DoD's) FY 2025 Future Years Defence Program, also known as the FYDP. This webinar will highlight defence budget trends, provide insight into investment across the services, and discuss some of the major programmes.
For FY 2025 the DoD has requested a budget of just under USD850 billion, which is a 0.9% increase of USD7.8 billion on the 2024 request before appropriations. More broadly, the total funding requested for national defence is USD895 billion. The chart above shows the base budget amounts for past and future years, which excludes supplemental funding allocations to better highlight the general trend.
This year's small budget increase highlights a pressure point relating to the Fiscal Responsibility Act of 2023, which places a 0.9% growth cap on the defence budget over the FY 2024 request. This cap is well below the expected level of inflation of about 2%, which means the request represents a realterm decrease in funding for the DoD.
Amid these constraints, the Pentagon is pursuing targeted reductions in some of the programmes that are set to deliver capabilities in the 2030s. This is being done to fund and maintain the shortterm warfighting capacity of the armed forces at the expense of some over-the-horizon capabilities.
Regarding FY 2024 appropriations that came out in mid-March, the total amount was USD825 billion, just below the USD827 billion requested. Compared with the request reductions we're seeing in personnel and O&M (operations and maintenance) spending, increases were seen in procurement and RDT&E (research, development, test, and evaluation).
Turning to the general growth forecast, nominal defence outlays are expected to grow through 2029 at around 2.1%, which remains below the GDP's projected growth rate.
The next slide goes into detail on trends within the major budget accounts. This chart breaks down the defence budget into five budget accounts: operations and maintenance, procurement, research and development (R&D), military personnel, and military construction.
O&M funding captures the bulk of the defence budget with around 40% of the total across the FYDP years. This year's O&M request of USD330 billion is up from last year, but still below the 2023 level of USD340 billion over the FYDP years. O&M spending is forecast to fall slightly until 2027 with increases in the last two years of the FYDP.
Procurement, with 20% of the budget, is down USD2.4 billion from last year's request and nearly USD10 billion from 2023. However, procurement spending is forecast to once again grow from 2026 to 2029.
Meanwhile, RDT&E is experiencing a peak year in FY 2025 with USD147.6 billion in funding, with a 1.4% increase on last year. However, the account is expected to remain below USD145 billion throughout the rest of the FYDP. Priority investment areas for the Pentagon include science and technology, AI (artificial intelligence), and JADC2 (Joint All-Domain Command and Control).
The Global Platforms and Systems database focuses on defence investment, which is procurement and RDT&E. The chart here shows how this defence investment is broken down by the different services.
The navy's total request this year is USD258 billion, which is about 30% of the DoD budget and up 0.7% from last year's request. The navy has nearly a third of its budget going towards procurement and 11% for RDT&E.
The air force has a similar size request of USD263 billion, which is 1.3% above last year's request. The air force and space force combined RDT&E accounts exceed procurement spending, capturing 26% and 23% of the total respectively.
Meanwhile, the army is seeing the smallest gain on last year's request, with 0.3% growth amounting to a total of USD186 billion. Overall, investment is much lower for the army compared with the navy and air force, with procurement and RDT&E at 13% and 8% of its total budget.
Last, defence-wide customers are requesting 17% of the DoD budget at USD144 billion with a 1.5% change on last year. Notably, the defence-wide procurement account is seeing a major drop this year compared with 2024 appropriations. My colleagues will be going into more detail on investment trends of the different services later on.
Looking at the defence investment picture across the services, we see a notable bump in 2023 procurement, driven by supplemental funding in the form of aid to Ukraine. Overall, procurement funding is expected to see continued growth across the FYDP as development phases turn into production cycles for new systems.
All the services shown in the chart will have higher procurement budgets in 2029 compared with 2025 with the exception of the marine corps. Most of the growth in the procurement spending across the FYDP is captured by the air force and the navy. However, the CBO (Congressional Budget Office) points out the Pentagon tends to underestimate procurement costs, which is why modernisation pressure is expected during the FYDP unless more funding is forthcoming.
Looking at RDT&E, the peak year was 2023 with some uptick towards the end of the FYDP. As mentioned before, many programmes are moving from development to production, which explains the largely flat trajectory. From 2023 onwards we see the second half of a decade-long investment cycle as the US pivoted from counter-insurgency to more conventional threats with next-generation platforms. During the FYDP, the Air Force, Space Force, and Navy will see budget increases, while Defence-wide, the Army, and Marine Corps have declining R&D accounts.
Drawing on the 2022 National Defense strategy, the FY 2025 budget mostly reiterates the three major priority areas we saw in the 2024 budget, which centred on countering Chinese and Russian aggression, investing in strategic deterrence, and investing in personnel.
China remains a key strategic competitor and pacing challenge for the DoD. US efforts are focused on preventing China from dominating key regions and dissuading attempts at aggression. To this end, the Pacific Deterrence Initiative is seeing an USD800 million uplift from last year to USD9.9 billion. This funding will go towards distributed basing in the Indo-Pacific, missile defence systems, the defence of Guam, and unmanned and autonomous systems. This funding is forecast to peak in FY 2025, after which it will see yearly decline through to 2029.
In Europe, Russia's war in Ukraine continues, as does the broader threat to US allies and interests, especially in Eastern Europe. While the European Deterrence Initiative is seeing a USD0.7 billion decrease in funding in 2025 to USD2.9 billion, more overall investment is being made to enhance the US force presence on the continent, especially that of the US Army.
Turning to strategic deterrence, it remains a core priority in the FY 2025 budget, with an overall USD49.2 billion to modernise the nuclear enterprise. Major items here include USD9.9 billion for Columbia-class submarines, which is up USD3.7 billion from 2024; USD5.3 billion for B-21 bomber production with funding constant year-on-year; and USD3.7 billion for the Sentinel ICBM (intercontinental ballistic missile) programme.
The third priority area is investing in personnel. The main takeaway in the budget request is a 4.5% raise for service personnel and a 2% raise for civilians. This comes after a 5.2% increase for both personnel types in 2024. Additional support and funding are being provided in the form of new benefits, family support, mental health resources, and medical programmes.