The state of Australian aid

Australia’s aid program has been the disproportionate victim of the Coalition government budget savings measures since forming government in 2013. As Fairfax’s Matt Wade reports, while only about 1% of budget expenditure it has made up around 25% of all budget cuts announced by the government for the period 2013-14 to 2018-19. The Lowy Institute’s Jonathan Pryke reports that these cuts have seen Australia tumble in international rankings and left Australia at our an all-time low when it comes to its aid generosity as measured by aid as a proportion of Gross National Income.

A historical low point for Australian aid generosity

In May 2016 the government handed down the 2016/17 federal budget which confirmed the final round of Australian aid cuts, $224 million or 7.4% of the Australian aid program. As Jonathan Pryke notes, this is the sixth-largest cut in any one year of the aid program’s history, and affirms the trend of Australian aid to the least generous in its history. Increases to the aid program over the forward estimates (the next four years) have been pegged to the rate of inflation, which will result in aid generosity continuing to decline as the economy is forecast to grow. The Labor party has confirmed that it will reverse the latest round of cuts, and committed to contributing $800 million more to the Australian aid program over the next four years. But, as Jonathan Pryke discusses, this adjustment is so minor that it will still leave the Australian aid budget at its least generous levels in history. The Australian Greens, meanwhile, remain committed to a 0.7% aid/GNI target by 2025, a level that has never been achieved in Australia’s history but was recently achieved by the United Kingdom while it was the depths of austerity.

Changing aid management

Soon after coming to power in September 2013, the Abbott Government announced the integration of AusAID, Australia’s stand-alone aid agency with the Department of Foreign Affairs and Trade – to enable the closer alignment of the aid and diplomatic arms of Australia’s international policy agenda.

The merger was effected in November 2013 and fully implemented by June 2014. Australian Foreign Minister Julie Bishop announced a new paradigm for the Australian foreign aid program in June 2014. She said that expanding opportunities for people, businesses and communities is the key to both promoting economic growth and reducing poverty. The aid program would now provide a sharper focus on investing in drivers of economic growth, including trade, infrastructure; education and health; and empowering women and girls to create new jobs and opportunities that lift people out of poverty. A recent major stakeholder survey of the Australian aid program shows that the transition has not been as smooth as hoped, with staff continuity, staff expertise and predictability of funding all performing particularly poorly.The Lowy Institute’s Jonathan Pryke notes that the way in which the 2016/17 aid budget was delivered provides some hope for the aid program finding its feet within the new merged architecture.

On Monday 21 September 2015, following a cabinet reshuffle by Australia’s new Prime Minister Malcolm Turnbull, a new Ministerial position was created that covers management of Australia’s aid program. Steven Ciobo, formerly Parliamentary Secretary to the Minister for Foreign Affairs and to the Minister for Trade and Investment, was promoted to become Australia's first Minister for International Development and the Pacific. Less than six months into his tenure Mr Ciobo was promoted to Trade Minister, with NSW Senator Concetta Fierravanti-Wells stepping into the role. More direct oversight of Australia’s aid program, as well as the Pacific, by Australian politicians is a welcome development, but continuity is now needed to ensure that they are effective

Climate change financing through Australian aid

The COP21 Climate Change talks concluded in Paris in December 2015 with a deal that has been heralded by world leaders as 'the best chance we have to save the one planet we have', while the expert consensus is that it 'has landed more or less where expected'. Australia, however, has made only limited financial commitments to adaptation and mitigation efforts. At the summit Prime Minister Malcolm Turnbull pledged A$1 billion over the next five years, to be drawn from ‘our existing aid program’. That equates to roughly 5% of Australia’s total aid spending over that period. It is not clear if this funding will be redirected from other areas of the aid program or will come out of existing aid funding already going to adaptation and mitigation projects in the region. Robin Davies from the Development Policy Centre argues that this is about half the amount one would consider a credible, let alone fair, contribution to the global financing effort and puts Australia squarely at the bottom of the rankings of countries contributing to the fight against climate change.

Australian aid in the Pacific

There are a number of reasons Foreign Minister Julie Bishop would have quarantined the Pacific from the largest cuts ever to Australia's aid program, including the fact that unlike countries in Southeast Asia, which are moving away from reliance on aid, a number of Pacific Island countries will be aid dependent for the foreseeable future.

Australia also still remains by far the largest donor in the Pacific Islands region. The latest data from the OECD Development Assistance Committee shows that Australia has a 60% share of total aid from OECD countries to the Pacific Islands region. Between 2006 and 2013, Australia provided US$7 billion in bilateral aid to the region to 16 countries. The US was the next-largest donor, providing US$1.65 billion in bilateral aid to nine countries. China is also emerging as a prominent donor in the region, but still falls far behind Australia’s level of investment.

Australian Foreign Minister Julie Bishop is committed to ensuring that Australia remains the 'partner of choice' for Pacific Island countries. Shoring up current levels of aid is important to maintaining Australia's dominance as a donor in the face of increasing interest in the region from China and other emerging donors.

Australian aid cuts

In December 2014 the Abbott government announced significant cuts to Australia’s foreign aid program as a part of general budget savings in its Mid-Year Economic and Fiscal Outlook. Australian Treasurer Joe Hockey said that savings of $3.7 billion in the foreign aid program over the next four years would offset new commitments in Defence and national security. These cuts, reflected in the 2015-16 Budget, mean Australia's aid budget has now fallen to $4 billion, down from a peak of $5.6 billion in 2012-13.

According to calculations by the Development Policy Centre at ANU, the government’s budget cuts mark both the largest ever multi-year aid cuts (33%) and largest ever single year cut (20% and $1 billion in 2015-16). This will see Australian aid fall to 0.22% of Gross National Income (a global measure of donor generosity) in 2017-18, the lowest level in Australia’s history.

The 2015-16 Budget indicates how Australia will achieve the 20% cut. The decisions seem to have been made from a geographical and political viewpoint rather than through an assessment of the development effectiveness of each country and program. With the exception of Cambodia, Nepal and Timor-Leste, aid to countries in Asia was cut by 40%. The Pacific and Papua New Guinea were largely spared (only a 5% cut to PNG and 10% cut to Pacific Regional funding). Sub-Saharan Africa was slashed by 70%, and aid to the Middle East was cut by 43%. As a result, Papua New Guinea replaces Indonesia as the largest recipient of Australian aid, receiving $477.4 million in 2015-16. The 2015-16 Mid-Year Economic and Fiscal Outlook, which in the past has been used to announce major cuts to Australia’s aid budget, this time left the aid program untouched aside from marginal initial investments into the Asian Infrastructure Investment Bank. The investment, totalling $3.4 million over the forward estimates period, means the remaining $5.2 billion capital subscription will be required in 2019-20, which hardly seems credible if it is to be financed out of the Australian aid budget.

According to research conducted by the Development Policy Centre at ANU, Australia’s declining aid expenditure puts it at odds with the aid budget trajectories that many other OECD countries are following. In 2013, the Conservative government in the UK became the first G7 donor to reach the OECD's 0.7% of GNI target, increasing its official development assistance (ODA) by 27.8% on 2012 levels. It has since passed a bill enshrining the 0.7% commitment into law.

Emerging donors are also increasing their aid expenditure. China now has a larger program than Australia, spending US$6.4 billion in 2013. While China's budgeting and delivery is not completely compatible with OECD conventions, it is clear that its aid spending is on an upward trajectory, with an estimated average annual increase of almost 10% over the last five years. India has also been rapidly scaling up its aid program to a point where it now, on Purchasing Power Parity, rivals Australia’s in size.

The United Arab Emirates is another example of a non-traditional donor scaling up its aid program. In 2013 it provided US$5.2 billion of ODA in 2013 (bigger than Australia's A$5.03 billion in 2014-15), a 375% increase on its 2012 ODA levels. This equates to 1.25% of its GNI. While much of this is attributed to its support for Egypt, the UAE has grand ambitions to be a significant global aid donor.

Australia’s decision to reduce its expenditure on foreign aid means it will drop out of the club of top ten OECD donors and also fall in the global donor generosity rankings. This will likely see Australia lose influence with some development partners and with its peers in framing the global debate on development.

WHAT THE LOWY INSTITUTE DOES

The Lowy Institute’s 2014 Poll asked Australians whether ‘promoting Australia’s foreign policy objectives’ or ‘helping reduce poverty in poor countries’ was the most important objective of Australia’s foreign aid program. A significant majority of Australians (75%) say ‘helping reduce poverty in poor countries’ is the most important objective. Only 20% of Australians identify ‘promoting Australia’s foreign policy objectives’ as the most important objective of the program.

Nonresident Fellow Jenny Hayward-Jones published a Lowy Institute Analysis in 2013, Big enough for all of us: geo-strategic competition in the Pacific Islands, which highlighted Australia’s dominance as an aid partner for the Pacific Islands region. This Analysis, drawing on research on Chinese aid by former Lowy Institute Research Associate Philippa Brant, found that concerns about China seeking geo-strategic advantage through its aid program in the Pacific Islands were misplaced. The Institute has also published an interactive map of China's aid activities in the Pacific, which demonstrates how China compares with Australia and other traditional partners.

The Lowy Institute’s Pacific Islands Program has convened a number of conferences and roundtable events on the Australian foreign aid program. Nonresident Fellows Annmaree O’Keeffe, and Jenny Hayward-Jones and former Research Associate Philippa Brant have all published and convened debate on aid and development issues at the Lowy Institute. Jonathan Pryke, the Pacific Island Program’s Research Fellow, has an extensive background reporting on Australian aid and development issues from his four and a half years at the Development Policy Centre.