Australia’s $5 Billion Foreign Aid Budget: What’s In It For The Pacific

Don
Wiseman, RNZ Pacific Senior
Journalist

Australia’s Labor government is continuing
to maintain its multi-billion-dollar foreign aid support,
with Tuesday’s Budget announcing around
AU$5 billion would go toward its official development
assistance.

Australian Treasurer Jim Chalmers also
announced that there will be increases of about 2.5 percent
each year for the next ten years, though this figure is
slightly below the current inflation figure.

There
will be a substantial commitment to the Pacific, and money
has also been earmarked to fill some of the gap left by the
United States withdrawing its global aid
programme.

Cameron Hill, a senior researcher with the
Development Policy Centre at the Australian National
University, spoke to RNZ Pacific to break down aid the
elements of the latest Budget.

(The transcript has
been edited for brevity and
clarity.)

Cameron Hill: It is
pretty much steady as she goes on foreign aid here. The
Labor government committed a couple of years ago to keep the
aid budget flat in real terms pretty much over the next
decade or more. So, that means there was not any aid cuts,
but there was not any real aid increases.

One of the
notable features was that the government said it was making
some adjustments to the programme in light of the potential
impacts of US aid cuts, particularly health programs in PNG
and Fiji. But altogether, the basic structure of the aid
budget remains.

The Pacific is going to get 42 percent
of all Australian aid. Southeast Asia is going to get about
25 percent of the AU$5 billion in Australian aid next
financial year, South Asia gets about 7 percent, Africa and
the Middle East get 3 percent, and then global programmes
get about 22 percent. So, the basic structure of the
Australian aid budget remains stable.

Don
Wiseman: I think a lot of Western countries right now are
looking at cutting their aid back and putting those dollars
into defense spending. Not the case in
Australia.

CH: Australia is
increasing its defense spending, but for the moment it is
not cutting aid to do that.

Australia already has one
of the highest defence to development spending ratios in the
OECD (Organisation for Economic Co-operation and
Development). We spend 10 times as much on defence. Now,
with this budget, 11 times as much on defence as we do on
aid, and even on current projections, and even without
cutting aid, that is going to rise to about 13 to one by the
end of the decade.

But this could be an election
issue. As you know, we have a federal election coming up. It
has not been announced yet, but it will be in
May.

There are noises, particularly in conservative
media outlets here, that we should be increasing the defence
budget to 2.5 percent of GDP, or even 3 percent of GDP. Some
on the conservative side of politics have mooted cutting
foreign aid to help pay for that.

DW: A
substantial amount of money, as has been the case for
several years, coming to the Pacific, and some of the
countries are going to receive a bigger lift than others,
particularly Tonga. Why?

CH:
In the summary of the development budget that DFAT
put out, it said that there’d be a new $75 million package
of budget support for Tonga. I think the first tranche of
that gets paid next financial year in 25/26. That is a big
boost for Tonga.

Australia has moved towards more
budget support for the Pacific, particularly during
Covid-19. That has come off a bit post-Covid, but Tonga is a
winner. If you are a recipient of aid, you probably prefer
to have the money to put directly in your budget than in the
form of projects delivered by third parties.

I think
this is a recognition that Tonga has some pretty challenging
fiscal circumstances, and it is obviously made the case that
it needs budget support to help it navigate
those.

DW: Yes, well, I was speaking with
Biman Prasad in Fiji, and he was lauding Australia for this
commitment to budget support, and wanted to see other aid
donors do similar things all around the Pacific. But
Australia’s – the amount of money it’s putting into budget
support is still pretty low, isn’t
it?

CH: I think it got up to
about 9 percent or so in the last couple of years. It has
dropped back down to about 6 percent, as an overall
proportion. But something that Pacific states and leaders,
like Biman Prasad, are continuing to push hard for. These
are small countries. Many of them have lots of small aid
donors. Australia is a big aid donor, but there are smaller
aid donors wanting to do more in the Pacific.

There’s
coordination challenges that come with that if you have got
lots of donors doing lots of individual projects that
becomes the transaction costs of that for Pacific
governments are quite high. They are right to say to
Australia and other donors, it is much more effective and
efficient if you back our development plans. And you really
want to say that you are listening to our priorities, then
put a portion of your money in our budgets.

That is a
version of locally led development, which is something that
the development sector says that it wants to see more of.
Let’s see where this goes. It is something we will be
watching pretty closely over the next few
years.

DW: Do you think there is nervousness
within the Australian government about how that money might
be spent?

CH: There is
always that trade off between control versus more impact
through budget support, but losing that control you might
have with project aid. I think last year Australia did an
evaluation of its budget support programmes in the Pacific
during Covid-19 and found generally that they were
effective.

But the case still has to be made and there
still has to be confidence that the systems that budget
support is going through are up to scratch. I would argue
that alongside budget support, Australia should be working
on those accountability institutions, within governments,
within parliaments in the Pacific, that do help ensure that
this money gets to where it’s going to have the most
impact.

So yeah, there is that trade off between the
level of control that only might have over its funding
versus the potential impact of pooling its funding with the
government’s funding to achieve development
outcome.

DW: Now the money that Australia is
allocating to cover any gaps caused by an American pullout,
is that money assigned at this point, or is it just a matter
of waiting to see just where those gaps
appear?

CH: Look, I think
there is still a lot of uncertainty around the US
cuts.

The big question in the Pacific is the future of
the Compact [of Free Association] funding that goes to
countries like Palau, the Marshall Islands, and Federated
States of Micronesia. That is where the bulk of US aid money
into the Pacific goes. I think that is yet to be seen what
the Trump administration does with that funding, which was
appropriated by Congress in 2024.

Outside of those
three countries, the Australian government has seen that the
projects that are likely to be cut that it is most concerned
about are TB and HIV programmes in PNG and Fiji.

So,
what it has done in this budget is it has taken some of the
money it was going to spend on global programmes, global
health, global education programmes, and shifted that money
across to help buttress health programmes, particularly in
PNG, Fiji.

I think also there is some additional
support this financial year for some of the civil society
programmes that the US has supported in the Pacific and
civil society organisations to help make sure that those
projects don’t fall over.

Health in PNG and Fiji are
the big ones for now. But obviously, the full implications
of this are still washing through and the government said it
is still watching where these cuts are going to fall,
particularly in the
Pacific.

© Scoop Media