To give or not to give: Australia’s aid budget

To give or not to give: Australia’s aid budget

Australia’s deceptively low foreign aid budget boost will struggle to achieve Canberra’s goals.

WHAT’S HAPPENING?

The Australian government has continued a freeze on aid and development funding, but it has increased aid funding to the Pacific to more than US$900 million.

KEY INSIGHTS

– Canberra has sought to cut or freeze its aid and development program since 2014, leaving it trailing other developed countries in reaching recommended funding targets
– While aid tends to be allocated to advance the donor country’s interests, increased South-South cooperation has led to the sector’s growing diversification
– Further cuts to Australia’s aid could exacerbate humanitarian disasters and weaken Canberra’s reputation abroad, which it has sought to solidify in recent years

Australia’s 2018 federal budget has proposed freezing the aid budget at little over US$3 billion, while boosting aid in the Pacific to fund telecommunications cables and a new diplomatic mission in Tuvalu and to help Papua New Guinea host the upcoming APEC conference in Port Moresby. The spending increase comes as Australia seeks to “protect and advance [its] interests in a changing Indo-Pacific”.

However, while Australia may have appeared to boost its aid budget, the reality is that it remains relatively unchanged – the reason for this supposed boost is the classification of contributions to the Asian Infrastructure Investment Bank as foreign aid. According to recent Lowy Institute commentary, the retroactive increases in aid have increased at only 2%, as opposed to the 5% increase touted by officials prior to the budget. This continues a five-year-long pattern of funding cuts and stagnation.

A LONG-TERM DECLINE

In December 2014, Australian Prime Minister Tony Abbott proposed reducing aid funding by approximately US$2.7 billion over four years to offset increases in funding to defence and national security. These cuts reflected the largest ever multi-year aid cuts and the largest ever single year cut in Australian aid, with assistance to Asia, the Middle East and sub-Saharan Africa cut from between 30%-70%.

The reductions have left the total aid budget sitting at little over 0.2% of gross national income (GNI), the traditional measure of donor generosity. The aid-to-GNI ratio has been shrinking since its height in the mid-1970s, where it enjoyed a level of 0.47%. Despite being within the 10 largest economies of OECD’s 30-member Development Assistance Committee (DAC), Australia has tumbled to the lower half in rankings of official development assistance (ODA) as a percentage of GNI and ODA per capita.

Australian aid to GNI is well short of the UN’s recommended 0.7% target. This target, originally adopted by the UN in 1970 against gross national product, has been at the centre of political commitments for aid adopted by international organisations and individual nations. However, cuts to Australia’s aid budget have left it at odds with other nations, such as the UK, which are actively seeking to meet or exceed this target.

THE ULTERIOR MOTIVES OF AID

Meeting with APEC Business Advisory Council members / AusAID

Photo: The Kremlin

The increase in aid to the Pacific is almost certainly prompted by fears of Chinese development assistance, which has dominated headlines since Australian Minister for International Development Concetta Fierravanti-Wells claimed that Chinese aid in the Pacific resulted in “useless buildings” and “roads that go nowhere”.

China’s growing aid and development funding is reflective of the usurpation of the West’s traditional aid dominance by new players and growing South-South cooperation. China, India, Israel, Russia and the UAE have been growing their aid and development budgets in recent years. The main areas for growth have been in Africa, where China has pursued ‘stadium diplomacy’, and Asia and the Middle East, where the UAE has provided close to US$600 million for displaced people in Syria. Many new donors approach aid very differently, opting for concessional loans and grants that emphasise mutual benefit through infrastructure projects. This makes them more appealing to recipients than Western aid, which tends to be highly regulated and focused on building government capacity.

Aid and development funding, whether from traditional or non-traditional partners, tend to come with ulterior motives, usually a tacit agreement for support in international organisations or to push for greater donor country investment. Canberra’s aid boost to the Pacific is a response to concerns about these ulterior motives, especially amid claims that Vanuatu would host a Chinese naval base and that the Solomon Islands would contract Chinese state-owned companies to build a submarine telecommunications between the Solomon Islands and Australia. China has also been notorious in tying aid to support in international organisations; the infamous ‘chequebook diplomacy’ between China and Taiwan tied developing nations into supporting their respective claims to sovereignty in exchange for huge development assistance packages, as recently seen with the Dominican Republic.

Australia’s aid likewise serves Canberra’s interests. The 2013 abolition of the standalone AusAID agency helped to align Canberra’s diplomatic and aid aspirations by integrating aid and development into the Department of Foreign Affairs and Trade, and the 2017 Foreign Policy White Paper refers to national interest as a factor in allocating aid. Australia is well-positioned to capitalise on these goals. While Chinese aid projects within the Pacific between 2006 and 2016 total approximately US$1.8 billion, Canberra’s estimated US$7.7 billion injection in the same period left China a very distant second.

BUCKING THE TREND

AusAID Minister Counsellor in Fiji, John Davidson, talks with locals about flood damage following Cyclone Evan, 2012.  / AusAID

Photo: Australian Department of Foreign Affairs and Trade / Wikimedia Commons

Canberra’s increase in Pacific aid is a quick fix to its sudden recognition of China’s activities in the region. However, the aid increase comes at the expense of other countries in Southeast Asia like Cambodia and Indonesia. While the reduction in aid to these two countries served as diplomatic signals – recognising Indonesia’s growing economic strength and Cambodia’s increased intolerance of domestic opposition – there is a risk that China could exploit this reduction to grow its own geopolitical influence. This has already been the case with Fiji, which in recent years has become more closely aligned with Beijing including through its Belt and Road infrastructure scheme. Without careful consideration of the geopolitical risks of aid reduction, Canberra risks an uphill battle in winning back support.

Further reductions could also worsen humanitarian crises in the region, particularly around escalating issues such as the ethnic cleansing of Rohingya, growing religious and ethnic fundamentalism and climate change. The failure to respond adequately to these issues poses a security risk – direct and indirect – to Australia. While aid budget cuts have often been justfied by the requirements of growing national security and defence budgets, maintaining or increasing aid could negate the need to deploy highly expensive defence assets in the first place; Australia’s 2006 intervention in the Solomon Islands cost US$2 billion. By building government capacity through aid, humanitarian disasters could be limited in severity while reducing the cost to defence in the long-term.

The budgetary aid ‘rise’ also does little to recover more than 40 years of stagnant or reduced aid funding. By maintaining aid at such low levels, Australian prestige and reputation abroad could be impacted, particularly as Canberra attempts to project itself more internationally. During Australia’s candidacy for the UN Security Council in 2008, Canberra made sweeping promises to bolster aid in Africa and announced a bipartisan promise to reach an aid budget of 0.5% of gross national income. These decisions aimed to secure the support of African and developing states, which hold significant voting influence in the UN. However, once this seat was won, cuts to aid began and the targets were never reached; aid to sub-Saharan Africa has dropped from close to US$370 million in 2010 to little over US$100 million in 2017. Without staying true to its promises, there is a very real risk that Canberra could wield less influence within international organisations and regional forums as new development partners offer more substantial assistance that appeals to developing nations.