As Australia plummets toward the ranks of the least-generous donors, policy choices of unprecedented difficulty must be made about what not to fund. A total of $1bn (£500m) must be cut from the 2015-16 aid budget in line with the government’s announced savings objective.
Australia’s aid budget can be divided into ten categories of funding, as follows.
Cash payments to multilateral development banks (MDBs) are a no-go area. These payments are legal obligations. It is not possible to discover what the payment obligation will be for this in 2015-16 but it tends to be fairly stable from year to year, so let’s assume it holds steady.
The budget allocation for humanitarian, emergency and refugee programmes was rashly cut in the coalition’s early-2013 revision of Labor’s 2013-14 budget, then restored in the 2014-15 budget to almost exactly the level previously envisaged by Labor. Given the state of disaster and conflict in the world, the far-reaching impact of the funding provided and the ease of administering it, there is a very strong case for not touching this budget line item.
The allocation for UN, Commonwealth and other international organisations fell from $395m in the estimated 2013-14 aid budget outcome to $318m in 2014-15. Painful reallocations might need to be made within this allocation to accommodate recent and substantial pledges to the initial capitalisation of the Green Climate Fund and to the second replenishment of funding for the Gavi Alliance. This budget line might not be a no-go area, but neither is it an easy place to make savings.
For the sake of argument, assume a 10% level of savings from the government departments other than the department for foreign affairs and trade (DFAT) category (yielding $39m), the UN, Commonwealth and other international organisations category ($32m) and the centrally-funded NGO and volunteer programs category’ ($20m). In addition, assume the current 5% cap on DFAT’s aid-related departmental expenses as a proportion of total aid is maintained, such that the budget cut will yield savings of $50m on the administrative component of the aid budget.
The four assumptions above yield total savings of $141m in 2015-16, leaving $859m to be found from the first four of the budget categories above. Assuming for a moment that the budget cuts could be made in one fell swoop – that there was total flexibility in all programmes funded by the relevant budget line – one scenario for achieving the required savings is as follows:
This scenario, clearly enough, lands enormous hits on cross-regional programmes and Indonesia, while subjecting Papua New Guinea (PNG) and all other country and regional programmes to a uniform cut of 10%.
The cross-regional programme, it should be recalled, ballooned from $309m in the estimated 2013-14 budget outcome to $686m in the 2014-15 budget. It is not known what this huge increase was intended to fund, though it is reasonable to assume that part of it was contingency funding for regional resettlement deals, as with Cambodia, and that part of it was meant to cover some of the replenishment costs listed above. Reducing the allocation to $336m would constitute no cut at all relative to normal levels of funding for this budget line.
As for Indonesia, the size of this country programme increased by around 20% after the 2002 Bali bombings, to around $150m in today’s prices, then almost quadrupled from that base since the 2004 Indian Ocean tsunami. The country’s net aid receipts turned negative for the first time in 2013 – meaning that they are paying back more aid than they receive.
It is very difficult to maintain that Indonesia needs anywhere near $543m in Australian aid each year. This is arguably the right time to make a step-change in our aid relationship with Indonesia. It would be better to cut quickly and cleanly rather than year after year. There is, though, still plenty of work to be done with a budget of over $230m in Indonesia.
A second, quite different scenario would drop the constraint that limits the impact of the cut on smaller country and regional programmes to 10%, while retaining this constraint for less flexible programmes (budget lines 5, 8 and 10).
Under this scenario, there is no disproportionate hit on Indonesia. All country and regional programmes, including Indonesia’s and PNG’s, are cut equally by 20%. The cross-regional budget is reduced by $351m as per scenario 1. The hit on PNG, while not disproportionate, is very large in absolute terms at $100 million.
Essentially the two scenarios presented above involve a choice between (i) making a big step-change in aid to Indonesia, with a cut of some 57%, and (ii) cutting all country and regional programs by 20% rather than 10%. The difference between the shape of the aid programme now and its shape under both of the two budget cut scenarios is illustrated in the figure below.
Admittedly, inflexibilities within programmes might be such that cuts, wherever they are made, cannot be made in one fell swoop. However, the timing of payments to MDBs is negotiable to some extent, so it may well be possible to move to one of the above patterns over two budgets.
Of course, the two scenarios above are drawn from an infinite universe of possibilities. Nevertheless, they illustrate the fundamental choice that Julie Bishop, the minister for foreign affairs faces, given that she cannot extract large savings from programmes other than country and regional programmes, and in some cases should not do so anyway. So, which way should she jump?
My vote goes to scenario 1. As argued above, Indonesia can well use a substantial allocation but does not need to consume over 10% of Australia’s aid, or over one-fifth of Australia’s aid through country and regional programmes. And aid to PNG should not be reduced much given that country’s woeful development indicators and narrow donor base – though it would be a fine thing to see this part of the aid budget more effectively used.
Nothing in what is said above is based on pragmatic considerations, and certainly not on any assessment of diplomatic feasibility. However, it should be possible to communicate a step-down in aid to Indonesia as quite a deliberate correction now that the tsunami is far behind us and Indonesia is increasingly playing a middle-power role internationally.
There is of course a large danger that a cut in aid to Indonesia this year, of any magnitude, will be perceived, or indeed presented, as a retaliation for the (now seemingly imminent) execution of two Australian citizens. But aid to Indonesia can hardly escape a substantial reduction under any scenario.
Robin Davies is the associate director of the Development Policy Centre, Australian National University. Follow @rad409 on Twitter. This article was first published by Devpolicy Blog.
Join our community of development professionals and humanitarians. Follow@GuardianGDP on Twitter.
View all comments >
comments
Sign in or create your Guardian account to join the discussion.
This discussion is closed for comments.
We’re doing some maintenance right now. You can still read comments, but please come back later to add your own.
Commenting has been disabled for this account (why?)