Funding cuts and consequences
This chapter deals with recent cuts to the funding for Australia's
overseas aid program, including those announced on 18 January 2014. It
also addresses funding predictability, mid-year reprioritisations to the aid
budget and what should be appropriately claimed as official development
As previously noted, Australia's aid budget has grown significantly
through a bipartisan commitment to reach 0.5 per cent ODA/GNI. The Treasury
submission highlighted that 'the past decade has seen a particularly large
increase in aid spending'. It commented that 'there had not been a nominal
decrease in the aid budget in 12 years – the longest period of constant nominal
increases of the past three decades'.
Figure 4 –
Australia's ODA budget (nominal)
However, while the aid budget has continued to grow, the funding
increases necessary for Australia's overseas aid to reach the 0.5 ODA/GNI
target have been repeatedly deferred. DFAT noted:
In the former Government's 2008-09 budget, ODA was to
increase to 0.5 per cent of GNI by 2015-16. This was deferred in the
2012-13 budget to 2016-17 and deferred again in the 2013-14 budget to 2017-18.
The savings from the deferrals of the 0.5 per cent target and slower growth of
the aid program under the former Government totalled $5.7 billion.
This trend has continued with the present government. Treasury noted
that the policy of setting the 2013-14 ODA budget at $5.042 billion and growing
the ODA budget in line with Consumer Price Index (CPI) 'represents $4.5 billion
in savings from the ODA budget over the four years from 2013-14 to 2016-17'.
Indexation to CPI
In its submission, DFAT noted that government had committed to the ODA
budget increasing in line with CPI over the forward estimates.
This commitment recognises both the constrained fiscal
situation in which the Government is operating...and that it is in Australia's
national interests to continue to deliver a substantial aid program. It also
provides budget predictability and reliability of aid funding for the
Department and Australia's development partners, which in turn supports better
planning and implementation of programs.
Reactions to the CPI indexation of the aid budget were mixed. For
example, ACFID welcomed the Australian Government's commitment to increase aid annually
by the CPI over the forward estimates, but also noted the commitment 'to increase
aid at a faster rate when the Australian budget is in surplus, with the aim of
reaching 0.5 per cent of Australia's GNI towards ODA in the future'.
Others criticised the indexation to CPI as potentially jeopardising progress
toward the MDGs and other international development objectives.
The ACTU/APHEDA submission argued that '[t]he promise to raise development
spending by CPI each year does not address our imperative as a good global
citizen to contribute to poverty reduction'. It considered:
[T]he value of the aid budget should not be subordinated to
politics and exigencies. Resorting to cuts to the aid budget rather than making
difficult political decisions about other spending cuts misuses people's
ignorance of the funding allocated to aid as a proportion of total government
spending. The falling aid dollar as a result of exchange rate drops exacerbates
the impact of these cuts.
The IWDA also observed that 'CPI reflects changes in costs in Australia,
which have a limited relationship to actual costs in the countries where
Australia's development assistance is focussed or to the needs to which our aid
program is responding'.
The Development Policy Centre outlined that merely growing the aid
budget in line with inflation would cause Australia's ODA/GNI ratio to fall
over time from '0.35 per cent last year to 0.33 per cent this year, to 0.31 per
cent by 2017-18, and to 0.28 per cent by 2022-23'.
It recommended targeting the ODA/GNI ratio to maintain an appropriate level of
Australian aid funding:
Keeping the ratio at the level it is now (0.33 per cent of
GNI) would require annual increases of $300 million over the next four years,
rather than the annual increases of $100 million required to keep pace with
inflation. It would mean that as a country we were saying, while we enter a
period of fiscal adjustment which prevents us becoming more generous, we will
at least become no less generous. It would not move us toward meeting our
international commitment, but it would at least keep that commitment alive.
Some submissions also noted that the 'freeze' in aid funding growth
could have other long term impacts, in particular reducing the Australian
Government's flexibility to finance new priorities within the aid program. For
example, Results International Australia commented that '[b]eyond 2013-14, the
freeze on aid in real terms will also restrict Australia's capacity to make new
commitments to both bilateral and multilateral programs'.
The Development Policy Centre considered it may be 'up to two years before
there is enough headroom in many programs to permit implementation of new
priorities on any substantial scale'. It noted that 'any substantial shifts
between aid channels—bilateral, multilateral and non-governmental—will now
involve absolute rather than relative trade-offs'.
Cuts to Australia's overseas aid program could also put additional
pressure on other donors and potentially damage Australia's reputation as a
responsible contributor to international development. TEAR Australia emphasised
that 'cuts to the aid budget are noted throughout the donor community and
reflect poorly on Australia's desired level of international significant'.
The Global Poverty Project also commented:
The perception amongst some foreign diplomats is that
Australia can no longer be relied upon to show leadership on issues of international
development. This should be cause for concern given that having a good international
reputation is not merely an end in itself but rather a foundation for building
the goodwill necessary to host successful international gatherings such as the
In its submission, DFAT outlined that the Australian Government has
decided that Australia's ODA in 2013-14 would be $5.042 billion. It noted that
this represented a reduction of $650 million on 2013-14 budget allocations.
While DFAT asserted that delivery of Australia's aid program has continued
'with minimal disruption', it acknowledged that:
Reprioritisation of the aid budget will affect the delivery
of a number of programs in a range of ways – including deferral, reduction or
termination of funding and programs, and renegotiation of contracts and
agreements with partners. DFAT is consulting extensively with partners and
stakeholders on implementation of the reprioritisation.
The cuts to aid funding announced in January 2014 were perceived as
potentially creating a number of adverse consequences for aid program
stakeholders, in particular for recipient communities in developing countries.
Submissions from NGOs highlighted the potential impact of the funding cuts on
their activities in developing countries where aid was being delivered.
Ms Jo Hayter from IWDA asserted:
[W]hat we have seen is $107 million in real cuts this year.
Those cuts represent commitments, partnerships and contractual arrangements
that we have in place with partners in developing nations in our region. So
something has got to go, that is a real cut...
ACFID noted Australian NGOs that were subject to cuts in the recent
announcement 'had their current year funding cut by around 8 per cent'. It
observed that this meant 'losing funding already allocated to programs related
to water and sanitation, elimination of violence against women, disaster
reduction work and small-scale agriculture, among others'.
Save the Children stated that, while it has worked hard to minimise the impact
on aid beneficiaries, 'some program reductions are inevitable'. In particular,
it noted it had cut plans to install four out of the ten facilities for
improved water, sanitation and hygiene in kindergartens in the Solomon Islands.
In terms of expected outcomes, if we hypothetically applied
the 8.3 percent reduction in expenditure uniformly across our ANCP funded
- 2,000 less children will be enrolled in early childhood
- 460 less births will be attended by a skilled birth
- 250 less children will be vaccinated against diphtheria,
tetanus and whooping cough
The uncertainty caused by the cuts adversely affected the activities of
NGOs. Rev Tim Costello noted that World Vision had been successful in applying
to the Civil Society Water, Sanitation, and Hygiene Fund, however the fund has
been in hiatus since November, while priorities for the aid program are
reviewed. He stated 'no implementation funding has been received and there has
been no confirmation of whether or not this program will proceed'.
At the public hearing, Mr Andrew Johnson from World Vision also discussed the
uncertainty created by the funding cuts, including on activities in Zimbabwe,
Sri Lanka and Papua New Guinea:
The fact that [the program's] status is unclear has had
impacts for us with the partner government and communities in which we work. We
have lost staff, and we have lost buy-in from communities and the local and
regional governments that we have been partnering with. And so, while there may
not be clear direct impacts on things that were nailed down and signed away,
there are impacts both in new, emerging situations and also in situations where
the government did have some flexibility but where commitments had been made,
where planning had already taken place and where design work had already been
done, and the expectation was that the work would roll out.
The timing of the cuts was also criticised. For example, AID/WATCH
suggested 'the timing of the cuts is actually more damaging than the cuts
AID/WATCH also has strong concerns about the timing of these
cuts so far into the financial year. This timing compromises the effectiveness
of existing programs. Agencies, especially overseas implementing partners, who
have planned their financial year's programs, are now having to revise these
programs with only two months remaining in the financial year.
The Development Policy Centre's overall conclusion was that funding
changes will not necessarily have negative long-term consequences, but noted
that there will potentially be serious short-term impacts flowing from the
decision to impose a large budget reduction in 2013-14. It commented:
More generally, there must be some very substantial impacts
in the present financial year on activities in the final stages of planning,
and in some cases on activities in implementation. The intention to cut over
$650 million from the 2013-14 budget was announced several months into the
financial year. The allocation of the cuts was not determined until over six
months into the year—too slow by any measure. Much negotiation and
backpedalling must still be going on, none of which is currently visible. This
would be particularly difficult to manage in sub-Saharan Africa, where aid is
being reduced far below last year's level and where at least some ongoing
programs must therefore be facing termination or dramatic trimming.
DFAT noted that it had provided advice of the aid budget
reprioritisation outcomes to all Australia's development partners and other
However, a number of witness and submitters were highly critical of the lack of
detail available regarding how the funding cuts announced in January were
decided and how they would impact specific programs. For example, Results
International Australia noted that the January cuts present changes in aid
spending classified by country and institution, but not by sector. It noted
that it was therefore 'difficult to ascertain how the changes affect key
Micah Challenge also stated:
[T]he details of how to apply these cuts are still to be
revealed and the process to inform partner countries and implementers (both
international and Australian NGOs) of the cuts was extremely disruptive and
lacked transparency. The rationale for targeting particular international
program and certain Australian NGOs for cuts has not been made clear and the
likely impact of these cuts has not, to our knowledge, been fully assessed. It
has certainly not been made public.
The Nossal Institute for Global Health also commented:
This shift in aid expenditure – in particular, the haste with
which it has been made, and the lack of clarity surrounding it – is of concern.
The speed of these changes runs the risk of damaging longstanding international
relations and partnerships, and raises questions about the extent to which
policy decisions are being made in a transparent and accountable manner.
Save the Children also highlighted the 'lack of detail over budget
figures, particularly in the latest round of revisions'. It noted the 'absence
of such data limits our ability to plan and deliver programs' and that better
information would facilitate a more efficient allocation of resources which was
'an important precursor to a more effective aid program'.
The committee attempted to obtain additional information from DFAT
during the inquiry concerning how the funding decisions were arrived at.
Mr Peter Varghese, Secretary of DFAT stated:
The process is not dissimilar to the processes for any
significant decisions made by the government. We sat down with the minister to
work through how those cuts were to be handled, what the framework and
principles should be, analysing what the implications one way or the other
might be. That then went through a decision-making process involving the
minister and a cabinet process.
In an answer to a question on notice DFAT stated:
Reductions to country and other programs were guided by
several principles: refocusing the aid program on the Indo-Pacific region;
engaging with effective multilateral organisations; and reducing geographic and
sectoral fragmentation. Options to reduce funding of programs were limited by
how much had already been expensed. Decisions on whether specific program
funding will be deferred, reduced or discontinued is under consultation with
Mr Varghese further articulated the principles governing the decisions
regarding the funding cuts at Additional Estimates:
The first principles that we brought to this exercise were:
firstly, we wanted to refocus the geographic footprint of the aid program so
that the Indo-Pacific was the primary focus and that subsequently led to
reductions in the budget for Latin America and Africa. Secondly, we had in mind
the effectiveness of multilateral organisations. So, in making decisions on
where to make cuts in the multilateral pot, we took into account our judgement
about the effectiveness of multilateral organisations...Thirdly, we wanted to
reduce both geographic and sectoral fragmentation, so we wanted a program that
was not overly fragmented.
They are the core principles that framed the budget decisions
that were taken. As a result of that, if you look at the revised figures for
2013-14, we have a larger percentage of the budget going to East Asia than we
did before the cuts.
The committee also tried to obtain further details from DFAT regarding
how the January funding cuts would impact Australia's aid program. At the
public hearing, Mr Varghese confirmed that the 'details of how [the
funding cuts] will be implemented and what programs they will affect is
currently the subject of consultations with the host governments and the
international organisations that have been affected'.
The calculation of the envelope is not based on a master plan
on our part which delineates every dollar against a program. We have a headline
figure for Indonesia; we have a headline figure for Vietnam. That reflects a
cut from budgeted amounts, but the detail of how you translate that reduction
into different programs is something we need to decide by sitting down with the
In an answer to a question on notice DFAT added:
Following the Government's decision on the revised
allocations for country and other programs, we are consulting with partner
governments and organisations on how the reductions will be implemented. These
consultations across the aid program are ongoing. Once the consultation process
is complete and final decisions have been made across the program, information
on the reductions will be published.
In its submission DFAT stated the indexation of aid funding to CPI would
provide 'budget predictability and reliability of aid funding...which in turn
supports better planning and implementation of programs'. At the public
hearing, Mr Varghese, commented that '[t]he prospect of a $5 billion
program indexed to CPI, for program managers, provides a very welcome degree of
Despite this change, the importance of funding predictability in the
effective delivery of aid was repeatedly and consistently emphasised by
witnesses and submitters. For example, Micah Challenge noted research that
indicated that low aid predictability has 'inherent destabilizing
characteristics' and 'may also lead to more procyclical aid and reinforce
rather than soften economic cycles, exacerbating problems of aid management'.
ChildFund also observed:
[T]he sustainability of any overseas development assistance
(ODA) program relies on predictable funding. It is extremely difficult to plan
and deliver programs that will make significant inroads to poverty where
budgets are cut or revised during the implementation phase, and where agreements
with aid organisations delivering services in-country are vulnerable to
unexpected change and revision. If the Government wishes to ensure that its aid
program delivers benefits that are sustainable and provide long-term benefits,
then the funding streams must also be secure.
Mr Ben Thurley from Micah Challenge observed that until 2012, the May
budget was the 'primary focus for decision making and allocations around
international development' and this had given 'certain predictability for both
our partners overseas and the Australian public in how to understand our
However, he noted recent cuts to the aid program, including mid-financial-year
changes, had a detrimental effect on the aid program:
This created a huge amount of uncertainty for our aid
partners and aid implementers and for the public as well. I think one of the
risks that we see is that it sends a signal to the Australian community,
whether wittingly or unwittingly, that our government does not value highly the
aid outcomes that we have set ourselves to contribute to. When it is seen as a
political football or source of funding, it risks undermining support for the
Australian aid program. I just note that the aid program represents less than
1½ per cent of the federal budget but, over the last two years, has been
targeted for more than 10 per cent of savings identified by both sides of
ACFID also argued that the aid program had been disproportionately
targeted for savings by governments. It pointed out that the '[c]uts of $4.5
billion over four years represents over 10 per cent of the current $42 billion
in budget savings announced by the Government to date, despite Australia's ODA
comprising only around 1.4 per cent of total Government spending'.
Mr Marc Purcell from ACFID highlighted the finding by the OECD Review that 'significant
in-year budget re-allocations put at risk Australia's commitments to its
partners as well as achieving the expected results of its development
cooperation programmes'. He noted that, according to the OECD, the value and
effectiveness of Australian aid is reduced by 15 to 20 per cent when it is
volatile and unpredictable.
Determinations regarding which type of expenditure should be treated as
ODA are governed by OECD DAC advice. In general, these are flows provided by
official agencies to developing countries where the transaction is
'administered with the promotion of the economic development and welfare of
developing countries as its main objective'.
Specific OECD DAC rules apply for determining whether some types of assistance
can be treated as ODA. For example:
The supply of military equipment and services, and the
forgiveness of debts incurred for military purposes, are not reportable as ODA.
On the other hand, additional costs incurred for the use of the donor's military
forces to deliver humanitarian aid or perform development services are
Assistance to refugees in developing countries is reportable
as ODA. Temporary assistance to refugees from developing countries arriving in
donor countries is reportable as ODA during the first 12 months of stay, and
all costs associated with eventual repatriation to the developing country of
origin are also reportable.
During the inquiry, which types of Australian overseas aid and
development should be counted as ODA was discussed. For example, Dr Karl
Claxton from ASPI noted that Australia had not counted 'a lot of our military
humanitarian aid going to other countries after disasters, whereas some of our
peer competitors and friends and allies do'.
The military is just one arm of the Australian state that can
help out....But it is a particularly powerful tool right after an emergency,
where the ADF can go in as first-responders. A lot of other countries count
those responses as ODA under the DAC guidelines, and we would not see a problem
in Australia doing the same.
The classification of aid expenditure on matters perceived as not
directly relevant to international development was commented on critically – in
particular, classifying domestic asylum seeker support as ODA. On 3 February
2013, the former Labor Government announced it would reprioritise up to $375.1
million in ODA in the 2012-13 financial year to support asylum seekers waiting
to have their claims heard in Australia consistent with OECD DAC reporting
The analysis by the Development Policy Centre of the announced aid
funding cuts identified that the Australian Government has continued to treat
the $375 million appropriated to the Department of Immigration and Border
Protection for domestic asylum seeker costs in 2013-14 as ODA-eligible
expenditure by an agency other than DFAT.
Appropriations in future years should continue to be capped,
and made on the basis of eligible costs. Given that an offshore processing regime
is in place, and that aid funding can only be used for onshore costs within the
first year of an asylum-seeker's arrival, future appropriations should be
expected to fall rapidly. Aid funding should not be used to finance community
detention in either Nauru, PNG or elsewhere.
Other submissions were more critical. YWCA Australia stated:
[T]he use of ODA funds to meet the cost of Australia's asylum
seeker management regime does not qualify as effective overseas aid and
undermines Australia's standing in the international community. Indeed, the
OECD peer review report expressed concern that such diversions could jeopardise
development outcomes. We recommend that a separate budget allocation be made
for the cost of Australia's asylum seeker management regime.
AID/WATCH characterised the use of aid funding for processing of asylum
seekers as 'boomerang aid' whereby overseas aid money 'ends up funding
Australian companies and consultants rather than those most in need'. In this
context, it pointed out that Australia was currently the largest direct
recipient of its own aid funding.
Further cuts to Australia's aid
A reduction of around $650 million in the revised budget update
from aid funding in the 2013-14 budget will clearly have a significant impact
on aid outcomes in developing countries. While the committee acknowledges that
the fiscal pressures may affect the funding available for Australia's aid
program, it should not be forgotten that these changes have,
and will continue to have, real consequences for overseas communities in need.
The evidence from DFAT articulated some of the broad principles taken
into account in making decisions about the cuts to funding announced on
18 January 2014. However, the committee was concerned by the lack of
detail available from DFAT regarding the rationale for the funding cuts, or any
assessment of the impact of the cuts in developing countries.
DFAT has indicated that it is in consultation with developing countries
and other partners regarding how these funding cuts will be implemented. In the
view of the committee this process should be expedited to provide all
stakeholders with certainty as soon as possible.
In particular, the committee is concerned that the uncertainty created
by these mid-year cuts to aid funding will have broader implications for
international development outcomes beyond the immediate impact on the programs
affected. More broadly, it is clear to the committee that Australia's
reputation as a reliable donor and partner in international development has
been adversely affected.
In the view of the committee, the Australian Government should seek to
minimise the uncertainty imposed on other development partners in aid funding
reprioritisations. Mid-year budget changes, unless they are increases, should
be avoided in the future.
The committee recommends the Department of Foreign Affairs and Trade
expedite the provision of detailed information to stakeholders regarding which
programs and areas will be impacted by the aid budget funding changes announced
on 18 January 2014.
The committee recommends that the Australian Government should refrain
from mid-year changes to aid funding allocations in the future unless they
increase available funding.
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