7. FOREIGN AFFAIRS AND TRADE
7.6 Development Cooperation
7.7 Austrade
In 1996-97, Australia's aid budget is forecast to be $1450.1 million, a reduction of $114.4 million (10% in real terms on last year's expenditure) or $160.3 million on the 1996-97 forward estimates.
The ratio of the volume of the Official Development Assistance to the Gross National Product (the ODA/GNP ratio) will fall to an all-time low of 0.29% compared to 0.34% in 1995-96. Nonetheless, it still remains slightly above the average ODA/GNP ratio of the OECD, which in 1995 had fallen as low as 0.27%.
In its pre-election policy statement, Meeting Our Commitments, the Government had announced the cancellation of the Development Import Finance Facility (DIFF) program. Worth $126.5 million in 1995-96, the termination of DIFF will generate savings of only $94.3 million in 1996-97. This is because funds have been appropriated to meet the cost of projects which have a pre-existing formal offer of DIFF support. These will amount to $19.6 million for 1996-97.
DIFF has been a major component of Australia's aid program to China, Indonesia, the Philippines and Vietnam. The Government has indicated to these countries that some high priority projects in the DIFF pipeline could be considered for support under their respective country program allocations. To this end, the country program funding for China has been increased by $14 million, Indonesia by $10 million, the Philippines an extra allocation of $6.7 million while Vietnam gets an additional $1.3 million.
However, in terms of overall aid flows, China, Indonesia and the Philippines have been cut substantially. Aid to China falls by 32%, from $62 million in 1995-96 to $41.7 million in 1996-97, Indonesia by 17% from $129.9 million to $108 million in 1996-97 and the Philippines by 19% from $74.2 million down to $60 million.
Other areas which have been cut include:
The hardest hit include the UN Development Program, UN Children's Fund and the UN Population Fund.
Programs covered by legal obligations and international treaty commitments have been maintained. This includes aid levels to Papua New Guinea, commitments to the Food Aid Convention, the multilateral development banks and for the Montreal Protocol and Global Environment Facility.
Other salient features of this year's aid budget include:
The Export Market Development Grants Scheme provides grants, mainly to small or medium sized companies, to assist in offsetting overseas marketing costs while the companies are entering and/or developing export markets.
From 1 July 1996, the maximum grant under the scheme has been reduced from $250 000 to $200 000. The Government has approved expenditure of $204.56 million for 1996-97 but from 1997-98 the Scheme will be subject to a limit of $150 million per year (special provision is to be made in 1997-98 for a deferred appropriation of $22.9 million to also be paid in that financial year). The savings from these changes will be partly offset by extension of the scheme to tourism.
The budget papers specify a number of measures to be applied by Austrade to maintain the EMDG Scheme as the major export development incentive for small to medium exporters:
Austrade has been instructed to encourage more small to medium firms to participate in the EMDG Scheme but the reduction in funding represents a substantial cutback in the assistance available. Although Austrade has estimated that only 7% of claims will be affected by the new $200 000 limit for individual companies, the overall cap of $150 million will effectively limit the scope for increasing the numbers of grant recipients.
The decision to reduce funding for the EMDG Scheme, when added to the abolition of the DIFF Scheme, will send negative signals to both Australian exporters and our trading partners because it has been such a high profile part of Australia's efforts to develop an export culture.
The International Trade Enhancement Scheme appears to have been successful in promoting export consciousness among small to medium sized firms and the export to funding ratio achieved to 1994-95 was 15:1. Abolition of the scheme will cause some difficulties for companies in the client base. Given the criterion that these companies would not normally have access to funds from the banking system, it is likely that they will have difficulty finding an alternative source of export finance.
The Export Access Scheme provides services to about 400 new or inexperienced exporters through the Chambers of Commerce and Industry Associations. The budget reduced funding under this scheme by 22%. The reduction will obviously reduce Austrade services but it is unlikely that there will be any serious problems arising from the decision.
The Asia Pacific Fellowship Scheme enabled managers and graduate employees of Australian organisations to work and study in Asian markets. The Fellowships provided 6-12 months overseas; half the time could be spent gaining business experience and half on language training. For graduates, the Fellowships covered up to 75% of costs, including salary. For managers they covered up to 50% of non-salary costs.
Under the Asia Business Links Program, managers from Asian markets were brought to Australia to work here on short-term attachments. The program was designed to enhance business links between Australia and Asia by covering part of the cost of these familiarisation and training visits.
Also abolished were: the Tradeblazer Economic Commerce project, the Australian Trading Enterprise: Japan project and the Innovative Agricultural Marketing Program. The first two of these measures applied to programs which were introduced by the previous Government and were not considered to fit in with the program of the current Government. The third was abolished to assist in meeting the budget savings target.
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