Australian Treasurer Jim Chalmers delivers his fourth Federal budget at the Parliament House in Canberra on March 25, 2025. Photo: AFP / David Gray
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.
Copies of the Australian government’s budget papers on a desk in Parliament House, Canberra. Photo: AFP / Steven Trask
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.
