Aid effectiveness and the scale-up: the price of asylum-seeker cost shifting

Written by Stephen Howes

On Monday, Foreign Minister Carr confirmed that the Government will be cutting $375 million from its budgeted aid expenditure this year in order to finance costs associated with asylum seekers from the aid budget. The cuts will presumably fall on AusAID, the major aid spender, which means it will face a nominal decline in spending this current year. Where AusAID is cutting remains to be seen.

The Government has defended the move (foreshadowed in this Devpolicy post by Joel Negin) on the ground that it is both admissible and standard practice among aid donors to count in-country refugee costs (“transport and temporary sustenance” for a 12-month period) as aid, or Official Development Assistance (ODA), as it is called. Not all countries do: the UK, Italy and Ireland have made little or no use of this provision, and nor did Australia recently. But many charge hundreds of millions of such costs to the aid budget, including some we look up to as good and generous donors, such as Norway and the Netherlands.

Though one might have hoped for a more public process behind the changing of an important policy such as this, the rationale for including domestic refugee-related costs as ODA is solid, and has been accepted by the OECD (which sets the rules on what can be counted as aid) since 1988. We often spend aid in Australia (think of scholarships and research). And our aid budget covers humanitarian as well as development expenditures.

That doesn’t necessarily mean that this is a good use of aid. Much will depend on whether you think people waiting for a determination of their refugee status should be debarred from working. If they weren’t, it wouldn’t cost the Government so much to support them.

Leaving aside issues relating to asylum-seeker policy, however, even if one acknowledges the right of the Government to count these costs as aid, the manner and timing of the decision raise important questions about its commitment both to scaling up aid and to aid effectiveness.

On the scale up, it is important to see the announcement in its context. Australia is not a generous aid donor. Out of the top 15, we come 12th in terms of the aid generosity index (ratio of aid to GNI). There used to be a bipartisan agreement to doing something about that, but the 2012-13 budget of April this year watered down that commitment. In that budget, the Government increased ODA by only $300 million (to $5.2 billion) instead of the $700 million it had earlier promised (which would have taken aid to $5.6 billion). And it delayed the date for achieving its 0.5% of GNI (Gross National Income) target for ODA from 2015 to 2016. Achieving that target will require aid to increase each and every year between now and 2016 by an average of one billion dollars. Aid has never been increased by that much in a single year, let alone for four years running.

If the government wanted to send a signal that it was serious about scaling up aid, it could have simply added the $375 of asylum-seeker costs to the ODA budget for this year. Instead, driven by the imperative of returning the budget to surplus, it has held total aid constant, and reduced AusAID’s budget below last year’s level to make room for these extra costs. This doesn’t seem like the action of a Government which is intent on massively scaling up aid in general and AusAID in particular in the coming years. Given the negative signal, it is important that the Government quickly reaffirm its commitment to 0.5% by 2015, and to no further delays in the rate of scale up.

On aid effectiveness, the Independent Review of Aid Effectiveness, which reported in 2011 and in which I participated, listed as the first of a number of problems facing Australian aid a lack of strategic clarity, including a lack of funding predictability. Aid programs require long lead times to develop, and certainty of funding to succeed. For this reason, the Review argued that the Government should produce a 4-year budget framework to guide the scale-up. The Government agreed and produced the first multi-year plan for aid in April of this year.

This announcement derails the goals of strategic clarity and predictable funding. What could be less predictable for AusAID than a mid-year cut of almost 10%? I couldn’t say it has never happened, but I certainly not aware of a cut of this magnitude to AusAID outside of the budget cycle. The combination of this cut with the uncertainty over future aid budgets means that what the Government itself called in this year’s budget a “key element of effective aid”, namely “predictable, multi-year funding” is currently missing.

In addition, and in violation of the aid program’s new Transparency Charter, no policy has been released on what Australia’s position is on charging asylum-seeker costs to the aid budget. We’ve only been told that $375 million covers sustenance for refugees awaiting a determination. Other countries include other refugee-related costs; for example, some charge the costs of their resettlement programs to the aid budget. The Government also needs to clarify that it will only be charging costs for the first year in Australia, as that is all the OECD allows.  Without an explicit policy on ODA eligibility of asylum-seeker costs (both on- and off-shore), there is the risk that additional (and potenially massive) costs will be charged to the aid budget at a later stage, further increasing uncertainty.

To summarize, it would have been one thing to announce this change at budget time, based on a new, articulated policy on ODA eligibility of asylum-seeker costs, and to add the eligible expenditure to our other aid spending. It is quite another thing to do it mid-year, without an articulated policy, and to cut AusAID spending to make room for asylum-seeker costs. The decision casts further doubt on the Government’s commitment to scaling up aid, and it undermines aid effectiveness. It is a heavy price to pay in pursuit of a questionable commitment to deliver a fiscal surplus.

This blog is part of a series on 2012 Aid Budgets. For other blogs in the series, see here. It is also a part of a series on Australian aid, refugee’s and the Pacific Solution. Other blogs in that series can be found here.

Stephen Howes is Director of the Development Policy Centre. For further background, see Joel Negin’s end-October post on the issue here.

Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School. Stephen served in senior economic positions for a decade at the World Bank before becoming AusAID’s first Chief Economist. In 2011 he was a member of Australia’s Independent Review of Aid Effectiveness.

6 Comments

  • I want to respond to these comments (for which many thanks) with two points.

    Satish argues that it could never be right to claim costs on asylum seekers as aid. I disagree. The aim of aid should be to reduce poverty, and resettling asylum seekers achieves that aim. The problem in Australia is that we don’t know what the money is being spent on. All we have is Senator Carr’s statement that the cost relate to “basic subsistence for refugees waiting to have their claims heard in Australia” and that “This will cover food, shelter and other essential items.” We need more information on what costs are being counted as aid, and what costs will be in the future. But we should avoid a blanket rejection of counting asylum seeker costs as aid, just as we should avoid the argument that some have made (not Satish) that aid should not be spent in Australia. In fact quite a lot of aid is spent in Australia – think of scholarships for example.

    But even if the decision to count these costs as aid is legitimate it doesn’t imply (as Dennis Blight argues in his comments) that the decision is fine. The way in which the decision was made is surely problematic. Cutting AusAID’s budget half way through the year by almost 10% cannot be good for aid effectiveness.

    Robin Davies and I have revisited the asylum seeker issue in our blog on aid challenges in 2013. We included this issue as the third of five key aid challenges for 2013. Here’s what we say: “The third [challenge] is to articulate and release a policy in relation to the use of aid for asylum seekers, explaining the basis for determining which costs are counted as aid, in line with OECD guidelines, and which are not. Most OECD countries charge some of their asylum seeker and/or refugee costs to their aid budgets. If aid is about helping poor people overcome poverty, and if that is the purpose for which these costs are incurred, that seems fair enough. But Australia’s decision to increase, massively and abruptly, this charge to the aid program creates a very large contingent liability for the aid budget. How much of Australia’s very large asylum seeker bill will the aid budget be expected to pay? Was last year just a toe in the water? Clarity around this issue is urgently required.” Our full post is available here.

  • I appreciated the blog and its sentiments. However, it might be inconsistent to recognise – as the blog rightly does – that support for refugees qualifies as ODA but then to argue that the reallocation of aid from one legitimate purpose to another such purpose amounts to a reduction in aid.

    I recall the debate in the mid 80s on the discovery by the Jackson Committee of the $100 million ‘subsidy’ to overseas students who enrolled at Australian universities at the same (or only slightly higher) fee levels to those applying to Australian students. Australia’s ODA count increased but AIDAB as AusAID was then known had no additional funding to spend. However, the problem was corrected over time as the subsidy was phased out and spending on full scholarships under Equity and Merit Scheme was steadily increased. The ‘subsidy’ which had been directed to relatively well-off students was replaced with a targeted scheme for the poor and disadvantaged.

    Instead of railing against a legitimate government policy change and expressing doubts about the quality of support for refugees or displaced persons, it might be better if the development community worked on ways to evolve the means of support for them to higher quality forms of assistance from the aid program.

  • Pacific Solution (Mark 1) under the Howard government saw shocking examples of poor governance in the aid budget. The Federal Budget papers did not reflect the full costs of all departments operating in Nauru and Manus (AusAID, Australian Federal Police, Health etc), or extra costs outside the core departmental programs.

    Amounts reported in the annual May budget papers were routinely upgraded in supplementary estimates, and official development assistance (ODA) for Nauru was supplemented by an extra budget line “Nauru additional”. On orders from then Foreign Minister Downer, the budget papers in 2006-07 and 2007-08 did not even reveal the amount for “Nauru additional”, stating that the figure is “not for publication.”

    This was an unprecedented lack of transparency, as noted in this exchange during Senate Estimates in May 2007:

    Senator Hogg: Are there any other such transactions in any of the documentation related to
    AusAID?
    Mr. Scott Dawson [AusAID]: There are no other measures that I am aware of that have an instruction from ministers that they are to be presented with a “not for publication” annotation.
    Senator Hogg: So there is nowhere else where this committee – if it pored over the documentation line by line – would be denied access to the appropriate figures. Is that a correct assessment?
    Mr. Dawson: That is correct
    (Senate Estimates, Foreign Affairs Defence and Trade Committee, Monday 28 May 2007, p.86.)

    It seems that we’re heading down the same path again. Little wonder that our lectures to Pacific governments about accountability and transparency get short shrift.

    • Hi Nic,

      I remember reading that exchange when I did the research for my blog a couple months back. All the more reason we need to ensure that there is more scrutiny on where the funds are going. I’m sure there will be accounting tricks and we need to keep asking the right questions. It is obviously hard to compare what happens against counter-factuals but we can compare against per capita spend in comparable countries or against the spending between 2007 and 2012 (ie. the non-Pacific Solution era).

      Whoever thought that aid was moving out of the shadow of foreign policy and national interests must feel a bit sheepish now (including me…).
      Cheers,
      Joel

  • Thanks for the in-depth analysis Stephen. I have also looked at the issue from a different perspective, placing this move in the historical context (and growing trend) of DAC member countries to report ‘in-donor refugee costs’.

    http://www.whydev.org/in-donor-refugee-costs-breaking-down-australias-latest-aid-cut/

    I think it is important to consider Australia’s decision in this context, as it is also representative of the failings of the current aid system. What perhaps is significant to note, is the early lack of consensus from DAC members around this issue in the ’90s. Many were against the reporting method. Now, only two countries do not report these costs as ODA. There is no standardisation around this reporting. It is very inconsistent among DAC members.

    Australia has a track record of this reporting, but after the 2005, it disappears and does not occur again until 2009. But, the amounts of reported ‘in-donor refugee costs’ are insignificant at this stage. In 2010, it represented only 0.17%! Now, it will account for 7.2%. I think you break down the motivations behind this move well.

    It is a growing trend among DAC members to report these costs. However, we need to re-open the dead debate in the DAC about whether -in-donor refugee costs’ should be reported as ODA.

  • Using part of the aid budget to fund border protection is simply wrong. And others doing the same is no excuse. The argument that sheltering and feeding refugees offshore is the same as helping them onshore is just as flawed. Providing food and shelter to refugees abroad is core humanitarian assistance: period. Incarcerating them onshore (or in Nauru, PNG, etc) as part of border protection is pre-planned punishment to deter further boat arrivals. Using funds allocated for ‘humanitarian assistance’ for ‘inhumane treatment’ of refugees is morally reprehensible. Worse still is having the cheek to claim the latter as the former.

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