Australian aid: the way we were

Written by Stephen Howes

Now that the budget has confirmed the aid cuts announced by the government in December, it is clear that the history of the Australian aid program can be written in three parts:

  • From 1971-72 to about 2003-04: aid as a backwater. It bobs up and down, with a slow underlying rate of increase of just 1% a year, taking it (in today’s prices) from $2 billion in 1970 to $3 billion in 2004.
  • From about 2003-04 to 2012-13: the scale-up decade. Aid increases rapidly over this period from $3 billion to $5.6 billion, an annual average growth rate of 7% a year.
  • From 2012-13 to 2016-17: the period of retrenchment, which we are currently in the midst of. Aid is falling even more quickly than it rose, with, under current plans, an annual average growth rate of -10%.

The third period cuts cancel out much of the increases of the second. The graph below shows the three different eras, with actual aid in red, and then the three trend lines for the three periods. The final blue line shows where we would have ended up if, rather than scaling up and then cutting back, we had just continued with the trend or growth rate of the first era. You can see that it is pretty close to where we are probably going to end up.

Figure 1: Australian aid, 1970 to 2018 ($m, 2015-16 prices)

Figure 1: Australian aid, 1970 to 2018 ($m, 2015-16 prices)Note: The red line shows actual aid. The three “era” lines are trend lines showing the growth rate for that period. The “1st era continued” line shows what our aid volume would look like if aid had continued to grow at its average for the 1st era. Underlying data available here

It’s a deflating finding. All the excitement first about doubling aid under Howard, then about reaching 0.5% of GNI, first adopted by Rudd, then supported as a bipartisan consensus. All gone.

It was not all for nothing. That triangle in the boom-and-bust years is worth about $16 billion: that’s a lot of assistance. And the additional resources and exuberance transformed the Australian aid and development sector, giving rise to the creation and growth of a number of institutions, including, to give one small example, our own Development Policy Centre. The questions now are which of these innovations and expansions will last, and which will be lost in the shake-out.

Another question is why we were as a nation unable to sustain our increased generosity. Is it a measure of our pragmatism or of our stinginess? Or is it just that we are a relatively low taxed economy, and so cannot afford a large aid program?

Whatever, the reason, it is certainly a case of Australian exceptionalism. The West as a whole has been able to sustain a large increase in aid since the early 2000s. But not us.

Figure 2: OECD DAC aid ($ US million)

Figure 2: OECD DAC aid ($ US million)Source: OECD QWIDS.

The biggest question of all is what the fourth era of Australian aid will look like. The graph of Australian aid above extends into the forward estimates, and suggests that the fourth era will be much like the first. The Coalition forward estimates promise that from 2017-18 aid will increase in line with inflation.

With three rounds of cuts inflicted on aid in the last 18 months, it would be foolish to rule out a fourth in the next year or two. But it is also possible that the political realities have by now reasserted themselves over the aid budget, and that, following this recent and jarring adjustment, we will be back to a situation in which our aid spending once again tends to fall as a percentage of the budget and the economy, but at least keeps pace with inflation, or perhaps, after a few years, does slightly better.

Would Labor, if elected, resurrect the scale-up? In the discussion following her speech to the 2015 Australasian Aid Conference, Shadow Foreign Minister Tanya Plibersek noted that aid would have to take its place in the queue, behind important domestic spending priorities such as health and education. So I’m not holding my breath on that one, though of course it should be an important campaigning objective.

In sum, in the coming years aid might lie above or below an extrapolation of old trends. In my view, however, the most likely scenario for aid  –  the new normal –  is a return to the way we were. It’s hardly impressive, and it is certainly not fair, but it could be worse.

Stephen Howes is Director of the Development Policy Centre. 

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

  • One thing that wasn’t discussed at the event on Wednesday is the impact that cuts such as these has on the quality of total engagement between Australia and recipient countries. DFAT people will likely find it harder to get access to political and bureaucratic leaders and decision-makers if they are unable to answer questions about aid allocations with any degree of certainty or (even worse) if they are having to tell people that promised programs have been cancelled or (worse still) current activities are being axed before completion. Not only does this mean that other donors will start to look more preferable but there will be knock-on effects in terms of the overall political and diplomatic dynamic.

  • Really, it could be worse?? How? Duh, of course, until the aid budget is 0%. Is that what we’ll be saying until ‘worst’ happens? Aspirations can be higher, I would hope.

    I’m with Chris on the merits of looking at the ecosystem. My perspective, having moved here 2.5 years ago from Europe, is that the ecosystem for interest in and work on development here is very much poorer than in many European countries, including the UK. Debates are few, research is limited, players are few, public interest is extremely low, policy is pretty dreadful.

    • Irene,

      What I was trying to say is that it could be worse than it was in the 70s, 80s and 90s when aid grew at 1% a year after inflation. Something like this is what I identify as the most likely, though by no means highly likely, scenario from 2107-18 onwards.

  • The question about ‘why we were as a nation unable to sustain our increased generosity’ is an important one. Duncan Green suggests in this blog post that one reason the UK has been an outlier is because it is has a rich ecosystem and ‘busy Aid and Development cluster’. This he argues has led to not just sustained campaign pressure, but also an ‘underlying critical mass of knowledge, interest, concern and consensus’. Is this what Australia currently lacks, and if so could we all be doing more to help create it?

    • British and European history, colonial and trade, influences development assistance policy today. By virtue of its colonial and maritime trade history, and its position in the Bretton Woods institutions, Britain has several reasons to use development assistance for economic and public diplomacy. That national interest narrative is established (“punching above our weight”, “influencing the global powers” etc.) and the 0.7% GNI policy justified by the narrative. Australia lacks such a narrative. There is an opportunity to develop one. If we are truly part of Asia, if we see Asia as a focus for economic diplomacy, trade and cultural exchange (the “what”) then development cooperation could be woven into the narrative and policy responding to the opportunity (the “how”). That is missing. Perhaps the Development Policy Centre could work with other Think Tanks and private sector actors to start the process of building a narrative of Asian engagement and trade that includes a role for aid. We all have good reason to contribute to such a debate.

  • Thanks Stephen

    You’re right. It isn’t fair and it’s pretty bad, but it could be worse. Given the general policy direction of the coalition government, however, I think we probably need to assume that things will get worse before they get better.

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