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Debate: Australia's aid budget 2012

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Are the knives out for the aid budget?

by Annmaree O'Keeffe - 5 April 2012 12:35PM

Will the Gillard Government stick by its commitment to increase the aid budget to 0.5% of Australia's gross national income by 2015/2016? That's the question being asked as rumours and leaks gather momentum in the lead-up to Budget night on 10 May.

In an interview with the 7.30 Report's Chris Ullman last night, World Vision Australia CEO Tim Costello prosecuted the case for maintaining the commitment, reminding everyone that the bulk of the world's poor lives in the Asia Pacific. He argued that Australians want their government to tackle global poverty.

However, news coming out of the OECD on the same day shows that aid budgets across the developed world are under increasing pressure; globally, aid to developing countries fell by nearly 3% in 2011. Exceptions were Australia, New Zealand, Korea, Switzerland, Germany, Italy and Sweden, where aid budgets continued to rise. The US, Canada and (surprisingly) the UK registered falls, the biggest being Canada with a drop of more than 5%. The Canadian Government decided to cut its aid budget by another 7% in the budget brought down last month.

This drop in global aid comes after more than a decade of steady increases. In fact, the OECD reports that net official development assistance rose by 63% between 2000 and 2010, the year it reached its peak. Although Australia didn't join this international push to substantially increase its aid budget until half way through the decade, it has subsequently been a strong and consistent supporter of more and better aid to address global poverty.

The dilemma now is whether Australia, given other budgetary pressures, can afford to continue increasing its allocation to aid and so meet the 0.5% commitment by 2015. In dollar terms, this would mean close to doubling this year's allocation of $4.8 billion to something around $8 to $9 billion in four years.

Reader riposte: The ALP's aid promises

by Reader riposte - 11 April 2012 6:49PM

Marc Purcell, Executive Director of the Australian Council for International Development, responds to 'Are the knives out for the aid budget?':

The Gillard Government committed to scaling up the Australian aid program at the 2007 election, and again in 2010. The 2010 ALP election platform mentioned the 2015 0.5% GNI commitment (twice):

'Australia is also a major contributor of development assistance. Last year, we contributed $3.8 billion in foreign aid. We are delivering on our commitment to increase Australia’s level of development assistance to 0.5% of Gross National Income by 2015-16...'

Again:

'We will deliver on our commitment to increase official development assistance to 0.5 per cent of Gross National Income by 2015-16.'

The ALP platform in 2011 Conference was updated to note:

That Conference:

congratulates the Federal Labor Government for its ongoing commitment to increase foreign aid to 0.5 per cent of Gross National Income (GNI) by 2015

acknowledges the internationally agreed aid target for official development assistance is 0.7 per cent of GNI and encourages the Federal Labor Government to work towards this goal

recognises Australia's foreign aid budget funds programs such as: the building of schools in Indonesia, provision of assistance to the people of Libya; and community development initiatives in Southeast Asia. These programs are a clear demonstration of the compassion, social justice and regional interest that is needed to ensure that Australia is a responsible global citizen, and plays its part in helping to achieve the Millennium Development Goals.

The Gillard Government stated in the 2011-12 Budget Blue Book, 'Australia's International Development Assistance Program 2011-12: An Effective Aid Plan for Australia: Reducing Poverty, Saving Lives and Advancing Australia's National Interest', that its forward estimates to reach the 0.55 commitment by 2015/6 would be:

'...to reach this target, the Government expects to increase Australian aid to around 3.8% of GNI in 2012/13, 0.42% in 2013-14 and 0.46% of GNI in 2014-15.’

The Government needs to lift the budget from 0.35% currently to 0.38% in the coming budget if it has any realistic chance of getting to 0.5% by 2015. Any delay would jeopardise the plans arising from the Government's response to the 2011 Independent Review of Aid Effectiveness. To delay would be a core commitment broken and we trust that the Government will remain on track.

Our aid pledge: The climate dimension

by Nic Maclellan - 12 April 2012 4:17PM

Nic Maclellan is a journalist and researcher in the Pacific Islands and author of the Lowy Institute Policy Brief Turning the Tide: Improving access to climate finance in the Pacific Islands.

In the debate over whether Australia will reach the development assistance target of 0.5% of gross national income (GNI) by 2015, one element is often ignored – our parallel commitment to provide 'new and additional' financing to assist developing nations to respond to climate change.

Given that global warming is likely to set back progress on key development objectives – poverty alleviation, food security, water supply, public health and infrastructure maintenance – the debate over whether Australia can and should reach the target of 0.5% needs to include analysis of the funding of climate responses.

Since Copenhagen in 2009, OECD nations have pledged to provide US$100 billion a year by 2020 for adaptation and mitigation initiatives. For Australia to meet its fair share of this global target, about $2 billion a year, requires a ten-fold increase in less than a decade (Canberra's existing allocation of 'fast track' climate financing for 2010-13 averages A$200 million a year).

Under the UN Framework Convention on Climate Change (UNFCCC), climate financing is supposed to be 'new and additional'. Developing nations have long said climate finance is 'new and additional' only if it is above the pre-existing goal, set in 1970, for developed nations to give 0.7% of GNI as Official Development Assistance (ODA).

As documented in my Lowy Institute analysis paper, the money currently pledged for adaptation and mitigation in Australia's 'fast-start' climate funding has been drawn from the aid budget. At a time when there was an expanding aid program and bipartisan support to increase the budget, this has not raised much public debate. But if there is now a move to ditch the 2015 target, there will be significant domestic and international reaction.

This debate is complicated by statements from Opposition politicians that, on winning government, they will cut funds for Australia's International Climate Change Adaptation Initiative from the ODA budget. In a 2010 debate at the National Press Club, Shadow Foreign Minister Julie Bishop stated:

In the last budget Labor put $300 million of Climate Change Adaptation money into the Foreign Aid budget and tried to claim that they'd boosted foreign aid. We will not do that. That is against the principles and guidelines laid down by the Copenhagen Climate Change Conference. We will not use climate change money in a way to say we're boosting foreign aid.

So where will the money come from?

Given Australia will need to find predictable long-term sources of finance to meet its share of the global commitment of US$100 billion a year by 2020, a proportion of revenue generated from carbon taxes could be allocated to international financing of adaptation and low-carbon development in developing countries.

However, this issue is off the table in current Australia debates, with the Gillard Government allocating revenues from its carbon tax to compensating low-income households, emissions-intensive industries and renewable energy programs. Given the Coalition has pledged to repeal the carbon tax, it seems unlikely to rely on this revenue stream for carbon trading or grant payments to developing countries!

The 2011 independent review of the effectiveness of Australia's aid program, headed by Sandy Hollway, made only brief reference to climate financing, but noted that Australia's fair share would be roughly 2% of the proposed US$100 billion a year in 2020. The review (p.158) suggests this could come from both private and public sources, with the aid budget allocating nearly $1 billion dollars by 2020:

If Australia's share were to stay at 1.9 per cent, with half funded through private sources, then by 2015, the Australian government’s ODA commitment would be US$0.5 billion and by 2020, US$0.9 billion.

The 'private sources' are most likely international carbon trading schemes under REDD, but recent critiques of AusAID-funded REDD+ initiatives in Kalimantan suggest that this will not be easy to access in the short term. Neither major party has seriously discussed alternative revenue streams such as a Robin Hood Tax on financial transactions or taxes on bunker fuel, both discussed in a study by Bill Gates commissioned by President Nicolas Sarkozy for the Cannes G20 meeting in November 2011. This debate will have much greater significance in the medium to long term, as projected levels of climate finance grow and begin to match current levels of global aid spending.

The Hollway Review explicitly rejected the call from the developing world that climate financing should be additional to existing obligations to meet ODA targets of 0.7% of GNI:

Using aid budgets to finance climate change spending is often opposed by developing countries on the grounds it should be ‘additional’. Australia has argued that, with a growing aid budget, aid funding for climate change is additional. In any case, the objections raised by developing countries have not stopped donors relying on aid for their climate financing. On the contrary, all public sector climate funding is counted as ODA.

How well will this argument stand up if there's uncertainty over the 0.5% commitment?

Beyond targets for the reduction of greenhouse gas emissions, financing the transition to a low-carbon economy in the developing world is one of the central pillars of the UNFCCC negotiations. The failure to maintain our aid and climate obligations will impact on Australia's reputation on the international stage over the next few years, as countries move to finalise an international climate treaty by 2015. We risk alienating key trading partners in Europe as well as Asia by reneging on our international pledges, a problem exacerbated if we manage to win a rotating seat on the UN Security Council in 2013-14.

There is a whole other debate about the effectiveness of aid and climate financing, but many countries in our region will be looking at the bottom line of Australian commitments, especially as the MDG summit and the climate treaty negotiations are both held in 2015.

Photo by Flickr user Michael Connell.

Australia in the Asian Century

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Australia's inflated aid agenda

by Hugh White - 16 April 2012 11:44AM

Annmaree's anxieties about the aid budget are well-founded. If the fiscal squeeze is to be as hard as everyone says, there seems little chance that aid will be spared. Of course, no one is talking about spending less on aid — only about slowing the rate of growth. Aid spending has doubled since 2005, and has been set to double again by 2015, so the rate of growth could be halved and it would still be very high. At the risk of playing Uncle Scrooge, let me suggest that slowing the growth of aid would be no bad thing.

The most immediate reason is that it is so hard to avoid wasting a lot of money when the amounts available are growing so fast. This is no discredit to AusAID, which is one of the world's better aid agencies. Their work is not just about signing cheques: they have to work with other countries and local communities to develop cost-effective projects that deliver real results. That takes a long time, so the faster money has to be spent, the more will be wasted. That does nothing to help the needy.

But there are two deeper reasons to pause and take stock. The first is to try to get clearer what the aid program is supposed to achieve. Last year the Government's Aid Effectiveness Review roundly declared that the aim of our program was the elimination of poverty. But the closer one looks the less plausible that becomes.

I argued last year that poverty is eliminated by economic growth, and aid does little or nothing to support that. Nor can it do much to change the distribution of wealth in a society. The best it can do – and what is does best – is alleviate the consequences of poverty for those who have not yet escaped it. If that's right, let's admit it and design the program accordingly. But the aid community seems reluctant to really debate this central question.

Reader riposte: It's not just about AusAID

by Reader riposte - 17 April 2012 2:58PM

Danielle Romanes writes:

Hugh White argues that 'slowing the growth of aid would be no bad thing.'

'The most immediate reason is that it is so hard to avoid wasting a lot of money when the amounts available are growing so fast. This is no discredit to AusAID, which is one of the world's better aid agencies. Their work is not just about signing cheques: they have to work with other countries and local communities to develop cost-effective projects that deliver real results. That takes a long time, so the faster money has to be spent, the more will be wasted. That does nothing to help the needy.'

Hugh's immediate reasoning is flawed here, because there is no onus on AusAID to be the sole deliverer of Australian aid. Already it partners with a range of established and respected international organisations to deliver aid in areas where it lacks capacity, reach or expertise. Thus in 2009-10, $466 million of its budget was delivered by the World Bank, $131.6 million by the Asian Development Bank, $154 million by the Global Alliance for Vaccines and Immunisation, the Education for All Fast Track Initiative, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. At present over 30% of Australian aid is delivered through partner organisations such as these, so — counter to Hugh's suggestion — quite a large amount of AusAID's work is actually signing cheques.

AusAID may immediately lack the capacity to deliver an augmented aid budget, but I see no reason why its partner organisations would not be willing and able to lend a hand for a few years. With aid generosity on a sharp decline, many of these organisations (and the Global Fund in particular) will be experiencing a surplus of capacity that AusAID is increasingly well-placed to meet. Think of it as charitable outsourcing: convenient, effective, and lifesaving.

Reader riposte: Aid does improve economic growth

by Reader riposte - 18 April 2012 3:32PM

UNICEF Australia Director of Communications and Advocacy Tim O'Connor replies to Hugh White:

Two more points of contention, Hugh. You assert '...poverty is eliminated by economic growth, and aid does little or nothing to support that. Nor can it do much to change the distribution of wealth in a society'.

I'd say getting an extra 58 million children into school in the last decade, ensuring 1 billion children have been immunised against disease over the same period and bringing the world to the brink of wiping out polio counter the suggestion that aid doesn't eliminate poverty.

Aid, when used most effectively, challenges societal impediments (eg. of limited education and poor health) that trap individuals and families in the cycle of poverty. Giving people the tools to free themselves from this cycle by improving their skills and consequently their earning potential whilst reducing the burden of disease upon them and their carers are very significant 'elevators' out of poverty.

And secondly, suggesting Australia is 'treating Indonesia as a charity case' simply because we allocate aid there is ham-fisted reasoning.

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Foreign aid: What's wrong with charity?

by Hugh White - 23 April 2012 12:09PM

Let me touch briefly on two issues raised by Tim O'Connor's response to my post on aid.

First, I'm sure Tim is right to say that aid can help foster economic growth by supporting health and education programs, because healthier and better-educated people are more productive. But that accords aid at best a modest role in the complex processes that drive economic growth. Aid does much more to alleviate the consequences of poverty than eliminate its causes. Nothing wrong with that as far as it goes, but let's not entertain the illusion that elimination of poverty is a gift that the West can bestow. It is something than counties must do for themselves, and many of them are.

Second, I would not be as swift as Tim to dismiss the place of charity (or altruism, if you prefer) in aid. There is nothing wrong with charity. There is however something wrong with getting charity and self-interest confused.

My comments about treating Indonesia as a 'charity case' were directed at those who argue that spending money on aid serves our interests in building our future relationships with our neighbour. I think that reflects a very deep misunderstanding of Indonesia and the factors which will shape our relationship in future. It also reflects a rather poor grasp of human nature. So by all means let us help those in need in Indonesia, but let's not pretend that we can help ourselves at the same time by purchasing Indonesian gratitude for our generosity.

Photo by Flickr user stevendepolo.

Australia in the Asian Century

Aid is a catalyst for regional change

by Michael Carnahan - 23 April 2012 2:56PM

Dr Michael Carnahan is Chief Economist at AusAID.

History tells us that strong economic growth is a necessary, but not sufficient, condition to sustainably lift people out of poverty. Current and projected growth in Asia means the international community needs to evolve and reposition its development assistance. Done well, it can be a catalyst that supports this rising tide, genuinely raising all the boats. Those who now have the least opportunity can share in this prosperity in the Asian century.

Australia is a part of the most exciting and innovative region in the world; Asia has become the world's economic powerhouse. Our proximity to Asia, natural resource endowment and strong economy opens up a host of opportunities for Australia in the Asian Century.

As a country which has much to gain from Asia's rise, discussions in Australia are often solely focused on the impressive GDP growth figures of developing Asia, which averaged an annual rate of 8.7% over the last ten years. However, the startling success of Asia in aggregate growth terms shouldn't obscure the developmental realities. Asia is still home to two-thirds of the world's poor; over 850 million people subsist on less than $1.25 a day and over 1.7 billion live on less than $2 a day. Excluding China, there are now more people in Asia living on less than $2 a day than in 1990.* Of the 24 nations in East and South Asia, 19 of these are developing countries, and six are low income.

Less than 500km from the Australian mainland over half of the Indonesian population is living on less than $2 per day. Indonesia's annual economic growth of over 5% has supported a major reduction in the share of the population facing severe poverty. But as recent World Bank research shows, these people are at risk of slipping back into severe poverty.

Millions of people in Indonesia are vulnerable to poverty as a result of shocks such as illness, job loss or rapid increases in prices. Women and girls face particular disadvantage with limited female labour force participation (52% compared to 84% for men), maternal mortality (at 228 per hundred thousand, it is among the highest in Southeast Asia) and limited representation in decision-making at all levels of government.

In addition to the immense challenges that poverty poses, policymakers in developing Asia are now faced with rising inequality. As noted in the Asian Development Bank's Development Outlook for 2012, since the 1990s the distribution of income within Asia's fastest growing and most populous economies has become increasingly unequal, despite many economies recording very impressive economic growth figures. This inequality is driven predominantly by the heavy concentration of productivity and earnings growth among a few industries and geographic areas.

The problem with rising inequality is that it increases the risk of instability and conflict, the surest way to return millions to poverty. Ensuring that the benefits of growth are distributed in an efficient and equitable manner will be a major challenge for policymakers in developing Asia.

So where does this leave the Australian aid program? The fundamental purpose of Australian aid is to help people overcome poverty. Even with strong economic growth, hundreds of millions of women, men and children in Asia remain in poverty. However, this strong growth and dynamism means that the way we work with partner government in the region is evolving. It needs to continue to evolve to reflect the changing dynamics in the region. This will ensure that we have the maximum impact on poverty reduction for each dollar that the Australian taxpayer contributes.

Strong economic growth means that the fiscal capacity of many of our partner governments has strengthened. This means Australian development assistance needs to shift more and more to supporting these governments to do their job better. That's why Australia is helping build expenditure and accountability systems that will allow the Indonesian Government to spend its own budget more effectively. AusAID's partnership with the Indonesian Government to assist in strengthening their revenue base means basic services can be properly funded into the future.

We also need to look for new ways to partner to make our aid more effective. Less than 20 years ago Australia had a comprehensive aid program in Malaysia. Now, Malaysia and Australia are working together as co-donors on a project supporting teacher education in Afghanistan. Each year Afghan master teacher-trainers travel to Malaysia for 14 weeks of intensive professional and teacher training developed by the three countries specifically to meet Afghanistan's needs. The project then supports and mentors the teacher-trainers when they return home to 'cascade' what they've learned and train other teacher-trainers, and then on to teachers themselves.

Hugh White recently wrote on this blog that that 'it is so hard to avoid wasting a lot of money when the amounts available are growing so fast'. Quality of expenditure is a central concern. The 2011 Independent Review of Aid Effectiveness looked at this issue in depth, and concluded that, provided certain reforms are implemented (which they are), the aid program could grow effectively. Indeed there has been no correlation between the size of Australia's aid program and the proportion of fraud cases, which has remained well below 0.1% of expenditure since 2005.

Strong economic growth appropriately humbles aid professionals. It reminds us that foreign aid by itself will not transform Asia. It can, however, catalyse the sort of changes that will need to take place if Asia is to realise its potential and grow in a fast, peaceful and sustainable manner.

In the Asian Century, Australia has an important role to play in helping regional governments expand access to and improve the quality of basic education, health services, food security and employment opportunities for vulnerable groups. As aid policymakers, we should be working to reverse rising inequality in Asia through effective development interventions and promoting economic growth that is sustainable and will make genuine inroads into poverty reduction.

* Calculations based on data from PorvcalNet, the World Bank's online poverty tool.

Photo by Flickr user AusAID.

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The case for more aid is still weak

by Hugh White - 26 April 2012 1:56PM

Thanks to AusAID's Michael Carnahan for his contribution to our debate about the aid budget.

This strand of the debate began with my claim that it was a mistake to keep spending more on aid when the purpose of our aid program was unclear. I'm not arguing against aid as such. I'm saying that the aid program needs to be judged by the extent to which it achieves its objective, just like any other program of public spending. That objective must therefore be clear, and so must the way in which the program is intended to achieve it.

Some would say the objective of the aid program is clear enough. Michael restates it in the words the Government used in its response to last year's Aid Effectiveness Review: 'The fundamental purpose of Australian aid is to help people overcome poverty'.

But it is much less clear how the aid program is supposed to do that. I've argued that poverty is overcome by economic growth, and aid doesn't contribute much to that. Moreover, the complex forces that do drive growth are in fact overcoming poverty around the world, especially in Asia. So how is aid supposed to be help 'overcome poverty'?

Michael's first point is that, despite all the growth in Asia, there is still a lot of poverty around. Of course that is right. To some extent this is simply because, while Asian economies are growing fast, they haven't yet grown far enough to lift all their people out of poverty. But it's hard to see how aid can do much to remedy this problem, if you agree that aid does little to drive economic growth – and I think Michael does agree with that.

However, Michael goes on to make a second, deeper point. He says that, to overcome poverty, it is not enough for a country's economy to grow; the growing wealth needs to reach the poor. So, wealth distribution is just as important as wealth creation. He suggests that aid can help overcome poverty by helping ensure that enough of the increasing wealth of growing economies is distributed to the poorest people.

This would be a compelling argument if it is true that aid can indeed change the distribution of wealth within a country. But is that true? At the very least, it needs to be demonstrated, because it is not self-evident. To me the odds seem stacked against it.

The distribution of wealth in any society is one of the most fundamental – in some ways the most fundamental – features and functions of its social and political order. There is scant evidence that aid can do anything at all to change the underlying order in recipient countries. When that order changes, it is as a result of very deep realignments of social and political forces, often driven by economic changes themselves. The idea that Australian aid can engineer what we in Australia regard as desirable changes in the political and social order of a country like, say, Indonesia seems to me to be immodest.

So I suspect that Australian aid can do nothing to change the way Indonesia's wealth is distributed among Indonesians. The only way we can change the distribution of wealth there is to distribute some of our wealth to people who are not getting much of Indonesia's. If so, we are not helping to overcome poverty, we are merely helping to alleviate its effects.

But here Michael offers a third argument. He suggests that if and when our Asian neighbours do decide to redistribute wealth to the poorest, our aid can help make sure they do it effectively. In other words (and these are my words, not his), even if aid cannot change the social and political determinants of wealth distribution, it can improve the bureaucratic mechanisms. He speaks of 'helping build expenditure and accountability mechanisms'. Well, maybe. But this brings us back to the starting point of our debate, which is the trajectory of the aid budget. Do we need to quadruple the size of the aid budget to $8 billion over a decade to help fast-growing countries work out how to spend their fast-growing budgets more efficiently? The case is yet to be made.

Photo by Flickr user cactusbones.

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Outsourcing aid: To whom?

by Stephen Grenville - 1 May 2012 11:10AM

Danielle Romanes has suggested that if AusAID is short of capacity to administer the planned increase in aid, it can be effectively outsourced. Hugh White accepts the point. But how should we evaluate these alternative channels?

The World Bank, currently by far the main channel for outsourcing, seems to have its own problems, if we are to believe the recent report of a team from the Bank's alumni association. It sounds pretty dire:

The Bank that the new President inherits is under-performing. It has a very cumbersome inefficient internal structure...Morale is not good and the average length of tenure of Bank staff is a shockingly low 3.5 years...The major threats to the Bank stem from:

the lack of a clearly articulated vision combined with a passion for development;

poor HR policies that have allowed sectoral expertise to erode and have made nationality an increasingly important criteria for senior level appointments;

failures to deal with clear cases of under-performance that have hastened decline of technical units and have eroded the espirit de corps of Bank staff,

a tendency to define the role of the Bank in terms of visibility at international fora rather than its impact on the global economy; and

advancement of a series of isolated initiatives, often donor financed, that has left the institution as a second-string player in many arenas and a prime-time player in none.

Photo by Flickr user arvidbr.

Australia in the Asian Century

Poverty and growth: How aid can help

by Lawrence Haddad - 1 May 2012 2:01PM

Lawrence Haddad is Director of the Institute of Development Studies in the UK.

The debate in these pages on the case for aid resonates with one we are having in the UK: is aid about poverty reduction or economic growth? I have blogged about this topic in Development Horizons.

A March 2012 House of Lords report on the economic impact and effectiveness of development aid said that the role of aid should be to promote economic growth as the key way of reducing poverty. My response argued that (a) there are many ways to reduce poverty, (b) growth can be helpful, neutral or unhelpful to poverty reduction and (c) we have to find ways to get two-for-one responses — interventions that reduce poverty today and tomorrow.

Consider Indonesia. Real per capita GDP growth rates over the past ten years have taken GDP per capita at PPP from below $3000 ten years ago to nearly $4000 today. That is impressive real per capita growth — about 30% over the period.

What has happened to child stunting rates (low height for age) over that time? They have fallen from 42.4% in 2000 to 39.3% in 2007 — a paltry 0.4 percentage points per year. Indonesia has the fifth-highest number of malnourished children in the world; at this slow rate of progress, it will have that dubious mantle for many years to come. In fact, it would take until 2030-2040 for Indonesia to achieve the MDG target for stunting (ie. halving the 1990 rate by 2015).

Spending aid on supporting the Government of Indonesia in its efforts to reduce stunting rates not only saves lives and reduces morbidity today, it also improves school attainment, labour productivity in young adulthood and reduces the likelihood of diet-related chronic disease later in life. GDP per capita a generation later can be substantially increased by these interventions. We know what to do to achieve this and we know the interventions are cost-effective. All that is missing is political leadership and commitment, backed by resources from donors and partner governments.

Indonesia is an economic powerhouse and a nutritional underachiever. By investing in interventions to reduce stunting it can become an overachiever in both areas. Aid can help support both outcomes by helping the government innovate, evaluate and tap into wider global peer support, resources and momentum such as the Scaling Up Nutrition movement.

Photo by Flickr user Defence Images.