So here I am at the budget lockup, deep in the bowels of Treasury, with the idea of getting a much-anticipated preview of the Foreign Affairs and Trade budget for this, the Coalition Government's first federal budget. Only, there is no Portfolio Budget Statement for the Foreign Affairs and Trade portfolio. It hasn't arrived (it's on its way; according to the budget official on duty, there was a last-minute hitch. These things happen, she says).
So to give you an overview of the foreign affairs and trade budget, there are just the overall budget papers themselves, which give a high-level summary. Here are the highlights:
- The aid budget has been dramatically shaved. We knew this was coming, and there will be more on this later in the week from development experts, but the top line is that Government will save $7.6 billion over five years 'by maintaining official development assistance (ODA) at its nominal 2013-14 level of $5.0 billion in each of 2014-15 and 2015-16'. From then, it will be pegged to CPI, as foreshadowed by the Minister early this year. This will cut particularly deeply in 2017-18, where the savings will amount to more than $3.5 billion. These are deeper cuts than previously thought.
- As expected, the Australia Network, Australia's international broadcasting service to the region, has been axed, saving $196.8 million (or around $22-23 million a year for the remainder of the contract made by the previous government). There goes a significant contributor to Australia's voice to the region, leaving Radio Australia to struggle on manfully, shouldering the burden of providing a broadcasting service and source of independent news in a region severely starved of it (and that means the Pacific, including some of the world's most impoverished nations, and not just the Chinese cash-box to our north). It is not, according to the Government, a 'cost effective vehicle for advancing Australia's broad and enduring interests in the Indo-Pacific region'. It remains to be seen what the Government thinks will replace it as a vehicle for Australia's soft power, for engaging with the diverse populations in our region and building enduring relationships.
- The Department of Foreign Affairs and Trade will be subjected to even further efficiency demands. Having endured over 20 years the euphemistically-named efficiency 'dividends', there will be further savings of $397 million over four years, flowing from the absorption of AusAID into DFAT and finding more efficiencies, including in the administration of Australian aid.
- The Australian embassy in Baghdad will be co-located with the British Embassy (presumably delivering considerable savings, though the overall commitment to Iraq is $35.6 million in this budget).
- There are some sundry small measures for tourism and Australia Week in China, amounting to around $12 million.
- On the plus side, there is a $748 million replenishment of the World Bank's International Development Association (IDA), which provides interest-free credit and grants for programs that boost economic growth and alleviate poverty. Some of it is a loan component (and so has no impact on the fiscal balance).
Because of the AusAID integration into DFAT and the addition of tourism and climate change functions and responsibilities, it's hard to divine the exact impact of this budget on departmental fortunes. In terms of the cost of running the department (taking out the big-ticket administered expenses such as aid and the Australia Network), before the merger the combined appropriations from government for both organisations was around $1.34 billion.
This year, the amount is around the same. What the budget papers don't state, though, are the measures already introduced in December's mid-year economic forecasts, which saw commitments to the Foreign Minister's signature 'New Colombo Plan' ($100 million over five years) and the scrapping of the proposed new post in Senegal. What is stated in the budget papers is the overall staff reduction for DFAT, which amounts to a substantial 550 positions, presumably across both the foreign affairs and aid functions. It is hard to imagine the impact of a 10% staff reduction on a department so recently disrupted by a major merger and which has made only tentative steps towards rebuilding itself after decades of under-resourcing and bipartisan inattention.
Now to defence. Once again, this is one for the experts later this week, but here's a brief preview:
- The Treasurer has consolidated the commitment foreshadowed by the Defence Minister last year to lift defence spending to the 'magic' 2% of GDP 'within a decade.' Last year it was 1.6%. This year's appropriation of $26.8 billion is a 5% increase on 2013-14, around the same proportion (1.64%) of GDP and 6.5% of general government expenditure. Over the forward estimates, this will lift to $32.6 billion and around 6.8% of government expenditure. The Minister's press release commits the government to 'lay down a credible path to achieving our target following completion of the 2015 (Defence) White Paper.'
- $191.8 million has been committed over four years to 're-establish the Australian Defence Force Gap Year Programme', delivering on a Government election commitment.
- Defence Materiel has not been re-integrated into Defence (contrary to the Audit Commission recommendation).
- There is $1.4 billion over four years to improve the indexation of payments under the Defence Forces Retirement Benefits Fund and super schemes. Again, delivering on the election promise. There will also be better CPI and tax treatment of benefits. New members of the defence forces will join a different super scheme, reducing the Government's super liability by $126 billion by 2050.
- Finally, the Audit Commission's call for efficiency gains and defence bureaucracy reductions have been partially heeded for Defence: $1.2 billion over four years in efficiency gains, to be reinvested in Defence capability and so with no impact on overall funding. There will be cuts of 1200 public service positions and some changes to living allowances and benefits. This is nothing like the return to Canberra staffing levels of 1998 sought by the Audit Commission, but cuts nonetheless.
The Treasurer's budget speech outlines many of the budget and agency cuts which have been discussed in the last few weeks. Seventy government bodies are to be axed and the public service will be cut by 16,500 positions, as already announced. However, while the Audit Commission recommended abolishing Austrade and EFIC, this is not in the budget. Austrade lives another day, having absorbed responsibility for tourism in October 2013. EFIC will be given $200 million in capital for export assistance to small and medium-sized businesses.
For DFAT, this is a difficult and probably disappointing budget. The argument that Australia's diplomatic service has been chronically under-resourced for several decades has now reached a level of received wisdom. It has been cited by the previous prime minister, the Asian Century White Paper, the former DFAT secretary Dennis Richardson, the current foreign minister, and has been integrated into her party's formal foreign policy, which noted concerns about 'Australia's relatively low diplomatic presence around the world' and promised to review diplomatic resources and put 'in place a long-term policy to ensure Australia's global diplomatic network is consistent with our interests.'
It might have been too much to expect of the new foreign minister to deliver this year on her 'plan to expand our diplomatic footprint overseas' in this austere, deficit-reducing, bottom-line repairing budget.
However, Australia urgently needs a diplomatic service and an overseas network to meet the demands of an international environment which is undergoing rapid and profound transformations. Our international engagement increasingly fuels our prosperity: exports account for around one fifth of our GDP, one in five jobs is trade-related, Australian investment abroad has reached around $1.3 trillion, foreign investment has doubled over the five years to 2012 to more than $US231 billion, and the Australian dollar was the world's 5th most traded currency last year.
This is a government which has committed (as the Foreign Affairs and Trade Ministers reiterate in their budget release today) to 'strengthen our relationships with key partners and refocus foreign policy on the advancement of Australia's core strategic and economic interests'. It came to government with a promise to refocus Australia's diplomacy on economic diplomacy.
To do this, Australia's foreign affairs capability and its overseas network need to grow so it can deliver on the Government's ambitious promises, and follow up on its important initiatives in deepening engagement with our neighbours and trading partners. But with just 95 embassies and consulates in 77 nations to service Australia's needs spanning 200-plus nations of the world — far short of the OECD average of around 130 posts — DFAT, as currently resourced, will struggle with the task. It has only one post in booming inland China. It has no post in eastern Indonesia, the location of Indonesia's second largest city. It is under-represented in Africa and Central Asia despite our significant investment interests there and abundant mining opportunities. Add to that the massive consular drain on the Department from the ever-increasing numbers of Australians travelling overseas every year, and the urgency for rebuilding the overseas network becomes even clearer.
Politicians on both sides of Parliament have acknowledged this 'diplomatic deficit' since we first coined the term in 2009. After five years of talk, it's time to start addressing it.