Every sector is speculating on how it will be hit by next week's federal Budget following the National Commission of Audit's recommendations on cost cutting. As Alex Oliver outlines, even the cash strapped Department of Foreign Affairs and Trade may not be immune.

Given its razor gang mandate, it's no shock that the Commission didn't recommend increased funding for DFAT. But it's worth challenging the Commission's dismissal of the case for more funding on the basis that 'it is not surprising that an organisation delivering essentially the same function as it did 20 years ago should have essentially the same funding in real terms.'

If one looks at DFAT's workload this year — a term on UN Security Council, helping to host the G20 Summit, negotiating bilateral and regional trade deals and responding to ever rising consular demands — it's clear that we're not in 1994 anymore. By any international comparison, the case for greater funding is overwhelming. It can only be hoped that the government finds another way to honour its election commitment to 'implement a review of diplomatic resources…to ensure Australia's global diplomatic network is consistent with our interests.'

So with a Department cut to the bone, what does the Commission find to cut further?

Out of the efficiencies and savings it identifies, the one that had me scratching my head was the recommendation to re-examine 'the need for embassies in high cost locations', adding that 'options might include providing representation from a neighbouring country.' I found this hard to imagine. If Kabul is too expensive, we put the Embassy...where, exactly? Would Commission member and former ambassador to Rome Amanda Vanstone have been able to fulfil her duties in 'low cost' Slovenia? By contrast, a recommendation to review officers' overseas conditions and allowances would be unpopular, but it might help DFAT post a higher proportion of officers abroad.

The recommendation to extend arrangements to share embassies with like-minded countries is uncontroversial but could not be expanded indefinitely. Recommendations around cost recovery on consular services would be politically difficult. Levying interest charges on emergency loans and surcharges on passports issued overseas are not likely to generate significant funds.

The Commission's recommendation to axe the Australia Network received significant coverage. It also recommended ending Australia's involvement in World Expos, which are described as having 'some public diplomacy value' but at a 'very high' cost, and withdrawing from international organisations that are of only peripheral strategic interest, including the International Criminal Tribunal for the Former Yugoslavia.

Another area targeted by the Commission is DFAT's International Relations Grant Program (IRGP). This program funds DFAT's foundations, councils and institutes such as the Australia-China Council and Australia-Indonesia Institute, as well as independent organisations such as the United Nations Association of Australia and (disclosure: my employer) the Australian Institute of International Affairs. The IRGP runs on a small budget of $5 million per year (about 0.4% of DFAT's total budget, which is small in itself) and provides funding for projects to foster greater people-to-people links and enhance Australia's image abroad.

The Commission notes that 'some grants appear to fund useful engagement between Australia and other countries' but suggests that 'others are difficult to relate to any diplomatic goals'; the subtext comes in the implementation notes, which refer to 'cultural activities of limited appeal'.

But to abolish the IRGP because it occasionally funds a dance troupe would be a mistake. The program represents a cost-effective way of engaging with the world and building relationships with important audiences in key countries. Tightening guidelines to ensure that activities relate to Australia's diplomatic goals would be reasonable, but scrapping the program would be throwing out the baby with the bathwater.

There have been reports that the Audit Commission's report is not gaining traction in some areas and a view that its tough talk may be an example of 'expectation management'. Let's hope so. Given that DFAT's annual operating budget of $1.2 billion is around 0.35% of total government expenditure, let's hope that further cuts to DFAT's already starved budget are just pre-Budget talk.

Image by Flickr user Stephen Mackenzie.