A first look at the 2016-17 budget for foreign affairs, aid and defence yields few surprises. For an unsurprising budget, this is a long post, but it’s worth looking deeper at how each of the agencies fared, particularly after the comparatively controversial efforts of the last two Coalition budgets.

Source: Lowy Institute Global Diplomacy Index

Foreign affairs and aid

One of the surprises is a pleasant one for those of us who’ve long argued for a larger diplomatic presence for Australia, with a $42 million budget measure to expand Australia’s overseas diplomatic network by adding a new post in China, presumably in the vast and booming inland. The location is yet to be announced.

This builds on last year’s foreign affairs budget which, if you are partial to surprises, was the big one. It heralded an unprecedented investment of $100 million to increase Australia’s overseas representation, adding five new posts in Doha (Qatar), Macassar (Indonesia), Ulaanbaataar (Mongolia), Phuket (Thailand) and Buka (Bougainville). The Buka post idea has now formally been abandoned, scotched by an awkward communications problem between the Australian and PNG governments. 

In its place is a new post in Lae, as well as the post in China announced yesterday. This makes a total of six new posts for Australia’s still-underdone overseas network, bringing our total to 115 posts. The planned additions will lift our position in the global rankings and OECD nations’ diplomatic networks from 27th to 26th; ahead of the Czech Republic but behind Belgium (117 posts) and Portugal (123 posts).

Overall, the appropriation for DFAT is $1.4 billion this year, up $53 million (4%) on last year’s budget. This doesn’t include the aid budget, which is an administered expense and not included in the department’s operating costs. The bitter pills in the foreign affairs and aid budgets came earlier in the term of this Coalition government: in late 2013 there was a 10% reduction in staffing over the foreign affairs and aid portfolio with the ‘integration’ of AusAID into DFAT, and last year a 20% cut ($1 billion) to the aid budget.
 
This year's $200 million cut to aid is small by comparison, and it was also expected. As Devpolicy’s Stephen Howes put it today, ‘we’ve got used to aid cuts’; and besides, the average Australian isn’t that fussed: in our polling on the aid cuts last year, 53% were in favour of last year’s $1 billion budget cuts, with only 35% opposed. When it comes to easy budget savings, it appears the aid budget is now low-hanging fruit.

Among the other measures in the foreign affairs budget are:

  • $9.2 million over four years for the government’s people-smuggling prevention program.
  • $2.4 million to bring forward the opening of two new ‘landing pads’ in Singapore and Berlin under the government’s Innovation Strategy, adding to the existing pads in San Francisco, Tel Aviv and Shanghai.
  • $46 million to meet the increased costs of producing passports, which will be more than offset by an additional $173 million in revenue for the government over four years raised by upping the cost of a passport by $20 ($10 for children and seniors).
  • $48 million in revenue from increasing notarial service fees (though sadly this also goes to consolidated revenue, not to the departmental budget).

One of the persistent problems for the foreign affairs and trade portfolio is the relentless demand for efficiencies. These are always styled by government as ‘business as usual’, with periodic reviews conducted across the whole of the public sector to identify potential cost savings. This year, the ‘efficiencies’ generated by DFAT’s last Functional and Efficiency Review amount to the single biggest budget item for the portfolio, with savings of $74.5 million over five years. These will come from a variety of areas including:‘streamlining business processes’; ‘changing overseas posting arrangements’; and ‘removing consular assistance for dual nationals and permanent residents in the countries of which they are citizens’. This last one was bound to cause consternation, even though it was foreshadowed in the Foreign Minister’s review of consular assistance leading up to its recent Consular Strategy. It is also the practice of like-minded countries such as the UK and New Zealand.

Adding to this efficiency drive is the ongoing public sector ‘efficiency dividend’. This is a government-wide initiative, introduced back in 1987, to reduce the annual costs of departmental operations by a fixed percentage. Some agencies (but not DFAT) are exempt. The dividend has ranged from 1% to a high of 4% in 2012, and now sits at 2.5%. For a department the size of DFAT, with an operating budget of around $2 billion, this means $50 million in savings must be found each year. The 2015-16 budget promised to reduce it to a more manageable 1% in 2017-18; this budget overrides that, maintaining the 2.5% for the next two years, winding it down to 1.5% in 2019-20.

This is all very well for government departments and agencies which have enjoyed ‘historically strong public expenditure growth’ over the last 10-15 years. However, as we’ve argued in the past, DFAT was not one of them. Its share of total government expenditure actually fell from its ‘high’ of 0.43% in 2000-2001 to an historic low of 0.28% just before the AusAID integration. Over the same period, its budget in real terms was almost stagnant. The public sector as a whole grew by 57% between 1998 and 2013, while DFAT grew by only 7%. It did not experience the boom the public sector enjoyed, but it is expected to wear the continuing punishment. The 2010 Incoming Government Brief prepared for the Gillard government by DFAT noted that:

...limited gains are achievable after more than a decade of having to offset the eroding effects of the 1.25 per cent cumulative efficiency dividend... Having exhausted opportunities for reprioritisation and efficiency gains, meeting the challenge of a more complex diplomatic world will require additional funding, with a particular focus on growing the overseas network.

Six years later, that additional funding is materialising, albeit painfully slowly. But if the opportunities for further efficiencies were exhausted in 2010, they must surely be almost non-existent by now.

Defence

Defence is of course a different story.

Defence gets $32.3 billion this year and $142 billion over the next four years, in line with the Coalition’s 2013 commitment to reach 2% of GDP by 2020-21 . This is up just 3% up on last year’s budget, but a very substantial 22% increase on the pre-Coalition 2013-14 budget.

This year, Defence operations gets over $616 million for additional operations funding (around half of DFAT’s entire operations budget), and a similar amount over the forward estimates. This funds the continuation of our existing operations in the Middle East, with Operations Accordion, Highroad, Manitou, Okra and Resolute all getting additional money.

It’s full steam ahead on Australia’s naval shipbuilding strategy, with $90 billion over the term of the White Paper invested in the 12 future submarines, offshore patrol vessels and future frigates projects.

Our friends over at ASPI have dissected the Defence budget story, and called it a ‘no surprises budget’. 

In sum: no surprises in a good way for the Defence budget, no surprises for the aid budget which has endured its share of jarring shocks under the Coalition, and a small surprise for the overseas network in an otherwise unexceptional budget.

Onwards.