Donor Profile: Australia
Last updated: November 23, 2022
Australia is the 13th-largest economy in the world as well as the 13th-largest donor country to international development.
Its ODA represents 0.22% of its GNI in 2020, putting it below many other major donors in terms of its prioritization of global development.
Australia's ODA has remained relatively steady in recent years, in line with the previous Conservative government’s ODA cap at A$4.0 billion (US$2.8 billion). Australia’s overall prioritization of development within its broader government spending has also been stable in recent years.
Temporary additional funding of A$460 million (US$316 million) in FY2022/23 was necessary to meet COVID-19 response needs. The new government has built these temporary allocations into the base ODA figure going forward and has effectively committed to increasing the ODA budget and ODA/GNI ratio each year.
Australia has a strong focus on bilateral support. This includes both bilateral ODA and earmarked funding through multilaterals (which the OECD counts as bilateral spending). Australia's focus on bilateral support is primarily due to its prioritization of neighboring countries in the Indo-Pacific region. It is also reflective of the government’s focus on promoting national interest and strengthening bilateral relationships.
Australia tends to disburse all its ODA in the form of grants; however, the launch of the AIFFP in 2019 and the extension of loans to Southeast Asia in support of their COVID-19 recovery, created some concern that the previous government may be shifting away from grant-funded development programming and toward loan-financed infrastructure projects. At the request of the new Labor Government, DFAT is undertaking a review of different development financing approaches that might complement Australia’s grant financing and enhance the effectiveness of current financing arrangements in the Pacific and Southeast Asia. This will include examining sovereign and non-sovereign financing mechanisms being used by the Australian government.
In line with Australia’s focus on COVID-19, health was the top-funded bilateral sector in 2020. The spending increase to this issue between 2019 and 2020 can be tied to the launch of Australia’s new development policy which has COVID-19 — and the gaps in global health security revealed by the pandemic — at its core.
Australia's prioritization of government and civil society aligns with the country’s emphasis on economic growth, private sector investment, trade, and regional security; however, despite still being a major sector, funding to this area has experienced a steady decline in recent years, falling by 29% from US$461 million in 2016 to US$332 million in 2020.
Australia heavily concentrates its development support on neighboring countries in the Indo-Pacific region. While unusual compared to other DAC donors, this trend aligns with Australia’s strong policy focus on the region. Australia’s latest development policy has put particular emphasis on its closest Pacific neighbors, Timor-Leste and Indonesia.
Australia’s regional focus means ODA is concentrated in LMICs.
Australia channels a low proportion of ODA through multilateral organizations. Australia’s spending on multilaterals has been informed by the MOPAN of 18 donors. The latest review measured core funding to multilateral organizations in 2020-2021, with a focus on the effectiveness of Australia’s COVID-19 response policy in the Indo-Pacific region, ‘Partnerships for Recovery,’ finding an overall positive result.
Recent commitments to multilateral organizations are summarized on the second slide below.
Australia is a representative democracy with a parliamentary system. Elections take place every three years. There are three main parties represented in Australia’s House of Representatives: the Australian Labor Party, the Liberal Party of Australia, and the National Party of Australia.
The last election was in May 2022. The Labor party won, making Anthony Albanese (Labor Party) the Prime Minister.
The incoming Labor Government’s election platform indicated Australia’s ODA/GNI ratio would be increased in every annual budget. This was generally assumed to mean increasing ODA spending by around 0.01% ODA/GNI per year. At this rate, Australia would increase its development budget by approximately A$220 million (US$151 million) every year, a significant change from the many years of steady decline in ODA since FY2013/14. This increase is part of a longer-term plan by the Labor Party to reach 0.5% ODA/GNI, which has not occurred since the 1980s. No timeframe has been announced to reach this level.
Australian Election 2022
Adam Jennison, Murray Proctor
June 10, 2022
Specific ODA increases made by Labor in the October 2022 budget amount to roughly A$1.4 billion (US$960 million) over the next four years, including:
- A$470 million (US$323 million) in additional funding for assistance to Southeast Asia;
- A$900 million (US$619 million) in additional funding for the Pacific region; and
- An A$30 million (US$21 million) increase for NGOs.
Additional budget increases could occur in the national budget, which will be delivered in May 2023.
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A new policy framework for Australian aid is being developed in consultation with stakeholders and will be released by May 2023.
Australia’s last government's development policy ‘Partnerships for Recovery’ was launched in May 2020 and its framework has extended into the FY2022/23 budget announced in March 2022. The policy aims to “help build a more prosperous, stable and resilient region, shape Australia’s strategic environment and advance Australia’s national interests in the face of increasing global uncertainty.”
The primary goals include:
- Responding to humanitarian crises;
- Addressing the impacts of COVID-19 on the Pacific region; and
- Expanding economic and security-focused linkages to build infrastructure and boost engagement with the Pacific region as well as regional partners in South and Southeast Asia.
These priorities have continued to be implemented despite a change of government in May 2022.
The basis of the ongoing ‘Partnerships for Recovery’ policy is rooted in a “whole-of-government approach” to international development that combines the tools of diplomacy, trade, economic, and security partnerships, in which partnerships with governments, non-government actors, and the private sector are central. The policy highlights the need for new strategies to maximize impact, including through the provision of funding beyond ODA. It suggests that development financing will increasingly include contributions from Australia’s private sector, education, and scientific institutions. The new Australian government is currently reviewing the potential role of innovative financing.
Health Security: Given its COVID-19 orientation, it is unsurprising that health security is a key pillar of DFAT’s new ‘Partnerships for Recovery’ strategy. Health security is emphasized in the latest budget ( FY2022/23), for example, through Australia’s commitment to supporting comprehensive COVID-19 vaccination coverage in the Pacific and Timor-Leste. Additionally, the government pledged A$100 million (US$69 million) over the next five years (2022-2027) to CEPI and A$85 million (US$58 million) to COVAX AMC to support COVID-19 vaccine development and distribution. Australia also supports regional health security through multilateral initiatives and funding from non- ODA sources. This approach included the launch of the Indo-Pacific Health Security Initiative in October 2017, which aims to “contribute to the avoidance and containment of infectious disease threats with the potential to cause social and economic harms on a national, regional or global scale,” a particularly prescient mission set against the backdrop of the COVID-19 crisis.
Climate and gender equality: Climate change and gender equality are prioritized in Australia’s revised FY2022/23 budget. The Labor government has made climate resilience a major focus in its assistance to the Pacific. Climate was not a strong thematic priority for Australia under the previous government. While exact allocations for climate change in the FY2022/23 budget are unclear, the ‘Climate partnerships’ budget line shows an increase in allocations of 13% compared to FY2021/22. Investments will mainly support low-emission and climate-resilient investment in the Indo-Pacific.
The government has recommitted to having at least 80% of DFAT’s development cooperation investments effectively address gender issues, which makes increases in gender spending likely in the years ahead.
Neither agriculture nor education are major priorities for Australia; however, both issues are considered components of Australia’s support for countries’ recovery from COVID-19 and resilience to future crises.
Indo-Pacific: The Indo-Pacific region will remain the primary focus of Australian ODA under the Labor government; however, programming will likely concentrate almost exclusively on the Pacific and Southeast Asia since the Pacific, Timor-Leste, and Indonesia are named “first-tier priorities.” Australia’s continued focus on the Pacific is, in part, a response to China building an active development loan and security presence there. It also responds to Pacific Island nations’ concerns over the impacts of climate change.
Speaking with the Pacific Islands Forum Secretariat in Fiji on May 26, 2022, the new Australian Minister for Foreign Affairs Penny Wong outlined Australia's priorities in its relationship with the Pacific region, promising an era of renewed engagement and reaffirming Australia’s commitment to provide A$525 million (US$361 million) in ODA to the Pacific region over the next four years, with a particular emphasis on recovery from the COVID-19 pandemic. This amount has subsequently been increased to A$900 million (US$619 million).
In recent years, sustained growth in funding to the Pacific region has resulted in cuts to bilateral assistance to South Asia (including: Afghanistan, Bhutan, Bangladesh, India, Nepal, Maldives, Pakistan and Sri Lanka), which followed Australia’s end of assistance to Africa. For example, Australia phased out its bilateral ODA to Pakistan completely (in the FY2020/21 budget) and made significant reductions to bilateral programs in Bangladesh, Cambodia, Indonesia, and Nepal, with serious implications for funding for gender equality and agriculture. Following these cuts, the projected FY2022/23 budget has remained the same for South and West Asia.
Southeast Asia: Australia is also reinvesting in Southeast Asia, with funding expected to rebound after previous years’ cuts. This is reflected in Australia’s new engagement as part of the Quad, which is increasing assistance to the region. At the latest Quad Leaders’ Meeting in May 2022, Prime Minister Anthony Albanese reemphasized his plans to bolster Australia’s relationship with Southeast Asia through the A$470 million (US$323 million) in funding to the region over the next four years (2022-2026), but also by appointing a new envoy to the region, creating an Office of South-East Asia within DFAT, and developing a closer working relationship with ASEAN.
The newly elected Labor Party is conducting a DFAT -led review of Australia's development policies. This wide-ranging review commenced in November 2022 and is due to be released prior to the next national budget in early May 2023.
Within this wider review, DFAT is conducting a separate review “to examine new forms of development finance and develop policy options for consideration in government.” The review will illuminate how Australia could diversify its sources of development finance, including through loans, equity, guarantees, and insurance, but also through the establishment of a DFI, announced during a May 2022 pre-election speech by Pat Conroy, the Minister for Development Cooperation and the Pacific, to boost private sector investment in development financing.
Australia’s ODA budget for FY2021/22 was A$4.0 billion (US$2.8 billion). 94% of funding within the ODA budget is managed by DFAT, while the remaining funds are channeled through other government departments including ACIAR (2%), the Treasury (2%), and the Australian Federal Police (1%).
The budget is composed of two major funding lines: ‘Country and Regional Programs’ and ‘Global Programs:’
- ‘Country and Regional Programs:’ This contains budget lines for major regions, which are further broken down by annual allocations to specific country programs.
- ‘Global Programs’: This envelope includes budget lines for multilaterals, CSOs, and humanitarian assistance to the ‘UN, Commonwealth, and Other International Organizations’. The Global Fund; Gavi; and GPEI are usually included in the health-specific sub-funding line, ‘Contribution to Global Health Programs.’
The fiscal year normally runs from July 1 to June 30:
- Budget proposals and changes are developed: Between October and November, budget proposals are developed and advocacy for new initiatives takes place.
- The ERC determines budget priorities: The ERC of Cabinet (Prime Minister, Treasurer, Finance Minister, and other ministers) meets in November to determine budget priorities. Based on these priorities, DFAT and other departments start to prepare funding requests.
- DFAT prepares and develops its budget: From December to February, DFAT prepares its overall budget proposal and requests for specific budget lines. At the end of this process, the Foreign Affairs Minister submits the Department’s budget request to the Cabinet’s ERC.
- ERC reviews draft budgets and departmental funding: From March to late April, ERC meets regularly to review the overall draft budget and departmental funding. Based on the overall budget allocated to DFAT, the Foreign Affairs Minister makes a final decision on internal budget allocations.
- Parliament reviews the budget: The Treasurer normally announces the budget on the second Tuesday in May (known as ‘budget night’) and delivers it to Parliament in a televised address. Between May and June, Parliament debates and formally reviews the budget. Importantly, the development budget is embedded in the Ministry of Foreign Affairs’ budget and is not a major point for negotiation in Australian budget politics. In the Senate, the development budget is reviewed by the Foreign Affairs, Defense, and Trade Legislation Committee, which can seek information on the proposed development program but has no power to amend the budget.
- Parliament approves the budget: After examination and debate, Parliament formally approves the government’s budget in June. In practice, the budget, including the development budget component, is usually passed without amendments by the government majority in the House of Representatives. Throughout the financial year, DFAT holds a significant amount of discretion on the distribution of funds not yet allocated.
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