 Good morning, everyone. It's a little bit 10 past 9 now, so we'll get started. I'd like to begin by acknowledging the Ngunnawal people, who are the traditional custodians of the land upon which we're meeting. And to pay my respects, the elders of the Ngunnawal Nation past and present, and extend that respect to any other Aboriginal or Torres Strait Islander peoples who may be joining us. My name is Camilla Burcott. I'm a research officer here at the Development Policy Center. It's my pleasure to chair today's aid budget breakfast. Thank you all for joining us this morning, both everyone who's come here to the ANU and also everyone who's joining us via live stream. I imagine a lot of you like us were up late last night. But this is our fourth annual aid budget breakfast. It's always a very popular event. And it's a great opportunity to talk about Australian aid, so we're glad you can make it. Today, we'll be hearing from three presenters, who will each speak for about 15 minutes. We have Dr. Anthony Swan, who's a research fellow at Dev Palsy, Professor Stephen House, our director, and Ms. Jackie DeLacy, who's the general manager for Global Strategy at JTA. After each of our speakers have spoken, we'll take a few minutes for any questions, clarifications. And then after all three speakers have finished, we'll open up for general discussion. Questions from the floor wrap up about 10.30. Just before we begin, I'd like to encourage anyone who's inclined to live tweet using the hashtag aid budget 2016. So I think we'll kick off. Dr. Anthony Swan is a research fellow at the Development Policy Center, and he will be providing us with a macroeconomic assessment of the federal budget to set the context for our next discussion at the aid budget. Good morning, everyone. Welcome. So we've had three years of talk about budget emergency, a massive debt and deficit problem, the consequence of which has been huge cuts to the aid program in an attempt to bring the budget back to balance. So I'd like to reflect on how the government has performed in its task of budget repair. So this chart shows the underlying cash balance. And I've deliberately not shown the government's budget projections, because I want to focus not on where they think we're going to end up, but what, where we actually are and how that's changed over time. So as you can see, at the end of this financial year, the expectation is that the budget deficit will be $40 billion. Over the last three years, not much has changed. So why is this? Well, clearly, government spending is higher than revenue, and this chart shows both as a share of GDP. Once again, I'm just showing the actual numbers, and you can see that over recent years, since the GFC spending has been very high, and that hasn't changed. Revenue has fallen over the last quite a few years, but it's slowly increasing, but not very fast. So I want to zoom into this recent period to see what efforts the government has been making to close this gap. I'm going to look at different budget projections over the years. So let's start with the last Labor Government budget in 2013. The dotted line shows spending projections at that time, and the dashed line shows revenue projections at that time, and you can see that the government was forecasting projecting strong cuts to spending. Large increases in revenue to bring the budget back to balance and everything looks good, but clearly, both of those failed, made little dent into the problem. Moving ahead to the first Abbott budget in 2014, government spending initially spiked as they projected, and was later projected to fall, which didn't happen. Once again, there were strong expectations that revenue will pick up, which it didn't. Looking to last year's budget, and that's the orange dotted line for spending, you can see that the government essentially gave up on cutting back spending. And really, it relied upon strong revenue growth expectations for budget repair rather than spending. So let's look at the current budget. Once again, the government has given up on cutting back spending. It's essentially around that 26% of GDP mark, only slightly falling towards 2019-2020. And once again, there are strong expectations that revenue will come in and save the day, just like it has in over the last three or four years, which never actually eventuated. So this brings us back to underlying cash balance again, and this time I've got the projections. And as you can see, in this year's budget compared to previous years, it's a similar story. But the question is, can we believe it? Do we believe these projections? Of course, if you're running a budget deficit, we need to fund that through increasing government debt. Let's look at those numbers. So you can see when the coalition current government came into power around 2013, net debt as a share of GDP was around 10%, and it's only headed north since then. And you can see how over the different various projections, how as those projections really haven't been realized that the debt column has gotten worse despite all this talk about budget repair. So why does this matter? Why should you care about this? Well, at least from my perspective, the key to a growing real aid budget is a healthy government fiscal position. So why isn't our fiscal position improving? So I've just got a few thoughts on this. Starting with that revenue raising measures, effective revenue raising measures, really aren't being implemented. Why? Well, there hasn't been enough tax reform. There's been talk, but not much else. And where there have been new tax measures implemented, raising revenue, they've been offset by tax cuts elsewhere. So we've got examples of superannuation concessions, a great way to raise revenue, but the government's doing a bit of a Robin Hood exercise and reducing or increasing concessions elsewhere. There are income tax cuts. I'll talk a bit more about those later. And they're for the relatively wealthy. And of course, there are company tax cuts as well. And there's been an over-reliance on relatively small taxes, such as the tobacco exercise, rather than deeper reform that's going to really make a difference. Two, low tax revenue. There is low tax revenue due to slow wages growth. In order for wages growth to increase, raise taxes, we need productivity growth, labor productivity growth, and which just isn't happening. Also, we have a low inflationary and now deflationary environment, which means that individual incomes are not being pushed up. People aren't being pushed up into higher tax brackets, and so we're not raising more revenue due to those inflationary effects. Instead, the government is trying to deal with this problem, which really isn't a big issue at the moment, by trying to bring in tax cuts to reduce bracket creep, which is not an issue. Also, we've got a lower expecting working age population. We have fewer people working, there's less income, and there's less taxes being paid. What is the reason for this change in expectation? Well, the government is expecting 150,000 fewer people by 2019 as a direct result of lower net migration. This is a policy decision by government. Three, there's a lack of control on spending. Cuts to spending, as we all know about in the aid sector, have been offset by spending and new initiatives, by new initiatives. Of course, there's been often the well-known failure to negotiate changes in the Senate. There's also an increased interest burden from our government's higher debt levels. And also, if you're going to consistently get revenue projections wrong, clearly that's going to have an impact on your strategy for spending. You think you've got a lot more money, but really, you don't. And so that certainly would have contributed to this overspending pattern. And lastly, there's a continued expectation that the economy will pick up by itself. Well, the current stagnant growth that we're experiencing now may be the new normal. If you look at Japan and other countries like that, they've been dealing with this problem for a long time. Perhaps it's something that we need to consider. OK, so we're interested in improving our government's fiscal position. Why? Because we know that there are huge pressures on the government to reduce spending, and there is a big squeeze on the aid program. Well, it's a set to worsen over time, because there are big pressures, particularly in defence and in health sectors and an aging population and so forth. So really, I just want to show you here a chart looking at the share of total government expenditure across different sectors over various points in time. So I just want to sort of illustrate some of the changes over a broader period of time. We're starting with around 2006-07 before the GFC. We had ODA at 1.1%, as you would know. Looking at 12.13, which is the peak of the aid boom, the share of ODA went up to 1.3%. Currently, as of this financial year, it's now around 1%. But looking ahead to 2025-26, what can we expect? Well, we don't know for sure, but if we grow ODA at CPI and total expenditure at the normal growth rates of about 5%, we can expect ODA to fall to about 0.8% of the total budget. How does that compare to other sectors? Well, in defence, defence was roughly around 7% of total government spending. A few years ago, that fell down to 6%. Currently, it's around 7.7%. But the government is committed to spending 2% of GDP on defence going forward. So in around 10 years' time, that's increasing to 9.4%, as defence expands each share of the budget. There need to be cuts. There need to be a squeeze elsewhere in the budget. Where that will be, we're not sure. But certainly, that's going to put pressure on ODA. Education, well, I don't really have numbers going 10 years forward, but that's looking like it's increasing. And health is definitely going to increase. So as the population ages, it's going to be huge pressures on health spending. The number for 25, 26 is based on numbers coming out of the latest intergenerational report. So essentially, what I'm saying is that as other sectors expand, there's going to be a further squeeze on ODA over the long run. So it's from an aid budget perspective, it's important for the government to strengthen its fiscal position now before this further squeeze occurs. Thanks very much. Any questions for Terry? As I mentioned, we are live streamed, so just wait until the microphone comes to you before you start talking. Hi, thank you. Michael Schoudrich from Global Poverty Project, Global Citizen. I'm wondering, you mentioned Japan and other countries. To what extent is this sort of the same fiscal position occurring in other countries, particularly those which have, at least until now, have fairly robust strong aid programs, so like the UK, I guess, a bunch of the European countries. Is this same issue occurring where they've got consistently high spending, collapsing revenue streams, low growth? Just wondering if you could touch on that. Do you want me to answer that now or take another question? Other questions? Up the back. I think my question follows on from this question, which is to say, the hypothesis is that we need a stronger fiscal position to have a large, a stronger aid budget. Is that a phenomenon unique to Australia? Or is that something we can say in university? Because it seems like that's what we need to have here in order to have a strong aid budget. But is that something globally that is a phenomena? Or is it just something unique about our obsession with budget deficits? Yep, OK, all right. Thanks, Michael, for your question. Yeah, look, we're in an environment where the latest CPI numbers, the much-quartered CPI, fell by, I think, 0.2 or something percent, right? So over the years, the government has made huge reforms in trying to control inflation. That's the Reserve Bank's, you know, has a mandate to manage the economy as it can in order to do that. And it has done a very good job. And that's what they're supposed to do. But really, that inflation problem has been hit over the head. And, you know, we've got the lowest cash rate. I think I can't even remember when it was lower. So really, the government is not having much impact on this low-inflation environment. And yes, many other countries are facing the same problem. You look at interest rates in the States and in Japan, they've been dealing with a deflationary environment for a long time. So, yeah, look, this is happening around the world. And I guess for Australia, it's something that we shouldn't presume that we are just going to automatically get out of it. And we need to start thinking about what that means over a longer period of time. You know, and when it comes to handing back money to taxpayers through tax cuts, as we have done for a long period of time, well, you know, that's not something that is as necessary as before when we're not having as anywhere near as much bracket creep. So the idea of having, you know, albeit small tax cut in this budget to deal with that bracket creep problem is, I guess, a bit unexpected. Other countries, yes, look, you know, I think it'd be fair to say that Australia does have an obsession with, you know, the idea of budget deficits and being in surplus, something that in many other countries they just don't have. The voting public, the voters don't have that expectation. And look, that has served us well to a degree. You know, our level of debt is much, much lower compared to other countries. And if it was worse, perhaps the aid program would be smaller than it currently is. So it's hard to note, you know, is this a good thing or a bad thing? But I think, to answer your question, are other countries as concerned, or do they require, you know, to be in a great fiscal position before they start spending aid? Well, that's clearly not the case for many countries. Any other burning questions for Tony? Hi, my name is Trish Carl. Sorry for being a little bit late, school drop-off. I'm one of the Greens candidates, and I wanted to raise the issue of, I guess, what I see as a mix-match between we're a very generous community in our giving and government expenditure in this area. And maybe you've got a comment on that mix-match or is it just, and there isn't the revenue? Well, we can measure generosity based on the share of ODA to national income. OK, so it's not about revenue because we're controlling for that. And Stephen and Jacqui will probably talk about this a bit later on. But for now, the share of ODA to national income is falling dramatically to very, very low levels. So it's clear that we're not being generous, and I don't want to sort of cut their lunch, but it's not about revenue because that measure accounts for that. OK, I think we'll move on now to the next presentation. If you have more questions, of course, we'll have more time at the end. So our next presenter is Professor Stephen Howes, who, as I've said, is the director of the Centre, and he'll be speaking about this year's aid-budget volume allocation trends. Take it away, Stephen. So thank you all for coming, and thank some of the other colleagues who have worked to get this analysis to you. Matt Dornan has put up a blog with a lot of detail around the country allocations. Robin Davies in Geneva does all that fact-checking, and I just want to thank Jackie for coming back. She's back quite popular demand from last year. So Tony set the context, and I'm going to kind of go over the aid part of the budget. So let me start. And as usual, start with aid quantities and then go on to a word of equality. So I think we can't hide the fact that it may not have got a lot of attention. It might seem like a fairly modest cut compared to last year, but this year's budget, yesterday's budget has brought about one of the largest cuts to aid ever. So this graph shows all the changes in aid since the beginning, adjusted for inflation, and the red ones are the biggest, I think they're the biggest five, and of course the biggest was the one last year, just over a billion if you also adjusted for inflation, but the one this year or this sort of next year is I think the fourth biggest cut ever, and it's 220 without inflation and goes up to almost 300 once you account for inflation. So it's a very big cut. It's only happened before in the mid-80s under Hawke, and then anyway, a couple of other times, but it's a big cut and the other thing you can see, you know, apart from the two big red lines, those two blue lines next to it, so this is the first time aid's been cut four times in a row. I mean, that's a kind of sad, sad fact about this run of cuts that we've seen under the coalition government, and this just shows you the numbers on those cuts, and if you put them all together, we see 30% less aid now than when the coalition took over. So 2012-13 was the last labor aid budget, and we've had nominal restraint, then these big nominal cuts combine that with inflation and you get the 30% aid cut. And as Tony mentioned, this has pushed generosity to a record low. In fact, it is the record low we're now here, so that is the lowest ever. I think it's about 0.23. And let me just use this opportunity to advertise the aid tracker. So we've tried to put these sort of basic facts about aid into a kind of very user-friendly form, which is the aid tracker, and it's already updated, so it's already updated for the budget, and you can see, yeah, here it is, this is that, so yeah, we're now at 0.23. We will be at 0.23 next year, which is the lowest we've ever been. So if you're interested in these graphs, just go to dev policy aid tracker. Yeah, and we've already had some questions, what are other countries doing? And while other countries are facing fiscal pressure, most of them aren't responding to it in the same way as Australia, they're not picking on aid. So in fact, to probably most people's surprise, globally, aid continues to rise. I think a lot of people thought, maybe aid was coming to an end, the global financial crisis would precipitate that end, and we'd see some big cuts in aid, but OECD's just released the 2015 figures, and you can see it's almost touching 150 billion, it's never been higher. So there are very few countries that like Australia are really slashing aid, and that gives rise to this phenomenon. Oh, sorry, I've gone backwards. Yeah, I always remember that when I worked in Osage, we seemed to track the A to G and I average, we didn't want to get below that average, that was seen as poor form, and so we're the red line. And you see the red line is always above the blue line, except for this one year, that was a spike in debt relief, we didn't have so much debt relief, I think, for Iraq, so we fell below that year, but you can see otherwise that red line, it's always been add or equal to the blue line. But now we're going below, and that line will continue to fall, that's gonna go down to 0.23, whereas this seems fairly flat, the blue line. So we are below the average generosity level. We like to think of ourselves as a generous nation, but we're not from this metric, which I think is a pretty good metric of a nation's generosity. We can no longer think of ourselves as a generous nation. Just to underline what Tony was saying, this cut is not part of a austerity package, part of a response to a budget emergency where everything's being cut across the board. Somehow aid is being picked on. There's no doubt about that. This is the 30% of aid cut I talked about, right? But over the same period, total expenditure has gone up by 10%. And by 2019-20, we're not gonna see any more cuts, we're not gonna come to that in a minute, but we're not gonna see growth either. So total expenditure's gonna grow by 16%. So it's really a matter of priorities. Tony showed that growth in defense, in health and education. So aid's been pushed down the priority list. And in a context where you don't have a lot of revenue, you have these other areas of expenditure that are seen as more important, aid gets cut. And aid's gone down the priority list. So this is that aid to expenditure ratio Tony also talked about. And yeah, this is also, I think we're now at a record, we're just above 0.8, so less than 1%. Federal spending goes on aid and we're gonna be heading for just eight cents in the dollar. So just to, that's the bad news. It's pretty gloomy picture. It's not dissimilar to the last few budgets in terms of overall trends. I guess the silver lining on the budget is maybe it's the last of the big cuts. So this just takes us through the last few budgets while we've been having these aid breakfasts. This was the last labor budget, showed a trajectory that went up. And then, oh sorry, that was 2011-12. This was the last labor one. Yeah, it went up, but not as much labor tended to also. They didn't cut aid in absolute terms, they increased it, but always at a, never as much as they promised to. Then the coalition took over. And this is also labor, here's coalition. Yeah, first they said they're gonna keep aid flat, but then they said, no, actually we're gonna start, we're gonna cut aid. And this is the 2015-16 budget. I guess the silver lining is that this is actually the same, right? The orange and the blue are the same. So there were no new cuts in this budget. That's the first time, in a long time, in some five years, there were no further cuts. There were no, I guess, negative surprises in this budget. So maybe we've reached the end of the cutting period. And you can see what's promised for the future is a very modest increase in aid, just to keep it up with CPI to avoid further real cuts. And this just goes back to the point I made last year. We have now scaled down. So we had a period of very slow increase over many decades. We had this incredible increase that couldn't be sustained and then we had a rapid drop. And if we kept going at that early rate of increase, we'd be pretty much where we are today. So we've gone back to the way we were. And the hope is, we're not gonna go down this way. We're perhaps, we have an aid budget that is appropriately sized for a less generous nation. That's on the quantities in terms of composition and quality. Well, where did they cut the aid? You know, when you look at it, it seems a bit odd at first because everything seems to be the same. Country allocations and a lot of other allocations like aid for NGOs, volunteers, it's all sort of matches perfectly with their budget for last year, with the one exception of Fiji, which has a big increase. Indonesia shows a decrease, but when you look at it, that seems to be more of an accounting move. They've taken some health expenditures for Indonesia out into the health program. So part of it is exactly this, right? If you keep everyone constant in nominal terms, you're giving them a real cut, right? And so they've given all the programs a real cut across the board. But then that doesn't get you to a 5% nominal cut. So that has burdened, has been borne by the global programs. My global programs are down by 12%. And what we were told is that they're not permanent cuts, it's a reprofiling, it's a deferring of commitments. So push out commitment, honor the commitments, but push them out to later years and use up the room that you'll get from later years because of that indexation to inflation. That'll free up space to honor those commitments. Effectively, you're then taking from the future growth in country allocations. So country allocations will continue to stagnate, to the extent that that money is needed to meet our global commitments. So no real changes in regional allocation. Those big changes, the massive cuts to Africa and to Asia, that happened last year. And now we're in a period of stability for regional allocations. Yeah, this is just a snarky remark about performance. That was meant to matter a lot for allocations, perhaps not mattering much as it should, but then perhaps that's not a bad thing. Perhaps predictability is a good thing. I think what's interesting, what we can do for the first time now is look at how the sexual allocations have changed. There was more information released this time and there's been some information released about last year's budget. I started writing about this in a blog I put out yesterday and I've extended that in the blog I put out this morning. So this is the new analysis. It's got two more years. So it's got this year and it's got 2013-14. So it goes back a year and goes forward a year. And it's adjusted for inflation. So they're all in today's prices. And it uses the categories of expenditure that the government uses. These are their categories. So resilience is humanitarian in environment. General is a sort of residual and I can't really explain this. I'm gonna try and find out what's behind that. But ignoring, putting that aside, what you see are these massive changes, cuts to health. So health starts off at almost 800 million and now it's down at about 500. So part of this is that deferral of commitments to future years, but that can't be all of it. It's such a huge cut in health. And we also see this big cut in education. At some point, well it was certainly the biggest sector and it was sometimes referred to as the flagship sector. It's lost that position, that preeminence, because of these massive cuts. And the biggest sector now is governance. So that's a bit of a surprise. I'll come back to it. Agriculture and infrastructure. Now these are the two private sector sort of areas and aid for trade areas. And given governments made a very strong pitch for that, it's not surprising to see those have been protected. Maybe you can't grow them in a budget environment where you're cutting, but you can see why they protect it. They protect it a little bit humanitarian, but if you think, well, we're in a humanitarian crisis worldwide, you're cutting the humanitarian budget and it falls further this year, despite the announcement of a new package for Syria and the region. So no real protection for humanitarian. Yeah, so I come back to governance. It's a bit of a surprise. The government didn't really, in its policy documents, hasn't really stressed the import, it stressed the importance of governance, but nothing like the private sector. It hasn't been the sort of brand for this government. So you can see why health and education would fall and why agriculture infrastructure wouldn't, but governance being protected so much and becoming the largest sector, which of course it was under Downer. Perhaps a bit of a surprise. I think we have to work out why. These are rough figures, they're estimates. We've treated them with caution. We know the Pacific's been protected and Pacific spends a lot on governance. That must be part of the reason. There has been some of the rhetoric away from, sort of moving away from service delivery and perhaps that's why health and education have been picked on rather than governance. We're trying to build capacity. People will disagree as to which are the more important. Personally, I think if you're cutting the budget by 30%, there would be room to cut in governance and I'm surprised it hasn't been cut. Given the massive health challenges that we're facing, just think of the multi-drug resistance threat of MDRTB in PNG, I find this surprising and not very convincing. On a parochial note, any of my colleagues are here, we do for the first time, get some information on the cuts to scholarships. And yeah, if you wonder why a lot of universities are struggling, scholarships are down from 4,000 to 3,000. Yeah, we always put a graph up on departmental expenses. That's the cost of administering the A program. For a short period, one year, a cap was imposed on that of 5%, but that cap has gone. And in fact, the departmental expenses or the ratio of departmental expenses to total aid is as high as it was under labor, except for one year. So that's an interesting observation. And then finally, I had to mention this. If anyone's wondering why I put that graphic in my blog. Yeah, so the blue book has gone, it's been gone for a couple of years, and a lot of people complained about that. So the government has now brought back an orange book, which does give some good information about the aid budget and how our money's being spent. So I think that's certainly a positive note on which I'll end. Thank you. Okay, do we have any questions for Stephen after that? Very illuminating presentation. Murray Proctor. Stephen, just on your assumption that in future years the global funds will get money that are transferred effectively out of the forward years of country programs. I'm just wondering if that's in reality how it'll work. It strikes me that the alternative is just going down to a lower replenishment level, potentially in global fund later in the year and Garvey the one after and education as well. Have you heard something specifically that they're going to maintain those global levels or are you assuming it's just gonna keep robbing the country programs? No, I think that's a really good question. They were very adamant at the budget lockup that all existing commitments would be honored and that where there was what they called this reprofiling that it was simply a reprofiling not a reduction in future years. But yeah, that doesn't answer the question that you're posing or what about once you've honored the commitment, what's gonna happen to the next commitment and are they going to be, yeah, I think they, so that is an open issue. Yeah, you'd think in a budget that is now gonna be flat in real terms that probably it seems the mood is to keep things going, keep current allocations as they've been rely on historical precedent. But yeah, I think that's a good, they didn't say there's something no commitment I picked up in terms of forward commitments. And I think it's especially an issue for the regional organizations where I said all the country allocations were protected. If you look at the, there's a big Pacific regional and East Asia regional, I think South Asia regional, they all got cut. And again, the point was made that these will be made up in future years. But I think as Matt's commented, where you don't have necessarily a kind of a replenishment, a formal multi-year funding agreement, it could be, the more flexibility there is, the harder it'll be to monitor this commitment. Thank you, Margaret Callan. Stephen, was there any detail in the A budget summary about the cost of offshore detention centers and how much of that or how much of refugee costs in general are being borne by the A program? And the second question was, is there anything about quality in the document? Thank you. On offshore processing. I'll just mention that. I wanted to mention, you know, in this year, 2013-14, there was that 300 million labor commitment for onshore costs of refugees. I've taken that out of this because otherwise it distorts the figures. So just to show that humanitarian falls, even if you take that out. Yeah, the government hasn't been including either onshore or offshore processing costs and it's not in this budget either. You know, worldwide, I mean, one reason why we know the global aid is still rising is that because of refugee costs and under the OCD rules, you're allowed to charge, I think, for the first year, the costs of asylum seekers domestically to your aid budget and many countries do that and with more asylum seekers, those costs have gone up. Countries are tending to do more. It's still relatively small. It's about five billion, I think. It's less than 10. But it perhaps, you know, otherwise aid might be flat rather than going up. Australia's not doing that. But at the same time here, there's no suggestion of a cut for PNG and there's no suggestion of a cut for Cambodia or Nauru. So I guess, you know, we're still seeing aid as a strategic tool to help us, you know, to support the offshore arrangements that we want in place, even though it's not directly financing them. Oh yeah, sorry, quality. Not a lot on quality, I guess, transparency. So they had the orange book. They've recently updated their statistical series for the past and they handed that out and they handed out the aid performance report. So I guess they, DFAT was keen to emphasize that transparency and quality are on the agenda, even though they're not, I guess, they're not prominent in the orange book itself. Thanks, Stephen. Jonathan Pryk from the Lowings Institute. Just back to departmental costs. They're still at the level of an underlabour as you discussed, considering the scaled back scope of the aid budget, one would assume that we have more ability and better ability to deliver it effectively. Is that actually the case given, the merger of the programs and the blended role that a lot of staff are now playing in DFAT? Thank you, Jonathan. And then we say it's not true, Jonathan left us to go to Lowings because you couldn't face the prospect of one more all night budget analysis. Yeah, I think it must be difficult to, it's always difficult. It's always somewhat artificial, right? What you count as a departmental expense. And this big shift in 2010, 11 wasn't a massive hiring spree, a lot of, I think when I worked for Ausaid, I was charged to the aid budget, right? Rather than to the departmental budget. So there was a shift in accounting. So I think it's a very slippery measure. It was a very slippery measure even under Ausaid. It must be much more slippery now under an integrated department and how you allocate overheads between the different parts of DFAT. I have no idea how they do that. So yeah, I think it's just a bit of fun, I guess really, that there was this commitment to 5%. And yeah, I mean, to be honest, a lot of the rhetoric we're gonna base, we're gonna link aid to performance. We're gonna have departmental costs under 5%. I mean, yeah, I guess the point is a lot of that rhetoric has gone by the wayside. There it goes. Yeah, we'll move on to our last presentation now and then we'll come back. I know there's some more hands. So lastly, Jackie DeLacy from ABTTA is gonna talk a little bit about how this budget relates to broader departmental policy. Good morning, everyone. I was going to say it's a pleasure to be back, but I'm not sure having to pour over further cuts to the aid budget could ever be described as a pleasure. I hope I one day get the opportunity to participate in one of these when we've got a more positive story to tell. But I still think it's in all of our interest to understand how the aid program is being reshaped through the distribution of these cuts. And as Stephen said, it is still a big budget of cuts. Now, of course, this is a budget in terms of its distribution that aims to be as inoffensive as possible. And did this make sense? So there's a lot of predictability and links to last year's budget. And I think that makes sense given the enormous disruption that the big cuts last year posed for the program. It does make our job of finding something interesting and insightful to say a little bit challenging, but let me try. So I think there's a little bit of overlap with what Stephen said. I mean, we all left the budget briefing last night and beaved it away on our speeches. So we didn't have a chance to sort of check how much overlap there was. So there's some things that we'll talk about that are similar and some that are different. So there are three ways we can look at the aid budget. So first is we can examine the geographic distribution of the program. So what countries and regions are getting more or less. And this was the big story in last year's budget. So I'll have a quick look at that, but Stephen's pretty much covered that. The second lens which I wanted to talk about and Stephen has also covered is the sectoral allocation of aid. And I think this is a story that does deserve much more attention from all of us. And we do need to understand what sectors are being prioritized over others and how that relates to the government's policy frameworks. The third lens that I'll look at is partner selection. So how much aid is being spent through NGOs or contractors versus multilaterals, for example. And after quickly reviewing the program through these three lenses, I'll conclude a bit like I did last year with some personal reflections on how these allocations relate to the stated policy priorities of the government. And I am going to spend a bit of time relating the decisions back to what we can see in terms of performance data of the aid program. I am really interested in the relationship between the information we've got on the performance of the program and the allocations the government is making in the budget context. So first of all, a caveat I have to admit, all of this analysis is my own and I do it at home after I've wrangled the kids to bed. So it's probably riddled with mistakes and I haven't used constant prices and I haven't necessarily updated all of the graphs. So if there are any mistakes, just blame me. But more importantly, maybe correct me and look at the data yourselves. Okay, so let's look at the country and regional flow. So last year, as you no doubt or remember, we saw that dramatic reshaping of the geographical allocation of Australia's aid program where Australia largely exited Africa and reduced to a bare minimum its presence in places like South Asia and the Middle East and saw very large cuts to its programs in Southeast Asia, 40% cuts across the board with the exception of Cambodia and Timor-Leste and it protected its programs in the Pacific. And as Stephen said, this year, we've seen pretty much that picture maintained, that narrowing focus on the Pacific. The only country to get an increase was Fiji. The only country to get a cut was Indonesia, although maybe it's not a real cut. I'll have to look at it a bit more closely. I mean, I think that the cuts last year, those decisions around how the cuts were distributed geographically had the benefit of simplicity and recognise that it's in Australia's, that it's in our most immediate neighbourhood where Australia's national interest and obligations are strongest. The decision on geographic allocation was also spiced up by the Cambodia anomaly where the links to Australia's border security policy, as Stephen was saying, were very obvious. So you could see that last year, national interest really drove the decisions on the allocation of the aid program from a geographic perspective, and those decisions were not related at all to the performance of different country programs or regions, and they weren't related to poverty or need. So this year, that story is repeated. I looked up the latest performance data, which I've put up there on the slide of the different geographic regions. And as you can see, the Pacific, which is on the far left for you, is the worst-performing region. So you've got two green lines. You've got the proportion of programs that are at risk, which are the pale green lines, and you've got the proportion of programs that are on track, which are the dark green lines, and the Pacific has by far the largest proportion of programs at risk as a percentage of its portfolio. So you can see that as the government is focusing more and prioritising the region or the region of the Pacific, it's also the program that DFAT itself assesses as its most at risk or worst-performing region. Now let's look at sector flows. I really want to put up Stephen's new chart because he's updated all of these figures to take account of this year's flows. But as you saw from Stephen's graph, the story is the same. We see more cuts in health. We see more cuts in education. We see governance largely consolidated as DFAT's largest sector at just over 800 million, and we see infrastructure and agriculture protected as you would expect. And we see another modest, well, another reduction in humanitarian spending. In dollar terms, the figures are even more dramatic, as Stephen pointed out. In health, we're now spending over $300 million less a year than we were two years ago. Dylan? Yep. And most of that has been borne by geographic programs, but presumably mostly in the Asia Pacific. I doubt we can be doing very much on health anywhere other than the Pacific these days. We also are spending $400 million a year less on education, which includes some reduction in the scholarship program, but it's still a dramatic reduction in the number of programs that are working on improving education outcomes for kids in the region. I haven't looked at the data in terms of the percentage of money we're now allocating to health and education compared to other donors, but a friend was talking to me just outside and she'd done a quick analysis that said now that we're spending only 13% of our budget on health, that's the lowest in the OECD. I think it'd be good to test that. One of the lowest, okay. In contrast to these reductions, we can see that governance in particular stands out as a sector that's being maintained. Despite all three sectors, health, education and governance receiving equal weighting in the government's stated priorities for the program. And I'm not necessarily saying that one is better than the other. In fact, my company is a big governance contractor for DFAT, so I'm not saying that all governance programs are necessarily bad, but what we don't understand is why this big reallocation from health and education to governance is happening, and I think we deserve to understand that better. It could be, you know, Stephen hypothesized about what some of those reasons might be. It might also be because governance is a very sort of broad category and DFAT's moving more to these sort of big sectoral facilities and maybe they're capturing those under the name of governance. It could be that there's more spending on economic governance, which is linked to the aid for trade commitments, but the point is we don't know, we're not getting enough detail, and I think one of the things we should be asking for is more detail on the split between the sectors and what that really means. Certainly the shifts in the sectoral allocations can't be justified on performance grounds as DFAT's own performance data places governance, health, and education on an equal footing. Interestingly, and I didn't put the slide up, but you should go and have a look at the report, the worst performing sector, this is the sector that DFAT staff identifies their worst performing, is infrastructure and trade and they're the sectors it's proudly trying to expand. So I think more debate, transparency, and justification around the sectoral flows is warranted and I think it's something we should all be watching carefully. The third lens I said we'd look at is partner of choice. So Australia spends its aid money by channeling it in basically four ways. They spend it through partner government systems, so giving budget support to countries, they spend it through NGOs, they spend it through commercial contractors, and they spend it through multilateral organisations. I haven't been able to get good data on the trends of expenditure against all four categories. It might be there and it may even be an aid tracker, I haven't looked into too much detail. But I did, in the budget material, you do get the split between global programmes and country and regional programmes, which I think is not a bad proxy for looking at expenditure against these different categories. Last year, as you remember, it was the bilateral and regional programmes were primarily the bilateral programmes that largely are delivered through NGOs and commercial contractors and through partner government systems that bore the brunt of the heavy cuts. And as a result, last year's budget was one of the most multilateral that Australia has ever had. The proportion of budgets spent on global programmes last year was up to nearly 34%. Balanced against long-term averages, so on average, Australia normally spends around in the low 20% range for global programmes. But last year, we saw that move from 23% three years ago to 34%. There's been some rebalancing of this, waiting to the global programmes and to multilateral expenditure. Global programmes, as Stephen mentioned, have borne most of the albeit more modest cuts this year, while the bilateral programmes have largely been maintained in nominal terms. In 2016-17, global programmes now make up 29% of the budget, so still well ahead of the long-term average for the proportion of the budgets spent on global programmes, but down from the 34% last year. So I had a look at, again, the performance information. So one of the things DFAT now does is look at the performance of their programmes according to the partner that's delivering them. Now some of this is relatively new, but what's striking is that the least, this is DFAT's own assessment, that the least performing delivery partner are multilateral institutions. And again, I haven't been able to get data that matches these definitions, so it's hard to track expenditure against these categories of performance. But in the performance report, it is striking to note that, for example, there's more than double the expenditure on multilaterals compared to NGOs, even though DFAT is assessing the NGOs as a much higher quality partner than the multilateral organisations. So again, the choice of delivery partner in the connection to performance is not obvious at all. So in summary, how does the budget stack up against the stated priorities of the government? The story is mixed, but much more in line with expectations than last year. The Pacific region remains the priority, but as with last year, there are no link between aid allocations and performance, and allocations seem largely driven by national interest. In terms of sectors, we can see that the government's new priorities are protected, aid for trade, gender, innovation are all protected from the cuts, and what requires more debate and transparency are the relative allocations within and between governance, health and education. And what that really means for the effectiveness and impact of Australia's aid. In terms of delivery partner, we can now see performance data on the different delivery partners, and that indicates that DFAT rate programs delivered by NGOs and commercial contractors more highly than those delivered by multilaterals, and we've seen some rebalancing away from multilaterals back to those other sources, but it's still more multilaterally heavy than it has been in recent years. So to recap, there's no major surprises. I mean, it's a depressing budget because of the cuts, but there are no major surprises in it, but there's a couple of take home messages for me. So one is we need to better understand and track the sectoral allocations. Secondly, we need to keep asking when and how we will see some relationship between budget decisions and performance data of countries, partners and sectors. So far, I can see no evidence of any relationship at all, and if anything, we're seeing the opposite, that aid is being allocated in favour or towards the worst performing countries, sectors and partners. And I think this is a shame given the emphasis the minister put on linking aid to performance in her statement of development priorities. And it also begs the question of why DFAT is putting so much effort into measuring the performance in all these different ways, but they're not using that information in its most important policy tool, which is the budget. Finally, I wanted to finish on a more positive note. You're always trying to finish on something positive, and I really like the orange is the new blue. I wanted to thank DFAT for reinstating much more detail on this year's aid budget through the orange book, and I urge you all to have a look at it. They have put a lot more detail in that, in it, and I'm really pleased about that. Thanks. I'm going to answer questions now and move straight. Yeah, I think we'll take a couple of quick questions, and then we'll convene our panel, and there's lots of questions. So first up here, and then over there. I'm Alan Gilbert from Palladium. Thanks very much, Jackie. A very simple question. You had a long and stellar career in AusAid and then DFAT. The gap between policy rhetoric and practical outcomes. The question is, are you surprised, and if so, why? And if not, why not? Sorry. Sorry, Jackie. Am I surprised? Do you know? I mean, I shouldn't be cynical, should I? And I wasn't elected foreign minister, and I'm not the government. We all elected the government, and the government have its stated policy priorities for the program. I do think there's an obligation for us to track whether or not it's delivering what it said it would do. So yes, it's cut the program. I wouldn't cut the program, but it said it would, and it has. What I find, what I think we need to focus in on is whether the rhetoric around its priorities within the budget are also being matched. You know, I do think that a lot of the priorities have been met. I think the one glaring and obvious gap is around performance, the rhetoric around performance and the allocation of aid. And it's not clear to me that it's deliberate, but I do think it's something that everyone should be paying attention to. Hi, thanks for your presentation. My name is Hemid. I'm a visiting fellow from India here at the ANU. In the face of these budget, budget guards are just curious to know how Australia's aid engagement with South Asia will shape up. Sorry, how our aid engagement with? With South Asia. Well, it's not shaping up very well. I mean, I really think you're seeing a heavy concentration of aid back to the immediate region. So the Pacific plus team more, leaving aside the anomaly of Cambodia because of border security priorities. So I think that is where DFAT's main priorities and development engagement is. And I think it's no coincidence that we've now got a minister for development and Pacific Island Affairs. I mean, they go together. It's almost, there's very little, I think geographic focus or attention to the aid program beyond that immediate neighborhood. We still have some reasonable size programs in the East Asia, South East Asia, but not many. And I think that our development influence in those countries would have been affected by the significant cuts to aid in those particular places. It's hard to, I've never worked on South Asia, but it would be hard to see how Australia could have much of a voice on development issues given the scale of our programs there. Hi there, Jackie, so Paul Flanagan. The question I guess is the balance as to when we try and communicate some of these messages about the aid budget to the wider community. So we can have a look at a fair amount of detail in some of the allocations such as the sectors or country versus global, some of those sort of programs. But I guess it's how do we balance that with what seems to be the real issue which is the level of aid and the overall sort of pattern of cuts. So the reference, for example, in health and education, if you look at the share of the program that goes to those activities, like education stated at 19% and health is stated at 14%. The driver is those 30% cuts that Steven sort of mentioned. I'm wondering the balance between sort of an internal debate about how we fine tune the program according to some of those and we all have strong views on those, of course, relative to the message we get out to the community. We've cut again, we're down to the lowest level, we've sort of reached. How do you balance sort of this a unified message on that around level versus the more sophisticated debate that we also need to have about how those funds are spent? Thanks, Paul. I mean, I think they're two different things, as you point out. I think we can analyze the makeup of the budget and try and influence it so it has better impact and that's largely what my presentation focused on. But we do have a much more fundamental problem is how do we build community support for higher aid levels. And I think the Development Policy Centre has been doing some really interesting analysis, tracking community attitudes to aid and they give us some good insight into where we might need to rebuild support. But we're not gonna be able to rebuild support without sustained engagement and debate with the community on why aid matters and what we can achieve with it. I really feel like it's a very, the debate is very small and very thin and it's hard to resource it to do more in the current environment. We all spend a lot of time talking to each other but it's very hard to have that conversation or find the time and the space and the mechanisms and the platforms to have that debate with the broader Australian communities like what has happened in the UK and that has underpinned successive governments having a strong political commitment to development programming irrespective of the fiscal environment. But I think that is something that we all need to do. I just don't have a magic answer for it but you're right to point it out as a key priority for us. And it's a priority for every single person who cares about the aid program. I'm Nicole Brees, the policy director for UNICEF Australia. Thanks very much for the presentations. They've been fantastic this morning. I just wanted to ask if it's possible for either of you guys, Jackie or Stephen, to unpack for us a little bit what's happening in the humanitarian area. I think DEFAT staff were at pains to emphasise the new funding for multi-year funding for Syria talking about a moderate increase in the emergency fund. But what's actually going on underneath that decline we can see in the humanitarian sector if you've got any insight to that, that'd be terrific. I think I'll take that on notice. I think I'll ask Robin Davies. Yeah, it's really hard, and Robin pointed out there is actually, although you're very happy with the orange book, there is actually less detail on the humanitarian than there used to be. So, yeah, watch our for Robins blog tomorrow and it's also something we'd like to dig into. Yeah. Yeah, this is probably to Jackie, but everyone could comment on it. You were talking about performance against some of the stated priorities and gender and innovation came up, and I think the innovation one is interesting. Sorry, Debbie Muah had Nossel Institute. And how that relates to the sectors that we're investing in, but also how do we actually look at what is the aid program doing in innovation? What does it mean that they're protecting innovation funding? Have you got any sense that they're actually looking at what that means in terms of the aid program, how that relates to sector funding and also how we look at performance against that objective? I mean, the big, I mean, last night they announced a increase in funding for the innovation exchange in line with what they said they would do. So, to the extent that they are delivering on the increase in funding to the innovation exchange and delivering on that pledge for financing, then that's an indication that they're taking innovation seriously. I think the deeper question is how is innovation being driven through the sectoral and regional and multilateral programs? And that's, of course, a really complex question to answer, and it's not particularly obvious from the budget information. You do get some glimmers of it in some of the text, but we just don't have the data or evidence. I certainly don't be able to comment on it. Hi, it's David Osborne, Adam Smith International. It's a question for Jackie and Steven. Sorry, Tony. Yes, I just wanted to touch on quickly the health and education split and the fall in those two areas and the stabilisation in governance. When we look at a country level, so, and I'll use Papua New Guinea as the example, at the full Papua New Guinea, their budget, we're seeing decreases in both health and education. And Jackie, you mentioned that there's a stabilisation in the Pacific or the Pacific's being protected. Now, at a country level in PNG, that's not the case, from my understanding. Education through the aid program is almost halved, it's funding, and that, from what I understand, is also to protect governance, agriculture and infrastructure, and most likely, Manus and some funding around that issue. Now, Steven, you mentioned that the private sector and aid for trade has been protected. Now, when you speak with the private sector in Papua New Guinea, they raise the two main constraints to their businesses are health and education, and in particular, TB and TBET. Now, I'd just like to get a little bit of commentary on how this budget relates to our largest partner, the Papua New Guinea, and maybe, Steven, if you're able to do that, and Jackie, in terms of governance, your company is now controlling the largest governance program. Probably, it's a bunch of wrong words. Well, I use the word purposely because through that design, the idea was that the company would deliver a lot of technical support around the strategy-making. So, how governance relates to health and education is going to be really critical for the private sector and economic growth in these countries, in particular, Papua New Guinea. Yes, well, I guess any discussion on aid quickly morphs into a discussion on PNG, especially around here and with this panel. Myself included. Yeah, it was interesting to read the text on PNG, and there was this rhetoric when, you know, the government, this government came to power and they were going to get out of delivering textbooks and drugs and build capacity, and, you know, because PNG had so much more money. Of course, now, PNG sadly is broke. But that rhetoric is still there. When it comes to health and education, it's exactly that, it's building their capacity. Interestingly, on roads, though, there's a very explicit statement. We are going to help PNG maintain its roads, which is very much like that's a sovereign government function, right? What's the difference between maintaining a road and delivering drugs or textbooks? So, yeah, I think there is, there's certainly, it's a challenge in PNG to reorient the aid program in the very different fiscal circumstances the country finds itself. And yeah, I was also surprised, especially after the background briefing on TB, there was just, there's a reference to communicable diseases. There's no actual reference to the TB problem. And I think that is, it is a very serious problem in PNG. I mean, there are many serious problems. This is one that could get a lot worse, it seems to me. So, yeah, I think there are, I mean, I'm just, I guess I'm agreeing with you there. There's a need, probably, to rethink aid to PNG given those health and education challenges talking about and given the very different, the very different fiscal circumstances compared to a couple of years ago. So maybe just a couple of comments from me. I haven't looked in detail at the, and I'm not sure I've got the information at hand, but I'll have a look at the sectoral allocation within the PNG program. I mean, I'm aware that there's big cuts to health and education, even though the overall country envelope hasn't changed very much. My sense is that reprioritization is going into things like infrastructure rather than governance expenditure, I think the new governance program is more an amalgamation of existing expenditure rather than the scale up of governance expenditure within PNG, but I'd need to really look at the data. You're right to identify, you know, the commitment to the private sector doesn't mean you don't focus on health and education. You know, there are clear links between private sector growth and having healthy and productive workforces and that's always been the case. And it's, in fact, in the federal budget, there's often the link drawn between investments in education and productivity. So we do that at the national level for our domestic budget, but we don't do it very often in the development budget. And I think that's a little bit, you're trying to justify, you know, they had to cut something to create the space for the programs that they're funding and health and education were the ones to go. In terms of the link between governance and health and education, now there is potentially quite big impacts that governance programs can have on improving service delivery outcomes. It doesn't all have to be done through a sectoral allocation, but the point is we need greater transparency around where the governance programs are delivering those health and education benefits to the scale or more effectively or more efficiently than investing directly through the sectors. And at the moment, you would have a very hard time being able to look at the pieces of those puzzles and you will, I think, if you're looking at health through a governance lens, you're looking much more at systems rather than disease burdens. So something that could be a crisis, an emerging crisis or emergency, like the TV epidemic in P&G, cannot be addressed through a governance program. It has to be addressed through specific health interventions. Complex set of issues, but I can only say I sort of agree with you. Good day. Thanks so much for that. Going back to Tony, I love you. I was just wondering, yesterday at the budget, sorry, Nick Stewart from the Canberra Times, yesterday at the budget, whenever anyone brought up these issues about the overall economic macro outlook, Morrison would just say, oh, no, we're investing in growth. And as soon as these investments take off, we will be back to 5% GDP growth. I got the feeling that you seem to be a little bit more skeptical about that. Bearing in mind the audience here, what's this going to mean for programs like the aid budget, which have always been the most vulnerable, most likely to be targeted from this sort of... if that growth doesn't kick back in? Yeah, look, I think if you look at some of the charts that I put up, I think there's a reason to be pessimistic. Basically, not much has changed in terms of the overall macro context over the last three, four, five years. And I guess what is disappointing is that the same sort of story is being given to us. And it's hard to identify sort of any real new initiatives that is going to give us something new, something different. You know, I think really what it points to, and if you look at the long term, a big problem facing the economy is essentially low productivity growth. And that's a deep-rooted problem that's existed for a long time. And it's not something that will change quickly. And, you know, you have to give the government some leeway when they say, look, we're investing in these sorts of things, infrastructure or what have you, education, that yes, it will take a long time for those to kick in if they do. But I think it's good to reflect on what has been achieved and in terms of, for example, sort of productivity reforms. Well, in that space, it's been pretty dead for what, the last 15 or so, or more years. And really that's coming home to roost. So there needs to be more debate about it more generally. And I think it's a good reminder for people in this room to understand the relationships between what's happening at the whole economy level and how that can impact on a sector such as the aid sector. So I think it is really important. And if it doesn't change, well, it's almost inevitable that there will be more pressure on overall government spending and if the aid sector is not able to improve its standing, the squeeze will happen there more so than elsewhere. Can I just supplement that before we move on just by the sort of economic analysis by the politics of it, especially since we're in an election year? I think, you know, if the coalition are re-elected, well, you know, we've got their forward estimates, stuck to them this year. I think they've taken their cuts. I mean, I'm not so pessimistic that I think there'll be another round of cuts. You know, Julie Bishop's back. You know, she's well-entrenched. She's supported the aid program. So that's the kind of the... That scenario is no growth, no cuts. It's good, very good. Thank you very much to the Greens Canada for coming. We know the Greens actually support 0.5, not 0.7 GNI. So they're big supporters for more aid. So the key unknown is Labor and what their position is. And, you know, they've gone from going to the last election with this commitment of 0.5 to, as I understand it, no commitment at all at the current time. They don't have an aid policy, an aid volume policy. And I think, you know, if we want to see an upside beyond this current forward estimates, then the key will be what the Labor... And whether they come out with a platform on aid volumes. Thanks, Pernel. Steven, my name's Laila Stennett from Results International. I think you just answered my question, but perhaps you could elaborate on what kind of scope, if elected, the Labor government has to rebuild our aid program in the medium term. Well, they have the scope, although it's challenging. As Tony said, it's going to be challenging. Yeah, we heard, you know, the first, the Labor was very vocal to the initial, in response to the initial cuts, they've become less and less vocal over time. And, you know, there were hints from the shadow foreign minister when she spoke at our aid conference a couple of years ago that, you know, aid will have to take its place in the queue. And it seems like it's quite a long queue. And, you know, probably, you know, Defense, else Labor has a fear of being wedged. Some things they might not otherwise put forward, they probably may not want to differentiate themselves on. Yeah, so I think anyone who wants to lobby about aid, I'd lobby the Labor Party. So we're just hitting 10.30, so I think we better wrap up, but I'm sure that our panelists will be happy to answer more questions if you have one for them. Thank you all again very much for coming. I'm sure we'll have more blogs on budget-related topics coming out, so please keep an eye out. And if you were inspired to write something, please do get in touch. Otherwise, that concludes the livestream portion of proceedings. Please feel free to have another cup of coffee and have a great day.