The claim
Shadow Minister for Foreign Affairs Simon Birmingham has accused Labor of a sleight of hand in relation to the foreign aid budget.
"… in the October [2022] Budget, the first Albanese Labor government budget, they actually cut the indexation of foreign aid … but didn't tell anybody about the cut last year. It was buried in the budget papers outside of the forward estimates," Senator Birmingham told the ABC.
"And then in May this year, they restored it and claimed that they were putting some $3.2 billion back into the budget."
"It was left in the budget by the previous Coalition government. Labor cut it and then without telling anybody they'd cut it, tried to claim credit for giving it back. That is just trickery."
Did Labor cut $3.2 billion from the foreign aid budget, which was later put back in? RMIT ABC Fact Check investigates.
The verdict
Senator Birmingham's claim is fanciful.
The senator argues that $3.2 billion of foreign aid spending was "left in the budget" by the Coalition, but the reality is more uncertain.
Labor's alleged $3.2 billion "cut" — which he said was later reversed — reflects the difference between two projected budget scenarios over a 10-year period that begins in 2027-28.
One of these scenarios, which takes the October 2022-23 budget as its starting point, assumes that aid spending under Labor would have remained at 2025-26 levels from that year onwards.
The other, based on the Coalition's March 2022-23 budget, assumes the former Coalition government had a policy to increase aid by around 2.5 per cent every year until 2036-37.
However, Fact Check could not find any announcements from the then-Coalition government detailing its long-term plans for indexation (including a planned rate), and a spokeswoman for Senator Birmingham did not point to such an announcement.
Experts contacted by Fact Check were doubtful that the Coalition's projections would have ever come to pass, and said long-term projections did not provide an accurate or authoritative measure of likely spending.
In any event, the Coalition's projected annual aid spending would not have exceeded Labor's assumed spending until the year 2030-31, by which time at least three federal elections will likely have taken place.
Given the recent history of foreign aid spending in Australia, it is unlikely there would have been no policy changes between now and then.
How the foreign aid budget works
As Fact Check has previously explained, foreign aid, or official development assistance (ODA), is "government aid that promotes and specifically targets the economic development and welfare of developing countries".
It includes, for example, programs aimed at reducing poverty and empowering women and girls.
Robin Davies, an honorary professor at the Australian National University's Development Policy Centre, told Fact Check in an email that the foreign aid budget comprises two parts: base aid, or "an ongoing [funding] allocation continued from previous years", plus additional funding allocated for any new budget measures.
The Coalition's 2021-22 budget, for example, slated $4.0 billion for base aid, along with an estimated $319 million for "temporary and targeted" measures to help the region deal with COVID-19.
Professor Davies said new ODA funding measures are reported in the budget or the Mid-Year Economic and Fiscal Outlook and can be "either terminating or not".
If a measure is not terminating, he explained, it adds funding to the base. The new total is then considered a baseline for future years.
Meanwhile, terminating measures "add funds for one, two, three or most often four years … without adding to the base".
The role of indexation
Senator Birmingham's claim relates to the "indexation" of foreign aid.
As Fact Check has previously explained, this is a budget concept that sees year-on-year spending rise automatically in nominal terms, generally to account for rising costs. A pause in indexation can amount to a cut in real terms.
Because indexation does not apply to temporary aid measures, Fact Check will focus on base funding for the purposes of this analysis.
Source of the claim
Fact Check asked Senator Birmingham's office for the source of his claim. A spokeswoman pointed to analysis conducted by the Parliamentary Budget Office (PBO), which was commissioned by Opposition Leader Peter Dutton.
The analysis contains forecasts of aid spending over the next decade and beyond, which the PBO based on settings from various budgets and assumptions about indexation.
An accompanying document explains: "At the 2022-23 March Budget, forecast ODA was indexed annually, in line with the then [Coalition] government's policy stated in the 2018-19 Budget, which announced that indexation would recommence in 2022-23 after a temporary pause."
"At the 2022-23 October Budget [handed down by Labor], indexation was cancelled for ODA projections for all years beyond 2026-27".
The analysis also presents a forecast of aid spending based on Labor's May 2023-24 budget, which pledged to index ODA at 2.5 per cent per year from 2026-27, providing an additional "$8.6 billion over ten years from 2027–28".
On the day the analysis was released, Senator Birmingham questioned his Labor counterpart, Minister for Foreign Affairs Penny Wong, at a Senate estimates hearing, accusing the government of inflating the $8.6 billion figure "by some $3.2 billion that you'd taken out in October and only put back in, in May".
How was the $8.6 billion figure calculated?
The PBO analysis contains a table that models the cost of indexation under Labor's latest policy. Figures are provided until 2037-38.
As a "baseline", the analysis uses the October 2022-23 budget's spending forecasts up to 2025-26, when aid was slated to reach $4,872 million. From 2026-27 onwards, this baseline remains flat.
Meanwhile, a "revised baseline", taken from the May 2023-24 budget, shows spending growing by 2.5 per cent annually from 2026-27, reflecting Labor's indexation policy.
The sum of the difference between indexed and non-indexed spending across every year between 2027-28 and 2036-37 is $8,626 million.
Where does the $3.2 billion figure come from?
Senator Birmingham said that Labor's $8.6 billion aid boost was exaggerated by some $3.2 billion over the decade to 2036-37, claiming it had already been "left in the budget by the previous Coalition government".
In a blog post on the subject, Professor Davies quoted from a media backgrounder document entitled "Albo's false foreign aid increase", which has been seen by Fact Check.
The backgrounder explains that the $3.2 billion calculation relies on a 10-year comparison of Labor's first (October) budget against "the Coalition's last foreign aid Budget, projected over the same period".
The Coalition scenario is based on a projection of aid spending out to 2032-33, contained in the PBO analysis, which Senator Birmingham appears to have extended to 2036-37 using an indexation rate of 2.5 per cent.
The cumulative difference between these two scenarios over the decade amounts to $3.2 billion.
Coalition projections of base foreign aid spending under both major parties in 2022-23
Financial year | Coalition | Labor | Difference |
|---|---|---|---|
2027-28 | 4,635 | 4,872 | -237 |
2028-29 | 4,750 | 4,872 | -122 |
2029-30 | 4,869 | 4,872 | -3 |
2030-31 | 4,991 | 4,872 | 119 |
2031-32 | 5,116 | 4,872 | 244 |
2032-33 | 5,244 | 4,872 | 372 |
2033-34 | 5,375 | 4,872 | 503 |
2034-35 | 5,509 | 4,872 | 637 |
2035-36 | 5,647 | 4,872 | 775 |
2036-37 | 5,788 | 4,872 | 916 |
Total | 51,924 | 48,720 | 3,204 |
That difference is slightly overstated, however, because the PBO table includes spending on temporary aid, whereas indexation only applies to base funding.
As Professor Davies calculated in his blog post, with temporary aid excluded the difference would be about $3.1 billion over the decade.
This would leave $5,515 million in "additional" funding pledged by Labor over 10 years, with the Coalition claiming credit for the remainder.
But what did the Coalition actually promise?
Crucially, Senator Birmingham's figure of $3.2 billion relies on an assumption that aid under the Coalition would have been subject to 2.5 per cent indexation over the 15 years from 2022-23 to 2036-37.
While questioning Senator Wong, he argued that the indexation announced by the Coalition while in government had recommenced in 2022-23 and applied "across the forward estimates and beyond".
Senator Wong, however, contended that the "PBO has made an assumption about indexation beyond the forwards that I do not recall being a commitment of your government".
The 2018-19 budget under the Coalition included a pledge to "maintain" ODA spending "at $4.0 billion per year over the forward estimates with indexation to recommence in 2022-23".
In a media release accompanying the March 2022-23 budget, then-foreign minister Marise Payne announced: "The Government has resumed indexation for Australia's ongoing baseline level of Official Development Assistance (ODA). Baseline ODA will increase to $4.089 billion, up from $4.0 billion in 2021-22".
Notably, that initial $89 million annual increase represents a roughly 2.2 per cent rise, which is below not only the ostensible 2.5 per cent indexation rate but also the 3 per cent inflation rate forecast for that year (which later became 6 per cent, according to the Australian Bureau of Statistics).
Fact Check could not find any announcement in the budget papers from 2018-19 onwards either laying out the Coalition's plan for foreign aid spending beyond 2022-23, after indexation was reinstated, or specifying the rate of planned indexation.
Fact Check also asked Senator Birmingham's spokeswoman for any such announcement made by the Coalition while in government. She did not point to any.
In his blog post, Professor Davies wrote that when the Coalition announced the reintroduction of indexation, "they didn't say anything about how long this indexation would last".
"The default assumption had to be that it would apply for the relevant [four-year] forward estimates period."
The problem with projections
Fact Check has previously taken issue with politicians using long-term projections to make claims about government spending.
In 2014, for example, then-shadow minister for education Kate Ellis claimed the Abbott government was cutting the education budget by $30 billion, which was based on a comparison of the Coalition's spending plan against Labor's projected spending over 10 years.
Experts cast doubt on the veracity of those 10-year projections, however, citing the great uncertainty of forecasting spending over such a long period
In an email regarding Senator Birmingham's claim, Stephen Bartos, a professor at the University of Canberra's Centre for Environmental Governance and former deputy secretary in the Department of Finance, told Fact Check that "any estimates of spending outside the forward estimates period … are not official".
"Projections out to 2036-37 do not provide an accurate picture of likely spending. They are reliable only in the sense of being a straight line projection of something that could happen if no policy settings change — which never happens," he said.
Professor Bartos noted that, particularly with foreign aid, priorities shift and other spending areas can become more electorally appealing for governments.
Jessica MacKenzie, the chief policy officer at the Australian Council for International Development, told Fact Check it was "impossible to know" whether the Coalition's indexation policy would have held over more than ten years.
"This was the first time they had brought [indexation] back in years. One data point is not a pattern to extrapolate from," she said.
In his blog post, Professor Davies expressed a similar sentiment, that "nobody has any idea what the Coalition would have spent".
And in an email to Fact Check, he said, "the previous government's commitment to index aid to inflation from 2022-23 … didn't even have a timeframe attached".
Equally, Professor Davies added: "Long-term and soft aid commitments of the kind made by the present government for the decade commencing 2027-28 are really of very limited importance".
"Any statements about what happens outside the forward estimates … are really aspirational at best."
It's important to note that even if these figures came to pass, Coalition spending would not surpass Labor's on an annual basis until the year 2030-31, by which time at least three elections will have likely taken place.
Did Labor cut indexation?
As previously noted, the PBO's costings document stated that indexation for aid beyond the 2026-27 financial year had been "cancelled" at the October 2022 budget.
Professor Bartos told Fact Check that this budget was "not aimed at long-term policy".
"That was left to the next budget, in May 2023," he said.
Professor Davies told Fact Check that the foreign aid budget differed to budgets that have policy commitments connected to entitlements such as pensions and welfare.
"If the government were to commence indexation of [these types of payments], this would be reflected in legislation and/or regulations, and a subsequent government would need to take active measures to reverse the policy, including public announcement and amendment or cancellation of laws or regulations."
But he said the aid budget doesn't work that way because it consists of discretionary payments. This, he said, means the government needs to take active decisions to increase or decrease the base funding.
"Further, nobody decided or needed to decide to switch off the Coalition's aid indexation policy in October 2022 … [because] governments don't toss out former governments' policies; electorates do," Professor Davies wrote in his blog post.
"The lights went out on that policy when the Coalition lost office."
Principal researcher: RMIT ABC Fact Check Managing Editor Matt Martino
Sources
- Simon Birmingham, Interview with ABC TV's Afternoon Briefing, October 26, 2023
- Parliamentary Budget Office, Official Development Assistance, October 26, 2023
- Foreign Affairs, Defence and Trade Legislation Committee, Hansard, October 26, 2023
- Budget 2023-24, Budget Paper No. 2, May 9, 2023
- Budget 2018-19, Budget Paper No. 2, May 8, 2018
- Marise Payne and Zed Seselja, 2022-23 Budget: Investing in a strong future, advancing our national interests and supporting regional prosperity, March 29, 2022
- Budget 2022-23 (October), Budget Paper No. 2, October 25, 2023
- Robin Davies, Did Labor inflate future aid by over $3 billion?, DevPolicyBlog, November 1, 2023
- ABC Fact Check, Fact check: Is the Abbott Government cutting $30 billion from school funding?, July 2, 2014
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