Despite cuts to foreign aid spending in this year’s Australian Federal budget, released this week, Papua New Guinea will gain an extra A$59 million (K155 million) and regional programmes also stand out as the beneficiaries from this year’s budget, according to analysts.

Australian Treasurer, Joe Hockey

Australia’s Abbott government is cutting aid spending by A$7.6 billion (K19.95 billion) over the next five years, with a cap on spending at A$5 billion for each of the next two years. From then, it will be pegged to Australia measure of inflation, the Consumer Price Index.

Aid down by 10%

That represents an overall reduction in aid by 10% in real terms by 2015-16, according to Stephen Howes, Director of the Policy Development Centre at the Australian National University.

‘Australia’s aid program is being reshaped to ensure it is effectively promoting economic growth and poverty reduction, reflecting our national interest and the changed international context,’ say the budget papers. They also say that it would ‘improve the enabling environment for the private sector to drive growth’.

The Pacific and Papua New Guinea are insulated from any belt-tightening, with aid set to increase by 8% in nominal terms.

PNG benefits most

The Pacific and Papua New Guinea are insulated from any belt-tightening, with aid set to increase by 8% in nominal terms, says ANU analyst Matthew Dornan.

‘PNG receives the biggest increase in Official Development Aid funding of any country, with aid rising from A$519 billion (K1.36 billion) to A$ 577 million (K1.51 billion),’ he writes.

‘Aid to other Pacific island countries is fairly static, with the only minor increase of note being to Solomon Islands.’

ANU’s Stephen Howes

‘After a decade of A$2.6 billion Australian expenditure on RAMSI [the Regional Assistance Mission to the Solomon Islands], it is not surprising that Solomon Islands continues to attract significant levels of Australian aid—A$168 million in the budget,’ say Jenny Hayward-Jones and Philippa Brant on The Interpreter blog.

Howes says in total A$590m saved through cuts to some programmes will be reallocated to the Pacific, including about $60 million additional aid for PNG as part of the Manus Island solution agreement.

By contrast, official development assistance to Latin America, Africa, and the Middle East will decline significantly.

The Executive Director of the Australian Council For International Development, Marc Purcell, says most of the A$375 million that the previous Labor government had diverted to onshore immigration costs in the 2013/14 budget has been returned to the Australian aid programme.

Australia Network axed

The Australia Network, Australia’s international broadcasting service to the region, has been axed, saving A$196.8 million, or A$22-23 million a year for the remainder of the contract. It is expected there will also be staff redundancies at Radio Australia.

‘PNG receives the biggest increase in Official Development Aid funding of any country, with aid rising from A$519 billion (K1.36 billion) to A$ 577 million (K1.51 billion).’

Export assistance continues

While the government’s Audit Commission recommended abolishing Austrade and the Export Finance and Insurance Corporation, this is not in the budget. The EFIC will be given A$ 200 million in capital for export assistance to small and medium-sized Australian businesses.

The Lowy Institute’s Jenny Hayward-Jones

The Australian government says it is saving A$ 397.2 million over four years following the merger of the Australian aid agency AusAID with the Department of Foreign Affairs and Trade.

With the mineral resources tax regime in PNG currently under review, it is worth noting that Australia has abolished its Minerals Resource Rent Tax, saving Australian miners A$3.4 billion over four years.

‘A major unknown is how the government is planning on measuring the performance of the aid program in the region, with a performance benchmark framework yet to be published,’ say Hayward-Jones and Brant.

‘Whether it will be more successful in driving better outcomes for the region than the ALP government’s partnership for development approach remains to be seen.’

‘The verdict: a status quo budget, with few surprises, and which is lacking in detail,’ says Dorman.

Key points of Australia’s 2014/2015 Budget

Economy

• Deficit: A$29.8 billion in 2014-15 (to A$ 2.8 billion in 2017-18)
• Unemployment forecast: 6.25% in 2014-15
• Economic growth: 2.5% in 2014-15

Foreign Affairs

• Foreign aid frozen at current levels for two years, helping save A$ 7.6 billion over five years
• International commitment to spend 0.5 per cent of gross national income on foreign aid abandoned
• A$ 400 million saved over four years by folding the former AusAID into the Foreign Affairs Department

Communications

• ABC-operated Australia Network to close, saving A$198 million over four years

Corporate

• Company tax cut by 1.5%
• Abolition of Minerals Resource Rent Tax
• Creation of Exploration Development Incentive for junior miners, worth A$ 100m.

For the ABC’s comprehensive summary of the Australian budget’s impact on business, click here.