Australia, the Lucky Country, Could Be More Generous

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Oceania | Economy | Oceania

Australia, the Lucky Country, Could Be More Generous

The recent Australian budget leaves little breathing room for Pacific Island nations.

Australia, the Lucky Country, Could Be More Generous
Credit: Pixabay

The physical isolation of Pacific Island nations coupled with their swift response in the early days of the pandemic allowed most to evade the coronavirus last year, but the economic impact of the pandemic has been severe nonetheless.

Projections by the World Bank show major difficulties ahead for the region, with Fiji, Samoa, Tonga, and Vanuatu’s gross domestic products (GDP) contracting by 24.7 percent, 12.5 percent, 15.1 percent, and 13.1 percent, respectively. Collectively, Pacific Island countries’ economies shrank by 11 percent last year.

According to a paper published in Oceania, the economic impacts have and will continue to lead to food insecurity, loss of education, unemployment, a decline in remittances, loss of human capital, and a rise in poverty.

Naturally, many Pacific Island countries looked to Australia, the economic powerhouse in the region, for support. Australia responded by moving 100 million Australian dollars from existing aid programs to provide “quick financial support” to the region. They followed this emergency injection with a further A$305 million several months later, albeit while decreasing the overall official aid budget by A$44 million at the same time. 

Despite a hard border closure, Australia did allow several flights of Pacific workers to come to Australia, which research shows generates income that is then sent back to families, giving local Pacific economies a boost. For the time being, these actions were enough to keep economies afloat, but the expectation was that more help was on its way.

A Lowy Institute policy brief published late last year argued that the Pacific is staring at a potential “lost decade,” owing to the economic crisis. The authors argued that the Pacific requires a multi-year “recovery package” financed by its official development partners if it is to fully recover from the pandemic. 

“The Pacific will need a package of at least $5 billion over three years in additional international assistance to get through and recover from the pandemic,” they wrote, adding that if the support doesn’t eventuate, “the Pacific will never recover the lost ground and will be set on a permanently lower economic and developmental trajectory.”

The report concluded that Australia should aim to provide at least A$2 billion of the required recovery package to the Pacific.

With all the talk of Canberra’s “Pacific Step up,” hopes were high. On top of policy promises, Australia’s economy has been doing well, even as other countries continue to report bleak economic outlooks. 

This is largely due to Australia’s annual iron ore export revenues hitting A$100 billion – a record for any commodity. Not only did Australia’s iron ore exports see the country hold its ground through a global economic downturn, but they have also greatly helped along the country’s economic recovery. Australia has long been nicknamed the “lucky country.” Many hoped it was about to share some of that luck. 

However, the step up was short lived, with the recent Australian budget falling well short of offering Pacific Island nations a lifeline and smashing international hopes of a more generous Australia. The recent budget figures reveal a A$62 million increase for the coming year, raising Australian aid to about A$4.5 billion in 2020-21. But that’s where the good news ends, according to Jonathon Pryke, director of the Lowy Institute’s Pacific Islands Program.

According to the budget figures, Australian aid is set to fall in 2021-22 to A$4.3 billion with a further decline in 2022-23 to A$4.1 billion before returning to pre-pandemic levels thereafter. 

“While disappointing, it’s hard to expect much else from this government, which has cut Australian aid by 31 percent since taking office… Australian aid remains the least generous at any point in its history,” wrote Pryke.

In a particularly short-sighted move by the Australian government, especially now given the pandemic, Canberra has gutted health funding to the Pacific since 2014-15, with health funding cut in the Cook Islands by 75 percent, Samoa by 36 percent, Fiji by 22 percent, and the Solomon Islands by 13 percent.

Even before COVID-19, Australia’s decision to cut health funding to the region had consequences. In late 2019, Samoa declared a measles outbreak, which according to medical journal The Lancet ultimately claimed the lives of 83 people, mostly children, and overwhelmed the country’s healthcare system. 

For Australia, the stability of its neighbors has been central to its national security for decades. By letting Pacific economies flail, it risks allowing economic collapse and ultimately political turmoil, which the Pacific Islands region has had its fair share of in recent decades. 

Most notably, after years of intercommunal violence, the Solomon Islands nearly descended into civil war in the early 2000s. Australia intervened in 2003 on behalf of the nation’s leaders, but also because it feared terrorism taking hold in a potentially failed state on its border. Australia maintained a peacekeeping presence in the country until 2017. 

A policy advisor to the Australian force in the Solomon Islands in the early years of the mission, the Lowy Institute’s Jenny Hayward-Jones, analyzed the cost to Australian taxpayers and found that the mission cost about A$2.6 billion in real terms to date, more than half what the Lowy Institute now believes would be enough to keep all Pacific economies afloat through the global economic downturn.

Revealingly, while foreign aid amounts to about 1 percent of budget expenditure, it has suffered around 25 percent of all budget cuts announced since the Liberal–National Coalition government came into power in 2013. But while Coalition governments do tend to shy away from foreign aid, disasters can lead to a reversal, as was the case when Coalition leader John Howard doubled the aid program, after initially slashing it, in response to the 2004 Indian Ocean tsunami.

Like Howard, Prime Minister Scott Morrison, in responding to this economic crisis, has acknowledged the need to support Australia’s neighbors but appears reluctant to, given the fact foreign aid is traditionally unpopular among Australian voters.

This is evident when analyzing the ODA budget papers, which would leave readers assuming the budget will be remaining at A$4 billion, when in fact it has increased, albeit minimally, only to begin declining again in 2022.

Australian voter views on foreign aid are changing, though. According to the Development Policy Centre, 32 percent of Australians said in 2021 that Australia gives away too much, down from 37 percent last year and 45 percent in 2019. The percentage of Australians who say Australia does not give enough has risen from 15 percent in 2019 to 19 percent in 2020, and again to 22 percent in 2021. 

Overall, it appears Australia is looking inward, as are many countries around the world in these uncertain times. Yet Morrison himself has admitted COVID-19 will wreak long-term havoc on a global scale.

“The simple truth is this – even as we stare down the COVID pandemic at home, we need to also prepare for a post-COVID world that is poorer, that is more dangerous, and that is more disorderly,” he said in July last year.

So why then has Morrison’s government abandoned its partners in the region rather than dig a little deeper in its pockets to ensure their success? Is he concerned about a looming election? Australia’s own economic recovery? Neither of these claims appears to hold much weight.

Australia, as a wealthy country, has failed to meet its non-binding commitment to be generous with aid. In 2011, Australia was ahead of the pack, according to the Organization for Economic Cooperation and Development (OECD) aid data, which shows that its aid-to-income ratio was 0.34 percent of gross national income (GNI), 0.03 percent ahead of the OECD average. OECD aid data for 2020 shows Australia’s ratio has dropped to just 0.19 percent of GNI, while the OECD average has increased slightly to 0.32 percent. In layman’s terms, Australia has never been so selfish. 

If Australia wants to maintain strong relations with its Pacific neighbors, it really needs to step up. Moving forward, as climate change worsens and as pandemics become more frequent, smaller, less stable nations will need the support of larger economies. 

It is outdated for Australian governments to forgo increasing foreign aid to appease Australian voters, especially since few recent Australian leaders have tried to sell the idea to the Australian public. With Australians now viewing foreign aid more favorably, it is time the Australian government began talking to the Australian public about the importance of foreign aid. Australians would likely view it as far less threatening if they knew truly how little we’d be committing if we were to reverse course and make our way back up to the OECD average, at the least.

Many more Australians would likely support an increase in foreign aid if they knew how wide ranging the gains could be. For one, it would likely lead to closer global cooperation between Australia and other generous world leaders, such as the United Kingdom, Japan, and the European Union. 

It would also strengthen Australia’s own national security. Having stable economies largely means having stable governments, which lowers the risk of another situation akin to the Solomon Islands, in which Australia spent much more than is required to keep a neighboring economy afloat.  

But ultimately, it would ensure the resilience of our region’s more vulnerable nations. Australia has long preached about its duty of care for its neighbors and how it always aims to stand up for the little guy. Now, perhaps more than at any other time in modern history, it is time to prove it.