On the first Saturday in May, Australians delivered the incumbent center-left Labor party an historic landslide victory. The result defied months of polls that, until mere weeks before the vote, predicted a win for the conservative Liberal-National coalition.
How should Australia’s neighbors read this result, and what can they expect from this term of government?
Foreign policy rarely features in Australian elections, but the Trump factor weighed heavily, as did news during the campaign of a Russian request for military basing in Indonesia, and the presence in early March of Chinese navy ships around Australia’s shores. Nevertheless, the attention devoted to those events was reactive rather than proactive, and elicited no substantial policy commitments from either party.
Therefore, the best way to predict the foreign policy direction and intentions of this second-term government is a closer examination of the pre-election budget. Delivered immediately prior to the campaign in March, the budget was then essentially a theoretical election pitch that will now become concrete legislation and can provide some clues for Labor’s plan for this term. Basically, we can follow the money.
Pessimists feared an Australian imitation of the United States’ and United Kingdom’s recent aid budget demolitions. Optimists hoped for a bold reimagining of Australia’s aid program, an ambitious contribution to arrest the decline of the multilateral spirit and global order. Pragmatists got what seemed inevitable in the end: no new money in real terms for foreign aid, but a scattering of announcements to flag future areas of focus.
The Labor government came to office in 2022 with energy and momentum, seeking to become a “partner of choice.” A new international development policy was accompanied by a suite of thematic strategies and new targets on integration of climate action, gender equality, and disability inclusion objectives. Transparency measures have been enacted, including a new online data portal and the resumption of reporting to a key international database. A narrower focus on the Pacific by the previous government was expanded to more meaningfully include Southeast Asia. Blended and innovative finance offerings grew more sophisticated to better tackle financing challenges.
But by the end of the first term, headwinds had stymied ambition. The aid budget has languished in the face of inflation and pressure on defense spending, preventing Australia from responding forcefully to the turmoil confronting its most important partners.
The budget held announcements for health support and humanitarian assistance in the region, but these promises were not backed up yet by real dollars; humanitarian spending went up only by 5 percent and health spending in fact went backwards compared to the previous year. The announcements can be read as acknowledgments of where the gaps will open up as other Western partners retreat – but not yet as moves by Australia to close those gaps.
With no mention of Trump or tariffs, there was an implicit response nonetheless to unspecified “global economic shocks” with a substantive AU$1 billion package for the Pacific and Southeast Asia. This investment is bolstered by development-adjacent measures that are not technically aid, including guarantees for private banks in the Pacific and investments under the Southeast Asia Investment Financing Facility. These are some of Australia’s first forays into non-aid development finance since a review almost two years ago.
If the aid budget remains stagnant, this might represent the most fertile ground for Australia to expand engagement, especially in the region’s bigger, middle-income economies. During the campaign, the Coalition promised to increase the lending capacity of a key blended finance mechanism for the Pacific up to AU$5 billion – despite evidence that the design of the mechanism is ill-suited to weak demand for borrowing.
Speaking of investments that aren’t aid – there was plenty of money to shore up relationships with India, about AU$16.5 million just in this financial year for initiatives under cultural exchanges, trade, energy, maritime, and critical technology. The strategic direction statement that heads the foreign affairs portfolio’s budget statement also emphasized relations with Japan and South Korea. The motivation is obvious: Australia’s only option is to cement and strengthen ties with other Indo-Pacific middle powers to ballast against U.S. volatility.
What the region can read from the budget is that Australia’s parochiality is stubborn, but its conception of its parish is fickle. As the budget comes under pressure, small cuts to programs in Africa and Latin America, the United Nations, and other international organizations have been used to pay for programs in Southeast Asia and the Pacific. Not a single country in the Pacific or Southeast Asia will see a reduction in Australian aid; in fact, every single Southeast Asian country will receive an increase, although on balance the boost for the Pacific is greater. The budget documentation, and the 2025 foreign policy Snapshot that preceded it, are both quite clear that this is Australia’s response to global turmoil: consolidating coverage in the near region at the expense of the global stage.
Asia and the Pacific might take heart from this move, but the government’s proud claim that 75 percent of the aid budget will be spent in the Indo-Pacific should be read as a caution as well. The signs point toward a shrinking sphere of influence for Australia, which is good only for those who remain within the orbit.
Australia’s understanding of what constitutes its region is not stagnant. South and Central Asia have long felt the fluctuations of Australia’s notion of the “Indo-Pacific.” The Albanese government’s re-engagement with Southeast Asia is recent enough that a potential future Coalition government could easily choose to narrow the lens further still, isolating the Pacific Islands as Australia’s chief concern as Opposition Leader Peter Dutton emphasized in an address to the Lowy Institute earlier this year. Indeed, the Coalition’s pre-election costings promised aid cuts everywhere except Indonesia, Timor-Leste, and the Pacific.
However, Dutton and his shadow spokesperson for foreign affairs, David Coleman, were both unseated from their electorates in shock upsets, meaning they will not return to Parliament, let alone to government. The opposition party will need to promote new talent to lead its foreign affairs portfolio, and this could prompt a serious policy refresh before the next election.
From Australia’s renewed Labor government, partners in Asia and the Pacific can expect more of the same. A real step up in the aid budget is unlikely in the near future, but the commitment to indexation will stand. A further expansion in blended finance and non-aid offerings is the most probable option to increase engagement with the region’s emerging and developing economies – but that’s no substitute for the billions of dollars cut from the aid budgets of European and North American donors.
The one initiative that has the possibility to define the Albanese government’s foreign policy legacy is COP31, the 2026 United Nations climate conference. Australia is seeking to cohost COP31 with the Pacific Islands, but Turkiye is also in the running. An announcement is due in June. By contrast, a Coalition government would have cancelled Australia’s bid. The hosting of COP31 represented the only real point of foreign policy differentiation in the campaign between the two parties.
Federal government terms in Australia are notoriously short, just three years. In fact, Australia’s terms are so short that this government will go to the polls again before Donald Trump leaves the White House. The government will have to move fast.