I’ve changed this a bit to be clearer on points that I hadn’t sorted out in the lockup. It was a long day

One of the more intriguing items in the budget estimates is a saving of $1 billion over four years in foreign spending attributed to “Overseas Development Aid – GNI methodology change”. To complicate matters further, the Treasurer explained in his press conference, that this was the wrong way around. Actually, the amount recorded was an additional expenditure avoided by not changing the methodology. Confused? Then read on, there’s plenty more like this in the aid budget.

The story behind the $1 billion is that Australia has promised to increase development aid to 0.5 per cent of its Gross National Income (as I explain here (link to critique of Henry Review from last week), National Income and not the more commonly used Domestic Product is the right basis for most calculations. Unfortunately for the government (at least in this instance), a recent agreement by statistical agencies has changed the way GNI is calculated. Australia’s statisticians were the first to implement this change, and the result was to increase our GNI by 4 per cent, or about $50 billion.

Over four years, 0.5 per cent of $50 billion a year adds up to $1 billion more on the forward estimates. So, the government has decided to use the old estimate of GNI, and avoid paying the extra billion.

More than any other component of the budget, the aid budget is full of puzzles of this kind, which make it almost impossible to determine whether the government is delivering on its commitments. Consider one of the few clearly positive outcomes of the Copenhagen process, the agreement by developed countries to contribute $30 billion in funding from 2010 to 2012 to support mitigation and adaptation in developing countries.

Since we account for around 2 per cent of world income, Australia’s share amounts to around $600 million, and the Budget papers contain a list of projects which, added together, total up to about this sum. But many of them have been announced before, and the period over which the money is to be spent is unclear. Moreover at least some of the new money appears to have come at the expense of other aid projects. So, is Australia meeting its commitments? Almost certainly not, but the Budget accounting is so opaque as to make this very hard to determine.

The same point can be made about progress towards the target. The Budget papers make the point that aid is projected to increase slightly as a share of GNI this year, from 0.32 per cent to 0.33 per cent. But last year’s budget promised 0.34 per cent, a target that was not reached. So, if we have a comparable shortfall this year, aid may actually decline.

As is commonly the case, the aid budget shows very modest changes this year, with a projection of much bigger increases in the out years, so as to meet the targets by 2015. But sad experience suggests that these projections will be derailed by some crisis or another.

If we, and other developed countries, thought hard about our own long-term interest we would realise that well directed foreign aid is about as good an investment as we can make. But the realities of politics ensure that there are many more votes to be had from tax cuts or parochial pork. Until this changes, the likelihood that we will meet our international commitments remains low.