Carr must restore sinew of diplomacy

Our bloated aid budget is out of control, expanding far beyond our ability to spend it intelligently, with some of it given to causes that are deeply offensive.

Meanwhile the sinew of our diplomatic service, an essential tool of national interest and international engagement, like the defence budget, lies in ruins.

This week Dennis Richardson, head of the Department of Foreign Affairs and Trade, circulated within DFAT a memo, of which I have a copy.

But first, bear this in mind: the aid budget was increased this year by $300 million to $5.2 billion. Richardson wrote: "The department has received an appropriation of $943m ($879.8m operating, $63.3m capital) for the financial year beginning July 1, 2012." Later, he says: "As a result of the Mid-Year Economic and Fiscal Outlook savings measures announced in November 2011, the department needs to find permanent savings of around $20m per annum from our operating budget. Also, following further . . . decisions in the budget, the department will need to find additional savings of of between $5-$10m a year. It is possible, as well, that further savings measures could be imposed."

This is an ominous sentence from Richardson. As the government's forecast revenues fall away, it will struggle to achieve Labor's first surplus since Paul Keating was treasurer. Where will it find more money? Inevitably, in our decimated defence budget, and probably DFAT's minuscule resources as well.

Later in the memo Richardson says that permanent savings of $16m to $24m will be necessary from DFAT's capital budget. He then outlines various savings DFAT has instituted from its operating budget but adds: "Savings beyond (this) will need to be achieved through staff reductions in Australia. We are not certain at this stage about the precise downsizing but it is likely to be between 100 to 150 positions."

That is a catastrophic blow to an already tiny diplomatic service. Australia, the most isolated Western nation, runs the smallest diplomatic service, per capita, of any advanced Western nation. Among the G20 nations we have substantially the smallest diplomatic footprint.

But the situation is worse even than these figures suggest. DFAT will spend $150m across three years administering passports. You cannot cut that. Although all government budget figures are intentionally impenetrable, let's assume $50m a year of DFAT's budget goes on passports. Then there is $70m or more a year on consular services. This means the cost of our entire diplomatic service, diplomats abroad and DFAT officers at home, and everything they do, comes to about $800m a year, or a bit more than one-seventh of our bloated aid budget.

This is not only a disgrace, it is an abdication of the national interest. Labor under Julia Gillard has betrayed the social democratic inheritance of international engagement. DFAT was starved and cut for the whole of the Howard government, as Kevin Rudd relentlessly reminded us in opposition, and the process has accelerated under Labor.

Foreign Minister Bob Carr is not responsible for this situation but he has inherited it. He has one more budget before the next election. The staff cuts will come from Canberra rather than posts abroad, but it amounts to the same thing. Restoring the sinew of national diplomacy is now Carr's single most important task. The first budget was a disaster. The loss of 150 diplomats from a service of about 2000 non-passport DFAT personnel is a colossal blow.

The Australian Secret Intelligence Service costs well over $200m. No one could be keener on ASIS than I am but it is ludicrous to have the secret intelligence agency a quarter as big as the entire diplomatic service. If the Gillard government maintains this year's budget trends we will have, well within a decade, an aid budget bigger than our defence budget, and a secret intelligence agency bigger than our diplomatic service. These are bizarre budget priorities.

We now cannot prosecute our national interests effectively. Not only that; by failing to have a properly resourced diplomatic service we make much less contribution to global governance, and even the eradication of poverty, than we should do. Good diplomacy does more to help fight poverty than aid does. There is a vast academic literature that demonstrates how ineffective aid is in promoting economic development. Good diplomacy, on the other hand, supports good economic policy, which is the true key to economic development.

Thus Australia wants the US, Britain and France to be active in the South Pacific, not primarily because their aid dollars are important but because their diplomats reinforce the argument with host governments about sensible economic development policies.

In support of our quixotic and meaningless bid for a temporary seat on the UN Security Council, Australia is developing a substantial aid program in Africa, but we have hardly any diplomats in Africa. A sensibly sized Australian diplomatic corps in Africa would encourage trade, encourage investment and contribute to the ongoing dialogue about development policy.

Our aid budget is out of control and in some cases just inexplicable. Last year we gave $40m to China. It's a small enough amount of money -- though it would make a big difference to DFAT staff levels. Why on earth does the Australian taxpayer need to subsidise China?

The Gillard government makes a dizzying number of grants to Australian aid NGOs in part to raise awareness of the need for aid spending. But this is a circular and anti-democratic process. The government pays money to a sympathetic constituency to campaign for the government to pay more money to the same constituency, and to intimidate the opposition or other groups from scrutinising it properly. This is why we pay taxes?

The aid budget is out of control and poorly spent. No area illustrates this more graphically than aid to Palestinian groups. Some of it goes to organisations with clear links to terrorist organisations.

And some of it goes to UN organisations that members of the government themselves deride as "notoriously corrupt".

The Palestinian Union of Agricultural Work Committees has received $5m of Australian taxpayers' money via payments from AusAID through World Vision.

According to Gillard government officials in devastating Senate estimates committee testimony this week, one Bashir al-Kheiri was president of UAWC from 2008 to last year. He is closely associated with the Popular Front for the Liberation of Palestine, a proscribed terrorist organisation, and has served substantial jail time for terrorist offences. There are many other connections between UAWC figures and the PFLP.

The government's entire defence on this matter has rested on the narrow legal argument that in funding the UAWC it is not breaching laws against funding terrorists because there is no formal organisational connection between UAWC and PFLP, and there is no diversion of funds.

No doubt the government is right that it is not breaking the law. But what possible reason is there for Australian taxpayers to labour so that they can provide resources to individuals associated with the PFLP? It is complete madness, morally repugnant and against common sense.

The government announced it would give $90m of Australian taxpayers' money across five years to the UN Relief and Works Agency. Australia is the seventh largest donor to UNWRA. This is the lead UN agency for helping Palestinians. But UNWRA is a notorious UN boondoggle of vast waste and political dysfunction. It defines as a refugee every descendent of any Palestinian who left Palestine at the time five Arab nations launched a war against Israel in 1948. Thus if you are a citizen of Jordan with your own business, even a member of the Jordanian cabinet, but your grandfather came from Palestine, you are a refugee, according to UNWRA. As a result it makes the Israel-Palestine dispute insoluble. Unlike all other refugees, this status is inheritable infinitely through the generations and never extinguished despite gaining other citizenship.

Canada, which has a more sophisticated debate about these matters than we do, has stopped funding UNWRA and given aid directly to other Palestinian institutions. Labor's Michael Danby, chairman of parliament's foreign affairs committee, and certainly the Australian politician who knows more about the Middle East than any other, opposes this funding and describes UNWRA as "notoriously corrupt". So why on earth does a policeman in Dandenong, a shearer in Scone, a miner in Mount Isa, have to pay taxes to maintain this vast UN folly, apart from the forlorn view that by sucking up to UN pieties we might wear the shabby tinsel of a seat on the Security Council for two years?

When you look at the gamut of foreign affairs and aid funding you have to agree with King Lear: "That way madness lies."