The Albanese government will plunge almost $2 billion into the Pacific region, as it tries to expand diplomatic and economic links with island nations and entrench Australia's position as its major security partner.
Tuesday night's budget also includes a funding boost for the Department of Foreign Affairs and Trade (DFAT) after a review found parts of Australia's diplomatic network were stretched and grappling with "serious gaps" in capabilities.
Its largest Pacific commitment is a major security package – as first flagged by the ABC last week – which is worth around $1.4 billion over four years.
Not all the money is new: The bulk of funding for this package will come from Defence, which will have to find around $920 million in savings to fund key Pacific initiatives.
Some of that funding will be used to fund more maritime security and infrastructure projects across the region, including key Pacific wharves and the joint redevelopment of the Lombrum Naval Base in Papua New Guinea.
In addition, the government will boost defence training and exchange programs, increase cyber security assistance to the region, lift support for PNG and Fiji's air forces, and expand funding for Australia's Pacific patrol boat program, which has been plagued by mechanical woes.
Expansion of Pacific Australian Labour Mobility scheme
Australia's diplomatic and defence personnel footprint in the Pacific is expected to grow as well, although the government has not yet said how many new positions will be funded.
The budget also flags an expansion of the Pacific Australian Labour Mobility (PALM) scheme, which brings thousands of Pacific workers into the country to fill positions in industries grappling with labour shortages.
The government has devoted more than $370 million to expand the scheme, opening more liaison offices in Australia, boosting skill development for PALM workers and increasing the number of participants by opening the scheme to more Pacific Island countries.
The government believes it can recoup most of that cost — around $300 million — through increased tax receipts from next financial year.
In a statement, Foreign Minister Penny Wong called the Pacific announcements a "transformational package of support" which would "respond to Pacific priorities and ensure our shared interests in a peaceful, prosperous and resilient region."
Foreign aid budget not enough
The budget contains little new funding for foreign aid, with the level of overseas development assistance increasing slightly to $4.77 billion next financial year, still expected to only lift slightly in coming years.
But the government has promised to lift the foreign aid budget by 2.5 per cent every year from 2026-27, when the extra $1.4 billion in aid funding announced in October's budget runs out.
Jessica Mackenzie from the Australian Council for International Development said the built-in increases "showed a commitment by this government to solidify a base from which to grow."
"It's not radical, or enough, but they're sequencing things carefully," she said.
"They did capability resourcing first, next the [government's] new aid policy will launch, and then there's some long term stability to follow."
But Ms Mackenzie said in the short term Australia's foreign aid program would fall to a new historic low of just 0.19 per cent of Gross National Income — well below most other developed nations.
"We're slipping to the bottom of the global donor rankings, just when humanitarian crises are on the rise and climate change couldn't be more critical," she said.
An additional $457 million to DFAT
The Albanese government has also devoted an additional $457 million to DFAT, where there have long been internal complaints about funding shortfalls.
Foreign policy expert Allan Gyngell — who died last week — warned in the introduction to an internal review of the department that "the instruments of Australian foreign policy" had been "underfunded and, at times, marginalised" for several years.
Much of the money will be used to tackle longstanding problems, including $250 million to fund shortfalls in lease costs for diplomatic missions and $90 million to improve secure communication systems for overseas staff.
But the government will also provide an additional $80 million over four years to lift the department's strategic communications capability — a key shortfall identified in the review, which said DFAT needed to "encourage a broader culture of pro-active public engagement".
The government is also funding a host of smaller diplomatic initiatives in South-East Asia and again boosting diplomatic staff both there and in the Pacific, although it hasn't yet revealed how many new positions will be created.
Defence funding to slowly climb
The budget papers show that Australia's overseas spies will get a funding boost as well, with an additional $469 million provided to the Australian Secret Intelligence Service over four years.
Meanwhile, defence funding will continue to slowly climb in coming years, moving from around $52.55 billion next financial year to $54.4 billion the year after, and then $56.8 billion in 2025-26.
While that's an increase in absolute terms, spending as a percentage of gross domestic product actually bobbles around over that same period, moving from 2.04 per cent of GDP next financial year to 2.06 per cent in 2024/25 before dropping back to 2.04 per cent the year after.
But defence spending is still expected to sharply accelerate in the second half of this decade, reaching 2.3 per cent of GDP by 2032 as the government ramps up major projects flagged in the Defence Strategic Review including the AUKUS nuclear submarine project.
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