At the moment, AusAID is aligned with the Department but has its own structures and some independence.
The move has shocked aid organisations and former AusAID executives, who say the proposal could have a huge impact on Australia's aid program.
Presenter: Tom Maddocks
Speakers: Archie Law, CEO of Action Aid; Annmaree O'Keeffe, Research Fellow at the Lowy Institute for International Policy; Peter McCawley, Visiting Fellow, Indonesia Project, Arndt-Corden Dept of Economics, College of Asia and the Pacific, ANU
MADDOCKS: The proposal to absorb AusAID into the Department of Foreign Affairs and Trade has aid organisations concerned.
ActionAID is a partner to AusAID, and its spokesman Archie Law told NewsRadio there's a clear conflict in allowing DFAT to take control of the agency.
LAW: There is a conflict because then you start getting into this ridiculous discussion around how aid is a part of a global relationship to lift people out of poverty but it's actually all about trade. And this has been the dominant narrative from conservative politics for the last 20 years.
MADDOCKS: The Lowy Institute's Annmaree O'Keeffe worked for AusAID from 1986 to 2009 including as Minister-Counsellor for Development Assistance in Papua New Guinea.
She says that AusAID has always been part of the folio for foreign affairs but says it's sometimes been unclear how the two work together.
O'KEEFE: There is tension from time to time between AusAID and Department of Foreign Affairs in terms of how development can support foreign policy objectives and I think that's where sometimes people get a bit enthusiastic about how much development assistance can actually support broader foreign policy objectives.
MADDOCKS: The ANU's Peter McCawley was also on the executive of AusAID during the 80's and 90's and he says the decision to merge AusAID with DFAT has always been a possibility.
MCCAWLEY: We always knew on the executive that the aid agency could be moved or abolished at the flick of a pen of the prime minister. We always knew that.
MADDOCKS: He says there are clear pros and cons to the government's proposal.
On the one hand, he says, it makes it clear to Australia and the region that aid is an integral part of Australia's foreign policy.
But he says professionalism could lose out in the area of development.
MCCAWLEY: In the focus on development issues, particularly in Asia, poverty issues and global development issues which are certainly not the same as foreign policy. They are parallel to foreign policy but they are somewhat different.
MADDOCKS: He says development policy is now being pulled strongly under wing of the Department of Foreign Affairs.
MCCAWLEY: Because there is something of a difference between these two strands of policy it's inevitable that, at least in the first instance, it will be seen both within Australia and outside of Australia as a signal that development is taking second place. That's the inevitable signal that it sends. Now whether that's the right signal remains to be seen.
MADDOCKS: Peter McCawley has recently returned from two years in Indonesia where he was working as an economist with USAID.
He says these plans won't impact Australia's foreign aid to Indonesia but says the region could see Australia as pulling away from its priorities on development.
MCCAWLEY: Australian foreign aid to Indonesia is only a very small part of Indonesia's total expenditures. Having said that, AusAID in recent years has has a relatively senior profile in Indonesia, AusAID has had the single largest bilateral program in Indonesia and that has brought AusAID and Australia status and attention within Jakarta. Inevitably the signal is that Australia is winding back a little bit, and it's not just a signal to Indonesia. There is inevitably something of a signal to the Asian region that Australia is tilting in some other direction and perhaps pulling back from development issues and tilting towards diplomatic issues but I personally believe the real question is not what is the impact on Indonesia and other countries in the region but what is the impact on Australia and what is the impact on our own standing in the Asian region.