Treasurer Scott Morrison insists the foreign aid budget must "live within its means" as Labor warns nations like China could step in the fill the funding void.
In its third budget, the Turnbull government slashed $141 million from the aid pool on top of more than $11 billion in cuts made under the coalition since 2013.
"Dollar for dollar our aid budget today is far (more) powerful than it was in the past, not because of its quantum but because of its efficiency, effectiveness and focus," he told a post-budget National Press Club event on Wednesday.
Mr Morrison said the government was making the aid budget work harder.
"It's like on schools, you can have a big argument about how much is spent but what matters to the kid sitting in the classroom... is how well you spend the money," he said.
"We don't go around beating our chest saying it's this much. It's the quality of the program that delivers on the ground."
Opposition Leader Bill Shorten said foreign aid was not only good for the people it would help, but also good for strategic foreign relationships.
"If Australia abandons and leaves the region, then we create a vacuum which others will fill," he told Sky News, citing recent concerns about China's funding of a port in Vanuatu.
But when asked whether a Labor government would restore funding levels, Mr Shorten said: "We're going to crunch our numbers and see what we can do."
The proportion of foreign aid is expected to hit an all-time low - 19 cents in every $100 of gross national income by 2021-22.
"That's what (Foreign Minister) Julie Bishop and (Prime Minister) Malcolm Turnbull are delivering at the same time as they're giving the banks a tax cut," opposition foreign affairs spokeswoman Penny Wong said.
Australian aid groups were out in force on Wednesday to make their case for a boost to the aid budget.
CARE Australia warned it would be forced to scale back projects.
"This is a selfish decision," chief executive Sally Moyle told reporters in Canberra.
Meanwhile, Save The Children said the implications for the budget cuts would be felt across the globe.
"They have come at a cost to Australia's international standing, but most importantly, have come at a cost to the world's poor," acting chief executive Dianne Francois said.