Australia's Foreign Minister has flagged major changes to the way the country determines its foreign aid budget.

Julie Bishop says the Federal Government will soon introduce a performance evaluation system for foreign aid, with an emphasis on value for money.

She says it will ensure the foreign aid system is affordable and sustainable, while still being effective for countries in Australia's region.

“Despite billions of dollars in foreign aid over recent years some nations will not meet one of their millennium development goals by 2015, and in some instances they have gone backwards, this can not be allowed to continue,” Bishop told a speech in Melbourne.

Bishop says some of the countries receiving foreign aid have not experienced any economic growth.

She says the new system will ensure taxpayers' money is spent on programs which are responsible.

“In the near future I will announce the detail of a new performance framework for the aid program that will drive the neccessary change to link performance with funding.”

Since its election last September Tony Abbott's Government has foreshadowed linking Australian aid to its trade priorities.

Bishop's speech comes as Australia prepares for its next budget - one which the government has already indicated will include major cuts in expenditure in all departments.

Bishop says Foreign Affairs will again feel the pinch.