Treasurer Jim Chalmers is threading a needle between bold public investments that establish Australia’s foothold in a churning global economy and what critics say could easily devolve into protectionism and rent seeking.
At stake is Australia’s reindustrialisation, its contribution to ameliorating the climate crisis and Dr Chalmers’ own legacy of creating a green energy super power.
On Tuesday, Parliament is scheduled to debate the legislation drafted to do it through a new ‘National Interest Framework’ that would guide how the government identifies the sectors worthy of billions of dollars of public investment.
Billed as an intricate response to global industrial competition, the climate crisis and geopolitics, the Albanese government’s Future Made in Australia policy has reignited age old debates on picking winners and protectionism.
The government has so far pledged $22.7 billion in tax incentives and innovation investments in industries like green hydrogen, critical minerals, solar panels and quantum computing.
“This starts from the premise [that] we have a moment in history where we can capture our comparative advantage,” Assistant Minister for a Future Made in Australia Tim Ayres said.
“Our vast mineral resources are below the ground, our solar and wind resources, the best in the world, above the ground. Our industrial capability that exists now, we can choose to capture that for future generations, or we can let the train leave the station.”
Investment rigour
As a busy Parliamentary sitting week gets under way, a consultation has been run on the two bills the government says will bring appropriate rigour to a Future Made in Australia (FMiA).
Under a proposed National Interest Framework that would be established by one of the bills, projects would need to satisfy either a net zero transformation stream or an economic resilience and security stream to gain FMiA support.
To qualify under the first stream, a potential sector must be assessed as having potential for sustained comparative advantage, but needing public investment to reduce its emissions.
Green hydrogen — which will receive production tax incentives of $6.7 billion through FMiA support — has been selected because it is highly energy intensive but able to utilise renewable energy in production, can reduce emissions in other areas of the economy and there is huge forecasted demand for it from partners like s Europe, India, Japan and Korea.
To satisfy the second stream, a sector needs to be assessed as a domestic capability that is a “necessary or an efficient” way of delivering economic resilience and security. Again there would need to be a legitimate need for public support in lieu of private investment.
Critical minerals processing – the other initial FMiA sector already pledged $7 billion in production credits – satisfies the second stream, because global supply is highly concentrated and vulnerable to disruption. The industry is seen as having a limited ability to adapt to a shock to the national interest, and a supply chain disruption would be significant.
The overarching goal of the National Interest Framework is to identify other crucial sectors that have not been able to secure private investment because of barriers like green premiums; or the private market has not adequately priced in the required level of economic resilience and security; or are considered so cutting edge that long-term capital is not available.
Treasury will conduct the assessments of sectors at the direction of the Treasurer to determine eligibility for FMiA support, which is intended to trigger private investment, rather than wholly sustain the industries.
Billionaire subsidies
FMiA support is not defined in the bills. It has so far come through things like planned production credits for hydrogen and processing critical minerals, or the planned $523 million in production incentives for battery manufacturing.
Senator Ayres says the production credits are “no regrets” measures because they breaks from traditional approaches like grants and incentives by only handing over taxpayers’ money when the manufacture has already take place.
“It is a smart industry policy and it’s going to produce generations of investment and new jobs in regions and suburbs that have seen investment retreating,” he told ABC radio.
The support also needs to come with regard to a Community Benefits Principle that can tie projects jobs, skill development, supply chains and tax payments. The legislation allows the government to contractually enforce terms to ensure that the benefits are transferring.
The plan to introduce rigour and additional benefits to a taxpayer funded reindustrialisation of Australia has widespread support, based on submissions to the current Senate inquiry into the bills.
But there are also loud calls to provide more detail, and warnings that the support could arrive too late as other nations deploy similar investments in strategic industries.
The Australian Industry Group said less than 2 per cent of the promised FMiA support will come this year and Australia risks falling behind other nations’ industrial support strategies.
“If FMIA is to deliver on its transformational objectives, it needs to begin incentivising private investments today, not towards the back of the forward estimates or beyond,” the group’s submission said.
The community benefits principle – which will be further defined in consultations – is already being flagged by business groups as a barrier if it is too narrowly defined.
“The Community Benefit Principles must not be so narrowly or rigidly defined as to undermine the success of FMIA, including by making it very difficult for participants to comply,” the Business Council of Australia said in its submission.
The federal opposition indicated it would oppose the Future Made in Australia push when it was unveiled in May, insisting taxpayers should not be “giving billionaires subsidies”.
Leader Peter Dutton’s stance appeared to soften last week after talks with resource companies in the political battleground of Western Australia, where companies have begun shedding workers. But he was contradicted by shadow Treasurer Angus Taylor days later, leaving the Coalition’s position unclear and a less certain path for the bills this week.
When Dr Chalmers introduced the Future Made in Australia bills last month, he said there is no time to waste.
“Australia has been dealt the most incredible set of cards to make ourselves the primary beneficiaries of the net zero economy,” he told Parliament.
“We have a unique combination of geological, meteorological, geographical and geopolitical comparative advantages. And we know it would be an egregious breach of our generational responsibilities as a Government if we didn’t play this winning hand.”
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