Opinion
Albanese has a grand plan for your future, and he’ll dare Peter Dutton to block it
Peter Hartcher
Political and international editorIf you’d been wondering what Anthony Albanese had in mind for a second term in power, he whipped off the tarpaulin on Thursday and gave us a first look.
His “Future Made in Australia” plan is also a mainstay of his future political program – a large-scale series of subsidies and incentives for investment in green energy and manufacturing.
Thanks to Utopia, Prime Minister Anthony Albanese has had to avoid any reference to “nation building”.Credit: ABC
He didn’t declare a new era of “nation building”. The satirists of Utopia have made that phrase forever unspeakable for serious occasions and national pep talks. But it’s nation building by another name: “Aim high, be bold and build big,” pitched the prime minister. He pointed out that the US, EU, Japan, South Korea and Canada have fired up major new government programs with trillions of dollars to subsidise key industries.
“The game has changed,” he said in his Brisbane speech. “All these countries are investing in their industrial base, their manufacturing capability and their economic sovereignty. This is not old-fashioned protectionism or isolationism – it is the new competition.” And: “We need sharper elbows when it comes to marking out our national interest. And we need to be willing to break with old orthodoxies and pull new levers to advance the national interest.”
The prime minister didn’t pronounce dead the “invisible hand” of market forces, but he made clear that the helping hand of Anthony Albanese would be the one pulling the levers, and sharp elbows will fly: “Securing jobs, attracting investment and building prosperity has never been a polite and gentle process where every nation gets a turn – it’s always a contest, it’s always a race … Australia is in this race, no matter what.”
Albanese’s speech was conceptual, not concrete. He was claiming an ideological licence to overrule 40 years of Australian commitment to free markets. And establishing a policy imperative, a “new competition” between nations for investment.
His speech contained no specifics on the scale or design or scheduling of his plan. The most specific offering was the slogan – the government would bring a bill to the parliament mid-year with the title “Future Made in Australia”, he said.
But this automatically means that the Coalition will need to decide whether to vote for or against it. Albanese will dare Peter Dutton to block it with the next federal election due by May next year.
And it’ll be an umbrella bill, overarching many different funds and programs. Meaning that the government will present it as an all-or-nothing package, making it harder for the Coalition to cherry-pick programs or favourite funds. And we already know a fair bit of what’s to be under the umbrella. Because Albanese’s speech, in part, was repackaging rather than revelation. The government already has created a series of subsidy funds, mostly untapped to date. Collectively, they represent a lot of firepower.
There’s the National Reconstruction Fund Corporation with $15 billion yet unspent but destined for seven priority sectors – projects that add value to mineral resources, agriculture value-adding projects, transport, medical science, renewables, defence and advanced manufacturing.
There’s the Critical Minerals Facility, which the Morrison government set up with $2 billion and Albanese doubled to $4 billion, for processing, not just digging up, the minerals needed for green tech such as batteries, EVs, hydrogen electrolysers and solar panels, as well for smartphones, computers and missile targeting systems.
And there’s the new $2 billion Hydrogen Headstart fund and the very new Solar Sunshot fund with $1 billion, announced just two weeks ago. Albanese also added $20 billion to the pre-existing Clean Energy Finance Corporation after it fully committed its initial capital of $10 billion.
So that’s some $44 billion already, the vast majority uncommitted and available. And this is just the beginning.
There will be more announcements in next couple of weeks. There will be more in the May 14 federal budget; more funding, more mechanisms for investing it, more projects to spend it on. And more announcements all the way to the next election and beyond, should Labor win.
But has the game changed? Or is this just an elaborate backstory for a giant splurge of electioneering pork?
A former deputy governor of the Reserve Bank, economist Guy Debelle, says that “I’d agree with the PM’s point that, ‘well, everyone’s doing it’. No one really plays by the rules.”
The Biden administration’s vast investment plan, under the misleading title of Inflation Reduction Act (IRA), contains subsidies of almost half a trillion US dollars for American industry.
But the 10-year cost to the US Treasury is estimated at between $US800 billion and $US1.2 trillion, a figure equal to the total annual economic output of Australia.
“The IRA is the biggest peacetime industrial policy we have seen in the world,” says Debelle. “It’s there, and you can’t just wish it wasn’t. The US is blowing our comparative advantage out of the water by throwing hundreds of billions of dollars at it, across the board, not just in areas of American comparative advantage.
“We can’t afford to do that – and I’m not sure the US can either with a government deficit of 7 per cent of GDP – but they can get first-mover advantage and gazump our comparative advantage.”
And the US was not the first to bring massive subsidies to its manufacturers. China built its manufacturing sector on government subsidies. This week, it was estimated that a single Chinese firm in just one industry – EV maker BYD – received a startup subsidy of around $US4 billion.
Much of what the US is doing is an effort to claw back some competitiveness against China. And the EU is part-way through its own massive subsidy program for manufacturers – €578 billion over six years.
The Japanese, Koreans and Canadians have entered the competition, too, if only to prevent their existing companies from migrating to the US or Europe to collect the subsidies. Australian companies and investors welcomed Albanese’s speech this week for the same reason – without government support, they say, many would be forced to leave the country.
Australian companies and investors welcomed Albanese’s speech – without government support many would be forced to leave the country.Credit: John Shakespeare
Debelle cautions that this is no excuse for dumb Australian government policy: “Subsidies have to stack up.” Kevin Rudd memorably said that he wanted an “Australia that makes things”. This, in itself, is inane. What things? Bubble blowers and action figures?
Says Debelle, who also served for a while as chief financial officer for Andrew Forrest’s green hydrogen business, Fortescue Future Industries: “If we are using subsidies to go back to making cars in Elizabeth, that’s not as good an outcome.”
So what is a worthwhile investment of public monies? Any government support should go to industries where Australia already has underlying comparative advantage, says Debelle. This is the same point made by the chair of the Productivity Commission, Danielle Wood, this week.
Green energy and critical minerals processing are standouts where Australia has clear comparative advantage, says Debelle. Putting his money where his mouth is, he’s on the board of a critical minerals startup.
Overlaying all of this is the need for nations to control their fates by investing in essential capabilities against the risk of major crises – pandemics, wars, shipping blockades – all of which seem more present than just a few years ago.
Albanese says that the government will apply three principles. First, invest at scale “to maximise national reward”. Second, “be more assertive in capitalising on our comparative advantages and building sovereign capability in areas of national interest”. Third, invest in the “foundations of economic success” otherwise known as the basics like education, worker skills, infrastructure.
The whole concept is pregnant with failure, of course. Malinvestment, political pork barrelling, bureaucratic bungling beckon.
Albanese says it will not be a pork barrel – the government points to the structure of its National Reconstruction Fund, which has an independent board, clear criteria and arms-length decision-making. But the fund, so far, has failed to invest a cent. “Announcing more is great,” says Debelle, “but we haven’t got anywhere with what’s already on the table.”
The imperative for Australia to have an internationally competitive industry policy is very clear. Unless Australia competes aggressively for capital in this vast global investment boom, it will stagnate. Living standards inexorably will fall.
But discipline is essential. “The devil”, as Debelle says, “is in the execution”. Utopia awaits the unwary.
Peter Hartcher is political editor.