Made in Australia: The $22.7 billion punt to rival China’s dominance

The budget’s biggest new spend will be a $22.7 billion bet on a clean-tech Australian future, with subsidies for commercially unproven green technologies, in an ambitious attempt to break China’s dominance in the global supply chain.

Treasurer Jim Chalmers said the global transition to net zero emissions was a golden opportunity for Australia, but new policies were needed, including tax incentives to develop new industries to make this switch – such as processing minerals including lithium and rare earths in Australia, forging green steel, producing clean hydrogen, and making solar panels and batteries locally.

The government is betting big on green technologies and industry to grow local manufacturing.Credit: Bloomberg

“If we hang back, the chance for a new generation of jobs and prosperity will pass us by – and we’ll be poorer and more vulnerable as a consequence,” Chalmers said.

Despite this call for urgent action, most of the funds will not become available until mid-2027 and will be spread over a decade, highlighting the challenge for the government’s homegrown vision. These technically challenging industries are starting from scratch and face stiff international competition and criticism from economists, who warn against propping up industries at a cost to taxpayers.

Critical minerals

The budget estimates the government will hand out $7 billion in tax credits for processing and refining any of the 31 minerals on Australia’s critical list, many of which are used in the production of clean energy products like solar panels, batteries, electric vehicles and wind turbines.

Australia has some of the world’s biggest known reserves of critical minerals and is among the top global producer of nickel, cobalt, manganese ore and rare earths.

But after decades of strategic investment to boost its local industries, China has established a near-monopoly on processing these minerals to make them suitable for manufacturing.

The tax credits are designed to help level the playing field. They kick in once a company has started production and effectively deliver a cut in operating costs.

The US and European Union have encouraged Australia to develop its critical minerals processing and indicated their own green stimulus funds could include tax breaks for companies operating in Australia.

The budget allocated up to $1.2 billion in cash grants to mining companies for “priority critical minerals projects”, some of which has already been allocated but remains confidential for commercial reasons.

Green hydrogen

The budget has also boosted the $2 billion commitment already pledged by the federal government to the nascent green hydrogen industry, with an expected $6.7 billion in tax credits – offered per kilogram based on the cost of production – to be delivered to industry in the decade from mid-2027.

Green hydrogen – made using renewable energy to burn cleanly – is not in large-scale commercial production anywhere around the world, but Australia is betting on its growth potential, which will be driven by heavy industry’s demand for a replacement for fossil fuels.

The government has already shortlisted six green hydrogen projects around Australia, currently in the early stages of development, and it expects its scheme to fund up to 20 more, given keen interest in the first round of the scheme.

Hydrogen is pitched by government as a new industry to replace the jobs that will be lost in industrial heartland built around fossil fuels, such as Gladstone, Newcastle and the Latrobe Valley.

Green manufacturing

The government previously announced $1 billion over 10 years from this year under the Solar Sunshot scheme, which would also deliver tax credits to companies that make products in the solar panel supply chain.

China currently manufactures 99 per cent of the world’s solar panels while Australia has the highest per capita uptake of rooftop solar in the world.

The budget revealed a further $523 million for the Battery Breakthrough Initiative, with tax credits for local manufacturers.

The $22.7 billion Future Made in Australia scheme also includes $1.7 billion over a decade from 2024 to provide grant funding for companies investing in green metals, solar panel manufacturing, battery making and other clean technologies.

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