China investors in the cold as Chalmers makes security a test for budget largesse

Australia’s national security and the country’s ability to survive another collapse in global supply chains will determine which businesses get a share of the federal government’s multibillion-dollar Future Made in Australia budget spend.

Treasurer Jim Chalmers will use a speech in Sydney on Wednesday to flesh out key details around the government’s plans to boost domestic manufacturing, arguing it would be “preposterously self-defeating” for Australia to ignore the way other nations are investing in supply chains and emerging businesses.

Treasurer Jim Chalmers will reveal key parts of the government’s multi-billion dollar Future Made in Australia policy on Wednesday.Credit: Bloomberg

He will also reveal key changes to the government’s foreign investment laws aimed at attracting more overseas capital while making it more difficult for businesses with links to countries such as China to invest in sensitive industries or buy property near defence bases.

The Future Made in Australia policy, a central plank of the May 14 budget, was unveiled last month by Prime Minister Anthony Albanese but details on the way it will operate, its cost and how successful businesses will be selected have until now been scant. The long-term cost of the policy and how it will be funded will be revealed in the budget.

The policy has come under fire from economists including Productivity Commission chair Danielle Wood, who warned that so-called temporary subsidies to support an industry often become permanent taxpayer handouts.

Chalmers, in a speech to the Lowy Institute, will argue the policy was aimed at providing temporary support under “strict criteria” in markets which either don’t yet exist or are not close to being fully formed.

He will reveal that prospective investments will be measured against five tests that include whether an industry can be more competitive, contribute to an “orderly path” towards net zero emissions, build the capabilities of Australian workers, and improve the country’s national security and economic resilience to shocks while also delivering value for money to taxpayers.

There will be two pots of financial support. One will cover national interest where “domestic sovereign capability is necessary to protect our national security interests or ensure our economy is sufficiently resilient to shocks” while the second will be delivering on the country’s emissions targets.

On Tuesday, Albanese confirmed $1 billion in grants, equity stakes and loans would be made by the federal and Queensland governments to US-based PsiQuantum for it to establish the world’s first commercial-scale useful quantum computer.

Chalmers will argue the world faces its most challenging strategic environment since World War II as countries deal with decarbonisation, national security challenges and a dramatically altered economic outlook.

He said Australia would target its government support at areas such as quantum computing, refining of critical minerals and renewable hydrogen as it could not compete with the subsidies being used by nations such as the United States.

“The scale of subsidies in the three major global economies of course dwarfs anything Australia can offer, which is why we will be smart and strict. We can’t replicate or retrofit the approaches under way elsewhere,” he will say.

“But it would be preposterously self-defeating to leave our policies unchanged in the face of all this industry policy taking shape and taking hold around us.”

Chalmers will also use the speech to reveal changes to foreign investment rules that will toughen regulations around parts of the economy considered “sensitive” while easing restrictions in other sectors.

The government will increase resources to screen investment in critical infrastructure, critical minerals, technology, businesses that hold sensitive data and where a foreign firm wants to invest near existing defence sites.

The Treasury will get extra support for on-site business visits to ensure they are abiding by conditions set by the Foreign Investment Review Board.

But restrictions in less sensitive areas will be eased. Repeat investors will have paperwork requirements reduced, timelines for decisions will be shortened while foreign investors will be able to buy established build-to-rent projects.

“Our reforms will make Australia a more attractive place to invest, boost economic prosperity and productivity, while strengthening our ability to protect the national interest in an increasingly complex economic and geostrategic environment,” Chalmers will say.

Tighter rules on foreign investment around Australian military bases will be introduced by the federal government.

According to Deloitte Access Economics, Chalmers will deliver a second successive budget surplus but for the coming year the nation’s finances will go back into the red.

Deloitte partner Stephen Smith said Chalmers is on track to follow the $22.1 billion surplus recorded in 2022-23 with a $13.4 billion surplus this financial year, before forecasting a deficit of $7.9 billion.

A deficit of $7.9 billion would be an improvement on the mid-year budget forecast of $18.8 billion and well ahead of the forecast from May last year of $35.1 billion.

Smith said a second successive surplus would be a proud moment for the government, it had to look at ways to bring spending under control.

“Although the government should take credit for producing the surpluses, its fiscal plan ultimately relies on banking upside revenue surprises. It’s a short-term approach that does little to firm the foundations of the long-term budget position,” he said.

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