The ‘new protectionist’ policy goes to heart of budget credibility

If the Albanese government wanted to avoid the perception of crony capitalism in its Future Made in Australia push it is off to a poor start. Revelations that Labor insider lobbyists, including former employees of Deputy Prime Minister Richard Marles and Jim Chalmers, played a key role in securing $1bn in taxpayer funds to hopefully build a new era quantum computer in Brisbane is concerning, particularly given industry reports there was a lack of transparency in contracting. As we reported on Wednesday, the Labor roots in the agreement with US-based company PsiQuantum run deep, extending to the Rudd-Gillard government, and include companies with links to sitting Labor MPs.

Equally difficult is the fact a large measure of another $1bn in taxpayer funds given to support solar panel manufacturing has gone to a company associated with former prime minister Malcolm Turnbull and tech billionaire Mike Cannon-Brookes. With reports that billions more soon will be directed towards further seeding a hydrogen industry against fierce international competition, the danger signs are clear. Businessmen with the deepest personal pockets are lining up to tap the commonwealth for money that can rightly be described as high-risk capital.

This is why the Future Made in Australia policy has been roundly criticised by the full gamut of economists, including past and present chairs of the Productivity Commission from which the federal government is supposed to take its advice. Critics argue the “new protectionists” of today are repeating the mistakes of the past with policies that will stifle non-protected industries and result in the misallocation of capital to favoured industries and projects at the expense of the broader economy. Supporters claim new policies are required for changed global circumstances, and the Treasurer says the new thinking will be reflected in the federal budget.

Early management of the Future Made in Australia policy goes to the heart of the Albanese government’s budget credibility. Despite criticism from the experts, Dr Chalmers has been keen to build a bigger narrative around the need for government to spend taxpayers’ money on commercial endeavours on the basis of a new global uncertainty that is enhanced by a new era of trade and security competition between the great powers. The latest justification for the Future Made in Australia push was contained in a speech delivered to the Lowy Institute by Dr Chalmers on Wednesday.

There is a powerful case for Dr Chalmers to spend less time on lofty rhetoric and more time on the critical numbers. As we reported on Wednesday, Dr Chalmers is on track in the May budget to pick up almost a quarter of a trillion dollars more in receipts across this financial year and the next two combined than was forecast just two years ago by Josh Frydenberg. Rather than bank the windfall, the Albanese government has embarked on a large increase in government spending. This has led to concerns that lax fiscal policy on the part of the federal government is working against the monetary policy efforts of the Reserve Bank of Australia to rein in inflation.

Rather than expose taxpayers to the vagaries of becoming venture capitalists, the government has more mundane tasks it must perfect. All involve budget discipline. Top of the list is to bring under control the alarming costs growth of the National Disability Insurance Scheme. It must solve the energy dilemma that is forcing energy costs up and making future supplies less certain. Finally, there appears to be an acknowledgment that further gas supplies will be necessary. A realistic view is needed on the big hopes for new technologies such as offshore wind and the likely delays and shortcomings they will entail.

Getting the budget basics right is a good place to start. The government has made a big deal of the high level of pandemic era debt that it inherited from the Morrison government. Reviews of the Coalition’s borrowings and emergency spending have shown they were justified and well managed. The responsible thing for Labor to do is to use the budget windfall gained from high employment, bracket creep and high commodity prices to pay down that debt. Together with the financial dangers posed by a mismanaged Future Made in Australia policy, Dr Chalmers’ reluctance to make a budget surplus and debt retirement his priority bodes ill for the economic future.