Australia can be a primary beneficiary of the churn and change in the global economy, but only if we make ourselves indispensable to the net-zero transformation and only if we align our economic and security interests more tightly.
The budget we hand down this month will put a premium on responsibility and prosperity, a primary focus on cost of living, but also a bigger emphasis on economic security.
We recognise that in facing the most challenging strategic environment since World War II, economic resilience is an essential component of ensuring our national security.
Whether it’s our efforts to become a renewable energy superpower, our significant investment in quantum computing or our reforms to strengthen Australia’s foreign investment framework, national security and economic security will be defining features of the Albanese Labor government’s third budget.
That’s what a Future Made in Australia is about – powering the future, not manufacturing the past.
Three economic shocks in 15 years have prompted, then prolonged, a period of churn and change in the global economy.
Recent events make clear that the pace of that change is accelerating. The global economy is uncertain and unpredictable, fraught and fragile. Inflation is moderating but lingering, especially in North America; growth is weak in China and slowing in other major economies; the Middle East conflict has escalated, risking higher oil prices; the war in Ukraine continues; supply chains are fragmenting while the global economy transforms.
A soft landing is assumed but not assured.
These are the key contemporary factors influencing the coming budget. The environment we face today and in the decade ahead is evolving – heightened geostrategic competition, a rules-based international system under continuous pressure, demographic change, unmistakeable impacts of climate change, greater risk of major shocks to supply chains, and a restructuring of global trade from the net-zero transformation.
There also has been a stupendous increase in industrial subsidies, particularly among the major economic powers.
In the past year alone, the International Monetary Fund found 2500 subsidy interventions had been introduced throughout the world with China, the US and the EU accounting for almost half. The scale of subsidies in the three major global economies of course dwarfs anything Australia can offer.
We can’t replicate or retrofit the approaches under way elsewhere, 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.
The budget I hand down in less than two weeks will be focused on maximising our advantages to align our economic and national security interests and make our people the big beneficiaries of change. Our Future Made in Australia policy – which encompasses our substantial investment in quantum computing and our overhaul of foreign investment settings announced on Wednesday – is central to maximising our advantages in the face of heightened geostrategic competition.
Our medium-sized, open economy and small population mean we don’t have the internal markets to insulate ourselves from the world in ways that others can, even if we wanted to.
A Future Made in Australia doesn’t mean a future made alone. Where markets are nascent or don’t yet exist, there can be a case for targeted, temporary support to crowd in private investment, especially in industries that meet strict criteria. For us, this rigour will be imposed by the Future Made in Australia Act that the Prime Minister flagged last month. We will set five tests on where we act, and how.
First, is the industry one in which we can be competitive and more productive? Second, does it contribute to an orderly path to net zero? Third, can it build the capabilities of our people and especially our regions?
Fourth, will it improve Australia’s national security and economic resilience? And fifth, does it recognise the key role of the private sector and deliver genuine value for money for government?
The act will also outline criteria for two streams. First, a national interest stream, where domestic sovereign capability is necessary to protect our national security interests or ensure our economy is sufficiently resilient to shocks. This will have a focus on only the most critical risks – to avoid a costly mindset of trying to eliminate all risks.
And second, a net-zero transformation stream, where industries support decarbonisation, and there is a reasonable prospect of a self-sustaining comparative advantage.
Our initial focus – on refining and processing critical minerals, producing renewable hydrogen, exploring production of low-carbon liquid fuels and green metals, and supporting targeted manufacturing of clean energy technologies including value adding in the battery supply chain – reflects this rigour.
Critical technologies such as quantum computing are an essential focus, too. From batteries to biopharmaceuticals, from solar capture to AI, the leap forward offered by quantum computing could also be a leap forward in our ambition to make a future here in Australia.
The announcement made by Anthony Albanese on Tuesday means this is a chance that won’t pass us by, as we work in partnership with PsiQuantum to build a quantum computer in Queensland and to initiate the next wave of innovation in our economy.
Nobody is claiming we have the scale to compete in every industry or that we should retreat from trade, or make every one of the goods that we need here; nobody is saying we need to outspend or compete dollar for dollar with the scale or internal markets of bigger economies; and nobody is saying that this will involve solely public investment. Public investment – important and substantial – is a key to help unlock the hundreds of billions of dollars’ worth of private capital we’ll need to deploy, particularly as part of the net-zero transformation. The opportunities of a world upturned lie ahead of us, not behind us.
We can make our country and our people the big beneficiaries of the big changes in the global economy, but only if we make ourselves indispensable to the net-zero transformation and better align our economic and security interests, which will be key priorities in the budget two weeks from now.
We believe Australia can be an island of reliability in a sea of uncertainty. By aligning our economic security with our national security to make our people the big beneficiaries of change in a global economy we help shape, and the future we make, together.
Jim Chalmers is Treasurer of Australia.
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