A Future Made in Australia – old-fashioned protectionism or the new competition?

‘A Future Made in Australia’ – that’s either an inspiring vision for Australia’s economy or a cynical political campaign slogan.

Or possibly both.

Whatever it is, it was launched earlier this year by the Australian Prime Minister, Anthony Albanese. In the PM’s own words, AFMIA is a package of government initiatives ‘to boost investment, create jobs and seize the opportunities of a future made in Australia’. It will be the ‘work of a generation’ and, crucially, will see the government ‘investing in manufacturing to make more things here’.

The price tag? More than A$20 billion as an initial budget estimate but that will certainly rise over time.

The genesis for this plan is a little messy. It’s closely linked to the government’s desire to make Australia a ‘clean energy superpower’ and achieve the transition to net zero. It’s partly about meeting the government’s goal of a fairer economy. And it’s also aimed at improving Australia’s resilience and protecting the economy from the global supply chain problems that emerged during the Covid-19 pandemic.

That’s a tall order for a single government program.

Unsurprisingly, its announcement was met with scepticism in many quarters. It was criticised as too vague – long on rhetoric, short on detail. Even the government’s own Productivity Commissioner Danielle Wood expressed major doubts.

The subsequent release of the Future Made in Australia Bill 2024 has not done much to allay concerns. Those concerns fall into two broad categories.

The first is that governments are no good at picking winners; that AFMIA would mean billions of taxpayer dollars wasted on subsidising bad ideas and inefficient industries. The country would be mad to make things in Australia when they can be bought much more cheaply from overseas. To do so would constitute a break with economic orthodoxy and a return to the 1970s.

Prime Minister Albanese disagrees. According to him everybody’s now protecting their ‘critical industries’, including the US through its Inflation Reduction Act and CHIPS Acts. In his announcement, the PM also cited the European Union’s European Economic Security Strategy, Japan’s Economic Security Promotion Act, and the Republic of Korea’s National Security Strategy.

Albanese argues these countries ‘are investing in their industrial base, their manufacturing capability and their economic sovereignty’. He insists ‘this is not old-fashioned protectionism or isolationism – it is the new competition’.

Economic sovereignty is another way of saying it’s too risky being reliant for manufactured goods on countries that may not always be our friends.

One example frequently debated is solar panels. Opponents of AFMIA say Australia cannot begin to compete with China in the manufacture of solar panels. Economic efficiency should decide the matter. Proponents counter that energy independence is too important to be left in the hands of foreign manufacturers.

The second broad category of concern is that AFMIA will just be a breeding ground for the sort of ‘soft corruption’ that has a long history in Australia – special deals for political insiders, well-connected rent-seekers, and union mates. It will fund vote buying on a massive scale with government politicians deploying manufacturing subsidies to gain political advantage in marginal electorates.    

What the Productivity Commissioner called ‘a giant pork-barreling scheme’. 

Australia has form here. For years the country continued to manufacture cars long after the domestic industry had become internationally uncompetitive. But the electoral downside of removing government subsidies delayed the inevitable for many years.

The ongoing manufacture of navy vessels in Australia is a good illustration of the competing arguments around AFMIA. A decade ago, the then Defence Minster said he wouldn’t trust the Australian Submarine Corporation to build a canoe. Hardly a ringing endorsement of the local industry. Furthermore, there’s no doubt the vessels built here could be acquired overseas far more cheaply.

However, Australia maintains a domestic vessel manufacturing capacity to protect local jobs (and votes) and to at least partly avoid reliance on other countries.   

It was obvious from the moment AFMIA was announced that a vital requirement for its success would be proper oversight of projects seeking funding. That oversight will take the form of a  ‘National Interest Framework’ administered by the Treasury. This will provide ‘rigour to Government decisions on significant public investments in industry on the basis of the national interest, particularly when they are used to incentivise private investment at scale’.

Factors to be considered include ‘Australia’s grounds for lasting competitiveness’, ‘building Australia’s economic resilience and security’, and ‘whether the barriers to private investment can be resolved through public investment in a way that delivers compelling public value’.

However, once the tap is turned on and the money starts to flow, it will take real discipline to sustain the requirement for ‘compelling public value’.  The risk was captured in a wonderful headline in the Australian Financial Review – ‘Caravan and chocolate makers line up for Made in Australia billions’. 

This is a reference to some of the submissions to the parliamentary committee currently conducting an inquiry into the AFMIA Bill. Industries that might not immediately have sprung to mind as potential beneficiaries of the government’s new program clearly think they’re in with a chance.

The Caravan Industry Association of Australia submitted that the committee ‘should prioritise initiatives that enhance local manufacturing capabilities within the caravan industry’. Perhaps a good case can be made for green energy infrastructure and manufacturing facilities for essential medical and military equipment, but caravans? 

The Australian Food and Grocery Council’s submission called for a 30% ‘investment tax incentive’ as part of AFMIA. According to the Council this ‘will improve the sector’s resilience, safeguard Australia’s sovereignty and economic prosperity, and support government initiatives on clean energy and the circular economy’. 

AFMIA will open the floodgates on requests for assistance and managing expectations will become a real problem for the government. Can it avoid a budget blowout without antagonising too many business and union groups?

Cleaner energy, a fairer economy, and greater economic security are all laudable goals for the government. But securing them is fraught with political and budgetary risks.

*For more on a Future Made in Australia, also see this episode of the Of Interest podcast featuring Kylie Walker, CEO of the Australian Academy of Technological Sciences and Engineering.

*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.