The Federal Budget 2024-25 - A values-based, market shaping approach

This week, the 2024-25 Federal Budget was handed down. Watching the budget media coverage and then receiving the summary emails on Wednesday morning left me feeling somewhat mixed and confused.

Specifically, what does the ‘Future Made in Australia’ industrial policy entail? And why has it drawn criticism from conventional economic thinkers?

Echoing the Inflation Reduction Act enacted by the US Government in 2022, the Future Made in Australia Act (2023) targets specific local industries for growth, such as green hydrogen production, battery energy storage systems, and other emerging renewable technologies. These efforts are aligned with Australia’s abundant natural resources and existing industrial strengths.

One can see why this approach might draw criticism from conventional economists. After all, it does have the potential to cause market distortions. By picking and propping up winners, there's a risk of crowding out investment in other sectors or stifling market-driven innovation.

In other words, is Jim Chalmers attempting to intervene in the markets of climate and energy transformation to create public value rather than address specific market failures? Will the Government effectively pick the winners of the climate transformation? It has already faced criticism for providing almost $1 billion to a single quantum computing company in Brisbane.

However, does this new approach align with changes in public policy thinking in recent years, moving away from conventional ‘market failures’ frameworks to proactive value-creation and market shaping? Economists like Mariana Mazzucato have argued for a “more ambitious and positive concept of public value, which rejects the ‘market failure’ framework and places public value at the centre of the economy, not on the periphery.”

Is Australia moving in this direction with these heavy-handed, market-shaping industrial policies?

Is the Future Made in Australia Act a temporary but catalytic investment to support growing industries so that they can compete more effectively in the global economy (which is also being supported by similar government interventions)?

I’ll keep the rhetorical questions coming. There are more questions than answers right now, but one thing is becoming clearer:

Australian industries will need to become more comfortable with being shaped by the Government as we enter a highly competitive global economy that is racing towards net zero. We may be taking some risks along the way, but some risks will be worth taking if we can catalyse and then sustainably grow new industries and workforces for the future economy.