The Albanese government is embarking on a big economic gamble that challenges conventional economic thinking that has delivered national prosperity for the best part of 30 years.
“The argument that we should do industrial policy because everyone in the world is doing it is a crazy idea. Locally, inflation is persistent, with money markets pricing in a near-50 per cent chance of a late-2024 interest rate rise and Now, Chalmers wants to gradually shift the budget from fighting inflation to promoting economic growth. The prime minister has pledged grants, loans and equity injections of $1 billion for making solar panels, $1.4 billion for critical minerals projects and $2 billion for hydrogen. There is also $940 million from the federal and Queensland governments to lure from the US an
BlackRock global chief investment strategist Wei Li said policymakers face tougher “trade-offs” between economic growth and fighting inflation, than during the previous Great Moderation low-inflation era.Nonetheless, the Albanese government is right that the world is changing. From Canberra to Washington, China’s superpower rise has fuelled “securonomics” in the West, whereby national security has more influence over economic policy.
At the same time, Australia’s fossil fuel economy is attempting a challenging energy transition towards renewables. “A long-term perspective is required to ensure commercially viable investments are pursued in any industrial policy,” she says. Global risks back then included the Cold War, nuclear testing in the Pacific, military coups in Latin America and violence in Indonesian-occupied Timor.The Hawke-Keating economic reforms helped set up Australia’s three decades of Australian prosperity. But Albanese and Chalmers are veering on a different path.
Dr Aruna Sathanapally says there is a “risk of a return to the bad old days of protectionist objectives”. “Take the case of batteries,” she said. “Our research shows that while Australia might be able to compete on the early stages of critical-mineral processing, our labour, logistics, and import costs add up to too much to be competitive for the final stages of battery manufacturing.”If the government is to embark on industrial policy, the Business Council of Australia and economists say support must only flow to areas where Australia has a distinct international advantage.