1 May 2024

Address to the Lowy Institute, Sydney


Economic security and the Australian opportunity in a world of churn and change

For tens of thousands of years, the Gadigal people cared for the country we meet on today. We acknowledge their elders, customs, traditions, and all First Nations people here.

Michael, thank you. For the invitation, the introduction, for hosting us, for your leadership, and your friendship which I can hardly believe now spans almost 2 decades.

Steven and the Lowy family, all distinguished guests – can I simply say it’s an honour to be here with so many great people and at this Institute, an Australian creation worthy of the immense respect and renown it’s earned here and abroad.

Today is a little under 2 weeks before Budget, and a little under 2 weeks since I returned from the G20 and IMF’s Spring meetings in Washington DC.

We had plenty to talk about.

There is some welcome resilience in the global economy, but we still face a perilous outlook, 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.

They are pressing and substantial, especially when it comes to inflation which will still be the major near‑term focus.

But I want to take this opportunity today in front of an informed audience to talk about Australia’s longer‑term choices and chances.

And to make this argument:

Australia can be a primary beneficiary of a changing and churning global economy just like we were primary beneficiaries of the calm that preceded it.

But only if we make ourselves indispensable to the net zero transformation, only if we align our economic and security interests more tightly, and only if we invest and engage, not just protect or retreat.

Calm and consensus

Visiting Washington again, participating in the discussions about where we are and where we are going in the global economy, I was reminded that we are just a couple of months short of the 80th anniversary of the Bretton Woods Conference that created the framework for the post‑war economy.

America then and in the immediate post‑war years accounted for half of global output, and it was American power which provided the weight and the heft and the ballast to ensure the new structure worked.

The IMF and the World Bank provided the tools and the ideas to bring it into being.

Australia was an enthusiastic contributor to the design of that new global economic order, imagined in the war and fashioned in its aftermath.

With John Curtin’s strong support, Ben Chifley as Treasurer led Australia’s engagement with this creation.

Chifley made sure that Australia was never a bystander, always a participant, a mediator, a motivator.

His determination was evident in how he directed and instructed some outstanding public servants.

As early as 1942, Chifley had Roland Wilson in London for discussions with Keynes about a global central bank.

In 1943, Nugget Coombs was in Washington for talks about the dollar.

Two months later he was in London, to talk with Keynes about trade and the Australian idea that there should be a global commitment to full employment – which could support demand for our exports abroad and create jobs at home.

Leslie Melville, an outstanding public servant, was our representative at Bretton Woods and a widely respected one.

Because of his contribution, Australia there was said to be ‘more Keynesian than Keynes’.

Melville’s dogged pursuit of Chifley’s global full employment objective did not prevail, but it influenced the debate.

Coombs represented us in what became the General Agreement on Tariffs and Trade.

This practice of serious engagement and participation – Australia as persuader – meant we were well placed to be beneficiaries of the order Bretton Woods helped to create.

By the 1980s it had provided much of the institutional and intellectual basis for the ‘Washington Consensus’ of fiscal discipline, floating exchange rates, liberalised capital flows and the free movement of people and goods.

It was a world that Australia found congenial.

A world only upended by the 2008 financial crisis, severe recessions in the US and Europe, an uncertain recovery that ended with COVID, and a subsequent spike in inflation which crested not long ago.

Churn and change

So Australia was among the most determined contributors to the thinking behind the Bretton Woods institutions and among the major beneficiaries of the stability they helped underwrite for the 2 decades between the Berlin Wall coming down, and the global financial system blowing up.

The last 16 years of the global economy have been much more difficult.

A decade and a half punctuated by the unmistakable signs of climate change, a pandemic and a European war which both exposed fragilities in our supply chains, and which spurred a damaging spike in inflation –

As the Great Moderation of the 1980s onwards gave way to the Great Fragmentation.

Alongside a changing pattern and primacy of US influence, amidst a great power contest with China –

And its support for freedom and self‑determination in Europe against the aggression of Putin –

The Americans have been forced to reconsider their own assumptions and strategies, leading to a major renewal of their own industrial policies.

A speech last year by Michael’s friend Jake Sullivan set out the intellectual and strategic contours of US thinking.

As much as what he said, the truly remarkable thing was that he said it at all.

When the US National Security Adviser is giving an economic speech about industry policy and the middle class, at Brookings, you know that the Inflation Reduction Act is as much about security as prosperity.

Just as when the Australian Treasurer fronts the Lowy Institute 13 days from a Budget, it tells you something about the fusion of Australia’s international and domestic ends and the integration of the government’s economic and strategic means.

Too often contemporary Australian politics has assumed an artificial distinction between our prosperity and our security that Anthony’s government and the key ministers within it have tried to erode if not erase.

We recognise that in facing the most challenging strategic environment since World War II, economic resilience is an essential component of assuring our national security.

This is part of what our government means when we talk about the need for unprecedented coordination and ambition in our statecraft, harnessing all elements of our national power to advance Australia’s interests.

The Budget will be key in this regard.

There’ll be a familiar premium on responsibility, but a greater emphasis on security.

National security and economic security.

Security in churn and change, not security from churn and change.

Looking forward

At the G20 and IMF meetings in Washington there was much that was familiar to me from advising Treasurer Swan in the Rudd and Gillard governments.

Running off the jetlag on the Mall, the coffee cups with the retro IMF logo, the perfectly white chairs, the charismatic, reassuring presence of Christine Lagarde, all the settings and set pieces.

But there was a key difference this time.

Not just the renewed focus on security.

But a sense that we are now in a new phase in the global economy, one just only becoming evident.

Because only now – only after the 2008 financial crisis, the recessions in Europe and North America, and slow output growth that followed – after the pandemic and the subsequent acceleration of inflation in many economies, only now are the longer‑term underlying issues in the global economy becoming more discernible.

We are no longer just dealing with sudden and unexpected shocks, tensions in the Middle East or new developments in Ukraine notwithstanding.

We are not only dealing with the now, as important as that remains.

In DC it was as if for the first time since the GFC it is possible for global leaders to think about what the next 10 to 20 years may be like, and in turn for Australian leaders to think about how our nation should shape itself in response.

It was also evident at those meetings that many of the big problems we face are global ones.

I’m talking here about climate change, but not only about climate change.

Fragmentation of markets is another, limiting our choices.

There are some other unfavourable trends.

Global growth will be harder to come by.

Populations are declining in major economies like China, Japan, and Korea.

This decline could be offset by faster growth in productivity, but in most economies it has slowed over the last few decades.

And there’s been a stupendous increase in industrial subsidies, particularly among the major economic powers.

A 2021 report counted 18,000 subsidy interventions in China, the US and the European Union since 2008 –

The IMF found 2,500 in the last year alone – with the same economies accounting for almost half.

So the environment we face today and in the decade ahead is vastly different – heightened geostrategic competition, an international system under continuous pressure, demographic change, greater risk of major shocks to supply chains, and a restructuring of global trade from the net zero transformation.

All these challenges, require us to be engaged in the world and in our region.

By designing new markets and modernising old ones so that we can sustain growth, raise living standards –

And advocating for the interests of the Pacific – especially when it comes to capital flows and climate resilience.

But we also need to rethink how we act at home.

The scale of subsidies in the 3 major global economies of course dwarfs anything Australia can offer, which is why we will be smart and strict.

We can’t replicate or retrofit the approaches underway 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.

Your recent guest, Fareed Zakaria, has done a characteristically compelling job, in his book the Age of Revolutions, setting out 4 of these key changes – in economics, technology, identity and geopolitics.

Our own Intergenerational Report details 5 big trends and transitions: from younger to older; from globalisation to fragmentation; from IT to AI; from hydrocarbons to renewables; and from an old industrial base to a new one.

Amidst all of this change, we have to be clear‑eyed about where our comparative advantages and national interest imperatives lie.

Working proactively with our trading partners to get the most efficient and secure supply to market.

And recognising and responding to the way our societies and economies are changing and how the pace of that change is accelerating.

A Future Made in Australia

In this world of churn and change I back our chances and I like our choices.

Where it matters the most, and where our response will be the most determinative and transformative –

Is in how we manage changes to the composition of our industrial base and economy in the context of the net zero transformation.

That’s because our biggest opportunities lie at the intersection of industry, energy, our resources, our human capital, and our ability to attract and deploy investment.

Our goals here are clear:

To be among the primary beneficiaries of churn and change;

To align our national security and economic security interests;

To deliver a new generation of growth, different to the last;

To prosper from change, not just protect ourselves from it;

To make Australia a renewable energy superpower, and an indispensable part of the global net zero economy.

That’s what a Future Made in Australia is about – powering the future, not manufacturing the past.

To modernise and strengthen our economy, in a world built on cheaper and cleaner energy.

To maximise our genuine advantages – geological, meteorological, geographical and geopolitical.

To determine rigorously and pursue robustly our most compelling imperatives, both economic and strategic.

To project not protect.

To engage and invest not retreat.

To incentivise private investment not replace it.

And all while recognising our constraints.

Our medium‑sized, open economy and small population means we don’t have the internal markets to insulate ourselves from the world in ways that others can, even if we wanted to.

Traded goods and services are almost half of our GDP – compared with the US at closer to a quarter.

And more than 70 per cent of traded products are produced with supply chains that cut across multiple countries.

A Future Made in Australia doesn’t mean a future made alone.

It will take an outward focus, yes securing our own supply chains, but also plugging into the supply chains of our region.

But we also need to recognise that some global markets have not yet caught up to the big global shifts we are facing.

There is no global policy architecture in place for the net zero transformation.

There are no global markets capable of fully pricing in the risks associated with a more unstable geopolitical landscape.

Which means in the face of today’s transitions and global uncertainties, we don’t yet have the right price signals to drive the private investment we need.

It’s why I’ve been advocating for better‑designed markets at the G20, to better differentiate and reward resources produced at higher standards.

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 rigor will be imposed by the Future Made in Australia Act that the PM flagged last month.

Today, I can sketch out the framework that will underpin it.

We will set 5 tests on where we act, and how.

First, is the industry one where 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 2 streams:

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 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 green metals and low carbon liquid fuels, and supporting targeted manufacturing of clean energy technologies including value adding in the battery supply chain – reflects this rigor.

Critical technologies like quantum computing are essential here.

From batteries to bio pharmaceuticals, 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 the Prime Minister and Ed Husic in Brisbane yesterday means this is a chance that won’t pass us by –

As we work in partnership with PsiQuantum to build a quantum computer in my home state of Queensland –

And to initiate the next wave of innovation in our economy.

This is one example of substantial public investment.

And the nature and timing of this investment will vary by technology, in part reflecting differences in maturity, and some details will be informed by more detailed consultation.

They will also be tailored to address specific barriers.

Whether that’s supporting innovation, providing a green premium that’s missing from the market, reducing a competitiveness gap from global subsidies, or leveraging our investment vehicles to de‑risk projects and reduce upfront costs.

But let me be clear –

Nobody is claiming we have the scale to compete in every industry.

Nobody is saying that these interventions will be permanent, 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 private capital we’ll need to deploy.

Foreign investment reform

That’s why the Budget will have a big emphasis on attracting and deploying investment from the private sector.

It’s why there will be financial incentives, regulatory changes, and other enablers.

It’s also why we are overhauling and reforming, strengthening and streamlining, the foreign investment framework.

Foreign investment is a big part of my job – and properly managed, it’s a big part of our economic success.

Our levels of foreign direct investment have sat above the OECD average since 2006: boosting innovation, skills development, and helping to drive our prosperity.

Australia welcomes foreign investment but only if it’s in our national interest.

And the global conditions I’ve described today demand a rethink of the regime that underpins it.

Foreign investment is where the stovepipes of economic and national security have often failed to meet in the past.

Or where even whole‑of‑government thinking has been stuck in a crude model of trade‑offs and compromises.

So I announce today that the Albanese Government will reform and renew our foreign investment framework to make it work better for investors, our economy, and our national security.

To strengthen where we need to and streamline where we can, to make it more robust, more efficient and more transparent.

Streamlining means investors who we already know, who are making investments that don’t raise any sensitivities, and who have a good compliance record, get decisions faster.

This will be supported by a new target of processing 50 per cent of cases within the initial statutory timeframe of 30 days, from January 2025.

Stronger means a risk‑based approach will allow us to process and monitor more complicated cases in a more effective, more robust, more meaningful way.

We will dedicate more resources to screening foreign investment in critical infrastructure, critical minerals, critical technology, those that involve sensitive data sets, and investments near defence sites, to ensure that all risks are identified, understood and can be managed.

We will bolster Treasury’s ability to better monitor and enforce the conditions we put on these transactions – including boosted capability to undertake on‑site visits.

This will also support the use of my call‑in power to review investments that come to pose security concerns over time.

We will also tighten up the tax guidance and scrutiny to make sure investors pay their fair share.

And we will update the framework on emerging risks.

This will improve the conditions we put on transactions, how we respond more quickly to behaviour designed to avoid scrutiny, and making sure that all this aligns with our other regulatory frameworks too.

This will mean:

Working with Penny Wong and Don Farrell on all of our international engagement.

Working with Clare O’Neil and Catherine King on critical infrastructure.

With Chris Bowen to improve energy network security.

With Richard Marles on investments with defence implications.

With Madeleine King on critical minerals.

And with Ed Husic on critical technologies.

And today I’m releasing more detail in updated foreign investment guidelines, to make our changes clear to investors.

Forward not back

In a world upturned, we aren’t just updating our foreign policy investment regime we are upgrading our growth model.

My predecessor Paul Keating talked about creating Australia’s third economy.

What we do now in these years can and must create its fourth.

With a combination of heavy industries and the care economy.

A combination of technology and human capital.

And a combination of new opportunities in cleaner and cheaper energy, and traditional strengths.

Recognising that the challenge of our time is not to resist change but to make our people its primary beneficiaries.

Again I think Zakaria captures it best when he wrote we aren’t choosing here between markets and the state, we are choosing between the push and pull of the past and future.

I say respectfully to our critics that this is the point they miss.

If we stand still, the world will move past us –

Leaving Australia at the very beginning and very end of supply chains and not in the middle where so much value lies.

Watching, as our industries are hollowed out and others benefit from the opportunities that right at this moment, sit with us –

As we become more vulnerable, less prosperous, less secure.

This is not the future we imagine for Australia.

We believe every Australian can benefit if every leading Australian plays his or her role.

Including the opinion‑shapers here today.

I don’t think the big fault line in our public life runs between activists and commentators.

I know political leaders often see it in these terms, we all love to think of ourselves in Teddy Roosevelt’s arena, and it’s tempting because it’s flattering, but it’s not really true today.

The fault line is between the nostalgists and the strategists.

I’m conscious I started today with some history but partly to make the point we can learn from it, without dwelling in it.

I don’t believe for one moment that Chifley put Coombs on a plane and said ‘mate, do what they would have done in 1904’.

Nobody told Paul in ‘84 to recreate the economy of ‘44.

Nor does any intelligent person say that of ‘84 and 2024 either.

The opportunities of a world upturned lie ahead of us not behind us.

I believe we can become an island of reliability in a sea of uncertainty.

Creating a place for ourselves in this new economic order, powered by cleaner and cheaper energy.

Becoming, in that effort, more secure as Australians.

In the world we shape, and the future we make, together.