2 November 2023

Keynote address to the Economic and Social Outlook Conference, Melbourne


Energy, the economy, and this defining decade

Can I begin by acknowledging the custodians of this land, their elders, cultures, customs and traditions ‑

And by thanking Claire Harvey for her introduction –

Abigail Payne, Michelle Gunn, Roger Wilkins for the invitation to address this conference for the second time as Treasurer ‑

And Tom Dusevic for agreeing to chat afterwards.

The economic context

In the year since we last gathered, our Government has maintained a disciplined focus on three things:

Rolling out cost of living relief that’s carefully calibrated to take some of the edge off some of the pressures people are under, which the ABS shows shaved half a percentage point off inflation in the September quarter.

Investing in the drivers of growth and productivity, so we create more opportunities and lay the foundations for future prosperity.

As well as – not instead of – taking the necessary decisions to get the Budget in much better nick.

We are under no illusions about the magnitude of the global and domestic difficulties coming at us in the economy.

Or the extent of the slowdown underway, courtesy of high inflation, higher interest rates and global uncertainty ‑ including from China, and conflicts in Europe and the Middle East.

We are already seeing it in consumption and other data ‑ which tells us people are under serious pressure from inflation, and that’s with the full impact of rate rises yet to flow through.

But we enter this new period of uncertainty from a position of genuine economic strength:

More jobs created than in any other first term government on record, and we are only halfway through the term.

Historically low unemployment, near-record participation, wages growing around their fastest pace in a decade.

The first surplus in 15 years and the biggest ever turnaround in the Budget, from a $78 billion deficit to a $22 billion surplus.

Which wouldn’t have happened without banking 87 per cent of upward revisions to revenue and finding $40 billion of savings.

Our cost of living plan; our investments to lift the speed limit of the economy over time; the progress we’ve made with budget repair – all of this is helpful in the primary fight, against inflation.

The IMF made this point very clearly yesterday and said our efforts are “helping to ensure fiscal policy is working with monetary policy to avoid inflationary pressures”.

And Michele Bullock recognised these efforts last week, when she described our Budget strategy as ‘good’, and ‘enough’.

The Governor and I talk regularly, we met again on Tuesday ‑

And we’ve been working closely together: bedding down the response to the RBA Review; renewing our approach to full employment; ensuring fiscal and monetary policy are complementary, not in conflict.

Inflation has moderated substantially since its quarterly peak before last year’s election, and its annual peak last Christmas, but it’s more persistent than we’d like, here and overseas.

Petrol was the major driver in the September quarter CPI last week – that reminds us how the composition of the inflation challenge has changed over time, in the almost two years since it spiked.

Treasury was already preparing for a modest revision of the near-term inflation forecasts before last week’s new numbers, recognising the upward pressure which came from earlier decisions by global oil producers to wind back supply.

In particular, global oil prices have remained higher than Treasury had expected since the end of the September quarter.

Combined with the escalating conflict in the Middle East, this means that inflation is likely to be more volatile in the near term.

But there was nothing additional or unexpected in the September quarter CPI which materially altered Treasury’s expectations for when inflation will return to the target band.

Which is why I said the September quarter result didn’t represent a material change to Treasury’s outlook for inflation ‑ While being really careful not to speak for the Reserve Bank, which will come to its own view on the outlook for inflation, independently and appropriately and in time.

That independence is important, which is why I’m implementing the RBA Review recommendations which seek to strengthen it.

Five new perspectives on energy

With the time I have with you today, I want to talk about the energy and net zero transformation in our economy.

There are a number of good reasons for that:

It’s a major policy focus of our Cabinet;

It brings together the cost of living and productivity challenges in our economy;

It requires us to balance near-term risks and longer-term rewards ‑ a common task, and ask, of any decent government;

And because it unites so many of the objectives which define my approach to the Treasury portfolio:

Addressing the cost of living challenge – our number one priority;

Encouraging capital to flow to those parts of the economy which deliver strong returns for investors and best advance our national economic interests;

Broadening and deepening our industrial base;

Boosting productivity and making our economy more dynamic and more competitive;

Creating more opportunities for more people in more parts of the country, the central focus of the Employment White Paper and our place-based agenda;

And positioning our people to be major beneficiaries not victims of the changes in our society and our economy, detailed in the Intergenerational Report.

I’m conscious that colleagues have primary carriage of some of the policy areas I want to talk about today.

Chris Bowen in climate and energy.

Ed Husic in industry.

Madeleine King in resources.

Tanya Plibersek in environmental approvals.

And a number of others.

They’re doing terrific work, and my job is to support and enable them, not get in their way.

So these five main points about the energy transformation I want to make today are from my own perspective as Treasurer:

First point: while important building blocks are now in place and progress has been made, we will need to do even more to secure sufficient renewable energy generation, transmission and storage to meet our ambitions ‑

Second point: the availability of public and private capital is a really important issue but it’s not the only issue.

Third point: that means incentives like the type we’ve seen in the Inflation Reduction Act in the United States can be part of an answer but they’re not the whole answer.

Fourth point: our industry policy framework needs to be recast and modernised so we can maximise our advantages and leverage our strengths in a new age of net zero.

And lastly: the Productivity Commission should and will play a bigger, more constructive role in organising our thinking when it comes to climate and energy policy.

I’m going to touch on each of these points in turn, adopting the same distinction that our Cabinet and relevant Cabinet Committees make when we consider these issues.

This is the distinction between what is required for the domestic energy transition, especially in the nearer-term ‑

And how this maps to our medium and longer-term ambition to become a renewable energy superpower.

This is all about our broader industrial, export and innovation potential, our comparative advantages in energy, and our ability to make our supply chains more resilient.

The energy transition

This distinction is important, but the two objectives are closely intertwined.

Because our ability to become a superpower is reliant upon our ability to generate cheaper, cleaner, reliable, renewable power.

We receive 10,000 times more solar radiation each year than we can use ‑

Our offshore wind potential is estimated to exceed the capacity of the world’s current coal-fired power stations –

And we have the largest pipeline of renewable hydrogen investment proposals in the world.

These are fundamental comparative advantages from which we can create new ones, in new industries, in new places across the country, leveraging our traditional strengths.

But today, it’s important for me to acknowledge that without more decisive action, across all levels of government, working with investors, industry and communities, the energy transition could fall short of what the country needs.

Put simply, to meet our potential ‑

To maximise our advantages in renewable energy and the economic and industrial opportunities that will come from them ‑

We need to get more projects off the ground, faster.

After a wasted decade, we’ve made some really important progress –

A $20 billion fund for transmission through rewiring the nation – with $16 billion worth of deals already done.

Our Capacity Investment Scheme, to accelerate $10 billion of investment in battery storage – with the first auctions already underway ‑

Developing a Future Gas Strategy and seizing the opportunities of electrification, including through the Household Energy Upgrade Fund and Small Business Energy Incentive ‑

And restarting collaboration with the states and territories through the National Energy Transformation Partnership.

As a result of policy initiatives like these, there is 3.4 GW more capacity in the grid this summer than there was last summer.

I commend Chris Bowen for all his work here, and he’ll have more to say about it.

But we know further action is required to meet our targets, and ensure affordability, reliability and emissions reductions.

To get to net zero we have to deliver five major transmission projects by 2030 ‑

And expand the NEM’s current storage capacity to more than ten times its current size by 2050.

Those are big numbers ‑

And a call to action for all governments, industries, unions and communities.

The new steps we take to secure the transition will make the most of our own strengths, and our own advantages –

Address our own challenges and our own barriers ‑

Deliver benefits for the communities that power Australia ‑

So we unlock the benefits of clean, cheap, renewable power –

And the transformative opportunities that flow downstream.

Capital and other enablers

A big focus here tends to be on the availability and magnitude of public and private capital required to reach both our near-term and longer-term objectives.

That’s obviously critical, with $225 billion in additional investment required by 2050 across energy and industry, by some estimates.

But we also know this:

Just pumping capital into the transformation won’t be enough if we don’t address skill shortages in the energy sector –

If technologies remain untested at commercial scale ‑

If we don’t properly plan for critical infrastructure, and ensure supply chains are robust ‑

And if complex, cumbersome regulation continues to cut across our Federation, creating bottlenecks for clean energy projects.

That’s why we’ve got a detailed policy agenda to address these barriers and get more projects off the ground.

Our Employment White Paper just outlined a comprehensive approach to getting our people the skills and training they need ‑

As Jobs and Skills Australia helps us plan for and meet our workforce needs ‑

All in the context of a National Energy Workforce Strategy.

We’re supporting 10,000 new green energy apprenticeships –

And working to ensure the workers which powered Australia in the decades to here, power Australia in the decades to come.

To start getting technology to scale, we’re backing innovators and early adopters through ARENA and the Powering Australia Industry Growth Centre ‑

And considering how to boost dynamism and competition in a net zero era through our Competition Review.

To improve our regulatory frameworks, we’re reforming EPBC to de-risk approvals processes for both the environment and investors ‑

Addressing critical infrastructure gaps, with Greg Combet leading the Net Zero Authority’s work to co-ordinate and manage major projects in our regions ‑

Streamlining foreign investment processes where we can ‑

And we’re developing new ways to attract capital, modernising our markets and convening the Treasurer’s Investor Roundtables.

Today I’m also releasing a new consultation paper on the Government’s detailed sustainable finance strategy.

This is about improving financial market transparency and credibility –

Strengthening our capacity to assess climate-related financial risks and opportunities across all sectors of the economy ‑

And advancing Australia’s leadership on sustainability.

We’re pairing all this with six sector decarbonisation plans for our economy ‑

In energy, industry, agriculture, transport, resources and the built environment ‑

To map out an efficient and transformative path to net zero.

And we’re working on how we can complement and benefit from the investments and initiatives of our international partners.

The Prime Minister’s trip to the US was a great example of our focus here ‑

With President Biden affirming his commitment to incentives in the IRA that will encourage American clean energy manufacturers to anchor their supply chains here in Australia.

Along with this broad and deep policy agenda, there have been calls to do more, to pursue our own Australian version of the Inflation Reduction Act, and to mobilise more public capital into the industries that will help us realise our potential as a renewable energy superpower.

All of this is understandable, because there is no doubt about the IRA’s significance, or how imperative it is that Australia find its own place in the developing net zero global order.

But let me be clear here.

We need a set of prescriptions right for this transformation and right for this country.

We will complement not copy the priorities and plans of other nations, not just do exactly the same kind of investment with the exact same subsidies.

We won’t realise Australia’s unique geographical, geological, geopolitical, intellectual and meteorological advantages by designing an Inflation Reduction Act Lite – looking only for big numbers but missing the bigger picture.

Our plan will be ambitious, but uniquely Australian ‑

Focused on Australia’s strengths – on renewable energy, resources, our reputation as a trusted and reliable trading partner, on our people, and our knowledge.

Since this year’s Budget our team has progressed our thinking and announced further initiatives as we said we would ‑

Building on our existing $40 billion plan to make Australia a renewable energy superpower.

And as we look to the 2024-25 Budget we’ll be backing our ambition with further action ‑

Through government investment and doing more to get private capital flowing towards our priorities effectively and efficiently.

New approach to industry policy

That means transforming our own industry policy, in our own way, so that our energy transformation succeeds on its own terms and contributes to a future made in Australia.

Here again I pay tribute to Ed Husic and his thinking.

We recognise the moment we’re in poses a different set and kind of economic and social challenges than the 1950s or the 1980s, so our approach to industry policy needs to be different too.

Like all shifts that involve big change and uncertainty, the private sector will do most of the heavy lifting – but existing market structures won’t always cut it – especially when we’re trying to create new markets and transform old ones.

The scale of the net zero transformation ‑

Demands direction, coordination, market modernisation and other incentives ‑

Guided by clear policy objectives ‑

So that investors can access and make the most of the opportunities on offer here.

Our focus is on the development of industries that diversify our economy and make Australia more competitive in global markets, in an enduring and sustainable way ‑

By being mindful of where those opportunities are being created – and what they mean for workers ‑

How they impact our domestic resilience and national security in a complicated geopolitical environment ‑

And how they contribute to our climate and energy objectives.

Balancing up all these considerations successfully: competitiveness, distribution of opportunity, resilience and national security ‑ all anchored to our climate and energy goals ‑ is our new industry policy approach for net zero.

This is how we are approaching decisions about where active industry policy is best directed in a new way.

To make it very clear, in making decisions about net zero industry policy we will now be guided by these tests:

Whether Australia can be competitive in the industry, by leveraging and building up our comparative advantages.

Whether it contributes to an efficient and orderly pathway to net zero.

Whether it builds the capabilities and resilience of people and regions.

Whether it improves Australia’s national security and economic resilience and supports the strategic objectives of our global partners.

And whether it recognises the key role of the private sector and delivers genuine value for money for government.

Applying these five principles has led us to four initial priority areas.

All underpinned by and dependant on abundant, cheap, reliable, renewable energy.

Refining and processing critical minerals.

Supporting manufacturing of generation and storage technologies, including batteries.

Producing renewable hydrogen and its derivatives like ammonia.

And forging green metals.

Refining and processing critical minerals will allow us to move up and along global supply chains to capture more of the value added ‑

Supporting manufacturing of generation and storage technologies will ensure our supply of more than half of the world’s battery minerals finds its way into home-grown advanced manufacturing, so more of the renewable energy technologies used in our transition are made in Australia.

We will transform other industrial processes by using low-cost renewable energy to produce renewable hydrogen and its derivatives like ammonia at some of the most competitive prices in the world ‑

Which will help us unlock a future in green metals, leveraging our abundance in iron ore and bauxite to become a leading producer of green iron, steel and alumina.

We are also exploring other technologies like sustainable fuels, and the manufacturing of other clean energy technologies.

Turning obstacles into enablers, including through our sector decarbonisation plans ‑

And meeting the intensifying energy needs of machine learning, AI and quantum as well.

By building Australia’s capabilities in areas like these, we will diversify significant global supply chains ‑

Make our economy more resilient and strengthen international partnerships.

We will expand opportunity to the regions ‑

Broaden and deepen the distribution of opportunity ‑

And we will add more value and support a future made in Australia ‑

With new industries that help boost productivity over time. 

In priority areas like these, the appropriate role for Government is helping to make industries competitive for the long term, not just underwriting short term profits.

We’ve already made big investments with this in mind ‑

Promoting the adoption of new low-emissions technologies, through the Powering the Regions Fund ‑

Enabling new and diversified export markets, through initiatives like the Guarantee of Origin scheme and new green trade deals ‑

A critical minerals facility – with the Prime Minister announcing an increase to $4 billion of investment just last week ‑

Helping our hydrogen industry get to scale ‑

And facilitating the movement of capital towards a range of clean energy industries through our National Reconstruction Fund and Industry Growth Program.

Refocusing the Productivity Commission

This policy framework and the initiatives that’ve come from it will provide direction, but we will adapt them as we go.

We will rely on the best analysis, and the best advice possible to help us.

This is a key motivation behind my efforts to reform, refocus and revitalise our key economic institutions ‑

Including a new, more influential, more constructive role for the Productivity Commission.

I announce today that I will be releasing the first Statement of Expectations for the PC in its 25-year history.

I will agree this with Danielle Wood and release it publicly by the time she commences as Chair on November 13.

This Statement is based on the best part of a year of consultation, collaboration and deliberation.

It will make clear that guiding our country towards a successful net zero transformation will be one of the key focus areas for a revamped and renewed Productivity Commission.

More practical and relevant advice will complement that of other key institutions, like the Climate Change Authority ‑

To ensure we realise the economic potential presented by the net zero transition.

We want more practical and relevant advice here as a priority ‑ so that we can secure the productive and prosperous transformation of our economy.

Defining decade

Let me wrap up now by saying this is the thirteenth speech I’ve given on the defining decade ‑

But the first conference to adopt it as the major theme.

I’m grateful for that because I really believe that the net zero transformation will be the defining piece of the defining decade.

Whether we succeed or fail in these ‘turbulent twenties’ will in large part be determined by how we maximise our advantages and leverage our strengths when it comes to energy in our economy.

That’s why it’s such a major focus of the Government ‑

And my main focus today.

With that, I thank you again for the opportunity to be here and I look forward to Tom’s questions.