Specific Future Funded in Australia makes a big bet
Australia is pouring $11 billion into specific industries — but is betting on winners the fastest route to lifting a stalling economy?
Specific Future Funded in Australia makes a big bet
The Australian government is changing how it spends on industry. Budgetary assistance reached $16.8 billion in 2024-25, up 6.4 per cent, yet the real story lies in the subject of its direction. Broad programs that once supported firms across the economy are giving way to tightly focused measures under the Future Made in Australia agenda, with nearly $570 million of the latest increase tied to clean-energy projects and related initiatives. Over the next decade, production tax incentives linked to this agenda are expected to deliver more than $11 billion. What looks like industrial policy is in practice a concentrated wager on chosen sectors and firms.
The compositional shift is deliberate, not incremental
The Productivity Commission's latest Trade and Assistance Review documents a clear compositional change. For years, assistance was spread through measures available to any firm that met general criteria. Now the emphasis has moved toward sector-specific deals, grants and tax breaks designed to build domestic capacity in nominated areas. Clean energy dominates the early spending, reflecting the intersection of emissions targets and manufacturing ambitions. The commission expects this pattern to deepen as the full suite of incentives rolls out.
This is not a modest adjustment. It is a deliberate narrowing of focus. Imagine replacing a wide floodlight, which illuminates an entire workshop, with a laser that pins a single point. The laser delivers intense energy to one spot but leaves everything else in shadow. Future Made in Australia operates on similar logic: concentrate public resources on selected technologies and companies in the hope that success there lifts the rest of the economy. The risk is that the chosen spot turns out to be the wrong one, or that the heat simply dissipates without broader effect.
Targeting assistance rewards the best-connected, not the most productive
Past attempts at picking winners offer cautionary parallels. The Bearing has examined how tax-based innovation incentives often redistribute revenue toward firms skilled at satisfying eligibility rules rather than those best placed to generate spillovers. When eligibility is tied to specific sectors or activities, lobbying intensifies and resources flow to the best-connected rather than the most productive. The Productivity Commission's data suggest the same dynamic is now operating at larger scale. Once a sector is designated as strategically important, firms within it gain a strong incentive to shape the criteria to their advantage. Those outside the circle, including many in services and general technology development, receive no equivalent support.
Once a sector is designated as strategically important, firms within it gain a strong incentive to shape the criteria to their advantage.
General-purpose technologies such as artificial intelligence illustrate what may be missed. The commission's review notes that governments worldwide are intervening heavily in AI markets, sometimes with subsidies, sometimes with barriers. For Australia the effects are mixed. Overseas subsidies can cheapen AI tools for local users, yet restrictions on competition or trade can raise costs and limit market access for Australian software firms. The commission warns that if barriers multiply across the technology stack they could prove especially damaging to a software industry that relies on open access to global inputs. Productivity gains from widespread AI adoption could shrink precisely when the economy needs them most.
Australia's stalling productivity makes the opportunity cost real
Australia's productivity performance makes this tension urgent. The commission's own dashboard, released earlier this year, shows labour productivity growth being practically flat for 2024-25. That sits within historical norms but arrives after years of sluggish improvement. Broad diffusion of enabling technologies has historically done more to lift average productivity than concentrated investment in favoured manufacturing niches. By steering resources toward specific clean-energy projects, the policy may inadvertently tilt capital and talent away from the very areas where productivity spillovers are largest.
The government argues that targeted support addresses genuine vulnerabilities: dependence on imported fuels, exposure to volatile global supply chains, and the need to build sovereign capability in the net-zero transition. These are real concerns. The commission acknowledges a legitimate role for sensible risk management in fuel security, for instance through stockpiling or diversified trading relationships. The question is whether the chosen instruments, heavy on sector-specific production incentives, represent the lowest-cost way to manage those risks. Experience with government enterprises and large infrastructure programs suggests delivery often proves more expensive and less adaptable than promised.
The political economy of targeting entrenches the losers' silence
Critics of the shift sometimes frame it as mere ideology. That misses the mechanism at work. Targeted assistance changes incentives for both governments and firms. Politicians gain visible projects to announce. Firms gain a competitive edge financed by general taxpayers. The losers are diffuse: other industries that pay higher taxes or face higher input costs, future taxpayers who service any debt, and workers in sectors that never made the priority list. When the Productivity Commission observes that compliance costs for tariffs already exceed the revenue they raise, it highlights how even well-intentioned interventions can gum up the economy. The same logic applies to complex eligibility tests for sector-specific grants.
Domestic subsidy and border openness are pulling in opposite directions
Australia has continued to liberalise at the border even as it subsidises inside it. New free-trade agreements with the European Union, the United Arab Emirates and upgrades to existing pacts show a welcome commitment to open markets. The planned removal of hundreds more nuisance tariffs from 2026-27 is consistent with that stance. Yet domestic policy is moving in the opposite direction, creating tensions that cannot persist indefinitely. A protectionist global environment makes it tempting to respond in kind. The commission cautions that cycles of subsidy and retaliation ultimately erode living standards. Australia's comparative advantage lies in flexibility and openness, not in replicating the industrial strategies of larger economies that can spread the cost of mistakes across bigger populations.
The laser, once focused, is hard to widen again. Political momentum builds around the chosen sectors. Jobs are created, supply chains form, expectations harden. If those sectors deliver the hoped-for exports, emissions reductions and strategic resilience, the bet will pay. If they require perpetual support or fail to generate the promised spillovers, the smoke that curls from the pinpoint will represent resources that could have been deployed more productively elsewhere. The commission's data do not yet allow a final verdict, but they make the nature of the wager unmistakable: the government is no longer content to improve the general conditions for enterprise. It is selecting specific futures and funding them with public money.
The shift documented in the 2024-25 review is therefore more than an accounting curiosity. It marks a change in philosophy about how an economy builds capability. Broad assistance trusts markets to sort winners. Targeted assistance trusts government to foresee them. Australian history contains examples of both approaches. The evidence favours the former for generating widespread gains, yet the political incentives now pull toward the latter. Whether this big bet on a specific Future Made in Australia ultimately strengthens the economy or simply narrows its focus will be determined not by announcements but by outcomes measured in productivity, living standards and fiscal cost over the decade ahead.
Sources
Productivity Commission — Trade and Assistance Review 2024-25
The Bearing — Budget's Innovation Bet: Who Bears the Cost When Incentives Misfire?
The Bearing — Productivity Commission opens data dashboard on Australia's stalling output growth
Frequently Asked Questions
What is Future Made in Australia and how much does it cost?
Future Made in Australia is the federal government's industrial policy agenda, which directs budgetary assistance toward specific sectors — primarily clean energy — rather than spreading support broadly across the economy. Nearly $570 million of the 2024-25 increase in budgetary assistance is tied to this agenda, with more than $11 billion in production tax incentives planned over the following decade from 2027-28.
Why does the Productivity Commission have concerns about targeted industry assistance?
The commission's concern is that sector-specific assistance changes incentives in ways that reward political connectedness over economic productivity. Once a sector is designated as strategically important, firms within it gain a strong incentive to shape eligibility criteria to their advantage, directing resources toward the best-connected rather than those most capable of generating economy-wide spillovers.
How does Australia's productivity growth compare to what targeted assistance is meant to achieve?
Australia's labour productivity grew just 0.3 per cent in 2024-25, arriving after years of sluggish improvement. Historical evidence suggests broad diffusion of enabling technologies — not concentrated investment in favoured manufacturing sectors — has done more to lift average productivity, raising questions about whether directing capital toward specific clean-energy projects is the most effective use of public resources.
Is Australia becoming more protectionist overall?
The picture is contradictory. At the border, Australia has continued to liberalise, signing new free-trade agreements with the European Union and the United Arab Emirates and planning the removal of hundreds of nuisance tariffs from 2026-27. Inside the border, domestic policy is moving in the opposite direction through sector-specific grants and production tax incentives — a tension the Productivity Commission warns cannot persist indefinitely.
What happens if the sectors chosen under Future Made in Australia don't deliver?
If the designated sectors require perpetual support or fail to generate the promised spillovers, the cost falls on general taxpayers, workers in sectors that never made the priority list, and future taxpayers who service any resulting debt. The Productivity Commission notes that political momentum tends to build around chosen sectors once jobs are created and supply chains form, making it difficult to redirect resources even if outcomes disappoint.