In this year’s Federal budget, the Australian Government announced the Future Made in Australia (FMIA) program. It is a package of policies aimed at leveraging private sector investment into new industries associated with the net zero transition, and strengthening the economic resilience of the Australian economy.
FMIA has set off a heated debate about the appropriate use of industry policy in Australia. Some have welcomed the investment in the industrial capabilities needed for the net-zero or energy transition, and commended the rigour introduced by a legislative framework for future investment decisions.
Others have expressed concern about the new policy direction which FMIA telegraphs. These include risks associated with government “picking winners”, Australia’s prospects of competing against powerhouses like China and the US, and the potential it has to create subsidy-dependent industries.
Ai Group has welcomed both components of the FMIA package, but argued for greater certainty, clarity, immediacy and breadth to ensure FMIA delivers for Australian industry.
Much of the debate around FMIA fails to put it in its proper context. Industry assistance – government support for particular economic activities – is already very common in Australia.
Hundreds of policy programs, some of which are valued in the billions per annum, already do what FMIA aims to do: create investment incentives to promote industrial transformation.
So how does the FMIA package fit into the existing landscape of industry assistance in Australia?
This Research Note explores the dynamics of industry assistance in Australia. Using program-level data on assistance measures, it analyses which industries currently receive assistance, how much, and for what purposes.
Our analysis shows that industry assistance in Australia has been fairly stable for two decades, is relatively modest in aggregate impact, and is geared to research & development, industrial upgrading and small businesses.
When understood in this context, we can see that FMIA should make a material but conversative change to industry assistance levels. Its main impact will be a refocus on targeted interventions aimed at fostering transformative industrial change.
Industry assistance is any government policy which directly or indirectly assists a business, or provides a financial benefit to a business. It is usually extended when government wants to encourage a specific type of economic activity – such as investing in a new industry, conducting R&D, or moving into export markets – and is given to businesses doing the desired activity.
For much of the 20th century, tariff protection was the main form of industry assistance in Australia. But as tariffs were progressively removed since the 1970s, the Australian government now primarily offers assistance to industry in two forms:
While the first is ‘money spent’ and the second ‘taxes foregone’, both are ultimately borne by the federal taxpayer.
We can measure the value of these forms of industry assistance using program-level data collected by the Productivity Commission. In 2022-23, the Australian Government extended $15 billion of assistance to industries, triple the amount extended two decades ago. This amount is roughly evenly split between budget outlays and tax concessions.
$15 billion seems like a lot, but in the context of a $700 billion federal budget, it is a relatively minor government spending line. In the same year, the Commonwealth spent $229 billion on social security and welfare, $110 billion on health, $46 billion on education and $38 billion on defence.
If we consider its value to industry itself, we can see the aggregate effects are relatively modest. The $15 billion of assistance in 2022-23 was equivalent to only 0.62% of industry value-add. The assistance rate has also been very stable – oscillating between 0.55% to 0.75% - for the last twenty years.
Overall, industry assistance levels in Australia are comparatively modest, and haven’t changed much for a long time. So why are we doing this?
Industry-specific programs explicitly aim to foster transformation in industries. As industry assistance is conditional on undertaking specified activities, it functions as a financial incentive to encourage and/or reward businesses participating in the activities that bring about industrial change.
A deeper look at the data reveals the kinds of business activities that government’s target:
The leading objective of assistance is to promote research and development. In 2022-23, $5.1 billion was committed to this purpose. $3 billion went to the R&D Tax Incentive (RDTI)– a program where businesses can deduct eligible R&D expenses against their tax liabilities – and another $2 billion went to government programs under CSIRO, Cooperative Research Centres and other similar programs.
R&D is a very targeted form of assistance – you only get it if you do the R&D. With businesses undertaking $20 billion of R&D in 2021-22, on average they get 14 cents in the dollar back via RDTI tax offsets.
The second objective is to support small business, at a cost of $4.2 billion. Most of this assistance is via tax concessions, particularly a suite of exemptions from capital gains tax for assets such as buildings and intellectual property.
Small business support is not as activity specific. Assistance is given based on a business’ characteristics (being small and earning capital gains), without undertaking a specific industrial purpose.
Industry-specific programs are third ($2.8b) and constitute a very diverse group of programs designed to foster qualitative change within industries. Some of the more prominent are film industry tax incentives, farm cashflow management assistance, rural water infrastructure assistance, investment in recycling capacity, and around 50 other similar product-specific programs.
Industry-specific programs are what we would typically consider the archetypical form of industry assistance. It is therefore quite surprising they only comprise a fifth of the total spent.
Over the last decade, there has been a marked change in the industry assistance mix. R&D has fallen in focus, from 45% to 35% of the total, and industry-specific programs have also declined. In their place small business support has greatly increased, from 19% to 32%.
This shift suggests industry assistance is becoming less directed in Australia, as the mix moves away from specific activities to general tax relief for small business.
Because much assistance is tied to specific activities, it is not evenly distributed across the economy. When we measure in terms of dollars of assistance, four industries stake the biggest claim. Property & professional services, finance & insurance, agriculture and manufacturing together receive 51% of the total.
This concentration reflects the fact these industries are some of the most active in the activities government has targeted:
However, the importance of assistance to an industry shows a very different pattern. If we consider assistance levels relative to an industry’s size [hint: use the interactive selector on the chart above], a very different ranking emerges.
Arts & recreation ranks as the most assisted industry in Australia, with the value of support equivalent to 4.8% of its output. This is principally due to $700m of assistance for local screen production, which means it is heavily concentrated in only a few players in this diverse industry.
Agriculture comes second, with a 3.1% assistance rate. Most of this is connected to environmental management or export promotion programs. Manufacturing and finance & insurance also have above-average rates, associated with their intensive use of R&D support.
But equally interesting are those at the bottom of the league table. Mining and healthcare industries stand out as having very low assistance rates – only 0.2% of value-add. For both industries, this is due to their lower number of small businesses, and relatively low R&D rates.
Short answer: A little bit more money, but much more targeted.
In its 2024-25 Budget, the Commonwealth Government indicated that FMIA would include $22.7 billion for energy transition and economic resilience investments. However, this figure overstates the spending occurring today, as it includes many long-term term measures which will continue well into the 2030s.
If we narrow down to near-term FMIA investments, we get a better picture of the boost it will bring to industry assistance levels. Over the next four years – called the ‘forward estimates’ in budget parlance – the FMIA package will spend just $2.6 billion.
That equates to a 4.4% increase in aggregate industry assistance levels in Australia – a relatively modest boost.
However, not all industries will attract FMIA support. Most of the spending will be concentrated in just three industries: mining, manufacturing and utilities. A fairer comparison is what FMIA will do to assistance in those three industries, which is projected for the forward estimates in the chart below.
industries, which is projected for the forward estimates in the chart below.
Overall, FMIA does make a material impact on its target industries. The level of assistance will rise by 22% p.a. on projected levels over the next four years, with the impact ramping up when production tax credits (PTC) for hydrogen and critical minerals take effect in 2027-28. It will be especially impactful for mining industry, where the PTC alone will nearly double assistance levels.
Outside of these three industries, FMIA is not going to dramatically change overall assistance levels for most industries. However, it does signal a change of direction in how assistance is deployed in Australia.
FMIA is a highly-targeted program – it selects only a handful of industries and products, and will increase the share of assistance going to industry-specific programs. It is also likely to boost R&D assistance, as most FMIA targets are “new to the world” industries which will generate R&D spending. In this way, FMIA bucks the recent trend toward less-targeted forms of assistance for small businesses.
So while FMIA is not a big an investment as it seems, it is a very targeted investment. It marks a return to using industry policy as a lever to foster change in Australia’s industrial structure. It will be interesting to watch how future FMIA investment, made under the National Interest Framework – continues this new trend.
Dr Jeffrey Wilson is Ai Group's Director of Research and Economics. He leads our economics team, and provides strategic direction in developing the research program to support our advocacy, service delivery and policy activities. He specialises in international economic policy, with a focus on how trade and investment shape the Australian business environment.
