Zali Steggall MP speaks on the National Reconstruction Fund

16 February 2023

I rise to support the National Reconstruction Fund Corporation Bill 2022. The aim of this bill is to establish a fund to invest in priority areas of the Australian economy. It's clear this is one of the key pillars in delivering the emissions reductions that are necessary for Australia to achieve as quickly as possible. It is very important, and I recognise the importance of this legislation and of this fund.

The minister has said that this corporation has been proposed as a result of the pandemic highlighting the importance of an agile advanced manufacturing capability that can pivot to produce critical products. We also know that we are in a race to zero around the world, and so manufacturing of new technologies and really getting that slice of the pie of new opportunities is incredibly important. I know we have so many leaders in this space in my electorate of Warringah. It is very important that we set up the right framework and the right support from government; it has been missing. As the minister said, during the pandemic we really did see where we have gaps in our manufacturing and our supply chain, and how exposed we are to all the offshore manufacturing. We need to do better around supporting manufacturing in Australia. The object of the corporation that will be established under this bill will be to facilitate an increased flow of finance into priority areas of the Australian economy. That is to be achieved by financing businesses, state and territory governments and other entities with concessional loans, equity, guarantees and a wide range of other financial instruments. The set-up proposed in the bill for this corporation is very much modelled on the Clean Energy Finance Corporation. As many in this place have stated, that has been an incredibly successful model. There has been a huge amount of really appropriate investment that has brought forward and advanced so many technologies and put Australia into a really good position when it comes to some new technologies. But obviously more can be done, and so to have this corporation working in parallel to the CEFC will be incredibly important. They won't duplicate each other, but they will supplement each other's purpose in really driving investment in Australia.

The minister has said that the seven priority areas are: value-add in resources; value-add in agriculture, forestry and fisheries; transport; medical science; renewables and low-emissions technology; defence capability; and enabling capacities. These are clearly very important areas, but of course the investments and the focus will need to remain quite flexible, because from time to time we identify other areas and sectors that need that focus. When the bill was first introduced, the government introduced a consultation paper to seek input relating to the seven priority areas and that investment mandate, looking at questions such as risk and return; limits and conditions on types of financial instruments utilised by the corporation; governance requirements, including ESG, which is so incredibly important in the private sector; the influence of government policy priorities on investment decisions—I think it's really important that we remember that government should not fall into the trap which the last government did, of picking winners, because you do that at the expense of the market and where demand actually is—and managing national security risk, which obviously underpins defence, with defence capability being one of those key priority areas.

It's clear that we need to invest in our future to meet the challenges ahead. We know there are many, from COVID, which really rocked our systems of government and society, to the impacts of global warming and the urgent need to reduce global carbon emissions, including through rapid industrial transformation. The world is on a race to zero, and there are certain jurisdictions that are really accelerating beyond. Australia is at risk of being left behind if we don't pick up the pace. What we've seen in the US with the Inflation Reduction Act is a huge surge of investment and international capital going to the US as a result of a now very attractive legislative environment. People know that there is so much focus on the transition to clean technologies that that is attractive. We know that the EU are looking at similar legislation to the Inflation Reduction Act so that they also attract international capital for investment. So now it's really important for Australia to hold its own and have a share of that pie and make sure that we are underpinning and supporting manufacturing in so many key industries so that we remain in that race, or we will lose to overseas, to the US, so much of our skills and growth opportunities.

I believe we absolutely need to be striving for a future-focused circular economy where business can thrive and innovation and inclusion are embraced. We still don't have a regulatory regime that really encourages innovation and investment into R&D for our businesses, and we often lose entrepreneurs and new ideas to overseas jurisdictions because of that.

So I support this legislation, and I've met with the minister to discuss improvements and where I think there are risks in the implementation. I urge the government to ensure that the aim is to achieve growth that is both inclusive and sustainable and that the focus is on small to medium enterprise as well as large business, because too often government makes the mistake of focusing on very large business, and SMEs miss out. But we know SMEs are a huge part of growth. They are a massive employer and they are where the technologies of tomorrow start out. Innovation is critical for a successful economy. A dynamic, productive economy creates jobs, boost wages and ultimately ensures economic prosperity and welfare. From the pacemaker to cochlear implants, Australian innovation has revolutionised industries and people's lives. In Warringah, innovation is everywhere. Lakeba's Future Hub 11 shows how we can excel in digital technology; SEVENmile Venture Lab proves we can create an ecosystem to support the next generation of startups; Loam Bio shows the innovation leading from Warringah and transforming agriculture to enhance crop yields and increase carbon sequestration of soil; v2food is working to bring down our average meat consumption and reduce emissions from the meat based sector; Aviation H2 is working on the development of green hydrogen powered planes. There are ideas and innovations really coming to the fore.

But we're losing momentum, and we risk being outpaced by economic competitors. Australia currently ranks 25th in the world in innovation, according to the global innovation index, down from 17th in 2018—so in the space of five years we've already lost seven places. We must reverse that decline and really increase the focus on innovation.

Our economy should be dynamic and pioneering, based on growth industries like IT, financial professional services, advanced manufacturing, aerospace, healthcare and biotechnology, artificial intelligence, clean energy and quantum technology. It should be driven by empowered people with the skill sets and visions for the future. Our economy bets on startups and other tech companies to be new engines for growth. Warringah's well-educated workforce and forward leaning businesses are well positioned to engage in this positive future.

The proposed National Reconstruction Fund will help achieve these goals, and for that reason I support the principle of the legislation. I also encourage the government to consider the mechanisms to boost innovation in Australia. In particular we need to increase the budget for the Australian Research Council to support cutting-edge research. We need to broaden the research and development tax incentive to increase accessibility for SMEs and tech firms, as well as offer a 20 per cent collaboration premium. We need to broaden angel investor tax incentives to improve access to capital for early-stage companies. We need to facilitate partnership and collaboration between international and domestic research institutions, businesses and all levels of government, and we need to equip new and existing workers for future jobs with STEM skills.

Are these things interventionist in this bill? One of the questions that will be asked is why businesses need government funding to commercialise and develop innovative research and ideas. If the business is good, why does it need private funding? The fact is that Australian research has produced some highly commercially successful businesses. Much of the commercialisation, though—whilst the research has occurred in Australia, the commercialisation has been done overseas because we have not offered the right environment for that to occur. Some of Australia's most profitable inventions, developed by CSIRO research, have been delivered by the likes of Unilever, DuPont, Ciba Vision and Novartis. In 2021 CSIRO prepared a report on unlocking the innovation potential of Australian companies. It tells us the major barriers to commercialisation of science and technology are low levels of cross-sector collaboration, cultural challenges including risk aversion to innovation, and business research incentive misalignment. There is a strong argument, supported by international economists, that private sector investment in new technologies and industry only eventuates after governments make the risky early-stage investment. It's an approach which appears to be working for some of our Asian neighbours, through government support for manufacturing and high-tech industry development.

The recent experience of the COVID pandemic also emphasised Australia's geographic isolation and supply chain challenges. It highlighted how some industries found a way to pivot quickly—hand sanitiser, anyone; how many companies in everyone's electorate started to develop that? But there is a role for government in considering the lessons of COVID and which industries need to be developed and supported in the future, and as soon as possible. There are some key questions on transparency and board independence. I urge the government to ensure there is transparency in both investment decision-making and reporting of investment performance. It's very important to ensure genuine independence of the board. The minister has said the board will be independent of political influence and that it will be appointed jointly by the Minister for Industry and Science and the Minister for Finance. Madam Deputy Speaker, forgive me for being a little bit cautious when I take that at face value, because this place has shown me political interference is fairly frequent when it comes to these kinds of bodies and this kind of decision-making. I welcome the review into jobs for mates, announced over the weekend by Minister Gallagher, and I urge the minister to consider the framework proposed in the member for Mackellar's private member's bill, to be tabled next sitting, in relation to appointments to boards of this nature. We need to avoid the mistakes of previous governments and ensure there is true independence and accountability of the board of the corporation. It cannot be a case of jobs for the boys and investing in politically aligned projects. We must avoid the corporation becoming a source of funding for projects in marginal seats.

I note that the University of Sydney's submission in support of the bill urges the government to consider the recommendation that there be appropriate academic representation on the NRF reference group, which will guide the fund's development and the preparation of its investment mandate. The involvement of academics with demonstrated significant success in commercialising Australian university R&D will assist both in identifying suitable investments and in risk management. Of course, we also need industry and people with strong networks and expertise in the field of innovation.

We need to align the investment mandate with other policy goals, such as sustainability and inclusivity, and to this end I support proposed amendments identifying that we do need to exclude support for fossil fuel projects. We can't let this fund, which is about supporting our innovation for the future, be about propping up the industries of the past. We need to make sure that its investment mandate includes the criterion that it align with important policy objectives such as net zero targets, sustainability, inclusivity and circularity principles. I note that the University of Sydney's submission, for example, makes this very point.

It's also important that this legislation not duplicate existing institutions, such as, very importantly, our Advanced Manufacturing Growth Centre, the AMGC. Instead, the NRF needs to leverage the experience and knowledge already existing in such bodies. The AMGC has been a highly successful fund. Its goal is to drive innovation, productivity and competitiveness across Australia's manufacturing industries. It's an industry led not-for-profit organisation run by a board and management team of industry experts. To date, the AMGC has distributed some $137.5 million in co-funding investments. Of this, $50 million was federal funds, and it has had a return of 26 to one on federal funds. That is success.

We can do this, but let's make sure we do it well.