New economy 'needs critical reforms to build trust'

Australia has been warned it will miss out on future prosperity under its existing industry policy and cannot match the US or China.

Unable to compete with China's industrial strength or generous tax breaks and subsidies available in the US and Europe, Australia is relying on finance to unlock resources and production lines that the world needs to go green.

But providing loans from various federal funds won't be enough, according to the independent Centre for Policy Development.

Industrial policy, where governments attempt to shape economic development, can have real and positive impacts on long-term productivity, the economic paper released on Thursday found.

For the goals to have high-level legitimacy, a mandate from top authorities - such as cabinet and not a federal agency - would mobilise other parts of government and the economy, the research suggested.

Already, the $15 billion National Reconstruction Fund (NFF) and the CSIRO pursue more than 30 unique industrial goals, and almost 200 universities work to another agenda.

Other funds support modern manufacturing and "rewiring the nation" for renewable energy generation and new clean industries.

"It's very easy to announce these loan programs ... Whether it's $15 billion or $50 billion, you can just make up a number," Mr Phillips said.

Workers and molten steel at a factory
Industrial policy can have real and positive impacts on long-term productivity, a paper has found. (Dean Lewins/AAP PHOTOS)

The big-ticket NFF, acting as an independent financier that operates commercially, takes an overarching industrial approach.

But it only works for commercially viable enterprises that would be pretty close to being able to get that loan from a regular bank, Mr Phillips said.

And the fund lacks the coordination with education and training that is critical to building a future workforce, he said, urging more collaboration and "organised thinking" across government.

"A smaller number of more specific industrial goals would get something happening," Mr Phillips said.

Ensuring artificial intelligence and machine learning "contribute constructively" would be just as important as the more obvious net-zero goals, he added.

"The industries that really deliver national benefits and shared benefits, by the time my kids are my age, are going to be nothing like today," he said.

"Critical reforms are needed to build trust in getting big infrastructure built and you can say the same about the AI industry."

Advanced manufacturing may be pushing the frontier of applying AI and robotics but it's not yet clear where Australia fits, said Mr Phillips, given China has the stranglehold.

"Only government, not financial markets, can make the call to invest in what's in the long-term benefit of Australia," he said.

Treasurer Jim Chalmers has acknowledged market structures "won't always cut it" when governments are trying to create new industries and transform old ones.

Incoming Future Fund chair Greg Combet, a former Labor climate change and energy efficiency minister, has flagged a budget boost for large-scale investment in green industry.

Speaking as chair of a net-zero agency, he told the National Press Club the next phase "will look to capitalise on Australia's comparative advantage in minerals and renewable energy, aiming to encourage large-scale investment in green industrial production".

But as Dr Chalmers shapes the May 14 budget, and adds some production credits, they still expect the private sector to do most of the heavy lifting.