Paul Fletcher (Bradfield, Liberal Party, Shadow Minister for Government Services and the Digital Economy) Share this | Hansard source

I'm pleased to speak on the National Reconstruction Fund Corporation Bill 2022. I want to make three points in the time available to me. Firstly, experience teaches us that Labor's bold promises are very unlikely to be matched by delivery. Secondly, spending $15 billion of borrowed money is bad economic policy. Thirdly, so much remains uncertain about how this is going to operate that it's not appropriate that the parliament vote in support of it.

We've had plenty of bold promises about what the National Reconstruction Fund Corporation is going to achieve. It's going to apparently 'support, diversify and transform Australia's industry and economy, helping to create secure, well-paid jobs, securing future prosperity and driving sustainable economic growth.' For anyone who's been around for more than five minutes, this sounds very similar to the bold promises that Labor made under the National Broadband Network under the Rudd-Gillard-Rudd government from 2007 to 2013. They promised that they were going to roll out a national broadband network which would deliver fibre to the premises to 12.2 million premises. It would attracted significant private sector investment and it would all be done in eight years. This was what then Prime Minister Rudd said when it was all announced in 2009. Well, what actually happened?

First, there was no private sector investment, despite it being promised. Secondly, rather than getting to 12.2 million premises, they had connected barely more than 50,000 premises to the NBN by the time they left government. Thirdly, of course, it got nowhere near getting done in eight years. It was a rolled-gold implementation disaster. Of course, the list of Labor's implementation disasters goes on and on. Some of their greatest hits include naval ships and submarines. How many were delivered in the six years of the Rudd-Gillard-Rudd government? There were none. The mining tax failed to deliver just about any revenue at all. Of Labor's GP superclinics, 28 were promised at the 2010 election. By 2013, just one was operational. I could easily use up 15 minutes going through a long list of Labor's implementation failures, but for anybody who has been around this place for more than five minutes, we know there's a yawning gulf between Labor's bold promises and what they actually deliver. We should apply appropriate scepticism, therefore, to the bold promises being made now, including the claim by the minister that the National Reconstruction Fund Corporation will be up and running by July this year. Even the Clean Energy Finance Corporation, the model on which the government says this fund is based, took three years to design, to legislate and to start making investments.

The second proposition I want to put in the time I have today is that spending $15 billion of borrowed money on the National Reconstruction Fund is bad economic policy. Of course, it's not being done on a standalone basis; it's one of three such investment vehicles being established by the Albanese government in rapid succession: the National Reconstruction Fund, Rewiring the Nation and the Housing Australia Future Fund. In total, this government is borrowing $45 billion to put into these various funds. Whether they generate a positive return, lose 100 cents in the dollar or come in somewhere in between, it will be the Australian taxpayer who is on the hook to repay this money and the accumulated interest on it.

Currently, the 10-year bond rate is around four per cent, so if the Commonwealth borrows $45 billion then, every year, the Commonwealth needs to spend $1.8 billion in interest. This goes to making the budget position, the underlying cash balance, worse by that much every year. This is doubtless why the International Monetary Fund has been clear in its commentary that a proliferation of such vehicles should be avoided.

Now, this $45 billion will not show up as an expense in the budget, because the theory is that it's a capital investment, but the simple fact is that, while this consequence of public sector accounting treatment means that the spending is less visible, it costs real money, and that money needs to be paid by taxpayers. There is no free lunch. Those who champion these kinds of funds like to argue that because the Commonwealth can borrow at low rates then it can invest in a range of projects which earn a higher return and generate a profit. Of course, the logical end-point of this argument is that the government ought to borrow without limit and invest in every project it can find. But the economic reality is that there is no certainty that the projects in which the National Reconstruction Fund invests will be profitable. If the projects that the fund invests in meet normal private sector standards of risk, then of course the project proponents could simply secure their funding from the private sector. If this has not happened—if the project is one that the private sector refuses to finance—that should be a flashing red light as to the amount of risk that this taxpayers' money is exposed to.

We have to recognise that a government organisation is inevitably subject to political pressures that private sector financiers and investors are not. If there is a factory proposed in a marginal seat or championed by somebody who's been a major donor to the Labor Party, there is a real danger of a decision being made to fund the factory even when the business case does not stack up. The Australian Banking Association has described the core problem with the model the government is using here as follows: 'The ABA has concerns that the investment mandate and the proposed priority areas for investment will need to be carefully articulated so as not to have the effect of crowding out the private sector market from areas in which it has an appetite to invest or the risk profile can be appropriately managed.' As this quote highlights, the government is hopelessly confused between two competing and opposing principles. The first principle is that this fund is supposed to operate on a commercial basis and generate a return, which raises the obvious question of why you would set up a government entity which simply crowds out the many private sector parties which are in the business of providing equity and debt finance. The second competing principle is that this fund is supposed to put money into projects that the private sector would not put money into. That's a hopeless confusion between these two competing and opposing principles.

It is certainly true that there is an important role for funding by government when it comes to supporting and stimulating start-up businesses, developments of new technologies and so on. But the logical and coherent way to provide such funding is through the use of grants as opposed to pretending that it's an investment on commercial terms with a reasonable prospect of a positive return. Grant funding is exactly what the coalition did when last in government, with our $2.5 billion Modern Manufacturing Strategy, which aimed to bolster our sovereign manufacturing capability and which supported over 200 projects across Australia. We've seen a rich array of completely nonsensical purported economic arguments being put by various ministers in favour of the National Reconstruction Fund, such as the claim—from the Treasurer, no less—that it's designed to 'help combat the inflation challenge'. That is an absolutely ludicrous argument. In fact, it's the direct opposite of the economic reality. By borrowing $45 billion to set up this fund and the other two funds, the government will put more pressure on debt markets and it will drive up interest rates and, in turn, inflation.

We know that the Prime Minister has form with these kinds of funds. He argued for one in the 2016 election, when he was infrastructure minister—his $10 billion concrete fund, which was going to be a financing facility. This was, in the words of the Labor policy document: 'for Infrastructure Australia to provide, if needed, a combination of guarantees, loans or equity investments to get new projects underway. Once the project is under way and financeable, Infrastructure Australia could sell its equity or debt interest to long-term investors like super funds.' The idea appeared to be that you could borrow money from a concrete bank towards the cost of an infrastructure project, and then that project would generate returns to allow repayment of the loan. The huge problem was that just about every one of the projects that Labor indicated as likely to receive funding were projects that do not generate a revenue stream. Most of them are multibillion-dollar heavy rail or light rail projects, such as Melbourne Metro, or Cross River Rail in Brisbane and the Gawler Line in Adelaide. Public transport projects like this do not even cover their operating costs, let alone generate a return on capital. Of course, that's not to say that large rail projects aren't very worthwhile, and I was certainly involved in championing them when I held infrastructure portfolio responsibilities. But to pretend that the concrete bank advocated by the then shadow minister for infrastructure and now Prime Minister was in fact going to generate a return was nonsensical; it was deeply ill-conceived. And I'm sorry to say that the idea the Prime Minister is now proposing, and which this parliament presently has before it to vote upon, is equally ill conceived for both microeconomic and macroeconomic policy reasons. And I'll make this additional point about pumping this additional stimulus into the economy: we have fiscal policy going in precisely the opposite direction to the monetary policy settings pursued by the reserve Bank of Australia.

I turn, thirdly, to the fact that so much remains unclear about how this fund is going to operate that the parliament could not responsibly support the bill that is before us this morning. While the government's commentary has focused on manufacturing and technology priorities, and on 'rebuilding Australia's industrial base', the bill itself does not mention any specific sectors; does not limit eligible priority areas; has no reference to reconstruction, other than in its title; and no reference to rebuilding. One powerful piece of evidence for how unclear and unspecified the list is of areas into which this fund might put money is the attempt in recent weeks by the minister to argue that if the National Reconstruction Fund does not go ahead it will put at risk the AUKUS security pact between Australia, the United States and United Kingdom. That is an argument which is, arguably, even more ludicrous than the argument I cited earlier from the Treasurer about the way that this fund is going to help fight inflation. It would be a very hard choice to determine which of these two arguments were the more ludicrous, but both of them, by any standard, are objectively and entirely ludicrous.

The reality is that this fund is being set up in a way which will allow the minister to splash money around in any direction that pleases him. We've heard a lot from this government about their unswerving commitment and dedication to the principle of arms-length funding and yet, under this bill, the minister has an extraordinary amount of discretion on everything—the appointment of the chief executive and the board through to the priorities of the fund are at the minister's discretion. In effect, this parliament is being asked to sign a $15 billion blank cheque for whatever the minister decides he wants to spend the money on. As the Australian Chamber of Commerce and Industry has observed:

There is no clear definition of what a 'priority area of the Australian economy' is. The Bill leaves it open to the minister to declare that each or any area of the Australian economy can be identified as a priority area.

Equally troubling is that it would be very difficult for the parliament or the Australian public to know how good or bad a job the National Reconstruction Fund Corporation is doing in its stewardship of this $15 billion of borrowed taxpayers money, with a reporting requirement only at the end of the asset's life cycle.

However, what is, regrettably, all too clear is that for some bizarre reason the government has abandoned the commitment made by the previous coalition government to support the Australian space sector. A key pillar of the Morrison government's manufacturing strategy was our strategic decision to bolster Australia's capabilities in the space sector. We supported funding locally to design, develop, manufacture and deploy specialised space products, equipment, systems and services for export to international markets, and to support national and international space missions. But Labor has not included space industry manufacturing as a priority area. The space industry, as well as the broader Australian public, are yet to understand the basis for this shift in focus.

What is also, regrettably, all too clear is the extent to which this body will have extensive union involvement in its decision-making. Perhaps that's unsurprising, given that the minister is a former union official. Just on a random check, is the current Labor minister at the table a former union official? Yes, he is! What a surprise! It is very likely that this fund will pursue a traditional union agenda of assisting certain favoured industry sectors for a essentially political reasons—one of which, of course, is their wish to compel more Australians to join unions. As Professor Gary Banks, former chairman of the Productivity Commission has warned:

… industry assistance that targets import replacement and job creation in certain sectors is generally 'bad for Australia's productivity and prosperity, …

And the Australian Industry Group has rightly highlighted the very real risk that the National Reconstruction Fund will, 'operate as a means for unions to attract members'.

I conclude with the observation that this is a bad idea and badly executed. Labor has a long track record of financial disaster with these kinds of schemes, and the current Prime Minister seems to have a particular enthusiasm for them. I confidently predict this fund will not live up to the breathless claims being made. A lot of taxpayers' money will be wasted. It's a bad bill. I have no hesitation in voting against it.

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