In the annals of predictable failures, Anthony Albanese’s National Reconstruction Fund always looked like a solution searching for a problem.
Created in 2023 to “transform Australia’s industry and economy”, the fund this week confirmed sceptics’ worst fears.
Instead of only investing in promising companies on behalf of all Australians, the fund plans to distribute $1 billion in interest-free loans across the economy.
Sign up to The Nightly’s newsletters.
Get the first look at the digital newspaper, curated daily stories and breaking headlines delivered to your inbox.
By continuing you agree to our Terms and Privacy Policy.
The program is billed as war-time assistance for freight and logistics, fuel, fertiliser and plastics businesses. But any company that argues it contributes to “Australia’s sovereign industrial capabilities” can apply. Banks will take a cut for administering the scheme.
Even if you believe governments should subsidise companies and shareholders hit by circumstance — and history suggests that’s a fools’ errand — the Albanese Government is turning a questionable project into an economic slush fund.
Not looking for winners
In 2022, the newly elected prime minister promised the National Reconstruction Fund would pay for itself. By making loans and investments, the fund would deliver a return of 2 per cent to 3 per cent over the government’s cost of borrowing.
The new fund quickly ran into problems. The first chief executive declared we’re “not in the business of picking winners”, a comment that seemed to demonstrate a misunderstanding about investing.
He soon went on sick leave and resigned. Meanwhile, it emerged the fund’s board was conducting sham meetings.
In order to fulfil a bureaucratic requirement for a certain number of meetings each year, the directors held meetings with gaps between them of a few minutes. They even repeated welcome to countries.
More substantially, the fund struggled to find profitable investments. Its initial focus was on renewable energy — the government appointed a chairman who runs a consulting firm that makes money out of the heavily subsidised industry.
Going for TimTams
Today, the $15 billion fund seems to vacillate between the latest investment fads, including artificial intelligence, quantum computing and data centres, and well-known brands perfect for prime ministerial talking points.
They include biscuit-maker Arnott’s and Patties Food Group, home to the Four’n Twenty pie.
Like many of its private-sector counterparts, the fund doesn’t spare the hype when describing its portfolio of companies, which “design, refine and make to transform capability, grow jobs and a skilled workforce, and diversify our economy”.
Outsiders might wonder, if these companies are so transformative, why do they need the government’s money?
Take Arnott’s. A $45 million loan was agreed in December to “create Tim Tam biscuits for export around the world”.
Sure, Tim Tams are a great biscuit. But with all the challenges facing Australia, should making chocolate treats be the government’s job?
It is not possible to determine how many or if any of the fund’s investments have been successful. A reporting ban has been imposed on the first five years of its existence. This absence of accountable information leaves its 108-page annual report less useful than toilet paper.
Going for zero
Struggling to find decent companies to take its money, in September the fund was directed to switch some of its financial firepower to another of the government’s pet projects: net zero.
One third of the fund’s capital, $5 billion, was allocated to a “Net Zero Fund” to subsidise companies buying equipment and taking other steps to reduce Greenhouse gas emissions.
The switch looked like an emergency response to a political problem. In November, Energy Minister Chris Bowen said Australia was projected to fall a little short of the government’s 2030 climate target and badly miss its 2035 target.
Having campaigned on global warming in multiple elections, Mr Bowen’s and Mr Albanese’s credibility will be damaged if the 2030 target isn’t met, or looks like it won’t be.
The pivots imposed on the fund turned what was meant to be an independent investment business into an arm of government policy.
The shift was confirmed by a change in profit expectations, which was a basis for the fund’s existence.
The carbon investments are allowed to return 1 per cent less that the government’s debt cost. In other words, public servants are using the government’s balance sheet to subsidise companies in order to meet a political party’s climate goals.
The $1 billion no-interest loans offered from Monday are worse. They are expected to return nothing to the government. They’re simply corporate welfare.
This approach is no longer surprising. Industry Minister Tim Ayres, who oversees the fund, is a former manufacturing union leader. Mr Albanese studied political economy at Sydney University, a field that rejects conventional economics.
They are overseeing a historic expansion in the size of government. The consequence will be slower growth, huge debt and, eventually, higher taxes.
But Arnott’s might sell a few more Tim Tams overseas.
