Senate fight looms over $15 billion reconstruction fund

Labor will promise taxpayers a commercial return on $25 billion in federal debt being used to create two new funds to invest in housing and industry projects ahead of talks to get the measures through the Senate in the face of objections from the Coalition.

Industry Minister Ed Husic will issue investment rules and name an independent board to oversee the $15 billion National Reconstruction Fund in a move to generate the business returns when it backs companies in sectors such as manufacturing, technology, clean energy and medicine.

Industry Minister Ed Husic assured Australians the money raised would be put into commercial ventures that generated a return while supporting jobs in sectors like manufacturing.Credit:Wolter Peeters

But the government will be forced to negotiate with the Senate crossbench to set up the manufacturing fund and the separate $10 billion Housing Australia Future Fund, setting the scene for amendments to how the funds are invested.

Husic attacked the Coalition for opposing the manufacturing fund and assured Australians the money raised would be put into commercial ventures that generated a return while supporting jobs in sectors like manufacturing.

“We don’t want momentum for Australian businesses to be stalled, we don’t want to choke off their growth prospects,” he said in an interview.

“Australians for years have gotten rightfully upset that great Australian ideas have gone offshore and we’ve had to buy back those ideas as imports.

“We’re trying to turn that around.”

The government put the manufacturing fund bill to parliament in December and wants it passed within weeks so it can name the board – likely to include experienced figures from the investment sector – and issue rules to set the rate of return.

A reference group will be set up to advise the government on the investment mandate before the board is appointed and the chief executive is named.

Deputy Opposition Leader Sussan Ley labelled the fund a dud on Tuesday after the Coalition party room formally decided to vote against the bill, with the discussion dominated by concerns over debt.

“Labor’s National Reconstruction Fund fails to address the issues our manufacturers need the government to show leadership on – high energy prices, disrupted supply chains and acute labour shortages,” Ley said.

The Coalition is yet to take a formal position on the $10 billion housing fund, but the concern about debt could lead to a similar rejection at the next party room meeting.

Senate independent David Pocock is seeking changes to the housing fund after expressing doubt that it would be big enough to finance 30,000 new homes, the government’s key claim.

Greens housing spokesman Max Chandler-Mather said the shortage of social housing might grow during the life of the new fund because it would not do enough.

As with the manufacturing fund, the government will set the return for the housing fund in an investment mandate it is yet to release.

Husic said he wanted the manufacturing fund to start backing projects with debt and equity from July 1, but he did not guarantee the same rate of return as the Clean Energy Finance Corporation – the $10 billion fund that has to generate an average return that is 1 percentage point higher than the Commonwealth bond rate.

“They’re targeting different activities – the NRF is not just looking at renewables,” he said when asked if the rate of return would be the same for the new fund.

“We’re looking at the value-add in resources and in agriculture, we’re looking at critical technologies like quantum computing and artificial intelligence and robotics, we’re looking at medical sciences, transport and defence.

“We want the reference group to guide us on that, but our expectation is that a return will be delivered to the Commonwealth.”

Husic met US Commerce Secretary Gina Raimondo in Washington DC last week to discuss joint work on advanced technology but noted concerns in the European Union about the Biden administration’s Inflation Reduction Act and the scale of its subsidies for US companies at the expense of overseas competitors.

“The initial reaction would be that it provides competition and it might lure firms offshore, but I think it represents a great opportunity for Australia because we’ve got great working relationships with America and we share an interest in certain areas like green tech.

“This could be potentially a bonanza for Australian industry.”

The manufacturing fund is expected to put $3 billion towards low-emissions technology and $1 billion into projects that add value to resources, with battery manufacturing a target for funding because Australia produces the raw materials used in batteries for electric vehicles and household energy storage.

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