Australian Federal Budget 2024-25: Business risk and resilience 

Building national resilience

Impact of global risks on local resilience

Global conditions have significantly influenced the perception and strategic responses of business leaders and the government in Australia. Starting with the major fires in 2019, which were soon followed by the COVID-19 pandemic and subsequent flooding at the end of 2020, Australian businesses have faced back-to-back disruptions. These events underscored the interconnectedness of global supply chains and the direct impact of international crises on domestic operations.

Australia's heavy reliance on international shipping highlights the need for a more resilient and self-sufficient infrastructure to mitigate future disruptions. Ongoing global conflicts and supply chain disruptions, like the Israel-Gaza conflict affecting shipping in the Red Sea, have impacted Australian businesses by increasing shipping durations and logistical challenges. Additionally, ethical concerns, such as modern slavery in supply chains from regions like Western China, pose significant risks to Australian companies.

These challenges have prompted a re-evaluation of national resilience strategies, leading to significant defence investments and recognition of inadequate onshore capabilities. Critical infrastructure, such as renewable energy generation and semiconductor manufacturing, is heavily reliant on geopolitical hotspots like Taiwan and China. These issues underscore the Government's Budget focus on reducing overseas reliance and bolstering domestic capabilities in key sectors such as energy and defence, aiming to de-risk the nation amidst global conflicts and misinformation.

Budget measures aimed at enhancing national resilience

The largest single investment in the Budget is the $50.3 billion committed to defence as part of the National Defence Strategy. This includes funding for the naval fleet, accelerated onshore weapons manufacturing, $166 million in industry development grants for the onshore military supply chain (for example, naval shipbuilding), and $102 million for the industrial workforce to support this supply chain. Given rising geopolitical tensions, defence appears to be a clear winner in the Budget.

Further investments aim to deepen economic ties with neighbouring allies, including more than $2 billion in development assistance to the Pacific in 2024-25 and $506 million to strengthen ties with ASEAN countries under Australia’s Southeast Asia Economic Strategy to 2040. These investments are crucial for maintaining influence in the region. 

Weather and climate-related disasters pose a significant threat to Australia’s economy, and the Budget seeks to address these issues with:

  • $519.1 million from the Future Drought Fund to help farmers and rural communities manage climate impacts and prepare for future droughts.
  • $174.6 million from the National Water Grid Fund for new water infrastructure projects to enhance water security, boost agricultural production, and drought-proof regional communities.
  • $139 million to improve Australia's response and resilience to natural hazards and disasters through the National Emergency Management Agency.

Finally, the Future Made in Australia package includes $22.7 billion in measures to accelerate the net zero transition and position the economy for global competition. Key highlights include:

  • $7 billion in production tax incentives for processing and refining critical minerals, and $6.7 billion for renewable hydrogen production to accelerate investment in these essential areas.
  • $1.7 billion to promote net zero innovation, including green metals and low-carbon fuels$1.5 billion to strengthen battery and solar panel supply chains through production incentives and increase energy security.
  • $566.1 million to map Australia's geological potential, supporting the net zero transition with data, maps, and tools for the resources industry to enable new discoveries and strengthen critical mineral supply chains.
  • $448.7 million for advanced satellite data on climate, agriculture, and natural disasters via the Landsat Next satellite project to inform resilience efforts around weather and drought events.
  • $399 million to establish the Net Zero Economy Authority to support the economy-wide net zero transformation, plus $48 million for reforms to the Australian Carbon Credit Unit (ACCU) scheme to help firms meet compliance obligations under the Safeguard Mechanism.
  • $134.2 million to prioritise approvals for renewable energy projects of national significance, ensuring faster decisions on environmental, cultural heritage, and planning approvals.
The Future Made in Australia package is seen as Australia's response to the US Inflation Reduction Act (IRA). While welcomed by businesses and clean energy advocates, it is notably smaller in scale compared to the IRA when adjusted for Gross Domestic Product (GDP).
The Budget focus(es) on reducing overseas reliance and bolstering domestic capabilities in key sectors such as energy and defence, aiming to de-risk the nation amidst global conflicts and misinformation.

Potential impact on inflation

The Treasury asserts that initiatives like the Future Made in Australia Act will positively impact inflation, but the timeline for these effects remains unclear. While there is a focus on clean energy and defence, traditional sectors relying on imported materials will also receive increased budgetary support. The reliance on imported materials and its impact on inflation should be considered.

An example is a $6.2 billion investment in housing initiatives like the New Housing Support Program, alongside $4.1 billion for new priority infrastructure projects under the Infrastructure Investment Program. These initiatives aim to support the construction industry, which remains vulnerable to supply chain challenges due to its reliance on imported materials and labour.

The Australian Institute of Quantity Surveyors (AIQS) Building Cost Index shows that building costs exceed the Consumer Price Index (CPI), potentially leading to prolonged elevated prices. This could impact material and construction costs, asset values, and business interruption insurance coverage, resulting in either over or underinsured policies and posing additional challenges for the business community.

Addressing misinformation and disinformation

The 2024 Global Risks Report, published by the World Economic Forum in collaboration with Marsh McLennan, identifies misinformation and disinformation as the top global risks. To combat this, the Government has introduced initiatives to improve transparency and address the impact of misinformation, particularly accelerated by AI.

  • The Government is investing $399 million in the Net Zero Economy Authority to combat climate change misinformation. This initiative promotes transparency, accountability, and facilitates private and public investment, major project development, employment transition, and community development in the context of the net zero transformation.
  • To develop policies and capabilities for the safe and responsible use of AI, the Government has allocated $39.9 million over five years starting in 2023-24. This includes establishing a reshaped National AI Centre (NAIC) and an AI advisory body within the Department of Industry, Science, and Resources.
  • To enhance cybersecurity capabilities of regulatory agencies such as ASIC, APRA, and ATO, the Government has allocated $206.4 million over four years starting in 2024-25, with an additional $7.2 million per year ongoing.
  • Recognising the impact of historical misinformation on Indigenous Australians, $29.1 million over four years has been allocated to support First Nations education. This funding will develop a new national First Nations Education Policy and First Nations Teacher Strategy.
  • These measures aim to strengthen business resilience, promote transparency and accountability, ensure responsible AI use, improve cybersecurity, scrutinise foreign investments, engage communities, and support First Nations education.
These measures aim to strengthen business resilience, promote transparency and accountability, ensure responsible AI use, improve cybersecurity, scrutinise foreign investments, engage communities, and support First Nations education.

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