Australia is in a global race to accelerate industry development and safeguard our future economic prosperity.
Since 2024 CPD has been making the case for reform to Australia’s specialist investment vehicles (SIVs)—like the Clean Energy Finance Corporation and National Reconstruction Fund—to ensure they are getting better bang for their buck and making the most effective investments to deliver a stronger, more resilient economy.
The return mandates for these funds currently push them towards safe bets and guaranteed commercial returns. This means that there is billions in government spending directed toward the types of projects that private capital is already willing to fund, rather than catalysing new industries and innovation, which should be their key goal.
Our Ideas to Industries report made a series of recommendations to allow government investment funds more room to make crucial investments in projects at earlier stages of the development chain. These are projects which are typically under-funded by private investors due to higher risks, but offer the most benefits to the economy as a whole by building out the industries we need to remain competitive globally.
But a key barrier to reform has been a concern that lowering the return mandate and raising the risk appetite of SIVs could leave the government fiscally worse off.
Risk and Reward: Getting more from Australia’s specialist investment vehicles demonstrates that such reform could in fact improve some measures of Australia’s fiscal position, and set us up for long-term prosperity.
Risk and Reward demonstrates that allowing Australia’s specialist investment vehicles to make riskier investments would not only help kickstart the industries we need to build a stronger, more resilient economy, it could improve Australia’s fiscal position.
Investing in companies at earlier stages of development is inherently risky and requires accepting that some projects will fail. But historically, the data shows funds given the room to take risks have produced higher, not lower, average returns.
From the perspective of the government budget, these returns don’t generally show up in the overall surplus or deficit that is so heavily scrutinised at budget time. Investments made by these SIVs are referred to as “off-budget”, because they aren’t counted as part of the underlying cash balance, the official measure of surplus or deficit. But the underlying cash balance does not tell the full story of the potential benefit to the government’s fiscal position.
Investing in more early-stage companies and projects would mean more equity, venture capital and concessional loans, and fewer commercial-rate loans, which currently dominate SIV investments. In other words, rather than just offering the same types of loans, at the same rates as a commercial bank might, government would be offering a range of different supports, including taking a stake in a project or company that could deliver real value over the long term, not just to the government’s net worth but to the economy as a whole.
That means that at the same time as supporting critical industries of the future to grow and become commercial, Australia can also share directly in their long-term financial upside—a win-win for society and government finances.
