BILLS DIGEST No. 53, 2022–23
3 February 2023

National Reconstruction Fund Corporation Bill 2022


The Authors

Tessa Satherley and Philip Hamilton

Key points

  • The Bill would establish the National Reconstruction Fund Corporation (NRFC) ‘to facilitate increased flows of finance into priority areas of the Australian economy’, by financing businesses, state and territory governments and other entities through concessional loans, equity, guarantees and a wide range of other financial instruments.
  • The Bill requires that NRFC investments be solely or mainly Australian based, but the Australian Government would otherwise have full discretion to define ‘priority areas’ by disallowable legislative instrument. The Government could also specify almost all NRFC investment policy parameters, via non-disallowable legislative instrument (the Investment Mandate), though it could not direct the NRFC to undertake any specific, individual investment. Although Government commentary has focused on manufacturing and technology priorities and ‘rebuilding Australia’s industrial base’, the Bill itself does not mention any specific sectors, limit eligible priority areas or refer to ‘reconstruction’ (except in the title) or ‘rebuilding’.
  • To date, Ministers have announced that the NRFC will fund up to $3 billion for renewables and low emissions technologies, $1.5 billion for medical manufacturing, $1 billion for value-adding in resources, $1 billion for ‘critical technologies’ (as defined on the separate List of Critical Technologies in the National Interest), $1 billion for advanced manufacturing and $500 million for value-adding in agriculture, forestry, fisheries, food and fibre. Consultation documents also name ‘medical science’, ‘transport’, ‘defence capability’ and ‘enabling capabilities’ (such as robotics, artificial intelligence and ‘quantum’) as priorities. These priorities are not legislated.
  • The NRFC would be funded by an initial $5 billion in equity, and a further $10 billion by July 2029 in instalments (timing and amounts at the Government’s discretion; non‑disallowable).
  • The NRFC’s target rate of return would be set in the non-disallowable Investment Mandate. Profit is expected in aggregate but not guaranteed and may come into tension with other policy goals and risk management concerns – as experienced by the Clean Energy Finance Corporation. The Bill does not require or aim for private sector co-finance (though the Explanatory Memorandum mentions ‘crowding in’ additional finance as one goal).
  • The NRFC will be accounted at least ‘budget neutral’ in terms of the underlying cash balance, as the amount of equity injected will be defined as the NRFC’s initial ‘fair value’ as a financial asset on the balance sheet. However, the full fiscal costs, risk exposure and potential inflationary impacts of such ‘balance sheet financing’ are poorly captured by the underlying cash balance.

Date introduced:  30 November 2022

House:  House of Representatives

Portfolio:  Industry, Science and Resources

Commencement: A single day to be fixed by Proclamation, or 6 months after Royal Assent at the latest.



The Bills Digest at a glance


  • The Australian Labor Party (ALP) committed to the $15 billion National Reconstruction Fund on 15 November 2021 as ‘the first step in Labor’s plan to rebuild Australia’s industrial base’.
  • Arguments for the proposal have focused on Australia’s low manufacturing self-sufficiency and ‘economic complexity’. Opponents have focused on the risks created by market interventions.
  • Outside Parliament, a broad range of interest groups have supported the proposal.

Purpose of the Bill

  • The main purpose of the National Reconstruction Fund Corporation Bill 2022 (the Bill) is to establish the National Reconstruction Fund Corporation (NRFC) in order to ‘facilitate increased flows of finance into priority areas of the Australian economy’.

Financial implications

  • The NRFC will be funded by a total $15 billion in equity injections, comprising $5 billion at commencement, and an additional $10 billion in total by instalments before 2 July 2029. These amounts are set in the Bill, but the timing and amounts of individual instalments would be at the Government’s discretion. The equity injections would not be disallowable.
  • A recent publication by the Parliamentary Budget Office (PBO) notes that conventional Budget reporting makes it complicated to evaluate the fiscal risks and impacts of such equity investments.[1] While the NRFC will nominally be at least ‘budget neutral’ in relation to the underlying cash balance, the full fiscal impact and potential fiscal risk are much more complicated to assess.

Key issues

Government discretion to set – and reset – ‘priority areas’ and the Investment Mandate

  • The Bill and Explanatory Memorandum do not codify the ‘priority areas’ of the Australian economy to be targeted for investment. The second reading speech does identify 7 priority areas[2]; however, this list should be considered indicative, because the Bill provides that priority areas will be declared in a disallowable legislative instrument.[3]
  • Similarly, ‘reconstruction’ is not defined or mentioned in the Bill (apart from the title and the name of the NRFC), although Government commentary has referred to ‘rebuilding Australia’s industrial base’.[4]
  • The Government says the NRFC is based on the model of the Clean Energy Finance Corporation (CEFC).[5] However, the CEFC’s investment focus is limited to ‘clean energy technologies’ as defined in the Clean Energy Finance Corporation Act 2012, whereas the NRFC’s basic investment focus will not be restricted to any specific sectors or technologies in primary legislation. The target areas for investment will be defined later in delegated legislation[6] – and will have potential to be redefined in the same way. Though subject to disallowance, this arrangement still gives the current and future governments considerable power to redirect NRFC investment activity into evolving political and/or policy priorities, mostly free of checks or constraints in primary legislation.
  • The Ministers may give the Board of the NRFC directions about the performance of its investment functions, or the exercise of its investment powers, or both. The directions together constitute the Investment Mandate. The Investment Mandate will be a non-disallowable legislative instrument, giving the Government further latitude to set high-level NRFC investment policy – though not to dictate specific individual investments.[7] Consultation on the Investment Mandate is ongoing.

Reporting and compliance

  • For equity interests, the NRFC must ensure that funded entities’ activities (where the entity is not a state or territory or constitutional corporation) are all constitutionally supported activities. Further, all investments made by the NRFC must be solely or mainly Australian based, to be defined according to guidelines which are yet to be developed by the Board. Assuring that these requirements are being met will likely require compliance monitoring and reporting beyond the reporting on funded entities’ activities in priority areas of the economy.

No requirement for co-finance


Purpose of the Bill

The main purpose of the National Reconstruction Fund Corporation Bill 2022 (the Bill) is to establish the National Reconstruction Fund Corporation (NRFC) in order to ‘facilitate increased flows of finance into priority areas of the Australian economy’ (clause 3). The NRFC is to be a statutory corporate Commonwealth entity for the purposes of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) (clause 11).

As defined by the Bill, the NRFC’s investment functions (clause 63) are to:

  • provide financial accommodation for purposes relating to any of the ‘priority areas’ of the Australian economy, and
  • acquire equity interests in entities that carry on activities in a priority area of the Australian economy.

The Bill and the Explanatory Memorandum do not specify the ‘priority areas’ of the economy. The Minister’s second reading speech identifies 7 priority areas: value-adding in resources; value-adding in agriculture, forestry and fishery; transport; medical science; renewables and low-emission technologies; defence capability; and enabling capabilities. However, this list could be considered indicative, because the Bill provides that priority areas of the Australian economy will be declared by the Ministers in a legislative instrument (clause 6). This must be tabled in Parliament and will be subject to disallowance.[8]


Structure of the Bill

This Bill comprises 7 parts:

  • Part 1 provides a simplified outline of the Bill and defines key terms, including the range of investment mechanisms available to the NRFC under the categories ‘financial accommodation’ (loans, guarantees, bonds, etc.) and ‘equity interest’ (shares in companies, trusts, partnerships, etc.). It provides that ‘priority areas’ for NRFC investment will be defined by disallowable legislative instrument.
  • Part 2 establishes the NRFC as a body corporate and sets out its high-level investment functions and powers.
  • Part 3 deals with the NRFC Board. It requires the appointment of a Board, sets out the Board’s functions and sets procedural terms and conditions around Board appointments, meetings and decision-making.
  • Part 4 deals with NRFC staff. It sets out the terms and conditions of the appointment of a CEO, including an outline of the CEO’s functions, and the appointment of other NRFC staff. It provides that staff will be employed on the terms and conditions that the NRFC determines in writing, and that the NRFC may engage consultants to assist in the performance of its functions.
  • Part 5 sets out financial arrangements for the NRFC, including the operation of its Special Account, the credit to the Account of $5 billion on the day the relevant section commences and the requirement to credit an additional $10 billion in total by mid-2029. It also sets limits on borrowing by the NRFC.
  • Part 6 establishes the detailed investment functions and powers of the NRFC, including constraints on the use of derivatives and guarantees, and the requirement that investments be solely or mainly Australian based. It also sets out the broad scope of the Ministers’ Investment Mandate (non-disallowable[9]) and how it will operate.
  • Part 7 outlines miscellaneous provisions, including the NRFC’s ability to incorporate or form subsidiaries; the requirement of, or permission for, the publication of investment reports and other documents; the operation of delegated powers; and a requirement for periodic reviews of the operation of the Act.


Election commitment and policy announcement

The Australian Labor Party (ALP) first committed to the $15 billion National Reconstruction Fund while in Opposition, on 15 November 2021, describing it as ‘the first step in Labor’s plan to rebuild Australia’s industrial base’. The announcement said the Fund’s mission was to:

  • create secure well-paid jobs
  • build on our national strengths
  • diversify Australia’s industrial base
  • develop our national sovereign capability
  • drive regional economic diversification and development.

It further stated that the Fund would unlock potential additional private investment of more than $30 billion – although the Bill does not include any requirement for co-contributions from finance recipients, or other private investment in NRFC-funded projects.

Since the May 2022 election, the Minister for Industry and Science, Ed Husic, has elaborated on these goals. In his 29 November 2022 address to the National Press Club, Minister Husic stated:

We want Australia to be a country that makes things again. It’s that simple. … Right now, Australia ranks dead last among OECD countries in manufacturing self-sufficiency. We have the smallest manufacturing industry relative to domestic purchases of any OECD country. Our consumption of manufacturing output is nearly double our domestic manufacturing output. And we have slipped in economic complexity from a modest 55 in 1995 to 91st in the world in 2020. We import the bulk of what we need across sectors. And yet, the signs are there that we can take a different path. …

The pandemic showed us that luck doesn’t last forever. We need to be smart, too. And we’re not the only country to have realised this. Around the world, industry policy is being remade before our eyes to shore up local manufacturing capability. In the US, President Joe Biden is delivering on Made in America commitments, with more than 100 billion dollars in announced investments in electric vehicles, batteries and critical minerals, as well as nearly 80 billion dollars in semi-conductor manufacturing. In our own region, Singapore has unveiled a 10-year plan to boost local manufacturing by 50% ...

Tomorrow, I will introduce the legislation enabling the establishment of the $15 billion National Reconstruction Fund … The National Reconstruction Fund is one of the largest peacetime investments in our country’s manufacturing capability in living memory … It will be empowered to invest through a combination of loans, guarantees and equity, including with institutional investors, private equity and venture capital. It will be administered on the basis that it will achieve a return to cover borrowing costs, and it will have an expected positive underlying cash impact.


The Department of Industry, Science and Resources (DISR) commenced a consultation process on 30 November 2022. Supporting materials include a consultation paper and virtual consultation sessions. Input is sought by 3 February 2023 on ‘the implementation of the NRF, including the investment mandate’; DISR also notes that ‘this is one of several consultations that will inform the development of the NRF’.[10]

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 10 March 2023. Details are at the inquiry webpage – National Reconstruction Fund Corporation Bill 2022.

Australian manufacturing – Senate inquiry

The recent history of Australian manufacturing and its challenges were well covered by the Senate Economics References Committee inquiry into the Australian manufacturing industry.[11]

The Committee was chaired by Labor Senator Anthony Chisholm, and its Final Report (February 2022) provides a summary of the policy background to the proposed NRF, including the view that manufacturing ‘is not just “another” sector’, but rather has deep strategic importance for security and the national innovation ecosystem (page 4). Foreshadowing Minister Husic’s comments above, the report also expresses concern about Australia’s poor ranking for manufacturing self‑sufficiency within the OECD (page 5) and growing manufacturing trade deficit (page 6). The report also notes Australia’s dependence on unprocessed resource exports, vulnerability to global supply chain disruptions and trade tensions with China (pages 12–15) and low ‘economic complexity’ (page 19) – economic complexity is discussed further below.

Notably, the Committee recommended the establishment of a ‘Manufacturing Industry Fund to provide a range of co-investment incentives to the manufacturing industry in conjunction with the private sector’, and that this fund should have ‘the flexibility to assist a range of manufacturing sectors (including emerging sectors) and private entities, using a variety of mechanisms, such as direct support for flagship projects, equity, concessional loans, guarantees, and other means that deliver a positive return on investment’ (pages xi and 84). The Committee further recommended that the fund ‘particularly look to accelerate Australia’s clean export industries, through funding of a wide range of technologies such as hydrogen, green metals, and battery manufacturing, and assist their transition to full market competition’ (pages xi and 85). The NRFC would appear to address these recommendations.

In contrast, the ‘Dissenting Report – Liberal Senators’ (from page 93) warned:

The majority report proposes a number of recommendations which would underpin a government driven interventionist approach in the manufacturing sector. Such policies have not worked in the past and there is no evidence to suggest that they will work in the future. The danger is that they will distort the market and cause more harm than good … The work of the Productivity Commission makes for sobering reading in this regard.[12]

In its September 2021 submission to the manufacturing inquiry, the Productivity Commission questioned the role of Australian Government industry policy – other than reducing protectionism – in the manufacturing sector’s historical decline. The Productivity Commission also questioned whether this decline had had a negative net impact on Australians’ welfare:

Manufacturing peaked as a share of the Australian economy in the early 1960s… In large part this reflects the shift in consumer spending from goods to services over recent decades. In addition, in an increasingly competitive and interconnected global world, Australian manufacturing has faced increased competition from imports, particularly from Asia. Like in other advanced economies, the services sector now accounts for the bulk of the economy … Given the similarity of this trend across developed economies, it is difficult to discern the role that Australian policy has played in this process. However, it is likely that the reduction in trade protection and other forms of assistance contributed to the shift away from manufacturing …

The manufacturing sector still receives a disproportionate share of assistance … Australia’s manufacturing sector continues to shrink despite the assistance it receives.

The shift towards services has led some to comment about adverse impacts on labour market outcomes and on the economy as a whole, but such fears are not SUPPORTED by evidence. Compared to workers in the manufacturing sector, workers in the services sector tend, on average, to be paid slightly higher hourly wages and work slightly fewer hours, with the net effect that total wages are roughly the same across the two sectors (PC 2021a, pp. 15–17). And considering outcomes for the economy as a whole:

… the relative decline of manufacturing has not held back living standards in Australia. On the contrary, once we began to reduce manufacturing protection, and the burden it placed on more efficient and productive activities – within manufacturing itself, as well as other sectors – Australia’s exports took off and per capita incomes have risen faster than the average for the OECD, taking us back to 6th in world rankings from 18th in the late 1980s (Banks 2008, p. 11). [Pages 4–5]

The Commission’s submission warned against sectoral approaches to industry policy, advocating instead for broad enabling reforms and investments, with limited exceptions (pages 2–7).

This is the Commission’s longstanding position. For example, its inaugural chairman, Gary Banks, warned in a 2011 speech to the Australian Chamber of Commerce and Industry that ‘At the top of the list of perennially bad policy measures are those that promote Australian industries by reducing imports’, whether through tariffs or indirectly (page 3), and that ‘industry assistance that targets import replacement and job creation in certain sectors is generally “bad” for Australia’s productivity and prosperity’ (page 6).

Manufacturing and economic complexity

A recurrent argument in debate about manufacturing policy in Australia hinges on the relationship between manufacturing and a recently developed metric called ‘economic complexity’, found to correlate with a nation’s future economic growth prospects (globally, on average). Australia’s economic complexity is low compared with its income level, because we export few ‘complex’ products. This subsection provides background to these arguments.

In the late 2010s, Harvard University researchers developed a metric called the ‘Economic Complexity Index’ (ECI), based on research indicating that ‘development requires the accumulation of productive knowledge and its use in both more and more complex industries… Countries improve their ECI by increasing the number and complexity of the products they successfully export.’[13]

For example, the most complex products include photography equipment, semiconductors and ‘machines to extrude, draw, [and] cut manmade textile fibres’, while the least complex products include metal ores and concentrates, cocoa beans, cotton and petroleum oils. More complex products have higher ‘value added’ and require many additional processing and manufacturing steps following the extraction of raw inputs.

Australia’s exports are dominated by unprocessed or only lightly processed raw materials, resulting in a low ECI (however complex the extraction process may be) – see Figure 1.

Australia’s ECI is currently ranked 91st out of the 133 countries assessed by the Harvard team (see Figure 2), indicating our exports are slightly less complex than those of Kenya (90th), Laos (89th) and Pakistan (88th) and slightly more complex than those of Namibia (92nd), Bangladesh (93rd) and Tajikistan (94th). Among countries at economic development levels comparable to Australia’s, but which also enjoy strong natural resources-based exports, Canada’s ECI is ranked 43rd, and New Zealand’s 53rd. Japan, Switzerland, Germany, South Korea and Singapore have the highest ECI; in general, developing nations in Africa have the lowest.

Figure 1 Australia’s net export flows, 2020

Chart - Australia’s net export flows, 2020

Source: ‘Country Profile: Australia’, The Atlas of Economic Complexity, The Growth Lab at Harvard University.

Figure 2 Australia’s Economic Complexity Index, 2000 to 2020

Chart - Australia’s Economic Complexity Index, 2000 to 2020

Source: ‘Country & Product Complexity Rankings’, The Atlas of Economic Complexity, The Growth Lab at Harvard University.

Some see Australia’s weak ECI results as grounds for government investment to revive domestic manufacturing. For example, in August 2022, the Advanced Manufacturing Growth Centre urged that ‘[m]anufacturing is the answer to improving Australia’s falling complexity ranking’. University of Technology Sydney Emeritus Professor Roy Green warned that ‘the truth is we sustain a first‑world lifestyle with a third-world industrial structure’:

This was the message of the Harvard Atlas of Economic Complexity, which ranked Australia at the bottom of the Organisation for Economic Co-operation and Development (OECD) for ‘complexity’, as measured by the diversity and research intensity of its exports. It is also the logical endpoint of the theory of ‘comparative advantage’, which asserts that we maximise gains from international trade by exploiting our abundant natural endowments in return for imported consumer goods from places that produce them more cheaply.

Even if this theory was true in the past, it no longer holds in a world where manufacturing is undergoing massive transformation in a ‘fourth industrial revolution’, encompassing robotics and automation, artificial intelligence, data analytics and machine learning.

The ECI results also have traction within economic policy circles of the ALP. In a March 2018 speech to the Insurance Council of Australia, titled ‘Is the Australian economy too simple?’, Dr Andrew Leigh (now Assistant Minister for Competition, Charities and Treasury) warned that:

… while some specialisation is good, too much can create excess risk… Just like a worker who only has a single skillset, a country that makes just a few products takes on a lot of risk in the world economy. …

But just as the proof of the pudding is in the eating, the proof of any growth theory is how it predicts growth. And anyone who wants to airily dismiss the Atlas of Complexity needs to explain the fact that it has a pretty good track record of forecasting past economic growth across nations …

For the economy as a whole, it’s vital not just to think about how to lift up the best performers, but also how to improve the quality of the economic ecosystem. The complexity approach isn’t perfect, but it is a reminder that we have a lot of our national eggs in just a few baskets. Or, if you prefer the more literary metaphor – we have too few Scrabble letters.

Harvard’s ECI metric also has sceptics. A 2019 Business News article, titled ‘Harvard’s complexity call way too simple’, argued Australia’s decline in ECI has been ‘driven more by the success of one sector’ – mining and LNG – ‘than the failure of others’. It noted that despite the decline in ECI, Australia ranked very well within the OECD for both exports growth and GDP growth, and that its highly successful mining sector is among the most automated and efficient in the world – that is, considerable implicit ‘complexity’ is hidden in Australian resource extraction, even if the export itself is ‘simple’ metal ore. The article further criticised the Harvard researchers’ recommendation that Australia consider strategic investments in the manufacturing of transmission shafts, compression-ignition internal combustion engines, forklift trucks and vehicle bodies ‘despite three decades of gradual decline in the country’s car industry due to lack of competitiveness’.

Sectoral industry policy: strategic development or ‘picking winners’?

Minister Husic’s 29 November 2022 Press Club speech foreshadowed an unapologetically interventionist approach to industry policy:

Now, among some in the community there is still this rusted-on sense that when it comes to industry policy, governments should not be ‘picking winners’. That governments should only be considered as investors of last resort, intervening when the market has failed. This is a diminished view of the role of government. And, a missed opportunity. Governments can and should strategically and thoughtfully invest in the industries of the future.

This shows a difference in tone from orthodox warnings about the risk of market distortions when governments ‘pick winners’, as offered over many years, for example, by institutions such as the Productivity Commission. The Productivity Commission’s Trade and Assistance Review 2020–21 warned that budgetary assistance (such as grants and subsidies) to industry, even when ‘motivated by a desire to address market failures’, nonetheless ‘distorts resource allocation and encourages rent-seeking behaviour which has its own direct costs and undermines innovation and productivity growth’ (page iii). The Commission further warned that the provision of budgetary assistance to individual firms or for particular activities within an industry – at a high level, the model envisaged for NRFC financing – ‘can provide recipient firms with a significant competitive advantage (especially over other firms in their industry) and can be highly distortionary, as resources – such as finance, labour or equipment – may be redirected away from more productive businesses and activities that are not receiving the same level of assistance from government’ (pages 9–10).

The Commission estimated that the manufacturing industry had received more than $2.8 billion in net industry assistance from government in 2020–21, and that this level of assistance was ‘disproportionately large’ relative to the industry’s value added[14]: ‘The manufacturing sector received 23.3 per cent of allocatable net assistance … despite accounting for only 6 per cent of value added’ (pages 6–7).

For several decades, ‘small government’ has also been the orthodox economic policy approach advocated by global development authorities, such as the International Monetary Fund (IMF) – although in recent years, IMF staff have aired concerns about the unintended effects of deregulation and free market policies taken to excess.[15]

Globally, other intellectual challenges to the philosophy of a relatively hands-off industry policy have included:

  • the rapid development of the so-called ‘Asian tigers’ through deliberate, systematic government support for manufacturing and high-tech industry development – termed ‘developmentalism’ or the ‘Developmental State’ approach[16]
  • more recently, the work of economists such as University College London professor Mariana Mazzucato, whose 2013 book The Entrepreneurial State argued that private sector investment in new technologies and industries only eventuates after governments make the risky early‑stage investments[17]
  • the increasing urgency of reducing global carbon emissions, including through rapid industrial transformation – regardless of fossil fuels’ economic efficiencies in the very short term
  • supply chain disruptions during the COVID-19 pandemic.

Context of recent Australian Government industry policy

The pivot towards interventionism – as signalled in Minister Husic’s statements above – is a matter of degree, rather than absolutes. The greatest differences from the Coalition’s recent approach appear to be the quantum of funds to be invested ($15 billion, dwarfing previous manufacturing initiatives) and the choice of funding model (concessional finance and equity investments via an investment corporation, in place of direct grants and tax incentives), not the pursuit of sectoral policy or ‘picking winners’ per se.

For example, the previous Coalition Government had provided some support for domestic industries of ‘comparative’ or ‘competitive advantage’ prior to the COVID-19 pandemic through Industry Growth Centres and other policies. More recently, it also committed funding for manufacturing sectors of ‘critical’ or ‘sovereign’ importance, in reaction to global supply chain disruptions due to COVID-19 (see Appendix A). The Modern Manufacturing Strategy (2020) committed more than $1.3 billion for domestic manufacturing grants in ‘priority’ sectors.

There is also considerable continuity between the ‘priority areas’ as identified by the current Labor Government – in speeches if not this Bill – and those previously endorsed by the Coalition, as well as in the industry policy goals as elaborated in the Explanatory Memorandum to the Bill, such as:

… to support, diversify and transform Australia’s industry and economy to secure future prosperity and drive sustainable economic growth … [T]o leverage Australia’s natural and competitive strengths, supporting the growth of a vibrant and modern economy, better positioning industry to be successful in a net zero economy and more resilient against supply chain vulnerabilities … [E]ncourage private investment, making it easier for industry to commercialise innovation and technology, supporting the development of our national sovereign capabilities and driving regional economic diversification and development… [A]ssist Australian industry to seize new growth opportunities by providing finance for projects that add value, improve productivity and support transformation … [H]elp create secure, high value jobs for Australians and strengthen our future prosperity.[18]

Figure 3 (below) and Appendix A summarise targeted industry sectors and flagship policies under previous governments, compared with the proposed NRF.


Figure 3 Priority industry sectors for Australian Government support under previous governments, versus proposed NRF ‘priority areas’

Source: Parliamentary Library analysis based on the sources referenced in Table 1, Appendix A.



Appropriateness of the entity model chosen for the NRFC

Options for the organisational structure of a new Commonwealth entity

To deliver a service or execute a function, governments may decide that a suitable entity already exists, or that a new entity should be created. There may be various reasons for establishing a specialist entity rather than administering the program through an existing department or agency. For a new entity, options include, but are not limited to, establishing a new department, a committee, a company or a statutory agency (established by or under an Act of Parliament, with a name that may include ‘commission’ or ‘corporation’).

The Department of Finance (Finance) provides guidance on these options, and classifies Commonwealth entities into 13 categories.[19] Intended as a summary of Finance guidance, a Parliamentary Library Quick Guide outlines the 13 categories and provides examples of each category.[20] A Finance webpage provides a more detailed discussion of the key characteristics of each category.[21]

Establishment of the NRFC as a corporate Commonwealth entity (CCE)

The establishment of the NRFC as a statutory, Budget-funded corporate Commonwealth entity (CCE) for the purposes of the PGPA Act (category 1.2 in the Quick Guide table) appears to be consistent with:

The Finance guidance compares CCEs with Commonwealth companies.

Commonwealth Governance Structures Policy (Governance policy): Governance structures created through enabling legislation (eg a primary or a secondary statutory body) have clearly defined purposes authorised by Parliament.

Types of Australian Government Bodies’: A corporate Commonwealth entity is a body corporate that has a separate legal personality from the Commonwealth. A corporate Commonwealth entity can enter into contracts and own property separate from the Commonwealth.

Corporate Commonwealth entities are still part of the Australian Government. … Creating a corporate Commonwealth entity may be suitable if:

  • the body will operate commercially or entrepreneurially
  • a multi-member accountable authority will provide optimal governance for the body
  • there is a clear rationale for the assets of the body not to be owned or controlled by the Australian Government
  • the body requires a degree of independence from the policies and direction of the Australian Government.

Finance guidance suggests a company structure would not be a good match for the proposed form and functions of the NRFC, which is intended to make investments rather than pursue an entrepreneurial or business enterprise in its own right. The guidance on ‘Types of Australian Government bodies’ states:

Creating a Commonwealth company may be suitable if:

  • the body will primarily conduct commercial or entrepreneurial activities and will generate profits for distribution to its members
  • the body will operate in a commercial or competitive environment (at arm’s length from government)
  • the Australian Government is going the sell the body in the short to medium term.

Further, the Finance guidance notes that ‘issues’ can arise when using a company structure:

Lack of scrutiny

  • there is no formal opportunity for parliamentary scrutiny before a company is established
  • the objects of a company may be amended by its members without parliamentary scrutiny
  • a company can borrow and invest money without government approval.

Budget funding

  • Commonwealth companies may not be able to enter into multi-year agreements if they rely on annual funding from the government. Lack of funding certainty may affect their ability to pay debts when they fall due.

Public perception

  • there may be an assumption, or a public perception, that there is a government guarantee for the operations of a Commonwealth company in the event of its failure.


  • a company is generally liable to pay Commonwealth, state and territory taxes and charges, whereas enabling legislation may exempt a statutory body from these taxes and charges.

In sum, establishing the NRFC as a CCE appears to be consistent with guidance from Finance. Alternative entity types, such as a Commonwealth company, appear to be less suitable.


Committee consideration

Senate Economics Legislation Committee

The Bill has been referred to the Senate Economics Legislation Committee for inquiry and report by 10 March 2023. Details are at the inquiry homepage.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing this Digest, the Bill had not been considered by the Senate Scrutiny of Bills Committee.


Policy position of non-government parties/independents

The Deputy Leader of the Opposition and Shadow Minister for Industry, Skills and Training, Sussan Ley, has objected to the omission of the space sector from the proposed NRFC priority areas, tweeting on 10 November 2022:

The Dept of Industry has just confirmed that Space has been abandoned as a priority in the Albanese Government’s National Reconstruction Fund. This is a sad departure from the former Coalition Government’s commitment to Australia’s space industry.

While not in reaction to the current Bill, the Dissenting Report by Liberal Party Senators to the Final Report (February 2022) of the Senate Inquiry into the Australian Manufacturing Industry offered relevant comments:

Whilst we share the view expressed in the majority report of the importance of the manufacturing sector to Australia, we disagree with several key recommendations in the report …

A centrepiece of the recommendations contained in the majority report is a so-called Manufacturing Industry Fund. Whilst not directly referenced, this recommendation appears consistent with the Federal Opposition’s policy to establish a $15 billion National Reconstruction Fund …

On the one hand, the majority report recognises the dangers inherent in the government favouring particular sectors. On the other hand, it then proposes measures which would involve investment (including the provision of equity) in not just particular sectors, but specific businesses …

We do not support the establishment of a manufacturing industry fund of the scope and nature proposed in the majority report. …

In terms of any government ‘co-investment’ in business enterprises (i.e. the government taking equity positions in private sector businesses), the following questions must always be asked:

  • Why can’t the particular venture attract equity investment or debt support; and
  • If the private sector will not invest its equity in the venture nor commercial lenders advance sufficient debt funds, why should the Government risk taxpayers’ money?

In our view, the focus should be on government policies which drive productivity and remove barriers to private sector investment. [Pages 93–95, emphasis added]

Among its 2022 election documents, the Liberal Party’s ‘Our Plan for Modern Manufacturing’ (11 May 2022) further criticised the NRF as an unfocused ‘magic pudding’, with ‘more than 30 top priorities’.

Positions on the cross-bench were unclear at the time of writing.


Position of major interest groups

Outside Parliament, a broad range of interest groups have responded positively to the proposed NRFC, including: the Advanced Manufacturing Growth Centre, the Tech Council of Australia, quantum computing startup Q-CTRL, the Australian Academy of Technological Sciences & Engineering, peak body AusBiotech, the Medical Technology Association of Australia, the Australian Food & Grocery Council, Timber Queensland, the Heavy Vehicle Industry Australia, the Australian Workers’ Union, the Business Council of Australia and Deloitte.

AiGroup’s position on the NRFC was more cautious. On 25 October 2022, Chief Executive Innes Willox said AiGroup was waiting to see details on the NRFC, but Budget ‘cuts to a range of industry development programs including the successful Entrepreneurs Programme’ were ‘disappointing’.

There is also support from niche interest groups. The Business Council of Cooperatives and Mutuals (BCCM) was ‘particularly pleased that co-ops and mutuals are eligible to apply for funding under the National Reconstruction Fund’. The Australian Institute of Architects ‘note[s] the announcement to establish the National Reconstruction Fund’ and ‘hope[s] for a national construction supply chain focus on increasing Australia’s capacity to manufacture high-quality and sustainable building materials, components and fittings.’

The Adelaide Advertiser reported (24 March 2022) that although ‘Greater incentives to manufacture locally would be welcomed … there’s a wide consensus any government intervention must be careful and laser-like to prevent massive industries from becoming inefficient and leaving taxpayers with a burden.’

Although it has not, to our knowledge, commented on the proposed NRF, the Productivity Commission’s September 2021 submission to the Senate Inquiry into the Australian Manufacturing Industry restated its common warning against sectoral approaches to industry policy outside certain narrow cases, as discussed under ‘Background’.


Financial implications

How much will be invested?

The financial impact statement in the Explanatory Memorandum states that $5 billion will be provided to the NRFC from commencement, with the remaining $10 billion to be made available by 2 July 2029 in instalments as determined by the Ministers – for a total equity injection of $15 billion (as per clause 52).[22] The Government will also pay $50.0 million over 2 years to DISR and Finance to establish the fund.[23]

The initial equity injection will be offset, in small part, by partially reversing or reducing Coalition spending programs, particularly the Modern Manufacturing Strategy and Entrepreneurs Program.[24] However, as these savings amount to approximately $500 million, against the $15 billion commitment, the equity injections will need to be funded primarily by new debt.[25]

Which sectors will be targeted for support? How much will they get?

The following 7 priority areas have been announced (further detail on what these areas include is in the Government’s consultation paper, at page 2), although these could be taken as indicative given that the Bill provides that the priority areas will be defined later by legislative instrument (clause6):

  1. renewables and low emissions technologies
  2. medical science
  3. transport
  4. value-add in the agriculture, forestry and fisheries sectors
  5. value-add in resources
  6. defence capability
  7. enabling capabilities ‘such as robotics, [artificial intelligence] and quantum’.[26]

To date, the Government has also announced that the NRFC will fund:

  • up to $3 billion for renewables and low emissions technologies – ‘Specifically, under the Powering Australia plan, within the Reconstruction Fund, $3 billion will be allocated to investing in green metals, steel, alumina, aluminium; clean energy component manufacturing; hydrogen electrolysers and fuel switching; agricultural methane reduction and waste reduction’[27]
  • $1.5 billion for medical manufacturing
  • $1 billion for value-adding in resources
  • $1 billion for critical technologies – based on the new List of Critical Technologies in the National Interest, which ‘will build on the 2021 List, which featured 63 technologies across 7 categories: advanced materials and manufacturing; AI, computing and communications; biotechnology, gene technology and vaccines; energy and environment; quantum; sensing, timing and navigation; and transportation, robotics and space’[28]
  • $1 billion for advanced manufacturing
  • $500 million for value-adding in agriculture, forestry, fisheries, food and fibre.

Clarifying fiscal risks

The best resources on the potential fiscal impact and transparency issues arising from equity-based financing mechanisms, such as the proposed NRFC, are:

As explained by the PBO in its report:

Alternative financing arrangements usually involve the government providing the financial resources for a policy and receiving a financial asset in return. …

With an equity injection, the government uses cash to invest in a project, and it generally then has the entity undertaking the project as a financial asset on its balance sheet. The initial value of the equity is taken to be the amount that the government paid, so the initial transaction does not have any impact on the government’s net financial worth (or the fiscal or underlying cash balances). …

For policies funded directly, such as via a grant or direct payment, almost all of the associated costs come from transactions, meaning the fiscal balance or underlying cash balance impact of the policy is generally a good indication of the overall cost of the policy. Policies implemented using alternative financing arrangements, however, generally have some costs that are characterised as transactions and others as revaluations. …

Revaluations can be substantial and affect the government’s balance sheet and net financial worth, but are not fully reflected in the fiscal or underlying cash balances. This means that the fiscal and underlying cash balance impacts of policies that use alternative financing arrangements are less likely to reflect the full cost to the government’s balance sheet. [Pages 2, 12–13; emphasis added]

In the present case, the Government will initially inject $5 billion into the NRFC, and in turn receive the NRFC as a ‘financial asset’ (nominally equal in worth to the value of the equity injection) on its balance sheet. This will have a neutral budget impact in terms of the underlying cash balance (UCB). However, consistent with the PBO’s above advice, ‘budget neutral’ in terms of the UCB does not mean the investment is risk free, or that it will be budget neutral in terms of the Australian Government’s balance sheet position and net worth in the long run. The NRFC may not hold its initial value as a financial asset. This will depend on the performance of its loan portfolio and the success of the projects and enterprises in which it invests.

The PBO report highlights the example of NBN Co. It was originally expected to be a ‘budget neutral’ $29.5 billion equity investment that would eventually pay for itself, but was subsequently devalued dramatically, decreasing the Government’s net worth – see Figure 3 below (reproduced from Figure 3–1 in the PBO report). As the PBO summarises:

… the fair value of NBN Co has been consistently below the cumulative amount of equity injected into the company … [T]he total equity that has been invested in NBN Co is $29.5 billion. The most recent fair value estimate of NBN Co, as at 30 June 2019, was $8.7 billion. The $20.8 billion difference between the amount paid and the current fair value is a revaluation. It reflects the extent to which the Commonwealth Government’s balance sheet has directly deteriorated as a result of this investment as at 30 June 2019. By definition, this impact is not captured in the fiscal or underlying cash balances, though it is captured in net financial worth. … [However:] It is important to note that the main budget documents show only the aggregated effect of all revaluations across the general government sector, rather than revaluations at an individual company or project level. [Pages 14–15; emphasis added]

Figure 4 Fair value of administered investment in NBN Co since inception (PBO analysis)

Chart - Fair value of administered investment in NBN Co since inception (PBO analysis)

Source: PBO, Alternative Financing of Government Policies: Understanding the Fiscal Costs and Risks of Loans, Equity Injections and Guarantees, Report 01/2020 (Canberra: PBO, 2020), 14.

Further, while the Government may reasonably expect the NRF to generate revenue through a return on its investments such as loans and equity stakes in (hopefully profitable) businesses/projects, this outcome is not guaranteed – and profitability has the potential to come into tension with other policy objectives and prudential considerations.[29] The experience of the CEFC demonstrates this possibility. The NRFC is modelled on the CEFC.[30] While the latter has delivered a positive return in most financial years since its inception, it has never met its statutory rate of return target as stipulated in its investment mandate; and its economic impact, though considered positive, has proven difficult to quantify.[31]

CEFC fund managers have pointed to the difficulty of achieving the rate of return directed by the Government from the commercial opportunities available within the (shallow) Australian market, unless it accepts a high risk of substantial investment losses.[32] The ANAO’S audit of CEFC Investments (published 2020) further noted the challenges with forecasting actual returns ahead of time, noting the CEFC’s advice that actual rates of return can only be confirmed at the end of a potentially long investment cycle (with some debt extending to 17 years), that loan cash flows are uneven over time and that high-risk venture capital returns won’t be known until the investments are either sold or written off.[33]

Performance audits and reviews of other investment funds subject to Government-mandated economic objectives and rates of return[34] also point to challenges around measuring the delivery of intended economic outcomes and the realisation of public benefit.[35]

Further, as discussed during the 19 August 2021 hearing of the Joint Committee of Public Accounts and Audit (Inquiry into Alternative Financing Mechanisms), the threshold for classifying an equity‑backed Government entity as a ‘financial asset’ is quite low. Moreover, as the threshold is usually evaluated at the entity level – that is, it would only need to apply to the NRFC as a whole, not to all of its investments – it does not preclude Government use of an otherwise profitable entity to channel funds to unprofitable types of investments:

Senator SCARR: When is something a financial asset? My understanding is that it needs to be expected to deliver a positive real rate of return. … So if it delivers $1 of positive return on a real basis it can still be considered a financial asset. …

Dr Helgeby [Parliamentary Budget Officer]: It is, as you say, a low threshold – it is simply that you have an expectation of a positive return; and there is a level of interpretation around that.

Senator SCARR: … In paragraph 4.1.2 [of the 2020 PBO report], you quote from the business case for Inland Rail, … that Inland Rail ‘would not generate enough revenue to provide a return on its full construction cost’. … If there’s a large infrastructure project which, by its own business case, is not going to generate the return to pay for its construction … how should investment in such a project be treated? … Because if the project’s never going to make a positive real rate of return, I struggle with how you can treat investments into the project as equity as opposed to being grants.

Dr Helgeby: In that case, the investment is into the entity, the ARC [sic; the Australian Rail Track Corporation], and the test is being applied at that level rather than at the individual project level in that particular case … in essence, the reason why the payment that is associated with the construction of Inland Rail is treated that way is because it’s actually a payment to the entity. …

Senator SCARR: The entity has a number of different projects, a number of different cash-generating units, but we’re simply putting money into the entity, so we just don’t have the visibility or transparency around how that investment is being made on a project-by-project basis because it’s being made at an entity level. Is that correct?

Dr Helgeby: Yes, that’s right. [Pages 3–4; emphasis added]

Such issues have affected the NSW Government’s recent establishment of the Transport Asset Holding Entity (TAHE) as a statutory state-owned corporation. The performance audit of the ‘Design and implementation of the Transport Asset Holding Entity’ by the Audit Office of NSW (published 24 January 2023) noted the NSW Treasury’s goal of creating ‘an entity that could generate a return on investment, as this meant that government investment in transport assets could be treated as equity investments, rather than a Budget expense’. During design of the entity, this goal came into tension with other policy objectives, such as rail safety, resulting in ‘an unnecessarily complex outcome that places an obligation on future governments to sustain’, because the revenue needed to maintain that budgetary status is subject to doubt. The NSW Audit Office warned of ‘significant uncertainty as to whether the short-term improvements to the Budget can continue to be realised in the longer-term’ (page 2). While many of the NSW auditors’ concerns relate to the specifics of that case, a key similarity to the present case is that the budgetary benefits of classifying the initial TAHE and NRFC financing as equity injections were booked before these entities had been legislated, or their operating models finalised.

Such risks are not transparent from the supporting material for this Bill – with the Explanatory Memorandum merely stating that ‘The Corporation is expected to generate revenue from its investments’ (page 4). In its first Budget, however, the Government was forthright in describing nuances and risks associated with alternative financing mechanisms in general. The Budget Strategy and Outlook: Budget Paper No. 1 October 2022–23 elaborated:

Cashflows from the acquisition of financial assets, like equity or loans receivable, do not impact on the underlying cash balance (UCB) provided the Government is expected to recover its investments. The acquisition of financial assets for policy purposes does reduce the headline cash balance (HCB) and requires additional debt issuance (assuming no available cash reserves), increasing gross debt. …

Establishing investments expected to earn a market rate of return does not initially change net financial worth (as an increase in gross debt is offset by an equal increase in financial assets). The impact on net debt depends on the nature of the asset acquired. Debt-like financial assets are included as assets in net debt, offsetting debt issuance. For example, a (non-concessional) loan does not increase net debt as it is considered a debt-like asset, whereas equity investments do increase net debt.

Where the value of the asset acquired is less than the amount borrowed (as for example with concessional loans) net financial worth is reduced. There is no immediate UCB impact from the acquisition. UCB worsens over time if interest payments on debt exceed investment returns. Assets and liabilities are also subject to revaluations each reporting period. …

Risk management is critical to balance sheet investment. Debt financed asset accumulation improves the budget when returns exceed borrowing costs, but also increases the Government’s risk exposure. Some risks are specific to the investment (such as borrower specific risks of defaults or delivering poor value for money by competing with the private sector for investment opportunities). Others are economy wide (such as changes in interest rates, economic activity, and business profitability). [Page 99; emphasis added]

Implications for Budget transparency and Parliamentary scrutiny

The Joint Committee of Public Accounts and Audit (JCPAA) inquiry into alternative financing mechanisms explored the implications of the above complexities for Budget transparency.

The PBO stressed to the Committee that use of the balance sheet, such as equity financing, is not ‘off-budget’ financing, and that it can be an appropriate policy choice. In his 19 August 2021 testimony to the JCPAA, the Parliamentary Budget Officer (Dr Stein Helgeby) explained that with regard to loans, equity injections and guarantees:

My personal preference is to refer to these mechanisms together as ‘balance sheet financing’. It’s important to say that financing activities in this way is not off-budget financing. They turn up in the balance sheet rather than in the operating statement or the cash flow statement. The term ‘off-budget’ is, in fact, not very helpful, but it does point to the fact that discussion of government finances is often focused on only one dimension [the UCB], and I see it as part of our role at the PBO to move beyond this one-dimensional view. [Page 1, emphasis added]

Dr Helgeby discussed circumstances in which balance sheet financing may be the most appropriate policy choice, compared with direct financing:

It’s horses for courses: direct financing – direct revenue raising, for that matter – is the best way to do things, if you want to be able to do things with a minimum of complexity around the arrangements and when you have a clear view about what you want to achieve, how are you going to achieve it and you have an understanding of the risks that are attached to that. … Where you would think about something like equity is in an environment where, let’s say, there is a business undertaking to be run. There is something that is meant to endure and to transact in the economy more broadly, and you wish risk to be distributed and managed in a different way over a long period. You would do that through some other entity, and you would give that entity equity so that it was set up in a particular way. It might have a board and some other enabling documents and expectations around it, and it would be given equity, which would give it the ability to pursue its objectives and make decisions in its own right yet still contribute to the government’s overall intention in that particular case. When you’re going down that path, you’ve made a different judgement about how best to achieve an outcome, who should carry risk, where risk is best managed and where, therefore, decision-making is best managed. [Page 4]

The case of the NRFC appears to be broadly consistent with such a rationale.

Nonetheless, it is doubtful whether most Budget observers could easily assess the risk exposure to uncertain returns across the $15 billion NRFC, $10 billion Housing Australia Future Fund, $20 billion Rewiring the Nation fund, $240 billion Future Fund (including subsidiary funds) and other Australian Government equity investments – in aggregate and individually. It is currently very difficult – if not technically impossible – to scrutinise and form evidence-based opinions on such investments. The PBO’s Dr Helgeby continued:

[Although balance sheet financing is not off-budget financing,] that’s not to say that information can’t be presented in more accessible and meaningful ways… In the case of balance sheet financing, the impact of the policies will be reflected in the balance sheet and the budget forecasts and actuals, but only as part of large totals, so the amounts [for specific entities or initiatives] can be obscured. Estimated costs of new policies are recorded in detail in the measures document, Budget Paper No. 2, but normally only in terms of cash flows rather than stocks. This means that, unless further information is made available, parliament would find it difficult to fully assess the financial impact of policies such as loans, equity injections and guarantees. … In summary, while straightforward decisions may not need complicated information to explain them, complex arrangements such as those that involve equity, loans or guarantees need other information to make them readily understandable. …

At the moment, someone who is trying to get their head around that … would have to piece things together … from the relevant portfolio’s annual report, the portfolio budget statement and the budget papers themselves. Often in the case of a government business entity you also have to piece it together from the corporate plan or the other forward looking documents of that entity itself. That, to be honest, makes it pretty hard. It’s not that the information doesn’t exist; it’s that the information is not put together in a way that helps people trying to understand these things. [Pages 1–2, emphasis added]

Though based on outdated information about the timing of equity injections, the PBO’s election commitment costing for the NRF remains a valuable illustration of the complexity involved in trying to forecast the fiscal impact of this type of investment – even when ignoring the possibility of unforeseen investment losses and revaluations.

Other relevant questions include the transparency of potential debt interest repayments on the initial equity injections if NRFC revenue expectations are not realised, and the potential inflationary impacts of such a large injection into the economy, given that equity injections are not captured in typical headline spending metrics like the UCB surplus or deficit.

The Final Report of the JCPAA inquiry into alternative finance mechanisms, published March 2022, recommended a number of reforms to improve Budget transparency around use of the balance sheet, based on PBO proposals. The Budget Strategy and Outlook: Budget Paper No. 1 October 2022–23 stated that: ‘The Government is committed to improving transparency provided around the use of the balance sheet’ (page 98), which may foreshadow an intention to implement these reforms, or something similar. This will be something to watch in future Budgets.


Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[36]

Parliamentary Joint Committee on Human Rights

At the time of writing this Digest, the Parliamentary Joint Committee on Human Rights had not yet considered the Bill.


Key issues and provisions

This section of the Digest explores key clauses in the Bill and the issues they raise – particularly the breadth of discretion afforded to current and future governments to determine the focus and practice of NRFC investments through legislative instruments.

Establishment of the NRFC

Clause 11 establishes the NRFC and specifies that the NRFC is a body corporate, and a corporate Commonwealth entity (CCE) for the purposes of the PGPA Act. As discussed above, the establishment of the NRFC as a statutory, Budget-funded CCE for the purposes of the PGPA Act is consistent with Finance guidance and with the use of the CCE form for other Commonwealth finance corporations, such as Export Finance Australia (EFA), the National Housing Finance and Investment Corporation (NHFIC) and the Northern Australia Infrastructure Facility (NAIF).

Main functions of the NRFC

Clause 3 states that the purpose of the NRFC is to ‘facilitate increased flows of finance into priority areas of the Australian economy’.

The main functions of the NRFC are the investment functions listed in clause 63, which enables the NRFC and its subsidiaries[37] to:

  • provide financial accommodation to constitutional corporations, the states and territories, or individuals or other entities, and
  • acquire equity interests in entities.

The italicised terms are defined in clause 5 and discussed in detail below.

Clause 12 includes the following ancillary functions:

  • to liaise with relevant persons and bodies, including other Commonwealth entities and state and territory governments, for the purposes of facilitating the investment functions
  • any other functions conferred on the NRFC by this Act or any other Commonwealth law and
  • to do anything incidental or conducive to the performance of the above functions.

No definition of ‘Priority areas of the Australian economy’

The Bill and the Explanatory Memorandum do not define the ‘priority areas’ of the economy. The Bill’s ‘Definitions’ section, clause 5, in turn refers to clause 6, which provides that priority areas of the Australian economy will be declared by the Ministers in a legislative instrument tabled in the Parliament and subject to disallowance. The Minister’s second reading speech does identify priority areas[38]; however, as noted earlier, this list could be considered indicative and subject to change.

The Explanatory Memorandum states:

Declaring the priority areas in a legislative instrument allows for timely changes to the Corporation’s investment focus in the event priority areas change, for example because of significant technological or other unforeseen developments that require immediate or prompt changes to the Corporation’s investment focus.[39]

Examples of potential circumstances requiring ‘immediate or prompt changes’ are not provided.

This mechanism gives the Ministers and the Government considerable latitude in the definition and selection of ‘priority’ areas of the economy. Notwithstanding Government commentary to date and the announced 7 priority areas, nothing in the Bill requires future priority areas to relate to manufacturing, technology, ‘reconstruction’ or even industry.

As the declaration is in the form of a disallowable legislative instrument, the Parliament will have an opportunity for its views to influence the selection of priority areas, however:

  • Disallowance motions may only disallow instruments or parts of instruments. They may not amend them.[40]
  • The Constitution provides that when questions arising in the Senate result in a tied vote, they are resolved in the negative (they fail to pass).[41] This practically means that the number of votes that the Government needs to prevent disallowance of a legislative instrument in the Senate is one less than the number of votes it needs to pass a Bill.[42]
  • The Legislation Act 2003 contains a prohibition against remaking disallowed legislative instruments that are the ‘same in substance’ as previously disallowed provisions (section 48). However, previous Parliaments have had some difficulty enforcing this restriction.[43]

The NRFC’s investment functions in detail

This section outlines the investment functions permitted by the Bill, which are categorised as the provision of financial accommodations, or the acquisition of equity interests. (Note that Clause 71 provides that the Ministers may, by legislative instrument, give the Board directions about the performance of the NRFC’s investment functions, and must give at least one such direction. The directions together constitute the Investment Mandate,[44] discussed further below.)

1. Financial accommodations

Subclause 63(1) provides that the NRFC’s investment functions include providing financial accommodation to eligible recipients. Clause 5 explains that a financial accommodation can include a loan, a letter of credit, a purchase of bonds or other debt securities, a guarantee or ‘another form’ of accommodation, but excludes equity interests (see below) and monetary grants equivalent to gifts.

The latter exclusion would appear to restrict the NRFC from giving grants to states and territories with no expectation of repayment, even if its payments to the states and territories are via the mechanism of a grant of financial assistance for administrative reasons – see further below.

As noted above, a financial accommodation to an entity other than a constitutional corporation or state or territory must support a constitutionally-supported activity – explained further below.

Later in the Bill, clause 71 provides that the Investment Mandate may define ‘the types of financial accommodation’ the NRFC may provide to each class of recipient. This opens the door for permission to use as-yet-unspecified other types of financial accommodation. There is no requirement in the Bill that additional types of financial accommodation be expected to return a profit. In practice, the distinctions between investments, speculation and gifts may become blurred – see the sections ‘Financial implications’ and ‘Prudential constraints’.

2. The acquisition of equity interests

Clause 5 defines equity interest to mean a share in a company, or an interest in a trust, or an interest in a partnership, or an interest specified in the rules (clause 92 provides for the Ministers to make rules). An equity interest does not include an interest that, under the rules, is taken not to be an equity interest for the purposes of the Act.

Paragraph 63(1)(c) provides that the NRFC or a subsidiary may acquire equity interests in entities if:

  1. any of the entity’s activities are in a priority area of the Australian economy and
  2. all of the entity’s activities are constitutionally-supported activities.

The phrase ‘entity’s activities’ is not defined in the Bill, nor is there any guidance on what it means for any activity to be in a priority area of the Australian economy – such as whether that activity must be a significant share of the entity’s activities overall. For example, acquisition of shares in a bank whose customers included just one ‘priority area’ manufacturer would appear to be permitted under a literal interpretation of subparagraph 63(1)(c)(i).

The meaning of ‘constitutionally-supported activities’ is explained further below.

Mandatory reporting

Clause 82 provides that, every quarter, the NRFC must publish on its website information about financial accommodations and equity interests during the quarter, including the form, value, and place or places where the main activities are carried out. The quarterly reports will also include ‘such other information (if any) as is prescribed by the rules; and … any other information the Corporation considers appropriate’.

Clause 84 provides that the annual report prepared by the NRFC Board in compliance with section 46 of the PGPA Act must:

  1. set out details of the realisation of any investments of the Corporation in the period;
  2. set out details of any procurement contracts to which the Corporation is party that were in force at any time in the period and that had a value of more than:
    1. $80,000; or
    2. if a higher amount is prescribed by the rules—the higher amount;
  3. set out details of any amounts paid to the Corporation under subsection 55(2) in the period;
  4. set out details of any amounts paid by the Corporation under section 58 in the period;
  5. set out such other information (if any) as is prescribed by the rules.

Clause 83 provides that the Ministers may publish additional reports from the NRFC.

Based on the above, new financial accommodations and equity interests will be reported quarterly, whereas realisations of investments will be reported annually, unless they are made public in the ad hoc reports provided for by clause 83. While this mandatory reporting is positive for transparency, the timing difference for reporting new investments versus realisations (and hence profits and losses) does mean the NRFC could, in theory, realise substantial losses for many months of a reporting year without this being disclosed publicly.

Provisions allow for commercial-in-confidence, national security and sensitive financial intelligence information to be omitted from reports.

Requirement that investments be ‘constitutionally supported’

Subclause 63(1) appears to be an attempt to ensure the constitutional validity of the Bill, insofar as it limits NRFC investments to situations where the recipient is:

  • a constitutional corporation (paragraph 63(1)(a)) or
  • a state or territory receiving a grant of financial assistance (paragraph 63(1)(d)) or
  • any other entity engaged in constitutionally-supported activities (paragraphs 63(1)(b)–(c)).

This is presumably necessary to ensure that the Commonwealth has valid constitutional power to pass the Bill and implement the provisions contained therein.

Under the Constitution, the federal government is responsible for the matters allocated primarily in sections 51 and 52 (although there are other relevant sections); otherwise the states have jurisdiction. The ability to regulate constitutional corporations is a specific head of power under section 51(xx) of the Constitution. Since the High Court handed down its decision in the WorkChoices Case in November 2006,[45] the ‘corporations power’ under section 51(xx) has been interpreted broadly so that, as long as a law is addressed to a ‘constitutional corporation’, the Commonwealth can regulate any aspect of what that corporation does.[46]

Accordingly, for these entities, there is no need for the Bill to include an extra requirement that the constitutional corporation’s activities also be ‘constitutionally-supported activities.’ It is sufficient if the recipient entity is a constitutional corporation under Australian law and has been provided with financial accommodation.

In relation to financial accommodations to the states and territories: in 2018, the Senate Scrutiny of Bills Committee expressed its concern at the limited Parliamentary scrutiny afforded to grants to the states and territories in the National Housing Finance and Investment Corporation Bill 2018 (NHFIC Bill). As section 96 of the Constitution confers the power to make such grants and to determine their terms and conditions on the Parliament rather than the Executive, the Committee recommended that the Bill be amended to include high level guidance as to the terms and conditions under which such financial assistance may be granted to the states and territories,[47] though the NHFIC Bill was not amended in this fashion. The same issue affects the current Bill.

For all other investment recipients, clause5 of the Bill defines constitutionally-supported activities as activities covered by listed functions, most of which derive from the Commonwealth’s powers under sections 51 and 122 of Australia’s Constitution.

Although paragraph 63(1)(c) makes it a condition of the acquisition of an equity interest that the entity’s activities are constitutionally supported (at the time of acquisition), these activities could change as the business evolves. Further to subparagraph 63(1)(c)(ii) above, clause 68 provides that the NRFC or a subsidiary must realise equity interests in an entity if the NRFC or subsidiary ‘becomes aware of the fact that one or more of the activities of the entity are not constitutionally-supported activities’. Subclause 68(2) provides that this must occur ‘as soon as reasonably practicable in the circumstances’ after the NRFC or its subsidiary becomes aware of the fact.

There is no legislative definition of ‘as soon as reasonably practicable’, although the Explanatory Memorandum to the Bill observes that:

it is to be expected that the Corporation will need to identify and negotiate with prospective buyers, prepare and review written agreements and seek advice as needed to ensure it acts prudently and realises the equity interests at a reasonable price. Steps of this kind would take time but would nonetheless be necessary before it can be ‘reasonably practicable’ to realise an equity interest.[48]

This approach appears to suggest some latitude in relation to remedial action to address non‑compliance with paragraph 68(2)(a).

As discussed under ‘Mandatory reporting’, such divestments will in general only be reported annually (in contrast to quarterly reporting of new financial accommodations and equity investments). This means that the NRFC could be in breach of its obligation under the Act to fund only constitutionally-supported activities for many months of a reporting year without this being disclosed publicly.

Ensuring that all of the relevant entities’ activities are ‘constitutionally-supported’ at the point of acquisition, and remain so for the duration of the investment, may require a level of compliance monitoring and reporting that is much broader, and at times more intensive, than merely reporting on the entities’ activities in priority areas of the Australian economy.

There do not appear to be any specific reporting or related compliance tools or powers available to the NRFC to assist this monitoring effort. Absent a statutory process, relevant ongoing reporting on funded activities may need to occur under contractual arrangements between the Corporation and each funded entity at the point of acquisition, imposing a substantial administrative burden on both the NRFC and funded entities.

Requirement that investments be ‘solely or mainly Australian-based’

Subclause 69(1) requires that the NRFC Board take all reasonable steps to ensure that each of the NRFC’s investments is solely or mainly Australian based. This threshold is not defined in the Bill, but subclause 70(2) confirms that the Board must make guidelines for assessing whether an investment is solely or mainly Australian based. The guidelines must be published on the NRFC’s website (subclause 70(4)). The Explanatory Memorandum observes that:

While the Corporation will invest in projects that are solely or mainly Australian-based, there may be aspects of the Corporation’s activities which take place outside Australia.[49]

The concept of solely or mainly Australian based is intended to be flexible. It is not intended to preclude financial accommodation to, or investments in, entities which are incorporated or operate from within Australia but whose activities touch upon matters outside Australia. For instance, an investment in an Australian manufacturing company whose products may be exported, could still be solely or mainly Australian-based depending on the content of the guidelines made by the Board.[50]

The Explanatory Memorandum explains that clause 9 (which provides for extra-territorial application) ensures activities which take place outside Australia are captured by the Bill.[51]

The above guidance may allay concerns about the eligibility of the small but growing cohort of ‘born global’ Australian firms. ‘Born global’ means that they intensively target export markets from the start. About a quarter rely solely on overseas sales, according to 2020 research, and the export intensity of born global firms is increasing sharply.[52] Of relevance for the Government’s nominated ‘priority areas’ in technology and manufacturing, born global firms are concentrated in 4 sectors, 2 of which are ‘Professional, Scientific & Technical Services’ and ‘Manufacturing’ (food and beverage retail and wholesale traders are also over-represented). The above guidance appears to imply that such firms will not be ruled out for financial support, if they are incorporated or operate from within Australia.

Depending on the guidelines, the restriction may be a greater hurdle for Australian entrepreneurs who choose to launch their companies overseas, for example in Silicon Valley, or who focus on overseas operations and markets in order to scale up, given the shallow local customer market; or locally operated and employing businesses that have been acquired by multinationals, probably the most immediately profitable choice for founders when available.[53]

How an equity investment – such as shares in a company, or a direct private equity stake (part ownership) – will be evaluated as ‘solely or mainly Australian based’ may also be fraught, especially coupled with the weak requirement for a supported entity’s activity in a ‘priority area of the Australian economy’. Shares in a majority foreign-owned, ASX-listed bank with customers in ‘priority areas’ would appear to be an eligible investment, legislatively. It is less clear whether the NRFC could acquire an equity stake in an Australian-born scale-up listing on the New York Stock Exchange, 51 per cent of whose manufacturing operations and most of whose customers were overseas – but which maintained a very substantial and growing number of factories in Australia. (The NRFC could probably provide a loan or other ‘financial accommodation’ specific to those factories.)

The issue of ultimate beneficial ownership of ‘Australian’ firms is also fraught, as analysed by the Productivity Commission in its 2020 review of foreign direct investment. It is simply not possible to say with any confidence how much of the value of an Australian-based company listed on any stock exchange is owned by Australians, and how much by overseas investors.[54] So it is unlikely to be possible in practice for the NRFC to differentiate eligibility based on the Australian ownership share for listed companies, and both Australian and international investors in supported companies will share in the commercial benefits flowing from NRFC financing.

Subclause 69(2) provides that:

the [NRFC] Board must take all reasonable steps to ensure that each investment … is at all times solely or mainly Australian‑based [and as] soon as practicable after the Board becomes aware that an investment … has ceased to be, or never was, solely or mainly Australian‑based, the Board must give the Ministers a written statement … setting out the action that the Board proposes to take … to ensure that all investments … are solely or mainly Australian‑based.

Subclause 69(3) provides that:

If the Ministers are satisfied that an investment … has ceased to be, or was never, solely or mainly Australian based, the Ministers may (whether or not the Board has given the Ministers a statement under subsection (2)), by written notice given to the Board, direct the Board:

  1. to give the Ministers, within a period specified in the notice, a written explanation; and
  2. to take action specified in the notice, within a period specified in the notice, in order to ensure that all investments … are solely or mainly Australian based.

There is, at present, no statutory requirement for reporting to the Parliament or the public about investments determined not to be solely or mainly Australian based, although the Government may voluntarily choose to disclose such information (provided for under clause 83).

Again, ensuring that relevant entities’ activities are solely or mainly Australian based will require compliance monitoring and reporting that may be much broader than merely reporting on the entities’ activities in priority areas of the Australian economy.

Further, despite the NRFC Board’s ability to significantly shape the implementation of this requirement by developing guidelines, this clause will still fundamentally restrict fund managers’ options for balancing portfolio risk. This will particularly apply if the NRFC is also required under the Investment Mandate to pursue a portfolio rate of return generally unavailable within the shallow Australian market, or to invest predominantly in ‘transformative’ higher-risk projects or businesses. These issues are discussed further below under ‘Prudential constraints’.

No requirement for co-finance

Although the Government has publicly described the NRF as ‘very much a co-investment fund’ that will assist to ‘crowd in’ additional financing, there is no requirement in the Bill that either funding recipients or private sector investors co-finance supported projects or businesses, nor any limits on the size of the Australian Government ownership stake in the case of equity investments.

It is possible that the NRFC will receive direction on this issue in the yet-to-be-developed Investment Mandate. If not, this would indicate a significantly different approach to risk management compared with the design of the Coalition’s antecedent Modern Manufacturing Fund (MMF). While the MMF provided grants, officials explained that ‘in all cases we would not be the majority provider of funds to particular projects, so they are co-investment… there will be detail around the grant commitments that manage the risk. But the most important thing to me is that the Commonwealth is not the majority funder of the activity,’ as discussed at Senate Estimates (the Economics Legislation Committee) on 28 October 2020 (pages 65 and 67).

Financial arrangements

Special account

Clauses 51 and 53 establish a Special Account, the purpose of which is to enable payments to the NRFC authorised by the nominated Minister. Finance explains that:

A special account establishes a ledger, in law, that allows relevant money to be drawn from the Consolidated Revenue Fund for specified purposes, up to the special account’s balance. It enables separate accounting to support an identified activity, including within a department.[55]

Similar arrangements are established in, for example, the Future Fund Act 2006 (s.12), the Clean Energy Finance Corporation Act 2012 (s.45) and the National Housing Finance and Investment Corporation Act 2018 (s.47A).

Clauses 54, 55 and 56 outline processes by which the NRFC will request payments, and the nominated Ministers will authorise payments.

Clause 52 provides that the NRFC will be credited $5 billion on commencement of the Bill, with another $10 billion credited in instalments by July 2029.[56] The timing and amounts of individual instalments would be at the Government’s discretion. The equity injections would not be disallowable. The Explanatory Memorandum states: ‘Given that Parliamentary approval of this Bill will constitute approval of the total $15 billion appropriation … it is not necessary to provide for further parliamentary scrutiny of the timing of particular transfers to the Special Account.’[57]

Investment Mandate

Clause 63, discussed above, outlines the investment functions permitted by the Bill, which are categorised as financial accommodations, or equity interests. Clause 71 provides that the Ministers may, by legislative instrument, give the Board directions about the performance of the NRFC’s investment functions, and must give at least one such direction. The directions together constitute the Investment Mandate.[58]

The Investment Mandate would not be disallowable. The Explanatory Memorandum states: ‘Making the instrument subject to disallowance would introduce significant operational uncertainty for the Corporation and would be inconsistent with like instruments for other entities, including the Clean Energy Finance Corporation and the Northern Australia Infrastructure Facility.’[59] Examples of other investment mandate provisions are in the Future Fund Act 2006 (s.18), the Clean Energy Finance Corporation Act 2012 (s.64), the Northern Australia Infrastructure Facility Act 2016 (s.10) and the National Housing Finance and Investment Corporation Act 2018 (s.13).

Under clause 71, the Investment Mandate may include directions about a wide range of matters:

  1. matters of risk and return;
  2. the allocation of investments of the Corporation between the various priority areas of the Australian economy;
  3. the types of financial accommodation that may be provided to constitutional corporations by a Corporation body and the circumstances in which they may be provided;
  4. the types of constitutional corporations to which financial accommodation may be provided by a Corporation body;
  5. providing financial accommodation to constitutional corporations on concessional terms;
  6. the types of financial accommodation that may be provided to entities (other than constitutional corporations, States or Territories) or individuals by a Corporation body and the circumstances in which they may be provided;
  7. the types of entities (other than constitutional corporations, States or Territories) or individuals to which financial accommodation may be provided by a Corporation body;
  8. providing financial accommodation to entities (other than constitutional corporations, States or Territories) or individuals on concessional terms;
  9. the types of equity interests that may be acquired by a Corporation body;
  10. the types of entities in which a Corporation body may acquire equity interests;
  11. acquiring equity interests on concessional terms;
  12. the types of financial accommodation that may be provided to the States and Territories by a Corporation body and the circumstances in which they may be provided;
  13. providing financial accommodation to the States and Territories on concessional terms;
  14. the types of derivatives which the Corporation may acquire;
  15. national security;
  16. broad operational matters;
  17. other matters the Ministers consider appropriate to deal with in a direction under subsection (1).

The departmental consultation paper specifically seeks comments on the Investment Mandate proposed in clause 71, with 17 questions listed under 3 headings: investment needs and opportunities; returns, financial instruments and working with other investors; and complementary reforms.[60]

Clause 72 provides that Investment Mandate directions must not have the purpose or effect of requiring the NRFC to make, or not make, specific investments in specific businesses, states and territories or other entities. The Explanatory Memorandum states:

The intention of this clause is to ensure that the Corporation has the freedom to make investment decisions independently of the Government, while still allowing the Government to provide broad parameters…[61]

Clause 73 contributes to transparency by providing that, before giving the Board an Investment Mandate direction, the Ministers must send a draft to the Board, invite the Board to make a submission on the draft ‘within a reasonable time limit specified by the Ministers’, and give consideration to any submission received from the Board. If the Ministers then give the Board an Investment Mandate direction, the submission is to be tabled in each House of the Parliament with the direction.

Clause 74 requires the NRFC to take all reasonable steps to comply with the Investment Mandate, and outlines a process to address circumstances where the Ministers are satisfied that the NRFC has not complied with the Investment Mandate.

Prudential constraints

Limits on borrowing

Subclause 59(2) limits the circumstances under which the NRFC is allowed to borrow money. In general, it can borrow only to access emergency short-term bridging finance (for less than 7 days) to meet immediate obligations. The Explanatory Memorandum clarifies the intent: ‘The Corporation should only be investing within the money available to them but this subclause is intended to provide some flexibility to cover unforeseen events or changes in the investment environment.’[62]

There are exceptions:

  • Subclause 59(3) provides that the Government may prescribe rules specifying other circumstances in which the NRFC is authorised to borrow money – in principle, this gives the Government power to relax the legislative constraints on NRFC borrowing if it so chooses.
  • Subclauses 59(5) and 59(6) provide that a wholly-owned subsidiary of the NRFC may borrow from the NRFC itself (that is, from the parent corporation) without limit. As subsidiaries will otherwise be bound by the same restrictions as the NRFC itself, this exception does not appear to open the door to increased financial risk.
  • The Explanatory Memorandum also notes that ‘Section 57 of the PGPA Act also allows the Corporation to borrow money if authorised by the Finance Minister in writing or by rules made under the PGPA Act.’[63]


Clause 76 sets an upper limit on the provision of guarantees, based on not exceeding the available Special Account balance after considering all actual and potential liabilities, inclusive of both guarantees and any other actual or contingent liabilities; any guarantee made that would exceed this limit is declared void.[64]


Clause 77 limits the NRFC’s purchases of derivatives to specific purposes, and specifically prohibits the acquisition of derivatives for the purposes of speculation or leverage.

As explained in the Parliamentary Library’s October 2022 research paper Financial Derivatives and Their Regulation:

A derivative is a contract between two parties that derives its value from the performance of an underlying asset. The underlying asset can be almost anything of value (most commonly commodities, stocks and bonds). … Traditional forms of derivatives such as options and forward contracts … have existed for hundreds of years. Newer and more complex derivatives such as collateralised debt obligations or credit default swaps have grown enormously in recent decades, and now constitute a multi-trillion dollar worldwide market. …

Investors and firms use derivatives primarily for two reasons:

  1. to hedge against future price movements, reducing uncertainty; or
  2. to speculate on future price movements, accepting greater risk exposure in exchange for the chance of greater profit.

As the research paper explains, financial derivatives have the potential to amplify risk and were implicated in the Global Financial Crisis (GFC) – hence the prudential restrictions in this Bill.

Paragraphs 77(1)(a) and (b) permit the NRFC to use derivatives for risk management – to ‘hedge’ against risks to its investments, in the above language. However, derivatives may themselves be considered ‘investments of the Corporation’ under the definition in clause 5, in the category of ‘any other asset, right or obligation held by the Corporation’ (or subsidiaries). As such, derivatives could also be subject to the requirement that all investments be solely or mainly Australian based (clause 69). This would limit the NRFC’s ability to fully utilise this provision to hedge against Australia-specific risks using overseas-based derivatives, including to hedge against currency fluctuations – a common application of derivatives.[65] The competitiveness of Australian exports varies with the strength of the Australian dollar. The NRFC’s investment portfolio will likely therefore be exposed to (indirect) currency risk, and so this restriction might be problematic.[66]

Paragraphs 77(1)(c) and (d) also allow derivatives to be used to achieve ‘indirect exposure to one or more equity interests’ and for ‘transactional efficiency’. While these are listed as separate purposes in the Bill, in practice they may occur jointly. As explained by Money Management magazine:

…derivatives can also be used in portfolios to gain access to particular markets or factors quickly and inexpensively. One of the basic concepts of derivatives is that they efficiently replicate exposure to an underlying index. Thus passive investors can also access the market through futures or swaps. Derivatives can also be used to meet asset allocation objectives – rather than buying and selling physical securities to alter exposures, these can be accomplished through appropriate futures contracts at lower transaction costs.[67]

Paragraph 77(1)(e) prohibits the acquisition of derivatives for speculation. Forbes magazine explains:

All definitions [of speculation] vary slightly, but most are along the same lines. An investment is an asset or item acquired with the goal of generating income or appreciation in the future. Speculation is a financial transaction that has substantial risk of losing all value, but with the expectation of a significant gain. … Other factors to consider include time horizon, decision criteria and investor attitude.[68]

The line between speculation and investment can be blurred. Common financial assets, such as stocks and bonds, can be either investments or speculative assets, depending on context. The American Association of Individual Investors describes a speculative stock as ‘a high-risk, high‑reward stock with uncertain prospects’.[69] A venture capital investment in a promising start‑up, or shares in an R&D-intensive biotech firm that requires large up-front investments for uncertain returns, would conventionally be considered ‘speculative’.[70] (The Bill does not block the NRFC from speculating in general – only through derivatives.)

On bonds, Business Insider explains:

… the line between investing and speculation is defined by bond rating agencies like Moody’s, Standard and Poor’s [S&P], and Fitch. Bonds that are considered strong, with a high likelihood that investors will receive their interest payments and principal, are known as ‘investment grade.’ Bonds with the lowest ratings are considered ‘speculative’ and are sometimes called ‘junk bonds.’ Speculative grade bonds, however, often pay a higher interest rate to investors as compensation for the increased risk.[71]

The same principles hold for derivatives, and the same ratings agencies often assess and advise on derivatives’ risk levels, to help investors to ‘price’ the underlying risk.

However, these agencies are not infallible. Systemic underestimation of the risk level of popular derivatives by these agencies was a key cause of the GFC.[72] A further problem is that the Government’s perception of the financial risk and/or value of an asset – and its policy priorities – may not align with ratings agencies’ views. For example, in 2020, S&P downgraded its rating for the debt of the Australian Government-owned Snowy Hydro Ltd, advising it would be rated ‘junk’ were it not for government backing.[73]

Paragraph 77(1)(f) prohibits the NRFC from using derivatives for leverage. The most common form of leverage is investing borrowed money. This can increase potential returns – but also the downside risk. Under the Bill, borrowing for the purposes of leverage would not be an option for the NRFC unless the Government specifically authorised this. Derivatives would have been another means for the NRFC to leverage its financial bets, but this is ruled out by 77(1)(f).

The line between hedging (permitted in this case) and leverage (prohibited) can be ambiguous, and may hinge on whether the use of derivatives is expected to amplify or dampen the volatility of returns at the portfolio level.[74]

Subclause 77(2) requires the NRFC Board to develop an investment policy to guide permitted derivatives acquisitions. Practically, the policy can be expected to address some of the above questions, and to set out the Board’s position on where fund managers must draw the line.

The operation of clause 77 would be strengthened by clarification of whether derivatives are considered ‘investments’ for the purposes of the ‘solely or mainly Australian based’ test, and by suitably clear directions in the Investment Mandate clarifying the prudential principles the Board must have regard to when formulating this policy, and any red lines.

Minister’s powers to give directions and make rules

Subclause 92(1) provides that the Ministers may make rules required, permitted, necessary or convenient for giving effect to the Act. For example:

  • the definition of equity interest can include an interest specified in rules (clause 5)
  • if no relevant Remuneration Tribunal determination is in operation, the Ministers may make rules to determine Board members’ remuneration, and allowances will also be prescribed by the rules (clause 23) and
  • the appointment and termination of the CEO must be preceded by consultation with the Ministers, in accordance with any relevant rules made by the Ministers (clauses 38 and 39).

As noted by the Explanatory Memorandum, subclause 92(2) clarifies that ‘the rules will not cover a number of specific matters that are ordinarily expected to be done only through Parliamentary enactment’.[75]

The rules are subject to disallowance.


Other provisions

This section lists additional provisions of interest.

Ministerial responsibility

Ministerial powers to be exercised jointly

The simplified outline of the Bill (clause 4) explains that ‘the Minister administering this Act and the Finance Minister jointly exercise various powers conferred by this Act’, and in the provisions of the Bill most responsibilities will be exercised by ‘the Ministers’.[76] This is similar to, for example, the Future Fund Act 2006, in which many functions are performed by ‘the responsible Ministers’ (the Treasurer and the Finance Minister (section 5)).

Nominated Minister

Notwithstanding that the ministers are to jointly exercise various powers, some responsibilities in the Bill are specifically allocated to the ‘nominated minister’. Notably, the designation of a ‘nominated minister’ has been used somewhat infrequently in Commonwealth legislation, for example, for finance corporations.[77] A Department of Finance webpage states that ‘the purpose of assigning a nominated minister is to streamline and simplify processes relating to some of the responsible ministers’ duties’.[78]

Clause 86 provides that ‘the nominated Minister is the Minister administering this Act, unless … the Ministers … by writing, determine that the nominated Minister is the Finance Minister’. Responsibilities specifically allocated to the ‘nominated minister’ relate to payments to the NRFC from the Commonwealth (clauses 55, 56, and 87), and periodic reviews (clause 91). The substance of these provisions is discussed below.

NRFC Governance

Board and Board members

The proposed provisions in relation to the Board are similar to and consistent with provisions at other statutory authorities.

Establishment, functions and membership

Clause 16 establishes the Board of the NRFC, and subclause 17(1) establishes that its functions are: ‘(a) to decide strategies and policies to be followed by the Corporation; (b) to ensure the proper, efficient and effective performance of the Corporation’s functions; and (c) any other functions conferred on the Board by this Act’. In addition, subclause 17(2) provides that the Board has power to do ‘all things necessary or convenient to be done for or in connection with the performance of its functions’.

Clause 18 establishes that the Board comprises a Chair and at least four, and no more than six, other members. Under clauses 19, 20 and 21, Board members will be appointed by the Ministers by written instrument for a period not exceeding five years, although they may be reappointed. Board members are appointed on a part time basis. The Ministers must, by writing, appoint one Board member to be the Chair.

Subclause 30(1) provides that a quorum is constituted by four Board members, or three Board members at any time when there are only five Board members. Under clause 22, the Minister may in some circumstances (for example, vacancy, or when a Board member is absent from Australia), appoint a Board member to act as the Chair, or appoint a person to act as a Board member other than the Chair.

Qualifications, knowledge, skills, or experience

Subclause 19 provides that a person is not eligible for appointment as a Board member unless the Ministers are satisfied that the person has ‘substantial experience or expertise’ and ‘professional credibility and significant standing’ in at least one of the following fields:

  • banking and finance; venture capital; economics; accounting; law; industrial relations; industry growth; or government funding programs or bodies; or
  • ‘a priority area of the Australian economy’ (as noted above in relation to clause 6, the specification of ‘priority areas of the Australian economy’ is made by the Ministers in a legislative instrument); or
  • ‘any other field that the Ministers consider appropriate’.

These criteria are sufficiently broad that the ministers will have considerable latitude in relation to the selection of appointees to the Board.

Terms of appointment

Clause 26 provides that the appointment of a Board member may be terminated for misbehaviour, incapacity, bankruptcy, or unapproved absences, or under section 30 of the Public Governance, Performance and Accountability Act 2013, which deals with termination for contravening general duties of officials. These proposed termination provisions are similar to and consistent with provisions at other statutory authorities.

In contrast, as discussed below, the CEO holds office ‘during the Board’s pleasure’ (clause 39), with apparently no necessity for the specification of grounds for the CEO’s termination.

Remuneration and leave of absence

Clause 23 provides that Board members’ remuneration is determined by the Remuneration Tribunal. If no determination is in operation, members’ remuneration is prescribed by rules (made by the Ministers under clause 92). Allowances will be prescribed by the rules.

Under subclause 24(1) the Minister may grant leave of absence to the Chair on the terms and conditions that the nominated Minister determines. Under subclause 24(2) the Chair may grant leave of absence to another Board member on the terms and conditions that the Chair determines.


Clause 48 provides that the Board may establish committees to advise or assist in the performance of the Board’s or the Corporation’s functions. A committee may be constituted wholly by Board members; wholly by persons who are not Board members; or partly by Board members and partly by other persons.

Chief Executive Officer

Establishment, remuneration and leave of absence

Most provisions for the CEO are similar to provisions applicable to comparable CEO positions at statutory authorities. A significant difference is that, rather than a term of three or five years with specified grounds for termination, the CEO holds office ‘during the Board’s pleasure’ (clause 39).

Clause 36 establishes the CEO, and clause 37 provides that the CEO is responsible for the day‑to‑day administration of the NRFC, in accordance with policies and strategies determined by the Board. The CEO must act in accordance with policies and directions of the Board. Clause 38 provides that the CEO is to be appointed by the Board on a full-time basis by written instrument, after consultation with the Ministers. The CEO must not be a Board member.

Clause 41 provides that the CEO’s remuneration and recreation leave entitlements are determined by the Remuneration Tribunal, and allowances may be prescribed by the Ministers by legislative instrument. If no Tribunal determination is in operation, the Ministers may also prescribe remuneration by legislative instrument. Other terms and conditions (if any) are determined by the Board (clause 43).

Clause 42 specifies that the CEO must not engage in paid work outside the duties of the CEO’s office without the Chair’s approval. Clause 44 requires the CEO to comply with section 29 of the Public Governance, Performance and Accountability Act 2013, which deals with the duty to disclose interests, and this includes compliance with rules made under section 29.

Under clause 45 the CEO may resign by giving the Board a written resignation. Clause 40 provides that the Board may, by written instrument and after consultation with the Ministers, appoint a person (other than a Board member) to act as the CEO.


In relation to termination, clause 39 provides that the Chair must consult with the Ministers before the Board terminates the appointment of the CEO, and must notify the Ministers if the Board terminates the appointment of the CEO. The Ministers can prescribe requirements for the consultation in the rules. These arrangements differ from provisions applicable to some other statutory corporations, where the Board may terminate the CEO’s appointment for misbehaviour, or physical or mental incapacity, or if specific circumstances arise relating to bankruptcy, absence from duty without approved leave, and potential conflicts of interest. In the case of the NRFC, because the CEO holds office ‘during the Board’s pleasure’ (clause 39) there would appear to be no necessity for the specification of grounds for termination.

Under clauses 38 and 39, the appointment and termination of the CEO must be preceded by consultation with the Ministers, in accordance with any rules made by the Ministers under clause92.

Staff and consultants

Clause 46 provides that the NRFC may employ such persons as it considers necessary for the performance of its functions and the exercise of its powers. Such staff would not be employed under the Public Service Act 1999 (PS Act). The Department of Finance reports that, as at 15 November 2022, 48 of 72 current CCEs do not employ their staff under the PS Act, including other current Commonwealth finance corporations, such as Export Finance Australia (EFA), the National Housing Finance and Investment Corporation (NHFIC), and the Northern Australia Infrastructure Facility (NAIF).[79] Clause 46 provides that the NRFC may also arrange for the services of Commonwealth, state of territory officers or employees to be made available to the NRFC.

Clause 47 provides that the NRFC may engage consultants to assist in the performance of its functions.


Clause 79 provides that the NRFC may incorporate subsidiaries, but only within Australia. Clause80 specifies that the powers of subsidiaries do not exceed those of the NRFC. Subclause84(2) requires that the NRFC’s annual report must include ‘details of the realisation of any investments of the designated subsidiary in the period’, information about procurements by subsidiaries, and other information (if any) as is prescribed by rules.


Clause 86 provides that ‘the nominated Minister is the Minister administering this Act, unless … the Ministers … by writing, determine that the nominated Minister is the Finance Minister’. Responsibilities specifically allocated to the ‘nominated minister’ include clause 56, which provides that in relation to payments from the Commonwealth, matters are to be agreed between the nominated Minister and the NRFC, and clause 87, which provides for the nominated Minister to delegate, to the Secretary of the Department administered by the nominated Minister, the power under subclause 55(1) to determine whether a request for payment is in accordance with the agreement under section 56.

Under clauses 88, 89 and 90, the Board may delegate functions or powers to the CEO, and the CEO may delegate or subdelegate functions and powers to staff. Delegates must comply with any directions by the delegator when exercising powers under a delegation or subdelegation.

Review of the Act

Commenting on clause 91, the Explanatory Memorandum explains that:

The nominated Minister must arrange for a review of the operation of this Act to be undertaken within 5 years after the commencement of the Act. Each subsequent review must then be completed within 5 years after the completion of the previous review.[80]


Appendix A: Headline Australian industry policies, 2013–2022

Table 1: Headline policies under previous governments, versus proposed NRF[81]

A Plan for Australian Jobs: The Australian Government’s Industry and Innovation Statement (2013)[82]
Philosophy: Vision for Australia to be world-competitive with a dynamic and diverse economy, powered by multiple engines of growth across a range of industries and regions; policy framework of backing Australian firms to win more work at home, supporting Australian industry to win new business abroad and helping small and medium enterprises (SMEs) to grow. Mechanism(s): Mixed, including: creating an Australian Industry Participation (AIP) Authority, anti-dumping reforms, funding up to 10 industry-led innovation precincts in ‘areas of competitive advantage’, research translation and collaboration funding, $5.4 billion New Car Plan for the automotive industry, venture capital funding and reforms, management training for SMEs, establishment of Manufacturing and Services ‘Leaders Groups’. Target sectors:
Pharmaceuticals, auto manufacturing; also manufacturing precincts in south east Melbourne and Adelaide, and a food precinct with headquarters in Melbourne.[83]
Industry Innovation and Competitiveness Agenda (2014)[84]
Philosophy: Cites the Business Council of Australia advocacy[85] for sectoral plans and growth targets co-developed by industry and government, coupled with policy initiatives focused on comparative advantages; but claims no role for subsidies or direct intervention to ‘pick winners’.[86] Mechanism(s): Mixed, including: Entrepreneurs’ Infrastructure Programme, Industry Skills Fund, export market development funding, Manufacturing Transition Program, Growth Fund for regional economic transition following automotive manufacturer closures, Industry Growth Centres (see below), Medical Research Future Fund, changed tax treatment of employee share schemes, deregulation, SME support.[87] Target sectors:
Industries with growth potential as identified by ‘a number of private sector economists’ (Deloitte, McKinsey, PwC, IBIS World, Outlook Economics); in no particular order, these were: food and beverage processing; agriculture; mining services; gas; pharmaceuticals, biotech and medical; international education; tourism; professional and financial services; distribution services.[88]
Industry Growth Centres (2014)[89]
Philosophy: Pursue global excellence in areas of competitive strength. Mechanism(s): Funding private sector-led (but government-funded) business consortia for ‘promising’ industries to develop and implement roadmaps of priority actions, ‘Sector Competitiveness Plans’; could apply for grants from a $63m Project Fund, to develop and deliver large scale collaborative projects to build the capability and competitiveness of their sectors; $60 million available to convert ideas with great potential into profitable commercial realities.[90] Target sectors:
Food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; advanced manufacturing; cyber security added later, in 2016, as part of the National Innovation and Science Agenda.[91]
National Innovation and Science Agenda (2015)[92]
Philosophy: Help to create a modern, dynamic, 21st century economy; incentivise innovation and entrepreneurship, reward risk taking, and promote science, maths and computing in school; address low/falling national performance on OECD metrics of commercialisation and business–research collaboration, make it easier for Australian startups and early-stage businesses to attract capital.[93] Mechanism(s): Mixed – included tax incentives and reforms, venture capital rules reform, CSIRO Innovation Fund to support early-stage spinoffs/startups and research commercialisation, Biomedical Translation Fund, Incubator Support Program, reform of insolvency laws and employee share scheme rules, Global Innovation Strategy, a cyber security Industry Growth Centre, Innovation Connections Programme (promoting business–research collaboration), investment in quantum computing, various STEM initiatives, investment in Data61, establishment of Innovation and Science Australia, allowing crowd-sourced equity funding. Target sectors:
Additional support for biomedical innovation; cyber security; quantum computing.
Modern Manufacturing Strategy (2020)[94]
Philosophy: Government should create a conducive business environment, build scale in areas of competitive strength and secure sovereign capability in areas of national interest; government to be a strategic investor in industry-led change; COVID-19 has been a seismic event that has challenged the status quo; it laid bare the need to secure economic sovereignty; can’t rely on foreign supply chains for critical items in a crisis; for exports, move out of heavily protected production to specialised production, and compete on value, not cost.[95] Mechanism(s): Primarily grants for businesses – initial $1.3b (later increased to $1.5b) Modern Manufacturing Initiative to fund businesses to scale up, commercialise ideas and integrate into value chains and $52.8m Manufacturing Modernisation Fund (second round), to encourage capital investment in manufacturing businesses; $107.2m Supply Chain Resilience Initiative to identify and remedy gaps in key supply chains; 10-year roadmaps to be developed for each National Manufacturing Priority (see right).

Target sectors:
National Manufacturing Priorities were: food and beverage; resources technology and critical minerals processing; medical products; recycling and clean energy; defence; space.[96]

Under the Supply Chain Resilience Initiative and associated Sovereign Manufacturing Capability Plan: biopharmaceuticals/medicines; agricultural production chemicals (e.g. fertilisers) and personal protective equipment;[97] semiconductors; water treatment chemicals (e.g. chlorine); telecommunications equipment.[98]

Proposed by this Bill: National Reconstruction Fund (2022–23)
Philosophy: Leverage natural and competitive strengths; support industry to become competitive for a net zero economy; improve resilience against supply chain vulnerabilities; promote innovation commercialisation; promote sovereign industry capability; promote economic diversification and development in regional Australia; create secure, high-value jobs; add value, improve productivity and support ‘transformation’. Mechanism(s): $15b equity injection into an arm’s-length investment corporation, the NRFC (subject to Australian Government-set Investment Mandate), to provide finance to Australian businesses, State/Territory Governments and other-entities for Australian-based activities in ‘priority areas’ (to be defined later by legislative instrument) via concessional loans, equity and other investment vehicles; NRFC will be expected to generate revenue for re-investment. Target sectors:
To date, ministers have announced NRFC funding for value-adding in agriculture, forestry, fisheries, food and fibre; value-adding in resources; medical manufacturing; renewables and low emissions technologies; advanced manufacturing; ‘critical technologies’ e.g. ‘quantum technologies’, robotics, sensing technologies and clean energy generation and storage technologies; other priority areas are medical science; defence capability; transport; ‘enabling capabilities’ e.g. robotics, artificial intelligence and quantum’.[99]