Prime Minister Anthony Albanese unveiled the "Future Made in Australia Act" to help compete with global partners who are providing massive subsidies to new industries.
The act, to be discussed by parliament this year, would mark a departure from Australia's decades-old free market policies on trade and investment.
"We need to be willing to break with old orthodoxies and pull new levers to advance the national interest," the centre-left Labor Party prime minister said.
Though no figures are given, the taxpayer-funded incentive scheme aims to compete with other nations' efforts, such as US President Joe Biden's massive investments through the US Inflation Reduction Act.
Other trading partners, including China, the European Union, Canada and Japan have also heavily invested in their industrial base and manufacturing capabilities.
"Australia can't afford to sit on the sidelines. Being in the race does not guarantee our success -- but sitting it out guarantees failure," Albanese said.
Albanese described the climatic and economic changes underway as "every bit as significant as the industrial revolution or the information revolution - and more rapid and wide-ranging than both".
"We have to think differently about what government can -- and must -- do to work alongside the private sector to grow the economy, boost productivity, improve competition and secure our future prosperity."
Albanese delivered the speech in the northeast state of Queensland, a key electoral battleground and the heartland of the country's vast gas and coal industries.
- 'Sharper elbows' -
Australia could not match the United States' investment dollar for dollar, he said, but the country would be able to compete for international investment.
A world-leading exporter of minerals such as iron ore and coal, resource-rich Australia will not just play to its "traditional strengths", he said, but also offer new products and services to new markets.
"We need this change in thinking and approach because the global economic circumstances are changing in ways far more profound than the consequences of the pandemic or conflict alone," Albanese said.
"We need sharper elbows when it comes to marking out our national interest."
The act would boost investment in Australia's renewable energy resources, including battery production, like green hydrogen, green metals, create more jobs and ensure a competitive economy, he said.
Tim Buckley, director of independent public interest think tank Climate Energy Finance, said the act would lay the foundations to make Australia a zero-emissions trade and investment leader and global clean energy "superpower".
About 27 percent of the Australian economic output came from exports to international partners and this new act would have flow-on effects and help them decarbonise as well, Buckley told AFP.
"State intervention is the new competition. We can't afford to 'sit it out'. The Future Made In Australia Act puts Australia into the global race. It is the investment signal and de-risking private capital needs," he said.
But he said greater details were needed to ensure that local, state and federal governments worked together on ensuring the act was rolled out smoothly.
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