Support for the critical minerals industry in the FY25 Budget

Dr. Jim Chalmers has delivered the Federal Budget for 2025, the second since Labor’s victory in the 2022 election.  As expected, it dishes out the cash, with overall spending in real terms (that is, after inflation) forecast to increase by 4.5% in FY24 and 3.6% in FY25. Social welfare programmes, particularly the NDIS, and defence, coupled with ballooning interest costs and the Stage Three Tax Cuts, have put paid to any hope of a return to structural surplus over the forward estimates period. 

Among the myriad spending initiatives in the FY25 budget, there are, as expected, some targeted fiscal reforms directed at supporting the development of the country’s nascent downstream critical mineral processing industry.  

This initiative will undoubtedly assist a handful of existing integrated producers of key commodities such as rare earths, lithium and nickel (including, it should be noted, some that are wholly or partly foreign-owned).  

However, it will be too little, too late, for a number of struggling upstream producers, particularly in commodities facing fundamental structural change, such as nickel. And, for the reasons noted below, it is unlikely to lead to additional critical minerals capacity being developed in Australia.  

“A future Made in Australia"

A centrepiece of the budget was the government’s plan for “A Future Made in Australia”. The budget flagged an investment of $22.7 billion over the next decade across a range of initiatives designed to maximise the economic and industrial benefits of the global clean energy transition. 

The proposed “A Future Made in Australia Act” will establish a so-called National Interest Framework to identify priority industries for investment. These industries will be in two streams:

  • the “net zero transformation stream”, consisting of industries that can make a significant contribution to achieving net zero and in which Australia has the means to build an enduring competitive advantage; and
  • the “economic security and resilience stream”, which will comprise sectors that are critical to Australia’s resilience and which are vulnerable to supply disruptions.

Market participants may recognise this language from other Commonwealth Government policy frameworks designed to provide structured support to the Australian minerals industry. Examples include the Critical Minerals Development Program, which aims to foster economic reforms. Indeed, critical minerals processing and so-called “green metals” (essentially, commodities such as iron ore, steel, alumina and aluminium, produced using renewable energy and other low-carbon technologies) are among a total of five industries identified by the government as falling within the National Interest Framework for the purposes of the 2025 budget.  

“The Production Tax Incentive: Key Element of Industry Support”

A key element of the Government’s plan for A Future Made in Australia involves boosting economic resilience and security by value-adding to Australia’s resources. One measure proposed to achieve this is a Critical Minerals Production Tax Incentive, which will provide a production incentive valued at 10% of relevant processing and refining costs for Australia’s 31 critical minerals. This incentive will be applicable for up to 10 years per project, for production between 2027 – 28 and 2039 – 40 by projects that reach final investment decisions by 2030.

The industry lobbied hard for this reform, and there has been positive commentary from the major lobby groups following release of the budget. There is no doubt that the incentive will provide a valuable boost to the bottom line of existing integrated producers. And there may (subject to the comments below in relation to sovereign risk) be a handful of advanced developers who are able to effectively “bank” the credit as part of their final investment decision (FID) on critical minerals projects. 

However, there are some significant limitations: 

  • first, the credit will not directly assist upstream nickel miners who have suffered through the convergence between Class 1 and Class 2 nickel product pricing on LME forced by the flooding of the market with cheap Indonesian products.  There might be an indirect benefit to the extent that the credit is sufficient to allow domestic processors to continue to operate, providing a ready market for miners’ concentrates, where otherwise they may cease to do so. 
  • second, the 2030 deadline for FID is likely too short for most greenfields critical minerals projects, given the timeline required to undertake technical studies, achieve market acceptance of product and obtain the requisite environmental and other permits. Six years sounds like a long time, but early stage explorers will really need to “get their skates on” to benefit to fall within this production incentive umbrella; and
  • third, there is the perennial issue of “sovereign risk”, and the likelihood (as confirmed by early statements from the opposition) that the incentive will be scrapped in the event of a change of Government.  It seems unlikely that third party financiers will be very reluctant to give full credit to the potential incentive payment as part of their assessment of debt serviceability, undermining the Government’s implicit claim that the incentive will “crowd in” private investment.

The government has also pledged to spend $566 million over 10 years from 2024 – 25 on a range of measures designed to support industry in finding new deposits of minerals and energy required to help build a “Future Made in Australia”. This initiative appears to be borrowed from the US Government’s own US$1.6bn investment in a similar programme of work to be undertaken by the US Geological Service. The US initiative is understandable given decades of under-investment in the upstream metals industry in that country. But it is hard to see how this will be money well spent in Australia, where (unlike in the US) there is no shortage of private capital available to fund mineral exploration and one of the most highly developed and sophisticated exploration industries in the world. A comprehensive and administratively simple “flow through share” regime, enabling tax losses from exploration expenditure to be passed through to shareholders, would have been a far more sensible and productive reform.

What really matters

Addressing mining sector challenges is of paramount importance. While the Production Tax Incentive might provide some useful support for downstream processing activities, the FY25 Budget offers little joy to the upstream mining and metals sector in Australia.  In fact, in taking what is arguably a one-dimensional approach to industry support, the Government has either overlooked, or not understood a key fact: unless upstream operations can be developed and operated profitably, downstream processing, and value adding in Australia, will remain a chimera, forever just out of reach. 

Beyond the sugar-hit of tax credits, Australia has much work to do to create a more positive framework regulatory policy for a globally competitive mining industry.  This includes:

  • creating flexibility in industrial relations reform to encourage workplace productivity;
  • incentivising states to abolish punitive and inefficient taxes such as stamp duty and payroll tax: effectively taxes on employment and mobility;
  • radically re-imagining the environmental approvals pathway for major projects to compress the time between discovery and production; and
  • adopting foreign investment settings which strike a more sensible balance between national security and economic considerations.

Make no mistake: these and other reforms are necessary just to protect, let alone advance, our mining and metals sector.  In failing to tackle macro-economic reform over the last decade, Australia has effectively opened the door to international competition in a range of commodities in which our position has hitherto been almost unassailable.  In nickel, that has played out in massive Chinese investment in the development of nickel laterite deposits in Indonesia (which has come at significant environmental cost).  In iron ore, Chinese investment is flowing, directly and indirectly, to massive “Pilbara killer” projects in Africa, such as Simandou.  And more recently, Chinese capital is being deployed in large-scale lithium brine projects in South America, threatening to undermine the long-term competitiveness of that sector in Australia, before it has really hit its straps. 


We are not surprised that there has been some muted applause for the additional support promised to the critical minerals section in the Budget.  However, this approach seems to be a modest intervention when compared to the extensive subsidies available elsewhere. Moreover, it falls short in tackling the fundamental issues facing the upstream industry in Australia.

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