The move to put manufacturing at the centre of a long-term recovery plan comes amid a realisation that Australia has been too reliant on Asia for the supply of essential goods. Sour relations with top trading partner, China, and the pandemic's impact on global supply chains have also strengthened that view.

"We make things in Australia. We do it well. We need to keep making things in Australia. And under our plan we will," Morrison said in a speech in Canberra on Thursday, as he outlined the plan to spend on manufacturing over a decade.

Five days ahead of the federal budget, Morrison used his speech to pledge funding and support for Australian businesses in resources and critical minerals, food and beverages, medical products, recycling and clean energy, space, and defence.

Businesses will be eligible for grants of between A$100,000 and A$1 million, he said, adding they will be required to match the government funds by a ratio of three to one.

"Long gone are the days of trying to compete with labour intensive, low-cost manufacturing economies. Gone too are any pretensions of protectionism as a viable strategy for domestic manufacturing," Morrison said.

Australia has the potential and room to expand manufacturing, the prime minister said.

In 2019, manufacturing accounted for 5% of Australia's gross domestic product, versus about 25% in 1960.

It should make up about 15-20% of GDP, says Andrew Liveris, former head of U.S. industrial giant Dow Chemicals, who returned to his native Australia this year to join Morrison's manufacturing advisory taskforce.

Australia's A$2 trillion economy shrank 7% in the three months ended June, the most since records began in 1959, as virus curbs paralysed business activity.

The country is beginning to detail an economic recovery plan after slowing the outbreak.

It recently outlined a strategy to boost gas supplies, including a possible state-funded gas-fired power plant, to drive economic recovery.

By Colin Packham