Budget 2021: The chance to reform economy after Covid hit missed

This is a recovery budget, not a ­reforming budget. We are still in a pandemic. And for businesses all over the country it is a once-in- a-lifetime opportunity to rebuild themselves and the economy as fit for purpose.

To many in business, this is a missed opportunity.

The budget will help deliver some more jobs — the government says 250,000 by June 2023 — and it will boost services with giant spends like the $17.7bn in aged-care funding, long overdue. But it is not the budget to deliver across-the-board wage increases.

Business confidence has reached record highs, yet our ­largest companies remain reluctant to invest money to build the economy for the long term. There is little in this budget to advance productivity to put the economy on the path to a sustainable business-led recovery.

As expected, the BCA’s 20 per cent investment allowance for business was rejected. Instead, the temporary full expensing measure for all businesses with a turnover under $5bn is extended to June 2023, at a sizeable cost of $17.9bn over the forward estimates, “so a tradie can buy a new ute, a farmer a new harvester and a manufacturer can expand their production line”, Treasurer Josh Frydenberg said in his speech on Tuesday night.

Unfortunately, this short-term cheap money will not deliver the big investment projects from companies with big balance sheets that have lifted Australia in the past.

On a positive note, the $1.2bn Digital Economy Strategy which sets up a new national network of Artificial Intelligence Centres should help small business shift to the cloud and digitally upskill — but again, this is not aimed at big business.

The government gets high marks for its handling of the pandemic and the economy through the crisis, and its timely withdrawal of JobKeeper.

But it is very unclear whether the huge Labor-style spending packages can be matched by productivity reforms. Tax reform is limping, and industrial relations is effectively a no-go area.

The Senate baulks at even ­relatively modest reform and has no appetite for amendments.

There is investment uncertainty in a critical sector — energy — and in the management of our domestic borders. What is a business to think of yet another COVID case in Melbourne on budget day?

Perhaps most concerning for businesses everywhere is the government’s assumption that international borders will not be opened until mid-2022. Moreover, the government does not seem to have a clear plan for what happens when they do.

A centrepiece for the budget is the skills package, which is to be commended. The $2.7bn package will create more than 170,000 new apprenticeships and traineeships. But without immigration, it is a package that cannot be leveraged to lift our competitiveness.

Across business, developing a skills base is so often about building around imported skills. Take retail, where these is a huge crossover between companies like Walmart and Tesco and Kmart in skills innovation. The same is true of IT engineers for Atlassian, Boeing or Hitachi. Fortress Australia cannot deliver here.

On Tuesday, ANU vice-chancellor Brian Schmidt warned that we also risk falling behind the rest of the world with international students. The government’s global talent package to attract individuals and business from overseas is smart. But again, the success of this initiative depends on open borders and easing foreign investment rules, which have slammed shut over COVID-19 and China tensions.

At a macro level, the government has been surprisingly conservative about the economy’s exposure to iron ore, with $US50/tonne forecast by March 2022 (compared to this week’s staggering $US230/tonne). It is also less bullish that the Reserve Bank of Australia.

The RBA sees a slightly stronger real economy than the budget figures, with GDP at 5 per cent for June 2022 and 3.25 per cent for June 2023 against the budget’s 4.25 per cent and 2.5 per cent.

On unemployment, the RBA forecasts 4.75 per cent for 2022 and 4.5 per cent for 2023 against the budget’s 5 per cent and 4.75 per cent.

And on inflation the RBA is slightly more subdued in its forecast at 1.25 per cent in 2022 and 2 per cent in 2023 against the ­budget’s 1.75 per cent and 2.25 per cent.

A big question for the government is how it will pay for a structural shift in its massive spending programs without the reform to match going beyond the estimates period — $17.7bn in new funding for aged care and $13.2bn on NDIS.

If the government sees spending on mental health and $1.7bn in childcare as productivity measures, that will be tested. Without real reform in aged care, at some stage who pays for what has to be confronted? The government is right to think that iron ore prices will come down.

These multi-billion spends are the so-called social dividend of growth. Growth comes from investment, investment brings productivity gains. But the budget initiatives are productivity lite, which will do little for wages growth — which has become a preoccupation of RBA governor Philip Lowe.

The RBA’s rosy scenario has unemployment with a 3 in front of it, but without productivity ­increases, wage rises may yet be elusive even at that level.

A two-tiered economy is more likely with higher wages in regional tourism and IT, but not across the board. And there appears little in the budget about working from home as the Monday and Friday disease spreads across the nation.

The Australian stockmarket hit a record high on Monday, and UBS says equities look set to skip over the fiscal cliff. It may be that this time next year, iron ore prices will still be delivering for Josh ­Frydenberg’s fourth budget — just ahead of the next election — and that the big social spends will be resonating with the electorate, jobs are growing and the deficit is coming down.

That really will be an election budget and the window for reform will be well and truly shut.