Living standards depend on good economic decisions

The Albanese government has done well in restraining spending sufficiently to bank most of the post-Covid corporate and personal taxation windfalls and proceeds of the resources boom. Its strategy, to contain and eventually shrink the national debt, facilitated the first surplus in 15 years in 2022-23. With a tiny $1.1bn deficit forecast for 2023-24, Jim Chalmers has said a second straight surplus is “within striking distance”. The bottom line will be lifted by the revenue upgrades revealed in the commonwealth’s monthly financial statements.

As attention turns to the May 14 budget, independent economist Chris Richardson is backing calls by the Business Council of Australia to increase fiscal discipline through a cap on tax revenue as a share of the economy. Labor ditched the 23.9 per cent tax-to-GDP cap when it won office, Patrick Commins writes, the Treasurer saying the target adopted by the Coalition had been “plucked out of the air”. But it would help guide the budget and promote fiscal discipline when demands for social spending on an ageing population, the National Disability Insurance Scheme, health and now higher education are rampant. In its pre-budget submission, the BCA argues a cap on the tax-to-GDP ratio “effectively hands back bracket creep, disciplines governments and stops spending increasing more rapidly than economic growth” – three worthwhile objectives.

The positive economic outcomes of the Hawke-Keating and Howard years showed the best way to improve budget health was to generate a more efficient and competitive economy that increased the size of the revenue pie. Productivity improvement is a long-term process, which is why decisions need to be made sooner rather than later for the benefit of the nation’s economic future. Nothing less than “quality of life” is at stake, the BCA argues in its pertinent pre-budget ­submission to Treasury. The submission urges Anthony Albanese to reverse a crash in investment and global competitiveness that has forced companies in Australia to slash jobs, halt projects and move offshore. The BCA, which represents the nation’s largest companies, warns that productivity and investment levels are stagnant. For the first time since 1911, more investment has flowed out of Australia across four consecutive years. “To be more productive, we need to compete harder and win more investment on the global stage, where we have shockingly been a net exporter of capital since 2019 – this shouldn’t be the case for a growing country like ours,” BCA chief executive Bran Black says.

Amid a surge in insolvencies, companies being drawn overseas, soaring energy prices and miners signalling they will mothball their entire nickel divisions, “the critical test of success for policy we develop and fund in the next year will be whether it reduces or strengthens our long-term competitiveness as a nation”, the BCA argues. Declining competitiveness and investment are “hurting the wider Australian community”, Mr Black says. When the economy loses out to other nations, Australia’s capacity to “afford the future we all want is reduced”.

In addition to cutting spending, capping real expenditure growth at an annual 2 per cent and cutting regulation, the BCA submission includes a sensible reform proposal that will help streamline administration for businesses that operate across state boundaries – a single payroll system. Payroll tax, which is a tax on jobs, is levied across eight separate tax jurisdictions. Rolling payroll tax into a single ­national platform – which would require sensible commitment from national cabinet – would reduce duplication and regulation.

The uncomfortable truth, as the BCA points out, is that Australia’s public finances are “on an unsustainable trajectory, primarily due to ever-increasing demands for higher government spending”. The fact “we are leaving more debt to a smaller group of future workers with less capacity to service it” has to be addressed. Treasury’s Intergenerational Reports have made the same point under both sides of politics.