With global economic storm clouds darkening, one of the nation’s most pressing challenges in this year’s budget is to avoid the economy and budget being blown off course. Despite the headwinds, the budget’s task must remain fixed on the long-term ambition of creating a more future-focused, competitive and dynamic economy and a resilient budget position so we can pay for services people need now and in future.
Business and the broader community need to see a budget strategy focused on accelerating economic growth, fiscal discipline and expenditure reform. This is about controlling purposeful spending, not indiscriminate cuts.
We agree with Jim Chalmers that Australia’s fiscal position and the deteriorating global outlook mean “difficult decisions for difficult times’’ need to be made and “we must be serious about rebuilding our budget buffers’’. As the Treasurer puts it, this budget must make “the right calls for the right reasons, following the responsible path; not the path of least resistance’’.
It’s why we believe it is crucial this budget lays out a long-term fiscal strategy and puts the foundations in place for more substantial reform next year.
Australia’s economy has rebounded strongly from the effects of the pandemic, with the jobless rate close to a 50-year low. Interest rate hikes, however, are starting to bite and most economists expect the jobless rate to rise next year. Global growth forecasts are being downgraded, inflation has yet to peak and central banks will continue to raise interest rates. Geopolitics remains challenging.
On the surface, the budget looks better than it did earlier this year thanks to delayed spending and Australians paying more tax than ever. But this cannot be sustained – we cannot endlessly lean on bracket creep and booming export commodity prices to do the hard work of spending restraint and discipline.
Nor can we put any hurdles in the way of successful businesses continuing to do the economic heavy lifting. Companies contributed $126bn in company tax receipts last year – a 27 per cent increase on the previous year – underpinning the services Australians deserve and expect.
When we need businesses to power on all cylinders, Australia’s ability to compete internationally for investment, innovation and talent is still heavily weighed down by an inefficient tax system delivering revenue that is volatile and difficult to predict. We are also burdened by a fiscal gap that needs to close to cap public debt and control interest costs.
So we are calling for a long-term fiscal strategy that makes the fiscal position sustainable and resilient across time. We need clear pathways for the economy to grow faster, including improved productivity via a return of economic dynamism and the creation of new industries while strengthening existing ones. In addition, we need to seize the opportunity – and manage the risk – of decarbonisation through better investment incentives. The handbrakes on growth also need to be released through renewed microeconomic reform, and a more competitive tax system is vital to drive innovation, hiring and higher wages.
The budget also must focus on disciplined spending and controlling costs in the major structural commitments predicted for rapid growth such as health, defence, aged care and the National Disability Insurance Scheme, recognising substantial work is being done here. We are calling for better service design – not cost-cutting. Spending needs to be controlled in a way that delivers better outcomes for Australians by putting their needs at the centre of more sustainable service delivery and using technology more effectively.
Chalmers understands this, putting families at the heart of the planned paid parental leave changes, providing new parents with adequate time off and encouraging equal sharing of care. These changes are not only good for the economy but also for parents, who will be able to work to their full potential and advance in their chosen careers.
Focusing the budget strategy across the next five to 10 years on the three priorities we’ve outlined – growing the economy, fiscal discipline and expenditure reform – remains the most effective way of shoring up funding for services.
Real spending is forecast to grow by about 3 per cent a year beyond the forward estimates. If, instead, real spending growth is limited to 2 per cent a year – still faster than population growth – this could support a surplus within a decade.
What we cannot afford to do is make a series of short-term decisions that compromise our capacity to continue to grow. This includes imposing punitive taxes on companies, removing incentives for innovation or creating an industrial relations system that causes widespread industrial action, sabotages our record low unemployment rate and imposes unnecessary costs, particularly on small business.
At some point Australia must put in place the conditions to drive higher investment, which is still the best way to drive productivity and higher wages. Our investment as a share of the economy is still woeful and will not be enough to create the dynamic, internationally competitive and productive economy needed to lift living standards.
Every decision we make needs to strengthen our economic security and move us closer to an economy that enables businesses to invest, innovate, hire and pay Australians more.
Jennifer Westacott is chief executive of the Business Council of Australia.
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