‘Sugar hits’ don’t address productivity

Subsidies and spending on households will act only as ‘Band-Aids’ that don’t address the structural issues facing the economy, leading business groups say.

Innes Willox, Chief Executive of Australian Industry Group.

Subsidies and spending on households in the budget will act only as “Band-Aids” and “sugar hits” that don’t adequately encourage investment or address the structural issues facing the economy, leading business groups say.

The budget handed down on Tuesday night included a sizeable $14.6bn cost of living package, while $3.5bn was invested to encourage GPs to bulk bill and $3.6bn to kickstart electrification and green hydrogen projects.

Australian Industry Group chief executive Innes Willox slammed Labor for lacking “the urgency and imagination required to power the Australian economy through a period of anaemic growth”.

“The government has used its one-off surplus, driven by elevated commodity prices, the strong labour market and fiscal drag, to pay off debt and reduce future interest payments,” he said on Tuesday night.

“It has prioritised household-based subsidies and hand-outs rather than focusing on productivity improvements to lift the economy out of its long-term productivity malaise.

“While they have been designed to lessen the direct inflationary impact, these Band-Aids and sugar hits also do not address the underlying causes of the problems they are trying to solve around housing shortages and underlying energy costs.”

He also raised concerns about aspects of the budget that had “insufficient explanation or detail” such as the $2bn allocated to the hydrogen industry.

Despite describing Tuesday’s budget as “solid” and striking the balance between cost-of-living relief and modest fiscal consolidation, Business Council of Australia chief executive Jennifer Westacott criticised the absence of measures to drive investment and productivity.

“There is a missed opportunity to drive whole of economy growth through incentivising investment which remains the key to lifting productivity, delivering higher wages and ensuring sustainable returns to government,” she said.

“Australia cannot continue to turn a blind eye to our investment drought and poor productivity, which risks other countries overtaking us and important projects … going offshore.”

Global ratings agency Standard & Poor’s Director of Sovereign and International Public Finance Anthony Walker backed the government’s “fiscal restraint” in the budget but warned the $14.6bn in cost-of-living support measures would stoke inflation to some degree.

“We would expect most governments to pursue their election commitments and provide some support for cost of living, but any support that is given will have some impact on inflation no matter how you cut it,” he said.

He said Treasury’s still-conservative commodity price forecasts left room for further windfall tax gains in coming budgets, even as he warned a sudden slowdown in the economy or a collapse in export prices could bring the country’s credit rating into question.

Moody’s Investors Service vice-president Martin Petch said spending pressures in major programs such as the NDIS, defence, aged care and health would “put pressure on the structural fiscal outlook”.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said while the “restraint” exercised by the government in this year’s budget was welcome, Labor faced an “impending fiscal cliff”.

“With the prospect of returning to a structural deficit of more than $35bn in two years, we cannot rely on record commodity windfalls, strong migration inflows and an ultra-tight labour market to drive down debt,” he said. “This means getting serious about cutting spending relative to its current trajectory, and implementing productivity-enhancing reforms that don’t rely on higher taxes or embed inflationary pressures. Our future depends on it.”