2015-16 Budget Submission: Article by Jennifer Westacott

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia, was published in The Australian Financial Review on 3 March 2015 under the title ‘A 10-year plan to fix the budget must begin now: BCA’.

Budget 2015 This year's budget must be the start of a gradual process whereby the nation has an end point to aim for, and a road to get there by.

It's time to stop the blame game and start fixing Australia's budget position.

As the Business Council of Australia's (BCA) submission to the 2015-2016 budget outlines, the federal budget is caught in a pincer movement.

On the one hand, we have an ageing population and other pressures pushing up public spending.

On the other, demographic change along with lower terms of trade are weakening the economy's capacity to fund that spending.

These forces are structural - without policy action Australia's budget position will inevitably continue to deteriorate. This is the reality that would be confronting a government of any political persuasion.

No, we don't have a budget emergency - yet. But if we do not accept the need for, and begin the task of, progressively slowing the spending trajectory of major programs, Australia will have a very serious problem.

In the BCA's view, we have a 10-year window to transition to a sustainable fiscal position in a deliberate and inclusive way.

In our submission, we call for bipartisan support for a 10-year fiscal strategy built around four fiscal goals that go to the heart of competent and prudent fiscal management:

● Preserving Australia's AAA credit rating to consolidate the government's financial credibility and reputation, retaining financial capacity and investor confidence;

● Progressively returning the budget to surplus to build resilience and flexibility for dealing with economic shocks and volatility, and for underpinning business confidence and investment;

● Ensuring the sustainability of priority services, including an adequate safety net, which are integral to community living standards and the functioning of our society; and

● Ensuring capacity for investments in infrastructure and human capital, vital for innovation and productivity growth and higher incomes.

Building community support to slow spending growth is contingent on how well government and other community leaders can explain the problem, the compelling need for action and the inevitable consequences of inaction.

Inaction would mean an ever-increasing tax burden on the average Australian taxpayer - 1.7 million Australians will enter a higher tax bracket over the four-year forward estimates and many more in years beyond without any prospect of tax relief.

Inaction would mean ever rising debt and interest payments that will crowd out spending on services the community values. It would make Australia far more vulnerable to the impacts of global economic shocks such as the global financial crisis.

In short, we have a choice between taking action early and adjusting gradually by design, or doing nothing and having blunt, costly and quite possibly inequitable spending cuts and tax increases imposed, potentially in the midst of a crisis.

A 10-year time horizon is not a licence to defer the hard decisions. Quite the opposite.

A crucial lesson from last year's budget is that policy change must be properly thought through, well explained and implemented with adequate transition pathways so that people and businesses can adjust. The priority for the 2015-16 budget should be to commit to core fiscal goals and lay the groundwork for achieving them. It should give the community a sense of both the end point and the transition pathway.

The budget must hold the line against further worsening of the deficit and avoid any new net expenditure commitments. Decisions to increase net spending would give the wrong signal to the community and further reduce business confidence.

But it should only seek to make modest fiscal corrections.

Savings measures must be demonstrably evidence-based and there should be no ad-hoc changes to business or other tax arrangements. These should be considered in the context of the tax white paper process.

The BCA believes that some previously announced reforms to tertiary education, pension indexation and Newstart eligibility should go ahead, but with carefully considered modifications.

The budget's core task should be to frame a medium-term strategy for delivering the twin objectives of containing spending growth, and improving service quality and outcomes.

This will be challenging but improvements in outcomes and greater efficiency can go hand in hand.

In our submission, we recommend independent and comprehensive reviews of two large and fast-growing programs: healthcare and retirement income systems.

Containing growth in these programs is complex and sensitive. But the McClure review of the welfare system shows that a good reform template is possible when the process for producing it is sound.

If we are to minimise the impact on people, the time to start this process is now. Because if we fail to take incremental steps, we put the living standards of individual Australians at risk.