This column by BCA Chief Executive Jennifer Westacott was published in The Australian on 11 May 2013 under the title ‘Stop the Muddle, the Reform Case Is Clear’. It is the second in a series of columns exploring the Business Council of Australia’s Action Plan for Enduring Prosperity.
The nation is being united around a common cause and we can only hope the politicians are listening. The disarray over fiscal policy and the abandonment of fiscal responsibility over the last few weeks have us all united in saying enough is enough.
The lack of a clear vision and purpose, and the ad hoc nature of recent announcements, has brought into stark focus why we need the kind of economic action plan for Australia that the Business Council of Australia is developing.
Next week’s budget is likely to show we’re a long way from surplus. There’ll be another round of tax tinkering and the dysfunctional nature of our federation will be writ large as the states are forced to agree to commonwealth spending demands they know they can’t sustainably fund.
It’s clear Australia has a number of serious structural problems that require structural solutions. They are holding Australia back from growing our economy in a way that also grows community prosperity. They’re simply a drag on our competitiveness.
The kind of well-managed growth we seek needs to be anchored in strong fiscal policy, a competitive tax system and a proper functioning federation.
As part of the comprehensive reform package we will put forward in our plan, these things represent the bedrock on which national prosperity is built.
We shouldn’t kid ourselves we can just muddle through problems with fiscal policy, tax and the federation that put at risk a whole lot more than the Treasurer’s budget bottom line next Tuesday night.
Muddling through puts at risk the medium-term economic growth and the revenue that gives us greater freedom and more spending choices to meet the community’s aspirations.
It means delaying or reneging on promises. It means putting the country in a position where inevitably, over time, services will be rationed, taxes increased and living standards undermined.
Our plan suggests a way of building a corridor of confidence that allows us to plan and prepare for the future.
First, Australia needs to adopt and adhere to a considered set of fiscal rules that help guide the budget strategy and substantially protect it from the volatility of the world economy and from the vagaries of short-term politics.
The adoption of sensible, stable and coherent fiscal rules would support confidence and contribute to stronger growth.
Businesses would create jobs and make investment decisions that grow the economy.
Most important, having fiscal policy in good order is our armour in the face of economic crises. It’s the best tool governments have to lessen the impact of the worst kinds of economic shock on growth and employment. And it gives us the resilience to cope if economic assumptions on which the national budget depends don’t materialise, as we’re seeing now.
Decisive fiscal responses have helped Australia through some tough times. On each occasion, our capacity to do this has been afforded by having a strong starting point: a budget in surplus. More than ever, as our population ages, we’re going to need a level of fiscal discipline that serves our national interest beyond election cycles.
The right starting point would be to take stock of the size, scope and efficiency of government, its role, how efficiently taxpayer dollars are being used, and whether there are different and better ways of providing services to the community.
It’s only this kind of audit, alongside the fiscal rules, that will allow us to reprioritise and make room for things the community wants and needs while living within our means.
The challenge is to start reconfiguring the tax system so that it can raise enough revenue without compromising economic growth or competitiveness.
As it stands, Australia’s tax system is not competitive in an increasingly competitive global economy. We have too many taxes and overly complex tax arrangements – 115 taxes raise just 10 per cent of revenue while 10 taxes raise 90 per cent.
One catalyst for tax reform will come from addressing the distribution of the GST among the states.
Until that’s fixed, the perceived unfairness will prevent Australia from taking the necessary next steps towards comprehensive tax reform.
It’s also a fundamental sticking point in getting our federation working properly.
Which brings me to the third foundational platform for our economic plan.
Current federal–state financial arrangements see the commonwealth collecting more than 80 per cent of tax revenue while the states carry responsibility for delivering services in the fastest growing areas of spending, including health.
Given their responsibilities – which seem to be growing by the week – the states must have more predictable and stable sources of funding.
Stronger fiscal settings and placing the budget on a more sustainable footing for the long run; configuring a more competitive tax system; and arrangements that provide a fairer sharing of money and better co-operation between the Commonwealth and the states.
The Business Council’s plan is a call to action. Action that puts the nation on the right path to a prosperous, fair and progressive future.