Article on Economic Challenges by Tony Shepherd in The Australian

30 August 2013

Article by Tony Shepherd, President of the Business Council of Australia, published in The Australian on 30 August 2013

With little more than a week to go in a campaign that has been disappointing in dealing with the real structural budget and economic issues facing Australia, it’s worth reinforcing the task confronting whoever wins government on September 7. It will be a massive task and require discipline and patience.

The tit-for-tat on policy costings and the spending cut scare campaign continue to divert attention from where it really belongs: the serious challenge of budget and fiscal reform, and how to keep our economy growing in the face of vastly increased global competition, our declining competitiveness, and a volatile global economic and political outlook. Short-term costings are one issue but the real challenge is to get the budget back into surplus across the next five years to provide for an ageing population, rising health costs, education, and the infrastructure to lift productivity and raise living standards.

Right now, we are staring down the barrel of almost a decade of deficits. This is the result of not having lived within our means, of not spending taxpayers’ money wisely in ways that boost national productivity and competitiveness, and committing to new long-term programs without a matching source of new revenue.

Spending discipline has been unreliable: we will see expenditure growth of almost 6 per cent this year. Total debt will reach $300 billion by Christmas. Expenditure as a proportion of gross domestic product is at 25.3 per cent, about one point higher than before the global financial crisis, despite much weaker revenues.

Of course, parties should be clear about how they intend to fund their election commitments. And their costings should be open to challenge and scrutiny.

However, we should also be scrutinising how we ended up in a situation where the fiscal discipline exercised by successive governments has been eroded, and where hard-won economic reforms of the 1980s and 90s that set our nation up to achieve enduring prosperity have been stalled and, in some cases, set back.

The scrutiny must go to the extent to which budget rules, budget discipline and proper processes will ensure we never end up in this situation again.

Put simply, unless future governments reprioritise spending, and reduce the size and scope of government, they will have virtually no discretion to respond to the priorities of the day, let alone deal with the emerging and well-known pressures on the budget.The only way to get the budget back in order for the long term is to go back to basics with an audit of the scope, size and efficiency of government spending together with a disciplined approach to any proposals for new spending.

This has to be done carefully and openly in a reasonable period with wide-ranging consultation and trade-offs made explicit. Efficiency dividends are not an efficient way of reducing government costs. The public has no insight into why some programs have been prioritised over others and whether they are getting value for money. An audit, reprioritisation of spending, and cutting waste and duplication is not austerity. It is a fundamental responsibility of government.

We can’t just keep spending as though we never have to consider whether it’s the best use of our scarce money, and never have to make the hard decisions despite slowing economic growth. A responsible audit is the only way to avoid far more painful choices in the future if we just keep muddling through. The Australian public understands this.

Australians know that the best approach is to keep our economy growing. After 22 years of growth that averaged 3.25 per cent a year, we should all be concerned that we are now forecasting economic growth at 2.5 per cent with increasing unemployment.

The recipe for growing the size of the pie is well known: a more competitive tax system, a major reduction in unproductive regulation, investing in infrastructure that lifts productivity, investing in skills and education that improve outcomes, and more flexibility and productivity in our workplaces so companies can compete, adapt and innovate.

Supporting businesses – small, medium and large – to create the wealth and jobs that grow our economy is essential.

Some of these reforms will take time but the time to get started is now. Platitudes are no substitute for action; what we need is a clear, coherent plan and decisive, consistent policy actions.

The first phase of the BCA’s Action Plan for Enduring Prosperity is focused on building trust by restoring good policy process. This won’t happen by frightening people, promising things we can’t afford or behaving as though money grows on trees. The magic pudding is not a recipe for fiscal reform and economic success.

Trust and confidence will be built only by having a careful, respectful and honest discussion with the community about the risks and opportunities we face, and the decisions we need to take to lock in long-term national prosperity.



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