This opinion article by Jennifer Westacott was published in The Australian Financial Review on 5 May, 2017.
Every Australian should be concerned that we have recorded a decade of budget deficits.
Since the nation’s last surplus budget in 2007 the Commonwealth is set to chalk up 10 budget deficits, leaving us with one of the fastest growing net debts among advanced economies.
Almost a decade of deficits already means it is costing taxpayers $1 billion every single month just on the interest bill on the debt. This is money we could be investing in schools, hospitals, roads and infrastructure.
Put bluntly we cannot continue to spend what we cannot afford.
When Scott Morrison hands down his second budget on Tuesday night we must see a credible path to a sustainable surplus based on realistic assumptions about economic growth and a clear plan to control growth in spending. This is crucial for the nation’s economic security.
To be sustainable the path to a surplus must not be built on ad hoc punitive cuts. It requires a careful, thoughtful redesign of the big spending programs, such as the schools and higher education plans announced this week by Simon Birmingham.
No one doubts getting the budget back to surplus is hard work. It will require discipline. We must have a cap on overall spending growth. There must be a focus on areas where the increase in spending is unsustainable. The aim must be to get better services for our citizens, especially those who most need support, while giving taxpayers value for money.
Similarly, infrastructure projects should always pass a rigorous cost-benefit process and demonstrate they will change our economic destiny for the better. Government borrowing doesn’t relax this requirement – it just shifts the timing of the tax burden.
Budget repair must be a responsibility for every member of parliament. The task of getting Australia’s budget back in order is urgent. The budget gridlock over savings measures must be resolved. From 2020 onwards, annual real spending growth currently is expected to ramp up to 3 per cent, outpacing projected economic growth and over time locking in a structural deficit of at least 3 per cent of GDP or $50 billion a year in today’s terms.
If the Senate has found some recent budget measures distasteful, it should know that a deficit of 3 per cent of GDP would leave the nation with a far more unpalatable choice. Taxes would need to increase by more than $5000 per household per year on average or services like health and education would need to be cut severely. And that’s before even tackling the mountain of accumulated debt.
In tandem with careful spending restraint we need measures to grow the economy. The right nation-building infrastructure can change the future of our country.
At the National Reform Summit, co-sponsored by the Australian Financial Review, business, unions and welfare groups agreed a key objective of all policy should be to grow the economy to create jobs and lift living standards.
This philosophy was echoed by the Treasurer this week when he said: “If you don’t grow the economy then people aren’t going to get a pay rise. You can’t get a job in a business that’s not open or get a pay rise from a business that’s not going forwards. So that’s always the most important thing, the economy needs to grow so people’s standard of living can rise.”
The Business Council can only agree. The private sector contributes 80 per cent of economic output so we need to make the business sector more competitive including by dealing with our uncompetitive tax system.
Modelling by both the Treasury and Deloitte Access Economics shows a lower company tax rate would mean a bigger pie for all to share. As Chris Richardson from Deloitte Access Economics says: “company tax hits the economy harder than any other federal tax”.
The Business Council welcomes the commitment by the Prime Minister, Treasurer and Finance Minister to fully implement the Turnbull Government’s Enterprise Tax Plan to reduce the company tax rate to 25 per cent over a decade. A 25 per cent tax rate for all businesses would deliver a permanent increase in the size of the economy by 1 per cent every year, which is about $17 billion in today’s dollars and increase overall revenue by around $4 billion a year.
Doing nothing is not an option. Already many countries we compete with for investment are reducing their company taxes below ours and at a faster rate. Australia has the second highest corporate tax revenue take as a share of GDP in the OECD after Norway, and is losing the global race for investment. Australia ranks 17th highest as a destination for foreign investment in the world, down from 6th just three years ago.
We need to pass the Enterprise Tax Plan in its entirety to return Australia’s company tax rate to the middle of the pack and grow jobs and incomes in this country.
The alternative is the risk investment is lost as we demand more tax from fewer people and companies amid rising deficits and increased vulnerability to external economic shocks.
Ultimately the budget must make us more prosperous by spending taxpayers' money more wisely and growing future revenues by growing the economy.
Jennifer Westacott is chief executive of the Business Council of Australia.