“This year’s federal budget has the opportunity to set Australia up for sustained economic growth if it puts the fiscal strategy back on track,” BCA Chief Executive Jennifer Westacott said.
“Improved budget discipline is not counter to economic growth. It is critical to our capacity to weather economic shocks and invest in the infrastructure, education, health and social safety net we all want for the future.”
Ms Westacott said this budget had to break the trend, particularly evident over recent years, where spending had grown faster than the economy. This has left the current government with net debt of almost $200 billion and a budget deficit likely to hit $47 billion this year.
“Despite the former government’s commitment to a 2 per cent cap, real spending growth averaged 4 per cent a year and fiscal discipline was bigger on promise than delivery. It’s clear over recent years we have lost control of the fiscal strategy.
“Clearly, the size of the challenge and weaknesses in the economy mean the budget can’t be fixed in one year. What we have to see urgently is a credible plan for returning the budget to a decent surplus over a decade, with action that starts now.”
The BCA’s submission to the 2014–15 Budget calls for a 10-year, three-pillar strategy to repair the budget and grow the economy, based on:
- Correcting expenditure: concrete steps to reprioritise activities based on what is affordable and delivers value, reduce inefficiency in government spending, and measures that check unsustainable growth in major spending programs. This must be about structural change to current expenditure programs.
- Strengthening the revenue base: starting a process of comprehensive tax reform with the goal of improving the efficiency and stability of the tax system so it raises sufficient revenue and is growth-focused.
- Strong economic reform: with structural headwinds and demographic pressures starting to bite, a 10-year growth reform agenda is needed to cut red tape, reorient workplace laws to make it easier to create and maintain jobs, push ahead with free trade deals, and increase participation by ensuring payments and family assistance support work, study and training.
“It’s time to stop the budget strategy from being used as a political football and for the Australian Parliament to agree on the need for fiscal discipline and policies to support growth,” said Ms Westacott.
“While there will be differences among members of parliament about specific measures to respond to our economic challenges, we can no longer afford for politicking to obscure the considerable pressures on the budget, and the need for a comprehensive approach to deliver long-term growth.
“If politicking ends up kicking the can down the road on dealing with our significant economic challenges, future governments will inevitably be forced to take more drastic actions.”
Ms Westacott said that in developing this year’s budget, the government would be able to draw on the work of the National Commission of Audit.
“The government should use the audit to craft a structural solution to our weakening fiscal position that can be carefully implemented over a decade,” she said.
With this longer-term strategy in mind, the BCA has six immediate priorities for the budget and economic policy in 2014, which call on the government to:
- comprehensively respond to the National Commission of Audit’s findings and recommendations
- outline a realistic and credible timeline to return the budget to surplus, including the extent to which alternative assumptions around forecasts could impact the timing
- outline a refreshed fiscal strategy that includes new fiscal rules, including a cap on tax as a proportion of GDP and keeping real spending growth below 2 per cent
- promote stability and certainty for business by refraining from introducing any new changes to the business tax system
- use the tax white paper process to begin removing inefficient state taxes and improve the mix of indirect and direct taxation over time to better support economic growth
- use the budget to map out a bold, growth-oriented, long-term economic reform agenda.
“The BCA Action Plan for Enduring Prosperity and our submission to the National Commission of Audit explain in great detail that it is only through strong budgets and bold reforms that Australia will be in a position to deliver the kind of economic growth and improved living standards the community wants and deserves to expect.”