Statement from BCA Chief Executive Jennifer Westacott

The federal government’s 2012–13 Budget has taken some steps to strengthen Australia’s economy and fiscal foundations but has not fully grasped the opportunity to set a clear direction for the future that will build business and community confidence.

The opportunity was for a Budget that delivered a meaningful and sustainable surplus, a coherent medium-term economic and fiscal strategy, measures to lock in responsible government spending, reforms that will lift our competitiveness and an improved focus on supporting investment certainty.

Tonight’s Budget goes some of the way to achieving the key fiscal goals but more hard yards lie ahead. While a return to surplus will be welcome, the test will be in the delivery and this remains a challenge.

The risk is the surplus is fragile, because it relies on a mix of spending restraint, a bring forward and rescheduling of expenditure, tax increases, and some one-off and ad hoc measures.

The size of the surplus is small, though growing in the outer years, but there is little margin for error. Ideally, governments should be building surpluses over the medium term closer to one per cent of GDP.

A surplus of this size is projected to occur in 2017–18 but a greater effort will be needed to realise this goal as soon as practicable. The budget papers demonstrate that performance against the 2 per cent real spending cap has deteriorated since the Mid-year Economic and Fiscal Outlook.

While implementing the surplus remains important, the Budget is still to fully grasp the opportunity to mark out a medium term economic and fiscal strategy that will make us more resilient over the longer term to weather some of the challenges we face as an economy.

More work on permanent savings is needed to build the surpluses that will enable government to pay down debt, invest in new initiatives, put aside money to prepare for future economic shocks and to start to provision for the impacts of the ageing population.

Now is the time to undertake a serious and rigorous independent audit of the scope and size of government so that a coherent strategy for the medium term can be informed by independent analysis of where expenditure is best focused to be sustainable, and to support growth.

The Budget has highlighted how proceeds from not implementing the previously announced cut in the company tax rate will be redeployed to fund loss carry back and an increase in family tax benefits and other income support. It is important to recognise that a reduction in the company tax rate will encourage investment and ultimately support a stronger, growing economy, and this is something that will be pursued through the Business Tax Working Group.

Comprehensive tax reform is essential if we are to strengthen the competitiveness of the Australian economy. Let’s not forget that this Budget will see the introduction of the mining tax and the carbon tax which will place at risk this competitiveness.

In terms of the savings measures, the deferral of the planned increase in foreign aid is a sensible measure at this time. We have called for foreign aid to be subjected to independent scrutiny to ensure aid objectives are met.

The reforms to a number of significant programs such as capping the extended Medicare Safety Net, changes to the Pharmaceutical Benefits Scheme and tightening eligibility for the Parenting Payment are worthwhile savings measures. However, more significant permanent spending reductions will be needed to put the Budget onto a more sustainable footing in the long term.

What remains important is that rather than ad hoc changes there is comprehensive reform of the welfare and social services system so that it is sustainable long term and can continue to provide appropriate levels of support to all those who need it most.

The Budget also contains a number of welcome measures to support the productive capacity of the economy, and this is the right direction to be heading in.

We endorse the continuing focus on skills and the protection of training initiatives in this Budget, including the additional funding for the up-skilling and re-skilling of Australian workers through the National Workforce Development Fund. The boost to skilled migrant numbers to 190,000 is also an important measure which will help address current skills shortages especially with the very large projects which are so important to Australia’s productivity.

The Budget also recognises the importance of continuing to invest in infrastructure and funding has now been provided to all of the projects assessed as ready to proceed in Infrastructure Australia’s priority list.

The growth outlook presented in the Budget with growth forecast at 3 to 3¼ per cent over the forward estimates is by no means assured. It is confident households and businesses that will drive this growth through spending and investment.

The test for the government will be its capacity to implement the measures in the Budget and turn its projected surplus into a reality.

The Budget is good in parts, but the hard yards lie ahead on the bigger task of marking out a coherent medium-term strategy that will lift our competitiveness and support investment certainty. This includes comprehensive tax reform, cutting red tape, boosting infrastructure and improving our labour market performance.