Deficit-Watch Must Become A 365-Day-A-Year Challenge

The 2009 federal Budget takes important steps toward repositioning Australia for strong and sustainable growth, BCA Chief Executive Katie Lahey says.

Ms Lahey said the government must now back this up with aggressive reforms of the broader economy and a succession of tough budgets over the years ahead.

“Tonight’s Budget confirms Australia’s taxing and spending have been out of balance for some time. We became far too reliant on corporate taxes, and far too relaxed about new spending,” she said.

“Past budgets have taken economic growth for granted. We can no longer afford that luxury.

“The Budget does not return to surplus until 2015–16. If anything, the risk is that the recovery may be weaker or later than currently forecast, which could prolong the deficit.”

“We need sustained fiscal discipline 365 days of the year, every year until we are back in the black – not just in the weeks leading up to the second Tuesday in May.

“From now on we need to justify every dollar we spend – because we have to borrow every new dollar. We must be on permanent deficit-watch.”

The Budget boosts economic activity in the short term, while in the longer term tightening recurrent spending in key areas such as health and welfare. The BCA supports this approach.

The BCA also welcomes the focus on education and training, which is relevant to employers’ future needs, and on infrastructure investment. These measures can be expected to foster economic resilience and build long-term growth and prosperity. However, it is disappointing that the government has not been able to provide greater certainty about the benefits of the projects by releasing Infrastructure Australia’s final report and recommendations.

“The Budget contains important initiatives to take Australia towards a low-emissions economy. If Australia is to reduce emissions, these measures will be needed to complement any emissions trading scheme,” Ms Lahey said.

“Importantly, this Budget refocuses spending away from one-off payments and towards productivity-boosting initiatives,” she said. “The change in focus is well timed. We need that change in focus if we’re to have a prosperous, high-employment Australia over the next decade and beyond.

“Reductions in benefits and concessions will not be universally popular, but these are the types of difficult decisions that government must now make. We must limit the size and burden of future deficits and rebuild the long-run integrity of the Budget.

“The rise in the pension age sends a clear signal that the government has its eye on the long term. If we are to rein in spending and meet the challenge of population ageing, these are the decisions we must make.

“Just as a strong fiscal position can now not be taken for granted, neither can a return to strong growth in the future.

“Striking the right balance in fiscal policy is a start, but this must be complemented by the determined implementation of a broader reform agenda. Our challenge now is to secure stronger economic growth even while we are reducing our debt,” she said.

Many ‘non-budget’ reforms – such as harmonising state regulations to create a ‘seamless economy’, and creating national infrastructure markets – aid budgetary recovery by boosting long-term growth. Reforms to taxation in response to the Henry tax review will also be vital to higher growth.

The BCA again calls on state governments to do all that they can to support and enable the efforts of the federal government through coordinated fiscal strategies and broader reform efforts.

Australia’s underlying economy and its government finances are comparatively strong. However, Ms Lahey said: “Our financial and economic position is no guarantee that lenders will go on trusting us in today’s nervous global capital market.”

“The BCA welcomes the effort to increase budget transparency. In particular, the estimates of the structural budget balance included in the Budget make the state of the nation’s finances clearer to Australians and show the size of the task ahead. This is an important step towards greater budget discipline.

“The next step in budget discipline is for the federal government to commit to a regular five-yearly review of spending.

“Real government spending has grown substantially over the past decade; a five-yearly review will help ensure that spending and taxing measures contribute to economic, social or environmental outcomes.

“The government also needs to remain committed to having Infrastructure Australia audit the likely benefits of major infrastructure projects. Rigorous cost–benefit analysis needs to be an inbuilt part of all spending decisions,” she said.

The Budget needs to give Australians the best possible picture of the true benefits of spending on particular programs and projects.

“While it is fair to say this year’s Budget has presented very significant challenges, I suspect next year’s election budget decisions will be harder still if fiscal discipline is to be sustained,” Ms Lahey said.