Global Downturn a New Challenge for Our Federation

“The current economic downturn demands a coordinated response by all levels of government, federal, state and territory, if Australia is to avoid the worst aspects of the global recession,” said BCA President Greig Gailey.

Mr Gailey, launching the BCA Budget Submission 2009–10: Budgeting for Revival, said: “The global economic crisis is a defining moment for Australia’s federation.

“COAG has been reborn in 2008 under the leadership of the Rudd Government and the various levels of government have shown that they can work together effectively to address issues of national importance”, he said.

“At the first COAG meeting of 2009, we implore them to make it a priority to decide how their taxing and spending policies can work together to minimise the effect of the downturn. Government spending can limit the damage from the global economic downturn by boosting confidence and compensating for declining private sector spending and investment.

“The federal Budget needs to combine short-term stimulus measures with disciplined longer-term spending and taxing plans that continue to underpin future growth. But we must ensure all levels of government are pulling together for the national Budget to be effective.”

The submission says it is appropriate for the federal Budget to go into deficit in a way that maximises Australia’s future productive capacity.

It argues disciplined short-term investment in areas such as infrastructure and education is the most effective strategy to foster economic resilience.

Mr Gailey said: “More stimulus is warranted, but to be effective and not place a long-term burden on the economy it should be timely, targeted and temporary.

“Infrastructure spending can be significant in boosting the economy, but the reality is much of the national infrastructure that can be built now is in the hands of the states. It is important the states ensure they do not pull back on useful spending just to avoid running larger temporary deficits,” he said.

“The federal government recently issued a joint declaration with other G-20 nations to work together to restore global growth including taking immediate steps to use fiscal measures to stimulate domestic demands to rapid effect. A similar principle should apply with our federation. We should urgently pursue strong fiscal coordination between our two top tiers of government.”

The submission urges the government to impose spending discipline to partially offset new spending with the removal of ineffective or poorly targeted spending that does not meet economic or social objectives.

It calls on the government to commit to a regular five-yearly review of spending, and to set a plan to return the Budget to surplus during the recovery.

Mr Gailey said: “The BCA submission highlights that the global economic slowdown is the type of event that can define a nation’s future. The economic and fiscal challenges are potentially as difficult as any that have existed in the postwar era.”

“While we are worrying about this year’s problems, we should not forget about the Australia we want to have a decade from now. Government must at all times continue to invest in measures that boost the long-term productive capacity of the economy.

“A disciplined budget strategy that addresses the short and long-term needs of the economy will ensure we are better placed to weather the economic crisis and are positioned strongly for the inevitable return of growth,” he said.

BCA Budget Submission 2009–10: Budgeting for Revival