This opinion article by Chief Executive Jennifer Westacott was published in The Australian on Tuesday 20 December 2016.
As if our politicians needed another reality check, the message from the mid-year economic and fiscal outlook was unequivocal: the nation simply cannot spend what it can’t afford.
What more proof is needed before the penny finally drops? National GDP recently went backwards, new business investment is falling at a rate last seen in the 1990s recession, nominal wages growth is at an 18-year low and global interest rates are starting to edge up.
Australia’s coveted AAA credit rating is on a knife’s edge and the parliament, through its continued obstruction, seems intent on tipping it over.
The choice facing our political leaders and representatives couldn’t be clearer. We can sleepwalk into lower living standards or we can seize the opportunity to deliver a stronger budget and economy that will underpin higher living standards.
The government’s current plan is a good start and should be supported. However, political leaders must also recommit to meeting the twin budget objectives of accelerating economic growth and bringing spending to a sustainable level.
Even if the budget returns to surplus in 2020-21 as forecast, this would mean 12 years of deficits. It took the country just as long to get firmly into surplus in the 1980s. Achieving even a small surplus will be highly dependent on achieving 30 consecutive years of strong economic growth, considerable further spending restraint, and passing all of the government’s existing budget measures.
Without a changed mindset, the odds of winning this trifecta are a long shot. What’s more, it will take sustained surpluses to pay down the nation’s debt.
The simple fact is that we are running out of headroom and we need to do everything possible to support economic growth and repair the budget.
Politicians must move on from the phony, dead-end argument that supporting growth comes at the cost of fairness. Growth and fairness go hand-in-hand because growth creates economic opportunity. Only economic growth can sustainably provide better jobs, higher wages and the revenue to pay for the health, education and welfare services Australians value.
It is economic growth that undergirds our capacity as a nation to care for all of our citizens, no matter their circumstances. We can no longer afford to ignore or be complacent about this reality.
Government revenues are expected to be $30 billion lower over the forward estimates than was forecast in May. Some would argue that the solution is to tax our way to surplus, but this would only make matters worse. You can’t tax your way to balance or prosperity. If anything, these figures show we need to redouble our efforts through policies to support economic growth, wages and investment.
A more competitive tax mix to support investment and shore up a sustainable revenue base is crucial. We cannot afford to ignore the signals being sounded across the world that we are entering a new phase of intensified competition for capital. President-elect Donald Trump has committed to slashing America’s company tax rate.
Some perspective also helps. Despite the revenue writedowns, tax receipts are expected to reach 23.2 per cent of GDP in 2019-20 — well above the 30-year average.
We must also look at the other side of the ledger.
Rampant growth in government spending has been the main driver of the deficit and will continue to be so beyond 2020-21. During that period, real spending growth is projected to increase at an average of 3 per cent annually compared with 1.9 per cent a year across the forward estimates.
The equation is relatively simple: spending restraint is needed as well as additional savings measures. This means continuing to redesign major spending programs to cut waste and deliver better value for taxpayer dollars, while better equipping the economy to support jobs and prosperity.
Doing this will support the budget, boost economic growth and bolster an all-out effort to keep the AAA credit rating.
The task won’t be easy; there is still a great deal of work to be done to put our finances on to a sustainable footing. The government has put forward a sensible framework for economic growth. It must continue with the support of parliament.