Mid-Year Economic and Fiscal Outlook Reinforces Need for a Medium-Term Fiscal Strategy

Today’s Mid-Year Economic and Fiscal Outlook has been brought down amid significant economic uncertainty, reinforcing the need for the government to outline a coherent medium-term fiscal strategy by next year’s Budget.

“The government has projected an economy growing at a healthy trend rate despite difficult global conditions and is highlighting strong fiscal credentials it believes will underpin confidence in Australia’s public finances,” Business Council of Australia Chief Executive Jennifer Westacott said.

“But with lower commodity prices and an uneven domestic economy that has many companies facing huge competitiveness pressures, more needs to be done to explain how the measures outlined today and the MYEFO more generally are part of an overall coherent fiscal strategy.

“The MYEFO relies on a number of special dividends, accounting treatments and timing adjustments but major structural changes to big programs that are needed to do the heavy lifting going forward, and form the basis of a robust medium-term strategy, are still missing.

“The Business Council continues to call for an audit on the scope and size of government to provide a proper assessment of where structural changes can be made to put the nation’s fiscal policy on a more sustainable footing, and this is as important as ever following MYEFO.

“The risk with today’s outlook is that economic growth will be weaker than Treasury has projected. The MYEFO itself shows that an additional four per cent fall in the terms of trade would wipe off almost $3 billion from the budget bottom line in 2012–13 alone.

“The government’s decision not to pursue business tax concessions identified in the Business Tax Working Group process at this stage is welcome, given concerns that they either could not be accurately costed or posed considerable risk to companies in important sectors.

“While we will consult with member companies to assess the full impact of the changes to the timing of company tax payment arrangements, there are concerns this measure will impose an additional compliance burden and have implications for business cash flow and liquidity.
“The Treasurer has acknowledged the potential for this change to disrupt business, so it is vital the government embarks on a genuine consultation process before the implementation of this measure.

“Given the current circumstances there is no need to get caught up in the delivery of a surplus in 2012–13 at all costs.

“While achieving a surplus is a worthy goal, it must be a surplus that reflects a continuing strong focus on growth and competitiveness and be based on a credible, medium-term strategy that deals with the important structural issues that need to be confronted.

“It would be disappointing to see a surplus delivered this year but without the clear pathway to a convincing and credible budget policy over the medium term.

“A coherent and strategic approach to fiscal policy, not just year-by-year management of the accounts, is what the community expects in uncertain times to instil greater confidence that Australia can maintain a strong economy over the longer term.

“There is still a way to go in getting to this point and the opportunity needs to be taken in next year’s Budget,” Ms Westacott said.