There is a real opportunity and challenge for the new federal government to undertake major fiscal reforms in the 2008–09 federal Budget to pave the way for greater future prosperity, Business Council of Australia President, Greig Gailey, said.
Launching the BCA’s 2008–09 Budget Submission, Mr Gailey said the government should freeze real spending for the next three years in a move that would deliver cumulative savings of $32 billion and provide the strongest signal yet that it was committed to new levels of fiscal performance and accountability.
He said the real spending freeze would still allow nominal spending to grow in line with inflation, and could be achieved while also allowing for a redirection of spending to better invest in areas such as education.
BCA–Access Economics analysis in the BCA’s submission, Budgeting for Prosperity, shows that there is a major disconnect between recent federal budgets and the needs of the economy.
“Strong economic growth and the commodities boom have produced a revenue windfall for the federal government in recent years, which has undermined fiscal discipline,” Mr Gailey said.
“Spending and tax cuts delivered on the back of the revenue surge have largely contributed to consumption rather than investing in future growth, and leave the Budget exposed to any downturn in revenues,” he said.
Analysis provided for the BCA by Access Economics shows that since 2002 the federal government has received $87 billion in unexpected revenue, of which it has spent $45 billion on tax cuts and $40 billion on additional spending measures.
Real federal spending per person has grown at over 3.5 per cent per year since 1997–98 – more than twice the rate recorded in the previous two decades.
“With unemployment at record lows and the economy operating at full stretch, the federal government must consider how its actions increase capacity rather than simply adding to the call on scarce resources,” Mr Gailey said.
“We welcome the new federal government’s indication that it intends to rein in spending and address serious regulatory barriers facing business, particularly as they relate to infrastructure investment, but they must follow through.
“Going forward, greater attention should be paid to the quality of government spending and policies and the extent to which they improve economic and social outcomes now and into the future. This includes focusing on better coordination and planning of spending priorities across state and federal governments.
“Strong fiscal discipline is needed now, given the outlook for inflation, while building Australia’s capacity to sustain growth and prosperity in the future requires broader long-term reforms and a refocusing of fiscal priorities and strategies.
“The BCA is therefore calling on the federal government to significantly cut spending and to improve fiscal processes and accountability,” he said.
The BCA’s submission recommends a five-point plan to achieve these goals, including:
- Setting a target of zero, year-on-year, growth in real expenditure for the next three years.
- Subjecting budget allocations in areas where spending is growing or projected to grow, such as defence, health, social security and welfare, to immediate review.
- Reviewing all budget expenditure and revenue policies every five years using a framework similar to that of the 1996 National Commission of Audit.
- Adopting a ‘Charter of Budget Quality’ that includes a rigorous process of cost–benefit analysis for all new programs.
- Elevating reform of federal–state fiscal relations as a priority for the federal government’s ‘new federalism’ reform agenda and meetings of the Council of Australian Governments (COAG) in 2008.
“While spending growth in some areas has grown seemingly unchecked, spending on education, a key investment to relieve capacity constraints and increase productivity, has been modest,” Mr Gailey said.
“The new government, early in its first term and preparing its first budget, may never have a better opportunity to tackle Australia’s two key fiscal challenges – reining in spending in the short term and lifting fiscal performance over the long term.
“To a large extent the government’s first federal budget will create the foundations for its broader reform agenda, and decisive action should be taken,” he said.
Budgeting for Prosperity is the BCA’s submission to the 2008–09 federal Budget and includes four research papers by Access Economics incorporated as appendixes 1 to 4. All five papers comprising the Budgeting for Prosperity submission can be downloaded via the links provided below.