Response to the 2013–14 Federal Budget

The federal budget gives us no reason to believe the government’s projected return to surplus in 2015–16 is any more deliverable than last year’s promise that we would be in surplus this year, Business Council of Australia Chief Executive Jennifer Westacott said.

“We are being asked to believe that muddling through with the budget approach that hasn’t worked so far is going to work now,” Ms Westacott said.

“The budget does not deliver on the government’s previous fiscal commitments and makes plain how much effort and leadership will be needed in future to get fiscal policy in Australia back on a sustainable footing.

“The budget hasn’t addressed the lack of confidence in the economy. The government talks about creating jobs but hasn’t addressed the fiscal fundamentals to ensure an environment that drives investment and supports competitive businesses.

“Far from delivering a budget surplus on average over the medium term, we now have in prospect an outcome of seven consecutive years of fiscal deficits – four in the past and three to come

“This leaves the country with little or no resilience to ongoing budget pressures and future economic shocks,” said Ms Westacott. “We should have been in better shape.

“Whichever government is in place after September is left with no excuses. They will have to properly restructure budget priorities through an independent review of the size, scope and efficiency of government, and address the failings of an uncompetitive tax system.

“The achievement of a small surplus in 2015–16 and beyond will be dependent on growth forecasts and revenue projections that may or may not materialise, and on the government’s success in containing spending.

“The projections for growth have real GDP growing at trend, with nominal GDP growing at 5 to 5¼ per cent. Nominal GDP is currently running at around 2 per cent and remains susceptible to further shifts in Australia’s terms of trade.

“The BCA has warned in the past of the high stakes for the budget if we rely too heavily on high commodity prices and the dangers of a revenue base that is volatile. The budget forward estimates remain vulnerable.

“Accordingly, there is an imperative for greater restraint on the spending side. This year’s budget is not underpinned by a significant number of structural expenditure savings. Some steps were taken to improve the sustainability of the health budget, but a far greater effort is needed.

“Of the aggregate $43 billion of claimed ‘savings’ over the forward estimates period, well over half are related to revenue (including tax increases) or represent timing deferrals or bring forwards. This approach hasn’t worked and didn’t deliver the previously promised expenditure restraint needed to substantially improve the budget position.

“Even now, the delivery of the two per cent real spending cap continues to vary significantly from year to year.

“What is needed is a concerted effort to fundamentally change the cost structure of government spending, by permanently changing programs or getting rid of expenditure items.

“Given the magnitude of what’s required, the way to progress this is through a comprehensive audit on the size, scope and efficiency of government.

“It means that any return to surplus down the track is far from assured. And the hard work required to set the foundation for growing and sustainable surpluses over the medium term has been left for future governments to deal with.

“We fully support the theme of the budget around growth and jobs, and remind government that these things are driven by a strong business sector.

“Businesses, large and small, need consistency, credibility and, as far as possible, predictability in the fiscal, regulatory and tax environment. It is only this approach that builds confidence among businesses to invest and hire.

“Unfortunately, the budget includes a number of changes to business tax arrangements previously rejected by the Business Tax Working Group. If you are going to make changes to the taxation system it needs to be done carefully and cautiously, and as part of a more comprehensive process to make the whole tax system more competitive.

“The business tax changes announced today represent another lost opportunity to do tax reform properly, which risks reducing our competitiveness and affecting business confidence.

“The changes to thin capitalisation rules run the risk of impacting on foreign investment, and potentially deterring companies from locating and investing in Australia. Piecemeal tax changes can add to perceptions of country risk when it comes to investing in Australia.

“We welcome the high-level 10-year forecasts for funding the Gonski reforms and the National Disability Insurance Scheme, which we have consistently called for, but it is difficult to assess the credibility of this without seeing the total budget effect of these forecasts on other areas of spending.

“The budget recognises the importance of continuing to build productive capacity with welcome measures around infrastructure and skills and training. In these areas the imperative lies in effective delivery on the ground if they are to produce the necessary productivity dividends.”

Ms Westacott welcomed the government’s announcement for innovative funding mechanisms to encourage private sector investment in infrastructure, but again it will be important that projects are subjected to the cost–benefit analysis that ensures they are attractive for private sector investment.

The Alternative Pathways to the Trades program should also help produce a more flexible and nimble system and address current rigidities in the training model for trades and technician occupation.

“While the Treasurer has delivered a busy budget, what is missing is the step change needed to produce a more convincing fiscal strategy and a credible path back to surplus. The budget remains exposed,” she said.

For further information contact:
Scott Thompson, Director, Media and Public Affairs
Business Council of Australia
Telephone (03) 8664 2664 | Mobile 0403 241 128