Time to Budget for the Future: Article by Jennifer Westacott in the AFR

06 March 2013

This opinion article by BCA Chief Executive Jennifer Westacott was published in The Australian Financial Review on 6 March 2013 under the title ‘Time to Budget for the Future’.

All government budgets are important, but there is much more than usual at stake for all Australians in this election-year budget.

This is because promises made now will determine the choices we have in the next three to five years. Ultimately, whatever is promised must be affordable and consistent with the medium-term fiscal strategy.

In our submission to the federal budget, we highlight that the execution of the government’s fiscal strategy is simply not working, and this should be of concern to all Australians.

Three years into recovery after the global financial crisis, more should have been done to repair Australia’s budget position.

Good fiscal discipline by successive governments has contributed to our high living standards but that discipline is now slipping.

As a result, the size of the challenge to get the budget back under control is now much larger than it might have been, and this will make it harder to meet future challenges, give the community the services and infrastructure they need, and maintain our living standards without politically difficult decisions.

Let’s have a look at the size of the challenge. The government has run fiscal deficits totalling 12 per cent of gross domestic product in aggregate over the past four years. For the government to achieve its own goal of surpluses on average over the medium term it would have to change tack and progress toward consistent and growing budget surpluses out to 2016–17 and beyond. How much this challenge adds up to in monetary terms depends on the position of the budget over the next four years, but you can assume it is a turnaround of many billions of dollars.

The bottom line here is the government is spending more than it is making. Our research shows the government has accumulated $49 billion in new spending measures, much of which was supposed to be funded by new tax measures. But with those revenue projections falling short, this new spending will only worsen the budget bottom line. On top of that the government has signed up to important but expensive promises such as the National Disability Insurance Scheme and Gonski reforms, which could cost up to $17 billion a year once they’re up and running. On top of that there is the need to fund huge infrastructure needs and the expected costs of an ageing and growing population.

The problem is that there is no room to move in the federal budget, and certainly no spare capacity to pay for the daunting costs that lie ahead without urgent attention now. Spending has mounted up while revenues have been weak, and savings have been not genuine or insufficient to cover the bill.

What is certain is that the government can’t keep jumping to plug budget holes with ad hoc new taxes and charges, removing concessions and tinkering around with the settings in long-term programs such as superannuation without seriously risking confidence and economic growth.
What’s clear is that muddling through will not repair the budget position and will leave bigger problems for future governments and future generations. With revenues likely to remain volatile, the government needs to fundamentally change its approach to spending, and only an independent review of the size, scope and efficiency of the government will do the job.

It is 16 years since the last major review of Commonwealth government spending. It is time for a new independent review so the community can have the confidence that we can afford to pay for the things that are important and that spending is supporting growth, not being just another drag on the budget.

Three additional actions will be important: a return to fiscal discipline underpinned by a commitment to rules determining how future surpluses will be built; a new focus on getting infrastructure investment moving; and drawing up a blueprint for comprehensive, not ad hoc, tax reform over the next decade.

These are challenges we all face. In an election year, all parties must be conscious of the huge fiscal challenge and not make promises we can’t afford and which will only require harder decisions in the future about priorities.

In this election year, there is no alternative but for this budget to be a budget for the next decade and beyond, not just a budget designed to win the next election.



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