AIG pre-budget submission: ambitions for Aust prosperity

Australian Industry Group Chief Executive Heather Ridout said business was looking to this year's budget for policy initiatives to underpin ambitious short and medium term goals for Australia.

"Australia is facing some big issues and threats to our future prosperity.

"Productivity has slowed significantly; demographic pressures demand improvement to participation rates; we are underperforming in Research and Development; and manufacturing faces relentless competition from China and other emerging economies in both our export and domestic markets which is demanding extensive restructuring in industry and putting at risk investment and jobs in the industry; and all the time, climate change has emerged as a major shaper of the environment for business and has created new uncertainties.

"These pressures are mounting at a time when our infrastructure is proving inadequate in getting our goods to market," Ridout said.

"These issues have to be dealt with through the budget process which should aim to raise the growth potential of the economy.  This task is beyond one budget. However, the 2007 Budget should align Australia's resources with these short and medium term goals in the same way that business develops and seeks to implement its strategies.

"In terms of manufacturing, no one should underestimate the pressure on the sector and the industry has high expectations for the Government's foreshadowed Industry Statement. It is essential that the Statement be central to a major effort to help lift manufacturing competitiveness and provide a real boost to this sector," Ridout said.

"Core among the Budget measures proposed by Ai Group are:

- Personal tax reforms to improve saving and workforce participation.  Ai Group proposes at a minimum the Government should reduce the rate of tax on incomes between $25,000 and $30,000 to 15%. Subject to close assessment of the risks of adding to inflationary and interest rate pressures, additional changes could be made to reduce the rate of tax on incomes between $75,000 and $100,000 to 30% (from the present level of 40%) and cutting the top rate to 40%.

- Business tax changes which stimulate investment and improve business performance. Ai Group proposes a phased reduction in the rate of company tax to 25% to be completed by the 2011-12 year.

- Further superannuation reforms that will improve the capacity of individuals to provide for their own retirement. Ai Group proposes changes to superannuation involving reducing the contributions tax for low income earners and middle income people aged over 50 and increasing the amounts available under the Superannuation Co-Contribution Scheme. These measures would complement the changes to the taxation of superannuation announced by the Government in the 2006-07 Budget.

- Targeted investment to further boost workforce skills which remains one of the biggest issues facing business.  This requires attention throughout the education system including both Higher Education and the VET system.  Ai Group's specific proposals build on the recent $837 million Skills for the Future program (see details below).

- Initiatives to accelerate the development of business capabilities amongst Australian industry to achieve global fitness. Ai Group's Business Capability Initiative is a proposal to establish a new industry advisory service. The program will link businesses with outside advice and government programs (both Commonwealth and State) to address identified business growth strategies.

- More effective innovation incentives to encourage business to invest more in innovation which is regarded as one of the main drivers of economic growth.  Ai Group proposes the introduction of a Step-Up Supplement to the 125% R&D Tax Concession that provides an incremental improvement to the concession according to the change in the level of R&D spending by companies. Remove the effectiveness of the R&D Tax Concession by allowing companies to credit their franking accounts by the amount of company tax saved as a result of the R&D tax concession.

- Measures to lift our export performance. Ai Group proposes that funding for the Export Market Development Grants (EMDG) Scheme should be increased to $300 million, and that steps be taken to substantially widen its eligibility criteria in order to improve access to the Scheme for both potential and existing exporters.

- Australia's approach to infrastructure should be improved by establishing a forward-looking and transparent approach to infrastructure planning through better inter-governmental planning and co-ordination. To ensure the most efficient use of funds, the planning process should articulate clear criteria for the selection and prioritisation of competing projects and aligned to the needs of business and the community.