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Recovery requires balance, commitment & leadership

18 February, 2010

The 2010 federal Budget must set Australia's economy on course to continue its run of economic growth over the coming decade, BCA President Graham Bradley says.

"Australia's economy has performed better than most throughout the global downturn. We now need a road map to move Australia into an era of strong productivity and high-quality investment," Mr Bradley said.

Launching Balancing Act, the BCA 2010–11 Budget Submission, Mr Bradley said: "After a period of considerable and warranted policy stimulus, the federal government faces a difficult balancing act between returning the nation's finances to surplus and investing in future growth.

"The decisions taken in this Budget will influence the strength of the emerging recovery and the long-term sustainability of Australia’s fiscal position and economic prosperity," he said.

"Given the challenges outlined in the recent Intergenerational Report, we must make the best of this emerging recovery for future generations. Actions taken now to support long-term fiscal sustainability will make it easier to address the challenges of the future.

"The federal government has committed itself to fiscal discipline and a high-productivity future. The Budget must include a plan to reduce the level of government involvement in the economy. It must shift the focus of revenue and spending to support business growth, job creation and workforce participation."

The submission notes that previous budget deficits have proven difficult to overturn with the eventual return to surplus typically built on higher levels of taxation.

"The BCA endorses the government's strategy to return the Budget to surplus via expenditure constraint and savings rather than higher taxes. Now is the time for the government to show leadership and be resolute to set out the details that will make these commitments a reality," Mr Bradley said.

"The task is urgent. The lack of significant spare capacity in our economy and the rise in public debt point to the need to wind back government spending and increase the focus on getting better value for money in key programs such as health and infrastructure."

Balancing Act calls for the Budget to include a road map to address five priorities for the recovery and beyond:

  • A convincing plan to return the Budget to surplus by controlling spending, not raising taxes.
  • Demonstrate how the government will implement its 2 per cent cap on real growth in spending.
  • Contain growth in the government's largest spending programs, to ensure their long-term sustainability.
  • Commit to a focus on taxes that are less volatile and have less harmful effects on growth.
  • Recommit to commercially sound, long-term infrastructure development, with costs and benefits rigorously assessed and projects funded more transparently.

Mr Bradley said the submission highlighted the importance, as the economy recovers, of returning the Budget to surplus as quickly as possible.

"Getting back to surplus will reinforce rising levels of confidence in the economy, avoid the crowding out of private investment and help pay off our net debt faster," Mr Bradley said.

"This, in turn, will take the pressure of interest rates and set us on a path to better manage our long-term fiscal and economic challenges."

To meet its expenditure commitments, the government should consider ways to tighten eligibility and apply means testing to some of its larger payment items and subject unspent stimulus funding to a re-assessment against other fiscal priorities and Australia's future needs.

The submission also highlights that good budget management must complement other measures to ensure Australia's social and economic prosperity, particularly given the long-term challenges outlined in the third Intergenerational Report.

"The Budget must be used to support broader reforms to taxation, regulation, infrastructure, health, education and skills, such as the delivery through COAG of the seamless national economy agenda," Mr Bradley said.

"This is a difficult balancing act, and one that governments must remain focused on if we are to create new and better opportunities for growth and a higher quality of life for all Australians."

Source: Business Council of Australia

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