"The Budget is being put together in the most difficult economic circumstances for at least a decade, with accumulating global uncertainties and an inflationary domestic economy in which strong demand is being fuelled by record commodity prices combined with a lack of domestic productive capacity.
"These tough economic conditions put pressure on this Budget to really deliver policy coherence and direction.
"Accordingly, the Ai Group Pre Budget submission released recently in Canberra has proposed a Federal Budget that:
- Builds domestic productive capacity and supports the competitiveness and globalisation of industry;
- Encourages and facilitates adjustment to the carbon constrained economy;
- Boosts future retirement incomes of low-income earners; and
- Ensures domestic inflationary pressures are contained.
"Among the key initiatives proposed by Ai Group, which represents a broad spectrum of industry in manufacturing, construction, logistics, health, ICT, labour hire and other business services, are proposals to:
- Deliver promised personal income tax cuts in full;
- Kick-start business efforts to adjust to the impacts of climate change policies, including through a phased reduction in the company tax rate to 25%;
- Increase the adequacy of superannuation for low-income earners in part by refunding into the superannuation accounts of low-income people an equivalent of the 15% tax on compulsory employer contributions; and
- Make broad cuts in government expenditure while maintaining programs needed to expand capacity and competitiveness. Ai Group proposes a two-pronged approach - there should be a generalised reduction in expenditure based on concerted improvements in productivity across all portfolios and agencies and there should be a selective identification of unnecessary spending commitments.
"The income tax cuts will assist in expanding capacity by stimulating workforce participation and they will help in containing wage pressures. Nevertheless they need to be accompanied by substantial cuts in expenditure.
"Considering the steady increases in expenditure in real terms in recent years, there is plenty of scope to achieve these reductions. Further, there is considerable political support for expenditure cuts making now the ideal time for the government to make inroads into the growth of government outlays.
"Ai Group believes the Budget should also be used to kick-start the process of preparing the economy for the adjustments required as we respond to climate change.
"Australian business wants to be part of a global solution to the threats posed by climate change and supports progress on giving shape to a domestic Emissions Trading Scheme. However, the Scheme will leave many businesses and their employees in trade-exposed industries operating at a disadvantage relative to competitors abroad and it will require a massive investment effort by the business community as products and processes are re-evaluated and re-engineered.
"Accordingly, we propose:
- A phased reduction in the company tax rate to 25% by 2010, the year in which the Emissions Trading Scheme comes into operation;
- Active programs to inform business and households of energy saving and emission reduction opportunities; and
- Measures to expand the capacity of environmental advisory networks. This is necessary to ensure that the anticipated sharp increase in demand for these services can be met.
"Recent Ai Group research has highlighted the profound importance of taking action now to boost our economic capacity. Our recently released report How Fast Can Australia Grow? Mark III estimated that we are on track for a decade of sub-3% pa growth in GDP. Ai Group's leading Budget priorities in addressing this capacity gap involve:
- Raising and refocusing investment in education and training;
- Delivering on announced investments in infrastructure - particularly in transport and telecommunications;
- Introducing promised personal income tax cuts in full to stimulate workforce participation;
- Boosting Australia's business capabilities and its innovation performance;
- Improving export facilitation programs; and
- At least maintaining current levels of net migration while removing unnecessary barriers to temporary migration.
"Budgetary initiatives should be complemented by a range of capacity-expanding non-Budgetary policies and through carefully targeted reductions in overall expenditure. A leading priority is to accelerate regulatory reform both at the level of the Commonwealth itself and by the states and territories. Managing risks by keeping critical areas such as wages and industrial disputation in check is also essential," Ridout said.
