Government needs to stop stimulus and get Federal Budget back in surplus: Business Council

The Government should quickly stop any stimulus spending and focus on returning the budget to surplus in the upcoming May budget, the Business Council of Australia has said in its official submission.

Other recommendations include shifting focus to spending cuts without higher taxes, and a call for evidence the Government is committed to a commercial approach to infrastructure development.

The BCA stated the Government should cut spending costs in order to ease pressure on interest rates, giving struggling businesses a chance to recover from the downturn.

It also stated in the submission the Government should put a stop to any new projects under its national-building and job-creation packages in order to reduce the size of the deficit.

“While most of the stimulus monies have been approved, it is understood that there is still funding to be approved under some programs,” it said. “Given the strength of the economy, and especially the labour market, it would now be prudent to cease any further appeals for spending.”

The submission also states the upcoming budget should focus on promoting activity in the private sector, and that any fiscal policy must support increased business investment.

“In this submission to the 2010–11 Budget, the BCA is calling for a shift in the emphasis of fiscal policy away from settings that support demand management to a renewed focus on expanding Australia’s productive capacity. This will entail a withdrawal of the stimulus, a return of the Budget to surplus and a strengthening of Australia’s long-term fiscal and economic growth prospects.”

“The economic outlook is significantly improved from this time a year ago. Australia posted positive growth through 2009, driven by a rebound in confidence, and indications are that the expansion will continue into 2010 and beyond. Strong business investment will be an important driver of growth.”

The BCA stated five major recommendations for the budget:

• Returning the budget to surplus through “expenditure control”.
• Clarification on the 2% cap on Government spending.
• New policy measures directed to curb growth in the Government’s largest spending programs.
• Commitment to reforming the budget by shifting to taxes which are “less volatiles and have less harmful effects on growth”.
• Evidence the Government remains committed to a commercially-viable approach to infrastructure development.

A large emphasis is placed in the submission on limiting Government spending and a call for clarification regarding how it plans to keep real spending growth at 2%.

“While the proposal to limit growth in government expenditures to 2% in real terms is welcome, to date few details have been provided on how this might be achieved in practice. Past experience demonstrates that a 2% expenditure target is difficult but doable – real expenditure growth was below 2% in only nine of the past 26 years when growth was above trend.”

The BCA also advocated moving towards a split public/private healthcare system, with a new strategy for the Government to promote private activity.

“In this context, funding in a mixed public and private system represents a key lever for shaping and directing the health system, and can provide powerful incentives for both providers and individual users. Without changing these incentive and reward structures there is little likelihood of effecting systematic change.”

Overall, the BCA said the current economic recovery will be driven by private business spending and the Government’s own spending plans should reflect this trend.

“The recovery in economic activity in the coming years is expected to be very much driven by a strong investment environment, with much of this investment occurring in response to emerging opportunities in the resources sector. Australia’s economy will need flexibility to accommodate the expected investment boom and to make sure we turn it to our advantage.”