BCA warns of $49 billion budget shortfall

The Business Council of Australia has warned the federal government has lost control of spending, citing new spending programs since the financial crisis which have resulted in a $49 billion impact on the budget over forward estimates.

The BCA in its pre-budget submission is calling for the government to include a “clear and sensible path” back to a budget surplus within three years, starting with an independent review of the size and scope of government and its approach to spending, not ad hoc new taxes.

The council believes a surplus next year is unlikely because the kind of structural savings required cannot be made quickly.

In the submission, the BCA uses modelling by Deloitte to support its claims that government has spent more than it should in recent years and that spending has not been fully offset by real savings because it has relied on revenue growth which hasn’t eventuated, like the mining tax.

It calculates more than half the $28 billion in savings claimed in last year’s mid-year economic statement were just ”timing shifts” of revenue brought forward or spending deferred.

BCA chief executive Jennifer Westacott saysthe government’s implementation of its fiscal strategy is just not working and it is on a spending trajectory it can’t afford.

“We need a sensible pathway back to surplus and a tougher set of fiscal rules to return to spending and do things to improve productivity by reducing regulations,” she says.

“We need to improve the planning and prioritisation of infrastructure… you have to improve the capacity to deliver infrastructure on the ground so we can streamline environmental planning approval and remove the double handling between the Commonwealth and the state.”

The BCA wants a ”hard cap” on growth in spending of 23.7% of GDP or below and for the government to set aside money for future stimulus as well as undertaking a comprehensive review of the tax system.

“We say don’t tinker anymore with the tax system. I sat on the Business Tax Working Group, we found all the low lying fruit in business tax arrangements had been taken,” says Westacott.

“You need to decrease the reliance on direct taxation like business and personal, which can be very volatile, and increase indirect taxation.”

The BCA wants the government to remove payroll tax and cut the company tax rate, moves it says would benefit both big business and small to medium enterprises.

This piece first appeared on LeadingCompany’s sister site, SmartCompany.