Ai Group warns against big cuts and tax hikes ahead of Federal budget

The Australian Industry Group has warned the Federal Government the Australian economy is unlikely to withstand “big aggregate spending cuts or tax increases” for the 2014/15 financial year.

In its submission to the government ahead of the May 13 budget announcement, the industry organisation said dramatic moves to get the budget back to deficit could provoke slower growth and lower revenue collections.

Ai Group chief executive Innes Willox says a weakening economy is “clearly not the time for deep program cuts”.

Willox told SmartCompany the “recommendations in our submission are not ambit claims, they are responsible claims”.

“We think the timing of budget consolidation should take into account the overall state of the economy, with growth slow and the labour market weak, it is not the time to hack into it. Some of the cuts could be better scheduled to bite later as the economy picks up strength.”

He thinks the key to the budget’s success will be how well it addresses the fiscal policy changes while lifting confidence across the economy. Willox says industry will be looking to the budget to encourage and facilitate large sectors of the community as they adapt to the winding down of the mining boom.

Proactive policies in the area of innovation, development of business capabilities and workforce development are all on the wish list. Implementing measures to lift productivity and competitiveness are also key requests.

“Done correctly, this will ultimately help the fiscal consolidation objective by growing the tax base and assisting the recovery in tax revenues,” Willox says.

The Ai Group put forward a number of specific suggestions to the government, including retaining the National Workforce Development Fund, or a similar enterprise based co-contribution fund to upskill existing workers.

In terms of innovation it suggested Strategic Growth Action Agendas aimed at lifting industry competiveness and capabilities be adequately funded, and financial support of the Cooperative Research Centres Program and Industry Innovation Precincts continue.

For the environment and energy sector, the AI Group wants the government to provide certainty to industry on funding for the Emissions Reduction Fund, while for infrastructure it is urging the government to consider the recommendations made by the Productivity Commission inquiry into the Public Infrastructure costs.

For defence, the AI Group wants the government to increase the budget to 2% of GDP, up from the current 70-year low of 1.59% of GDP.

Ai Group proposes an immigration increase for the year from 190,000 to 220,000 people, with more focus on lifting the proportion of the program devoted to skilled migration.

Willox said the Ai Group “will continue to advocate our position” in the lead up to the budget announcement.

“Our benchmark for success in relation to specific proposals will depend on the overall stance of the budget. If it is a heavy cutting budget, it may be how much we avoided extreme cuts to the productivity-improving measures we propose.”


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