Industry groups have thrown their support behind the Federal Government’s renewed promise to return the budget to surplus, but have raised doubts over the measures it will use to achieve this.
The Government will rely on fresh spending cuts and tax increases, coupled with strong economic growth, to bring the budget back to surplus in 2012-13.
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Greg Evans, director of economics and industry policy at the Australian Chamber of Commerce and Industry, says the business community welcomes the Government’s plan.
“[The business community] supports the thrust of the savings measures announced today (link for other budget story) by Treasurer Wayne Swan,” Evans says.
“However, the $6.8 billion in expenditure cuts over the forward estimates period may still not be enough to return to sustained surplus.”
Evans says the spending cuts show we are “still playing catch-up” on fiscal policy, while Westpac economist Andrew Hanlan describes the fiscal package as a “careful balancing act”.
“Developments over the past 12 months have exposed the hazards of forecasting a wafer thin surplus in an uncertain economic environment,” Evans says.
“The marginal $3.5 billion, or 0.2% of GDP, surplus forecast for 2012‑13 was too fine to be resilient to even a slight deterioration in economic parameters.”
Evans says slower growth and a softening labour market highlight how exposed the Australian economy really is.
“Developments in Europe remain a concern for the health of the global economy and any serious downturn would justify a further reconsideration of fiscal policy settings,” he says.
“However, at the current juncture the outlook for the Australian economy remains favourable and the Government is correct to commit to a 2012-13 surplus objective.”
Myer chief executive Bernie Brooks says while he agrees the Government is right to target a surplus, it should remain focused on spending cuts rather than tax increases.
“The one thing we have over the Spanish and the Italians is we have strong employment. You don’t want to jeopardise that with more taxes,” Brookes told The Australian.
Meanwhile, the Australian Bankers’ Association is disappointed tax concessions on deposits have been deferred for a year, but will work with the government to implement a better scheme.
In the 2010 Federal Budget, the Government announced a 50% tax discount on interest earnings, commencing on July 1 this year, with a cap of $1,000.
The scheme was amended to start on July 1, 2012, with a $500 cap, moving to $1,000 on July 1, 2013. These measures have now been delayed for a further year.
“The year-long deferral gives the banking industry more time to work with the Federal Government to get a more effective scheme… in place,” ABA chief Steven Münchenberg says.
Meanwhile, small business lobbyist Peter Strong says the focus needs to shift from the European debt crisis to the local small business sector, calling on the Reserve Bank to cut interest rates.
“It is obviously important to consider what is happening in the rest of the world but what is happening in Australia must receive better attention,” Strong says.
“The RBA should, just once, take a new approach. Ignore Europe, ignore big business and concentrate solely on the needs of small business for one month – that’s all.”
“Cut the [interest] rate by 50 basis points. Then our economy will continue to be healthy.”