Federal Budget needs to balance current priorities with building for the future

"In its Budget next week, the Federal Government faces the formidable challenge of striking a fine balance between securing a return to low inflation without an excessive slowdown in activity while making material contributions to the development of a stronger and more sustainable growth path,” Innes Willox, Chief Executive of the national employer association, Ai Group, said today.

"The immediate tasks are to manage inflation while securing a soft landing for the labour market and the broader economy and supporting the most vulnerable households in the face of cost-of-living pressures and businesses most at risk from energy price rises.

"The Government also needs to make progress towards the national objectives of a step-up in productivity growth, a smooth transition to net zero emissions and addressing longer-term budgetary vulnerabilities.

"While achieving this balance is a formidable challenge, the sizable revenue windfall generated by higher commodity prices and stronger-than-forecast growth in nominal incomes presents the Government with the opportunity to get the balance right while achieving a major improvement in the outlook for government debt and interest repayments.

"To make the most of this opportunity, the revenue windfall needs to be supported with decisive action on the spending front with greater discipline and more rigorous prioritisation in program budgets.

"With the economy already slowing significantly ahead of this week's announcement of a further increase in the cash rate, and with the full impact of earlier interest rate rises still to flow through to household and business spending, the macroeconomic outlook is finely poised.

"In Ai Group's assessment, we now face roughly equal risks of undershooting and overshooting the sought-after soft landing. Against this background, the Budget should aim to have a broadly neutral impact on the level of economic activity.

"This broadly neutral impact can be achieved while meeting the Government's existing spending commitments, including funding increased wages in the care sector, providing modest and tightly targeted measures to assist the most vulnerable households and businesses and investing in programs that support faster productivity growth and the transition to net zero emissions.

"Offsetting the stimulatory impacts of these measures in 2023-24 can be achieved through the combination of near-term savings measures and the slowing impacts of the removal of the Low and Middle Income Tax Offset and the higher average tax rates delivered by fiscal drag.

"Ai Group has proposed a number of measures aimed at boosting productivity growth and supporting the transition to net zero emissions. These include:

• implementing measures in the critical training and education area aimed at reinvigorating and expanding the apprenticeship system and work-integrated-learning more broadly, supporting the development of foundation skills in workplaces and expanding reskilling and upskilling opportunities;
• expanding a broader range of options for affordable early childhood education and care that better blend with flexible working and shift arrangements;
• supporting the development of Australia's business capabilities, particularly among small and medium-sized businesses, including by supporting participation in the opportunities offered by government programs in export market development, the clean energy transition, industrial upgrading, digitisation and skills development;
• promoting the acceleration of energy efficiency take-up by households and small and medium-sized businesses;
• supporting effective governance and compliance with changed workplace relations arrangements; and
• lifting the permanent migration target with an increased focus on skilled migrants."  

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