Federal budget seeks to build resilience from reform

This year's Federal Budget makes real reform progress, even as the global economy throws curveballs daily, the Committee for Economic Development of Australia (CEDA) says.

The budget delivers modest savings, with decisions to provide near-term support for households and businesses partially offsetting higher revenue from commodity prices, inflation and a still strong labour market. 

Against a backdrop of persistent cost-of-living pressures, global uncertainty and growing demands on government spending, the budget includes important measures to address housing supply, productivity growth, tax reform, cost of living and intergenerational fairness. These are welcome steps towards a stronger, more resilient economy and social compact, but will require more targeted and stronger attention into the future.

"This was a genuinely difficult budget to calibrate, and it contains many moving parts," CEDA CEO Melinda Cilento said. 

"While higher commodity prices have boosted national income, the cost of living is biting, inflation remains too high and the global outlook remains highly uncertain. A government willing to spend political capital on productivity, housing, tax reform and intergenerational fairness deserves credit." 

Reform 

The strong focus in this budget on addressing the growing regulatory burden and improving the environment for business investment and innovation is very welcome. 

“Investment has been too low for too long, and recent CEDA research shows the rate of business start-ups is at record lows in Australia. Turning these trends around is critical to maintaining a strong economy and fiscal position in the future,” Ms. Cilento said.

“While we welcome action to accelerate recognition of skills and more unified occupational licensing, many of these measures have been long called for and there remains plenty of unfinished business. We look forward to further government action to reduce the burden and lift the effectiveness of regulation.”

CEDA supports the changes to reduce the capital gains tax discount and negative gearing to favour the supply of new housing. Put simply, previous arrangements have disproportionately benefitted wealthier Australians. Changes that see a 30 per cent minimum tax on discretionary trusts are also welcome. The exceptions for fixed trusts and rollover relief are sensible measures for businesses that have made genuine use of these instruments for asset protection and succession planning. 

Given the complexity that sits within these reforms, effective implementation and ongoing monitoring of their impact will be critical. 

Housing

Housing construction remains a persistent structural challenge facing our economy and has undermined both productivity growth and Australia’s social compact. 

“The measures aimed at boosting housing supply in this year’s budget are a positive step,” Ms Cilento said. 

“Enabling the adoption of AI and new construction methods can help deliver the houses we so badly need now.”

“We were pleased to see that the $2 billion Local Infrastructure Fund is tied to enhancements to construction productivity, which CEDA research has shown to be a key barrier to housing supply in recent decades.”

Noting that support for enabling infrastructure will help expand greenfield supply, the Government can and should support the states and territories to also enable the creation of housing closer to jobs including through enabling densification.

Migration

CEDA supports the Government’s move to reform the permanent migration points test. 

“Migrants make enormous economic contributions to Australia, bringing new ideas and helping to meet skills gaps,” Ms Cilento said.

A points test that better selects migrants with strong economic potential and language skills is long overdue. CEDA’s research highlights how the current system is underutilising migrants, with around $4 billion in economic value lost each year.

"We also strongly welcome faster recognition of overseas qualifications. This has been a considerable pain point for businesses and has meant jobs have remained vacant longer than they needed to." Ms Cilento said. 

Economic Resilience

The Budget contains a substantial package to strengthen Australia's fuel security, and in a more uncertain world, this is an understandable investment in our economic security.

"A 50-day strategic reserve of diesel and jet fuel is a reasonable compromise that reflects the nation’s import-dependency without committing the vast resources needed for a full 90-day reserve.”  Ms Cilento said.

“Longer term, the greatest insurance policy against future fuel shocks will be to continue to reduce the fossil fuel intensity of our economy.” 

Cost of Living

This year’s Budget responds to resurgent cost of living pressures by halving the fuel excise, waiving the heavy vehicle road user charge and a new $250 tax refund for working Australians. 

With both Victoria and Western Australia providing cost of living support, additional funding from the federal government is likely to add to demand at a time when the RBA is raising rates to slow it. 

“We would much rather see support channelled to the households who need it most. This would reduce hardship and reduce the risk of stoking inflation.”  Ms Cilento said.

We acknowledge efforts to better target budget measures, however, strengthening Australia’s social compact requires support better targeted to those most in need. 

New payments to some Youth Allowance and ABSTUDY recipients to support access to community housing will help address high rates of homelessness for these groups.

However, it is disappointing that even as the Economic Inclusion Advisory Committee reported increasing entrenched disadvantage, the budget has failed to provide more meaningful income and broader support to the worst off in Australia, including those on Jobseeker.  

Over the outyears, significant reductions in NDIS spending are forecast to offset increased spending on defence, aged and health care. With spending projected to remain between 27 and 26 per cent of GDP over the forward estimates, ensuring that the NDIS savings are delivered and that tight spending controls are maintained will be critical to sustaining fiscal discipline.   

“Today’s Budget makes an important downpayment towards a stronger, more resilient economy, taking a step towards returning Australia’s finances to a more sustainable position. Our hope is that it will spark greater business dynamism and greater ambition for further reform.”

CEDA Chief Executive Melinda Cilento and Head of Economics Liam Dillon are available for further comment and interviews.

Media contact:
Joanne Lilley, Director Programming and Marketing
Mobile: 0436 379 688 | Email: joanne.lilley@ceda.com.au