Executive Summary

The 2023-24 Budget should:

• Contribute to the macroeconomic challenge of returning annual inflation to the target band of 2 to 3 percent over the next couple of years while keeping the economy on a growth path; and
• Take substantial steps towards the widely shared ambitions of achieving a sustainable step-up in the pace of real wages growth; ensuring the availability of economic and social opportunities for a wider range of Australians; and forging a credible and low-cost path towards net zero emissions.

While the macroeconomic position is precariously poised and noting the Reserve Bank’s most recent guidance that it expects to raise the cash rate further, Ai Group’s current assessment is that Australia is very close to the point of macroeconomic adjustment where the economy will slow sufficiently to reduce inflation to target levels. In this assessment the Budget should avoid stimulating spending and prices and also avoid adding to contractionary pressures.

We acknowledge the considerable uncertainties and in particular the importance of avoiding a price-wage spiral fed by expectations of inflation continuing at 2022 levels in 2023 and 2024.

As we approach the May Budget this evaluation of the macroeconomic situation may change.

Regardless of the net position of the May Budget, Ai Group urges the Government to take steps towards meeting the widely shared objectives relating to sustainable wages growth, opportunity and emissions reduction. The constrained macroeconomic position will mean that steps involving spending in 2023-24 will require the reprioritization of existing commitments.

Taking meaningful steps towards these longer-term objectives requires ongoing expansions in Australia’s economic capacity. To lift capacity in 2023-24 and to underwrite future expansions in capacity, Ai Group proposes the 2023-24 Budget includes: an increase in the permanent migration target; investments in a variety of skills development initiatives; a commitment to greater accessibility and flexibility of early childhood education and care; investments in business capability development including in the defence industry.

he Budget also should firm up proposals to improve energy efficiency both for households and for non-residential energy users not covered by the Safeguard Mechanism.

We also propose the Government ensure that changes to Australia’s workplace relations arrangements are supported by sufficient funding of the Fair Work Commission, the Fair Work Ombudsman and registered organisations to ensure appropriate governance of, and compliance with, the changed arrangements.