"It also provides room for modest and targeted tax relief for low and middle-income households and some further smart investments in the drivers of growth such as education and training, business capability development and innovation. The need for further education and training expenditure is clearly evident in the re-emergence of skill shortages across the economy.
"A further positive message from MYEFO is that the budget deficit will relate largely to funding longer-term investments rather than day-to-day recurrent spending.
"The adjustments that have been made to economic forecasts are in line with Ai Group's view of the domestic economy's improving but still-tentative trajectory.
"While non-mining business investment is growing, there is plenty of capacity for further gains – particularly after the long period of very low levels of investment in these industries. The improved budget position announced today reinforces the affordability of the Government's proposed phase-down in the rate of company tax.
"Public sector investment is strong and is closely associated with much of the growth in transport infrastructure activity.
"While the labour market continues to improve, unemployment and underemployment are only retreating very gradually – something that continues to dampen wages and spending by households.
"Against this backdrop of a modestly improving economy, Ai Group remains wary of the implications that would flow from a more rapid acceleration of fiscal consolidation than flagged in MYEFO. Much of the improvement is being generated by public-sector investment and a pull-back here, while both the household and business sectors have yet to hit their straps, would exacerbate downside risks," Mr Willox said.
Tony Melville – 0419 190 347