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Ai Group's submission to the Federal Budget 2016-17

"While recognising the critical importance of forging a clear path to budgetary sustainability over the medium-term, the Australian Industry Group's Budget Submission released today cautions against excessive spending cuts or aggregate tax increases in 2016-17. While business conditions have improved somewhat over the past six or so months, they remain disproportionately exposed to downside risks including the risk of a loss of domestic confidence and demand if fiscal policy is tightened excessively. Indeed, given the still-sluggish state of business investment, there is a strong case for targeted tax measures to boost business investment," Ai Group Chief Executive, Innes Willox, said today.

"The budget should not shy away from making headway into what is clearly an unsustainable fiscal trajectory, but the timing of the impacts should recognise the tentative nature of the rebuilding underway in areas of the economy outside the mining and energy resource sectors.

"Ai Group's Budget Submission identifies measures to ensure Australia is in a position to make the most of the opportunities to grow the economy and to lift living standards over the medium-to-longer terms. We face significant pressures from lower productivity, entrenched demographic trends and our over-reliance on volatile commodity prices and grasping these opportunities is the key to our future prosperity.  By also growing the tax base, these measures can also be a central strategy in improving Australia's fiscal sustainability.  

"The key to our ability to make the most of these opportunities is to improve our competitiveness by raising productivity. Businesses are working hard to eke out much-needed productivity gains and they are looking to invest in new ideas and markets, but governments also have critical roles in supporting confidence and capability development and removing barriers to investment and innovation. 

"To support this, Ai Group proposes a Budget which:

  • Embeds the encouraging policy focus on innovation;  
  • Invests in skills and education, including with a stronger emphasis on science, technology, engineering and maths (STEM) skills;
  • Continues to accelerate the development of Australia's business capabilities;
  • Facilitates an increase in investment in rigorously-assessed infrastructure projects;
  • Increases the migration program both with a strong emphasis on skilled migration and by lifting the Syrian refugee intake;
  • Assists the preparation of the next, and more challenging, phase of greenhouse gas emission reductions by supporting innovation and by allocating additional revenue to the Emissions Reduction Fund;  and
  • Commits to ongoing defence investment and leverages the opportunities for Australian businesses to participate in global defence-industry supply chains."

Ai Group's full Budget submission is available here.

While not included in our Budget submission, with tax reform now part of the budget process, we also take this opportunity to restate our major tax reform priorities.

Our major policy proposals for the 2016-17 Budget include the following (a full list of proposals is summarised in our Budget Submission):

Fiscal Policy

  • In the face of the ongoing fragility of domestic growth and the uncertainties surrounding the global economy, large cuts should not be made to aggregate spending and there should not be large increases in aggregate taxation. Indeed, given the shortfall in business investment, there is a strong case for targeted tax measures aimed at encouraging investment by Australian industry.  
  • That said, clearly there is a need to ensure the budget is on a convincing path to sustainability. This will require improvements in the resilience of taxation arrangements and tight prioritisation of expenditure to areas of greatest need and greatest social and economic value. It will also require greater efficiency across the public sector.

Tax Policy Priorities

  • Reducing the company tax rate is the central policy measure that can be taken to lift private sector investment and increase productivity, real wages and Australian living standards.
  • Replacing the highly inefficient state and territory taxes is another high-impact tax reform that would assist in reducing inefficiency and removing blockages to business restructuring and employment creation.

Innovation

  • The Government should closely monitor take-up of the recently-announced measures in the National Innovation and Science Agenda (NISA) to ensure they are effective and build scope to scale-up funding if that is appropriate.
  • The review of Australia's central policy support for private sector innovation is the Research and Development Tax Inventive. It is critical that measures adopted as a result of the current review help lift R&D and its effectiveness while reducing compliance costs and putting an end to the confusion and uncertainty that has surrounded the Incentive in recent years.

Skills, Education and Training

  • Develop and effectively resource the establishment of national VET governance led by industry.  Determine roles and responsibilities for policy, regulation, funding, delivery and reporting in order to build a sustainable sector with high quality student outcomes.
  • Give urgent attention to the establishment of a new workable VET fee loan scheme that delivers graduates with well-targeted qualifications and the relevant skills required in the market.
  • Investigate and trial measures to link apprenticeships to higher level qualifications to attract a more diverse range of apprentices with employer incentives provided to engage employers in these arrangements.
  • Implement measures to achieve full national consistency for all apprenticeships across Australia, including consideration of an oversight body to ensure programs and arrangements meet current and emerging occupational needs.
  • Develop and effectively resource a national STEM skills strategy in conjunction with industry to expand the STEM-qualified workforce.
  • Commence Government discussions with industry and other stakeholders about the development of a new workplace language, literacy and numeracy (LLN) program.

Migration

  • Ai Group encourages the Government keep a strong focus on skilled migration and to lift its annual migration planning level from 190,000 where it has been for several years to 220,000 for 2016-17 and beyond.

Defence

  • We support modest growth in funding for Defence towards 2 per cent of GDP over the next decade.  This will ensure that the Australian Defence Force (ADF) acquires capabilities enabling it to meet its operational responsibilities and defence industry to continue to offer innovative solutions to meet advanced technology military requirements.
  • Ai Group proposes that the Government implement its sound continuous naval shipbuilding plan, introduction of a new fleet of submarines, the F-35 Joint Strike Fighter, Hawkei and Land 400 armoured vehicles allowing the ADF to protect the national security interests of all Australians with agility and certainty.

"Proactive measures in support of higher growth in the 2016-17 Budget will complement progress across a range of longer-term reform areas. Ai Group is contributing separately to these areas - including in relation to workplace relations and energy policy - which fall outside the scope of this submission. Ai Group members support the Government's processes to address these critical areas and are keen to assist in building public support for change," Mr Willox said.

Media Enquiries:  Tony Melville - 0419 190 347