"Local growth is already looking slower in 2019 than it did just one year ago. There is a risk that slower growth could undercut some of the MYEFO estimates of tax collections in 2018-19 and 2019-20. If this risk firms ahead of the budget in April and while there is still a substantial medium-term task of fiscal consolidation ahead, Ai Group would favour accepting a slower pace of fiscal consolidation in the 2019-20 year. This would be preferable to the risk of worsening an emerging slow patch by tightening fiscal policy, in an attempt to preserve the wafer-thin surplus estimated for 2019-20. The RBA this week confirmed that we face a real and substantial risk of a slower lower economy over the next two to three years. Any further weakening in jobs growth or inflation could even see the cash rate fall to a new record low for Australia.
"Inflation remains well below the Reserve Bank's target, at just 1.8% p.a. Real wage growth appears to be gradually strengthening as unemployment falls, but the outlook for stronger wage rises remains muted, due to the weak pace of productivity improvements. This means that in most parts of the economy, stronger rises in real wages could only come at the expense of already-flat profitability and business investment.
"In this environment, we need to focus more firmly on investments that can generate real productivity growth, if we are to generate real income growth for us all. To this end, Ai Group proposes modest and well-targeted budget allocations that underwrite meaningful productivity growth and that reinforce social cohesion, with a special focus on measures that can address entrenched youth unemployment, underemployment and skill deficiencies.
"The Australian community needs improved budget investment in:
- Skills, education and training – including as a means of addressing some of the structural barriers to employment of segments of the workforce (particularly young people);
- Business capability development; and
- Innovation and commercialisation.
"A further priority should be maintaining and, indeed, aiming to reach the current permanent migration target of 190,000 per year. There are growing skill shortages across a range of industries and occupations and cutting back would constrain domestic activity. A sound, stable immigration program helps to stabilise the economy and supports income growth across the board," Mr Willox said.
The full Ai Group pre-budget submission is available here.
The policy recommendations proposed by Ai Group in the submission include:
- Implement a national workforce strategy that provides industry-relevant workplace opportunities for students by coordinating partnerships between industry and the school and post-secondary education sectors.
- A national foundation skills strategy needs to be provided with a sufficient budget to support workforce literacy and numeracy programs.
- The Commonwealth and COAG should address declining investment in VET and increasingly uneven investment across jurisdictions, by examining the possibility of moving towards a nationally funded and nationally operated tertiary education system.
- Fund programs to help young people deal with health and wellbeing challenges faced when moving out of the school environment.
- The Government should sponsor a public program targeted to SMEs to provide advice on options and facilitate their investment in digital capabilities. This should build on and complement the bDigital service available to clients of the Entrepreneurs' Programme.
- Given the rapidly evolving state of cyber threats and attacks, it is essential that our law enforcement bodies are sufficiently resourced, not only for protecting our national security, but also to protect business and consumers against global cyber crime.
- Finalise and implement key supporting Defence industry policies, including the Defence Sovereign Industrial Capability Priority implementation plans, the Defence Policy for Industry Participation and the Skilling and STEM strategy to support the training and skilling of Australia's workforce to manage the ramp up of defence industry.
- Refresh the National Energy Productivity Plan and facilitate the provision of finance for energy efficiency in SME industry and rental properties.
- Develop a program to support SME resource efficiency through information and the facilitation of funding.
- Control the costs of the R&D Tax Incentive by adopting a $2m cap on the refundable element and investing in smarter systems to scrutinise claims. Do not proceed with the previously proposed stepping of the R&DTI rate based on research intensity, which would amount to a substantial across-the-board reduction in support for innovation and not provide meaningful incentives. Commit to maintaining broad stability for the overall R&DTI.
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