Federal Budget 2024-25 Preview

Business wants fiscal discipline, then help to lift productivity

A year on from the 2023-24 Budget, with the economy facing the prospect of interest rates and inflation remaining higher for longer, we find ourselves reinforcing the calls we made this time last year.

We maintain our view that business, and the Australian people more broadly, need the Government to prioritise fiscal discipline to ensure inflation isn’t higher than it needs to be; bring the structural budget closer to balance; and accelerate the pace of policy reform to help boost our flailing productivity.

This year, like last year and the year before, we call on the Government to:

1. Not add to spending, unless offsetting it elsewhere
2. Change existing policy to lower spending and find new revenue that will persist over time
3. Put in place policies to assist the private sector to maximise productivity growth.

Headline inflation has come down from a peak of 7.8 per cent to 3.6 per cent in the year to the March quarter and consumers have tightened their belts. Unemployment remains low. But with inflation outside the Reserve Bank’s target band, the Government cannot afford to let fiscal discipline slip. This is especially so given $23 billion of tax cuts are already locked and loaded, additional spending has been announced for housing, and state governments are providing billions of dollars in household handouts too. Offsetting new spending with cuts elsewhere, at least over the next 12 months, is essential to keeping the fiscal envelope tight.

Progress in narrowing the structural deficit has been encouraging but needs to go much further too. The Government’s pre-announced policy decisions have been heavily weighted to spending rather than saving, thwarting the task of tightening the structural budget deficit. Considerable heavy lifting will be required to balance this new spending with savings in the budget.

With numerous, well-known external challenges, the reform reviews that have been commissioned and researched over the last two years should urgently progress, including trade reform, the Universities Accord, and the migration redesign.

The Future Made in Australia policy seems likely to divert labour and capital resources to meet non-economic policy ambitions, and so additional work will be required to boost productivity growth through ongoing structural reform.

With the election within 12 months, the Government should use its Budget narrative as a starting point to convince voters why a more ambitious reform agenda is needed in its second term.