A Budget For The Long Term: Business

What is very different about this budget is that it really is a document for the long term. The Government has recognised there are serious challenges that will face this community because of the demographic changes which are taking place over the next few decades, and it has rightly decided that things need to be done now. This is what this budget has set out to achieve.

The budget does, of course, attend to the essential requirements of fiscal discipline. This has become almost routine, and a good thing it is too. The budget will be in surplus next year, and while at $2.3 billion it will not be a large surplus, it will set the key parameter for stronger economic growth in place.

It is a responsible budget whose very lack of flashiness is a sign that the difficult work of getting on top of past fiscal inadequacies has been achieved.

Public spending growth is also well within the acceptable range. Moreover, much of the additional spending is on the kind of initiatives that governments are elected for, in particular the border protection and anti-terrorist measures.

But what remains significant about the budget is the manner in which it directs its attention to the long term. There is an ageing population and the preparation for dealing with the problems which are certain to arise cannot begin too soon.

The driving feature underlying the budget are the statistics found in the Intergenerational Report. There we find laid out the dynamic underpinning this budget. No one who reads that report and understands what it says will fail to understand why the Government has taken the direction it has.

Saving for retirement is going to become to an increasing extent a personal responsibility. The Age Pension will not be enough nor will the Superannuation Guarantee. Individuals will need to do more for themselves because no government will be able to.

The changes designed to encourage a greater take up of superannuation are part of this process. The co-contribution by the government for low-income earners will encourage many to take up superannuation who do not do so now. There is also an increase in the tax deductibility for superannuation contributions by the self-employed from $3000 per year to $5000.

Under the heading of “maintaining affordable access to pharmaceuticals” are measures to provide greater self-funding for medicines. This will obviously not be the last of this type of change in which those who require pharmaceuticals will be asked to contribute more to the cost of the Pharmaceutical Benefits Scheme. And it is clearly necessary to start this process early rather than wait until a catastrophic rise in costs becomes inescapable.

There are also important increases in outlays directed at managing an ageing population. There will be more funding for age care, assistance to train aged care nurses and money has been provided to assist in rural and remote aged care facilities. These are outlays that will pay dividends in the longer term.

There will also be measures that encourage individuals to stay within the workforce past what is now the normal retirement age.

This is clearly part of an underlying strategy to ensure as many Australians as possible become productive members of an economically viable community. Not only are more older Australians going to be encouraged to work longer, there are new measures in the budget associated with welfare reform which are directed towards making the unemployed more job ready.

Similarly, there are changes which are designed to encourage those receiving the Disability Support Pension to return to work which is similar in conception to the again expanded work-for-the- dole system which is also aimed at encouraging greater workforce participation.

Raising productivity through greater participation will make a difference in the present but will pay greater dividends in the longer term as the demographic problems begin to accelerate.

It might also be noted that in amongst the papers that have accompanied the budget are the recommendations of the Fuel Tax Inquiry. At 277 pages it is clearly a document that will take a number of days to analyse properly.

But what can be said is that the conclusion reached in the first recommendation, that excise and customs duty should apply to all liquid fuels and that the rate should be related to the energy content, is welcome. The varying rates of duty that has been the case until now has created serious distortions which this would help to overcome.

Finally, it should be noted that the budget is based on growth projections which are reasonable and achievable. Even the expected improvement in business investment, which is forecast to grow by 12% over the year, is within the range of likely outcomes at this stage.

To achieve such rates of growth and to have a robust recovery extend into the future will require the Reserve Bank to choose rate settings that are consistent with the long term needs of the economy. If Australia is to meet the challenges of an ageing population, it will only be able to do so if economic growth also remains robust over the longer term.

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