TUESDAY'S federal budget came under attack from all sides yesterday, with critics saying it was short-sighted and denied industry sectors the stimulus they deserved.
"The government has made a strategic decision to favour a short-term boost to consumption at the expense of the longer-term drivers of economic growth," said Australian Industry Group chief executive Innes Willox.
He said that while the budgeted surplus for 2012-13 was welcome and would have important national benefits, there were considerable risks in the way it had been achieved.
"In particular, the additional taxes and costs imposed on industry will undermine the ability of business to make the critical longer-term investments needed to boost productivity, improve our global competitiveness and lift employment," he said.
He described the scrapping of the company tax cut as a blow to business, reducing incentives to invest and innovate.
The big leading retailers said the budget's handouts would not send consumers into stores to buy discretionary goods.
Coles chief executive Ian McLeod said funds from the budget combined with the interest rate cuts delivered by the Reserve Bank would provide a $7 billion-$8 billion stimulus to consumers, but most would be put into savings or paying down debt. "I am dubious that this will end up in a spending spree."
Businessman Mark Bouris said the budget was good for people on "struggle street", but warned there were big assumptions underpinning Treasurer Wayne Swan's funding of the largesse. "The big issue is, are the [budget's] assumptions conservative enough?"
He said that while the Reserve Bank was confident of 3.25 per cent growth, it also recognised the external risks of the eurozone crisis. "You need that growth or they won't collect enough revenue for the government to make the payments
they are talking about."
Atlas Iron's David Flanagan said iron ore prices would need to double to hit the federal budget's anticipated $3 billion in its first year.
"Something that's coming through loud and clear through the mining industry is that our costs are rising, royalties are rising, our superannuation obligations are rising, yet the iron price has fallen and the currency has gone the wrong way."
Tony Haggarty, chief executive of Australia's largest independent coal company, Whitehaven Coal, said: "There's a real risk, and I think we're seeing it now, that companies are seriously looking at what's going on in Australia and saying this is getting way out of kilter and there are better places to invest."
Property industry investors and peak bodies said the budget provided little joy for the sector at a time when the country was not looking as stable and attractive an investment destination as it had.
They said the move to double withholding tax to 15 per cent was a disincentive to foreign investors, and the scrapping of the green building incentive would harm the construction sector.
Property Council of Australia chief executive Peter Verwer called the budget one of "missed opportunities and misdirected policies".
"The government has done virtually nothing to leverage productivity growth and greater liveability from the cities that generate 80 per cent of the nation's wealth," Mr Verwer said. "It has relegated productivity growth, a greener built environment and a world-class funds management industry to the policy knackery."
Frequently Asked Questions about this Article…
What were the main criticisms of Tuesday’s federal budget for investors and businesses?
Critics said the budget favoured a short-term boost to consumption over longer-term drivers of economic growth. Industry groups warned that extra taxes and costs on businesses—and the scrapping of a planned company tax cut—could undermine investment, productivity, global competitiveness and jobs.
How does the budget’s decision to scrap the company tax cut affect business investment and innovation?
Industry leaders described the scrapping of the company tax cut as a blow to business, arguing it reduces incentives to invest and innovate. They warned added taxes and costs in the budget could make it harder for companies to finance the longer-term investments needed to lift productivity and competitiveness.
Will the budget measures trigger a spending spree in retail, or will consumers save the money?
Major retailers and Coles’ CEO Ian McLeod said they expect much of the budget handouts—combined with recent Reserve Bank rate cuts—to flow into savings or debt repayment rather than discretionary spending. Retailers are doubtful the measures will produce a significant spending spree on discretionary goods.
What did mining companies say about the budget’s revenue assumptions and the outlook for iron ore prices?
Atlas Iron’s chief said iron ore prices would need to roughly double to meet the budget’s anticipated $3 billion in mining-related revenue in its first year. Mining executives also pointed to rising costs, higher royalties and superannuation obligations, plus a weaker commodity price and an unfavourable currency move, all of which could pressure industry returns.
How could the budget affect property investment and foreign investor interest?
Property groups said the budget offered little for the sector. They highlighted that doubling the withholding tax to 15% is a disincentive for foreign investors, and removing the green building incentive could harm construction. The Property Council called the measures missed opportunities that reduce Australia’s attractiveness as an investment destination.
Are the budget’s growth and revenue assumptions considered realistic by commentators?
Business commentators warned the budget relies on significant growth assumptions. Mark Bouris questioned whether the assumptions were conservative enough, while the Reserve Bank’s 3.25% growth outlook was noted alongside external risks such as the eurozone crisis—risks that could affect revenue collection and the government’s ability to meet payments.
What risks did executives name that might make companies look elsewhere to invest?
Executives pointed to rising domestic costs, increased taxes and royalties, and policy changes that reduce incentives to invest. Whitehaven Coal’s CEO warned these factors could make Australia ‘way out of kilter’ and push companies to consider investing in other jurisdictions deemed more attractive.
As an everyday investor, what should I watch after this federal budget announcement?
Based on industry commentary, watch sector-specific signals: retail sales trends (to see if consumers spend or save), commodity prices—especially iron ore—for mining earnings, policy changes like withholding tax that affect property capital flows, and corporate guidance on investment plans. These indicators can help you assess how the budget’s tax and spending measures might affect company profits and investment activity.
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