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 needed.
"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," the Australian Industry Group chief executive, Innes Willox, said.
He said 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 called the scrapping of the company tax cut that was to be financed from the Minerals Resource Rent Tax a big blow to business, reducing incentives to invest and innovate.
The leading retailers said the budget's handouts would not send consumers into stores to buy discretionary goods.
The 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 to $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."
The retail billionaire Solomon Lew said the budget "has more to do with politics than sound economic management".
While retail might derive a small benefit from the cash handouts, that effect would be more than offset for retail businesses by "the failure to deliver the company tax cut, the failure to address the GST leakage and competitive consequences of a two-tax regime, which advantages offshore online retailers, and the continuing low level of consumer confidence relating to such issues as the carbon tax and unpredictable government policies such as the NBN project".
The businessman Mark Bouris said the budget was good for people on "Struggle Street", but warned there were big assumptions underpinning the funding of the largesse by the Treasurer, Wayne Swan.
"For families, the cash payments are going to be a good neutraliser for all the expected costs going forward, but that money has to come from somewhere," he said.
"The big issue is: are the assumptions conservative enough?"
While the government had made a call on domestic growth, and while the Reserve Bank was confident of 3.25 per cent growth, the RBA 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."
David Flanagan, of Atlas Iron, said iron ore prices would need to double to hit the federal budget's anticipated $3 billion in its first year.
"If the iron ore price were to double, I'm pretty sure they'd get their money, but I'm not sure there's too many people that think that will happen," he said.
"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, the 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 appearing to be as stable and attractive an investment destination as it once was.
They said the move to double the 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.
The Property Council of Australia chief executive, Peter Verwer, called the Gillard government's 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," he said.
Frequently Asked Questions about this Article…
What did industry groups say about the federal budget’s focus on short-term consumption versus long-term economic growth?
Industry groups criticised the federal budget for favouring a short-term boost to consumption over longer-term drivers of economic growth. Innes Willox of the Australian Industry Group warned that extra taxes and costs on industry could undermine business investment, productivity and jobs.
How will scrapping the company tax cut affect business investment and innovation?
The article says scrapping the planned company tax cut (which was to be funded by the Minerals Resource Rent Tax) is seen as a big blow to business. Industry leaders argued it reduces incentives for companies to invest and innovate, potentially harming long-term competitiveness.
Are the budget cash handouts likely to trigger a retail spending boom?
Retail leaders were sceptical that cash handouts would create a spending spree. Coles CEO Ian McLeod said the combined stimulus might be $7–$8 billion, but most would go into savings or debt reduction. Solomon Lew also suggested the budget was more political than sound economic management.
What did mining companies say about the budget’s revenue assumptions tied to iron ore prices?
David Flanagan of Atlas Iron warned that iron ore prices would need to double to meet the federal budget’s expected $3 billion in the first year. He said that while a price surge would deliver the revenue, most people don't expect that to happen.
How could rising costs and policy changes affect mining investment in Australia?
Mining executives highlighted rising costs, higher royalties, increased superannuation obligations, a falling iron ore price and an unfavourable currency as pressures. Whitehaven Coal’s Tony Haggarty said these factors risk pushing companies to consider investing elsewhere.
What concerns did the property and construction sectors raise about the budget?
Property industry bodies said the budget offered little to support the sector. They criticised the move to double the withholding tax to 15% as a disincentive for foreign investors and warned that scrapping the green building incentive would harm the construction industry.
Are there risks to the budget’s ability to fund payments if economic growth slows?
Yes. Business figures noted the budget relies on growth assumptions. Mark Bouris and others warned that if domestic growth underperforms or external risks like the eurozone crisis hit, the government might not collect enough revenue to sustain promised payments.
Who were the main industry voices quoted about the budget and what were their key points?
Key voices included Innes Willox (Australian Industry Group) who criticised the budget’s short-term focus; Ian McLeod (Coles) who doubted cash handouts would boost spending; Solomon Lew who saw political motives; Mark Bouris who warned about funding assumptions; David Flanagan (Atlas Iron) on iron ore price risks; Tony Haggarty (Whitehaven Coal) on investment flight risk; and Peter Verwer (Property Council) who called the budget a missed opportunity for productivity and liveability.
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