BCA calls for fiscal tax, spending caps to rein in inflation
The Business Council of Australia has called on politicians to champion policies that rein in fiscal spending and promote deregulation as the election looms.
On Tuesday, The Business Council of Australia (BCA) released their “election blueprint” of policy recommendations for parties campaigning in the upcoming election cycle.
BCA zeroed in on the cost-of-living crisis, which it says has been exacerbated by record levels of public money in the economy and heightened regulation.
The submission also identified ‘red herrings,’ policies which BCA believe have prevented “real action” to alleviate the cost of living crisis. These included wage increases, divestiture laws to break up big supermarkets and higher taxes.
“We are avoiding the real problem because it is big and not easy to fix. The problem is persistent underlying inflation across the economy,” BCA’s submission said.
According to the business council, inflation must be addressed by reining in fiscal spending, reducing taxation and loosening regulations to promote productivity.
BCA recommended that the government should re-introduce fiscal limits, including a 2 per cent annual cap of real expenditure growth and to reinstate the tax-to-GDP ratio cap of 23.9 per cent.
“One way to fight inflation is to limit money pushed into our economy. Commonwealth Government spending is expected to increase to 26.5 per cent of GDP in 2024-25 and 27.2 per cent of GDP in 2025-26,” BCA’s submission said.
“Outside the pandemic period, this is the highest level of spending as a share of GDP since 1986-87. Having even more dollars chasing a limited supply of goods and services risks prolonging inflation and interest rates staying higher for longer.”
However, recent data indicates that inflation is moderating and on track to return to the RBA’s target levels. According to December CPI data, underlying inflation has fallen to 3.2 per cent, just outside of the RBA’s 2-3 per cent target bands.
Economists are optimistic that inflation will return to the midpoint of the target range this year, allowing the central bank to cut interest rates and ease pressure on struggling households.
"The overall economic picture suggests a gradual stabilisation of prices, with government interventions like energy rebates and rent assistance playing a significant role in managing household costs," RSM Australia economist Devika Shivadekar said regarding CPI data released last week.
BCA has also taken aim at regulation, recommending that the government should “appoint a Minister for Deregulation with clear responsibility across departments to help drive a deregulation agenda that makes it easier to do business in Australia.”
In order to boost productivity, BCA said the government should reduce the company tax rate to 25 per cent, simplify planning systems to clear bottlenecks and provide targeted investment incentives in sectors where Australia has a comparative advantage, such as critical minerals.
The business council also called for the abolishment of the R&D expenditure threshold to incentivise the commercialisation of research, and for more flexible workplace laws which would roll back some of the recent industrial relations policies introduced by Labor, such as regulated labour hire arrangement orders.
“Controlling government spending and greatly increasing productivity will make a big difference,” BCA’s report said, explaining its policy recommendations to address inflation and cost of living.
“While this is not to suggest that we should not be taking government action to support our most vulnerable, we must have an overall whole-of-government aim to get spending under control.”
