The Business Council is concerned an increase in government spending, shown in the Mid-Year Economic and Fiscal Outlook (MYEFO) will hamper a private sector-led recovery, which is critical to easing cost-of-living pressures and building a more competitive economy.
Business Council Chief Executive Bran Black said the Commonwealth's MYEFO showed an increase in cumulative deficits over four years of around $22 billion.
"We need a private sector-led recovery that is built on an investment environment that backs businesses and promotes Australian success," Mr Black said.
"We're concerned about the impact of increased government spending and the distortion that creates across our economy for investment, skills and our workforce.
"Increased government spending unlinked to productivity gains makes it harder to bring down inflation and ease cost-of-living pressures."
Federal spending as a share of GDP will hit 27.2 per cent in 2025-26, the highest since 1986-87 other than in the pandemic.
Business investment is near 30-year lows as a share of the economy, while the past decade's productivity growth is the lowest in 60-years, and is presently sitting at an annualised rate of -0.8 per cent.
This is at the same time businesses are expected to pay over $135 billion in company tax.
Mr Black said that, heading into an election year, having a plan to make the economy more competitive and to reverse these trends must be the priority for all sides of politics.
"Our regulation, investment and innovation settings all influence our ability to attract capital, boost productivity and drive a private sector-led recovery, and we need a much greater focus on all three," Mr Black said.
The Business Council will continue its work with the Federal Government on long term reforms that foster greater productivity and economic growth.
