"Today's economic update paints a worrying picture about the current and future state of our economy, with a decade of deficits ahead of us, a growing dependence on government spending and no solutions to boost our short term productivity malaise which is leading to declining living standards," said Innes Willox, Chief Executive of national employer association the Australian Industry Group.
"The Mid-Year Economic and Fiscal Outlook (MYEFO) reveals a series of mounting challenges facing the Australian economy. Since the May budget, forecasts for economic growth, household spending and exports have all been downgraded, while expectations for crucial business investment remain very weak.
"The only forecast indicator to be materially upgraded is government spending, which will grow by 5.7% in real terms this financial year. This will take the spending-to-GDP ratio to its highest level since the mid-1980s.
"The inexorable increase in government spending on public servants and social programs is destroying the national bottom line. The rising spending is also putting pressure on inflation and interest rates. No solutions are being offered to wind in the flagged growing structural deficits with debt expected to hit $1 trillion in 2025/26.
"The key is that governments must control their spending and refocus their priorities to lift national productivity which is the ultimate driver of higher living standards and sustainable wages increases into the future.
"Ai Group's analysis of employment data shows that 85 percent of the 470,00 jobs created in Australia over the past year was ultimately taxpayer-supported. This is a major driver of our deteriorating public finances and is clearly unsustainable.
"One trillion dollars has been added to our decade of deficits, with little sense of a plan for how to correct it. Inflation indexation accounts for some of that growth but the bottom line is that government needs to get to grip with its bottom line.
"MYEFO also contains $5.5 billion of unspecified spending – known as 'decisions taken but not yet announced' – over the forward estimates. This accounts for nearly a third of its newly announced spending. It also includes $1.6 billion of not yet announced government revenue measures – representing 99% of such new measures.
"It is challenging for business, or indeed the broader public, to understand the government's short term spending and tax intentions when such a large share of its decisions remain unannounced.
"MYEFO also flags a significant $73 billion "reprioritisation" of Defence investments over the decade, which will likely cut the resources available for near-term defence acquisitions. Given Australia's increasingly challenging strategic environment, this poses questions reading the future path of our defence capabilities and industrial base.
"Of greatest immediate concern is our productivity, which Treasury modelling notes continues to be unhelpfully weak. Having enjoyed no gains in labour productivity since the pandemic, this has become a burning deck problem that needs immediate attention.
"MYEFO proffers several welcome long-term actions, but nothing that will shift the productivity dial on the timeline we need it. A focus on meaningful tax regulatory reform is increasingly essential to maintain our national competitiveness," Mr Willox said.
