Business Council Warns Spending Could Worsen Cost-of-Living Crisis

Australian dollars in Sydney, on Jan. 15, 2016. AAP Image/Joel Carrett

The Business Council of Australia (BCA) has called on the government to cut spending and focus on more effective budget management to combat inflation.

In its report, Australia’s Priorities for the 2025 Federal Election, BCA Chief Executive Bran Black emphasised the need for tighter fiscal controls, warning that current spending trends could exacerbate the cost-of-living crisis.

The report aligns with earlier recommendations from the International Monetary Fund (IMF), which, in October 2024, advised Australia to adopt a more restrictive fiscal policy.

While acknowledging the temporary benefits of cost-of-living support, the IMF cautioned that such measures might fuel broader economic activity, undermining efforts to curb inflation.

“The tax cuts introduced by the government may increase disposable income, but their long-term impact remains uncertain,” the IMF noted in its annual report.

According to the Australian Bureau of Statistics (ABS), the economy expanded by 0.3 percent in the September quarter, below the anticipated 0.5 percent. On an annual basis, growth slowed to 0.8 percent, down from 1 percent in June.

“The Australian economy grew for the twelfth quarter in a row but has continued to slow since September 2023,” said Katherine Keenan, ABS head of national accounts.

Public sector expenditure emerged as a key driver, with government consumption and public investment contributing significantly.

Public investment surged by 6.3 percent during the quarter, while government spending rose by 1.4 percent, driven by initiatives like the Energy Bill Relief Fund.

BCA Warns Against Populist Solutions

Black called for a more thoughtful approach to economic challenges, warning that short-term, populist policies might hinder long-term solutions.

“From cost-of-living to the housing crisis, we can only address these challenges if we confront the real problems behind them,” he said.

The BCA identified several critical areas requiring reform, including reducing red tape, making workplace laws more flexible, simplifying planning systems, and ensuring affordable and reliable clean energy.

It also called for a more efficient tax system, greater support for innovation, and incentives for research commercialisation.

“Housing supply remains a significant concern,” Black added, pointing to slow planning approvals, rising construction costs, and labour shortages.

The BCA proposed speeding up approvals, funding critical infrastructure, expanding the construction skill base, and tackling corruption in the sector.

Need for Innovative Approaches to Fund Health and Care Services

The report also highlighted the urgent need for sustainable funding strategies to address the growing demands of Australia’s health and care sectors.

With an ageing population, a shrinking taxpayer base, and rising service needs, the BCA has proposed several measures to ensure efficient and equitable care delivery.

These include leveraging technology to enhance care quality and efficiency, increasing consumer choice through transparency in service pricing and performance, and developing micro-credentials for specialised roles.

The BCA also stressed the importance of incentivising health and care services in remote and regional areas.

Additionally, the report called for a National Cabinet taskforce to address inefficiencies caused by state and federal overlaps and urged the exploration of alternative funding models and innovative approaches to utilising health and care professionals effectively.

Opposition and Government Spar Over Spending Priorities

The Coalition has repeatedly criticised the government for what it calls irresponsible spending, with Shadow Treasurer Angus Taylor highlighting the party’s opposition to over $110 billion in expenditures.

However, Taylor avoided detailing specific cuts the Coalition would make if elected in 2025, instead accusing the government of driving the economy into a “household recession” with seven consecutive quarters of declining GDP per person.

Treasurer Jim Chalmers defended the government’s fiscal strategy, pointing to two consecutive budget surpluses achieved through savings, spending restraint, and tax reform.

He argued these measures have reduced debt, saving billions in interest repayments while funding essential programs like Medicare, energy security, and disaster recovery. Chalmers also rebuked the Coalition for leaving behind unfunded programs and failing to deliver significant savings in its final budget.

Treasury’s Mid-Year Economic and Fiscal Outlook (MYEFO), released last month predicts a slightly reduced deficit for this financial year at $26.9 billion (US$16.7 billion)—$1.3 billion lower than earlier estimates.

However, combined deficits over the next four years are now projected to reach $143.9 billion, about $21.8 billion worse compared to prior forecasts.

John Humphreys, chief economist at the Australian Taxpayers Alliance, points to “discretionary spending” as the primary driver of the budget’s impending blowout.

He notes that the 2023/24 deficit surged from $29 billion to $47 billion, largely due to initiatives like the government’s promise to partially pay off university fees for graduates.