Extracts from 2013/14 Pre-Budget Submission to Federal Government
The Australian economy is facing structural change as a consequence of the resources boom combined with the post GFC fallout on economic conditions in the US, Europe and in part Japan which amongst other things has seen the Australian dollar strengthen. The reshaping of the Australian economy is hurting many sectors as the economy adjusts.
There is a proper role for the Federal Government to respond to that adjustment process including:
- Responsible fiscal management over the economic cycle.
- Reducing the red tape burden to assist the economy and business to adjust.
- Productivity enhancing reforms which must include the labour market.
- Tax reform to encourage local business to invest and restructure business operations, to ensure that Australia remains internationally competitive.
These measures are important to underpin the strength of the Australian economy and to allow business to continue to retain and create jobs. The Budget must recognise the proper role of business in providing tax revenue through a growing and expanding economy rather than through the imposition of additional taxes. Business must be allowed to play this vital role through appropriate policy settings.
Economic and Industry Conditions
The Building and Construction Industry is caught in an unusually deep and prolonged period of downturn. For the residential building sector there is no sign of an immediate turning point in what should now be an upturn. There have been many early but false starts that have not taken hold despite the heavy lifting by the RBA in cutting the cash rate 6 times from 4.75 to 3 per cent over the past 18 months. The banks reluctance to pass on in full the RBA cuts has blunted the promise of a recovery, but that is not the only explanation.
Home buyer confidence is at low levels. This is despite employment remaining relatively strong which normally is a positive but not this time. The GFC would appear to have had a much deeper and longer impact on the psyche of consumers generally. Newspaper headlines about the perilous and parlous state of the European economy and the USA economy have added to the uncertainties being felt by households and business. The dynamics of the current minority Government have also added to a feeling of unease. The perceived increase in the cost of living is another factor.
The commercial building sector severely contracted in the second half of 2012 and this is set to continue in 2013 given the poor outlook. As a consequence, a number of construction and building companies collapsed in 2012 and with poor prospects in 2013 the risk is that more businesses will be forced to close their doors and cut jobs. The only bright spot remaining is construction related to the resources sector.
The Government and the Reserve Bank of Australia, amongst many others, are correct to emphasise the need for non-mining parts of the Australian economy to 'pick up the slack' of a 'post-peak mining investment boom' and an easing in the terms of trade, yet the building and construction industry is unlikely, in its current situation and into the foreseeable future, to provide much in the way of 'engine room' performance of the broader Australian economy, absent pro-industry policy interventions and reforms.
Table 1: Industry Economic Outlook
|Now||18 Months||2-3 Years|
|Economy||Two speed||Broad-based recovery||Rebalanced?|
|High A$, structural change|
Low U/E; wages breakout?
|- interest rates||Lower as Govt
- productivity vital
- could spike
|B & C industry||Downturn
- profits/jobs slide
- supply constraints?
- skills shortages;IR?
|- non-residential building||On its knees||Emerging recovery||Strengthening|
|- residential building||In survival mode||Upswing phase||Cycle matures - rates risk|
|- engineering construction||Very strong||To peak||Tapering off|
Source: Master Builders Australia
1 The Government should consider short term stimulus measures, especially by providing a boost to residential building by increasing the First Home Owner Grant for new houses.
2 Bring forward capital works programs to encourage a pick-up in non-residential building.
3 Redirect public spending towards more productive forms of infrastructure outlays and away from recurrent, less productive expenditure.
4 A reduction in the company tax rate to 25 per cent.
5 Introduction of a reducing, stepped rate of capital gains tax.
6 No increase to the Goods and Services Tax rate without first effecting significant tax reform.
7 Improving housing affordability by removing supply constraints and making significant reforms to inefficient developer charges.
8 Repeal of the tax reporting arrangements by building contractors.
9 Simplifying tax compliance, especially for small business to free up entrepreneurial energies for more productive purposes, such as generating investment, employment and productivity.
10 Urgent reform of inefficient and costly infrastructure charges and levies.
11 Increasing the direct public sector spending on key economic and social infrastructure to at least 6 per cent of GDP by 2020.
12 Minimising bid-costs for infrastructure provision/financing to ensure the broadest possible range of engagement by potential investors (including simplified and streamlined processes for smaller investors in infrastructure).
13 Expanding the use of privatisation or other mechanisms for the transfer of existing and prospective infrastructure assets to the private sector.
14 It is imperative an effective ABCC (when reinstated) continue the work of enforcing workplace relations law. Current or increased levels of funding should be applied.
Work Health and Safety
15 Master Builders calls for a comprehensive education program on the harmonised laws.
16 The Government should extend the current Kickstart payment period until 30 June 2013 and consider making a permanent change to the basic subsidy amount for ‘in-demand’ trades.
17 Reducing the sponsorship period for all permanent employer-nominated visas from three to two years, to more closely align with the construction process of larger capital/infrastructure projects.
18 Enhancing the access of employers to certain occupations, currently classified as 'semi-skilled' for the purposes of permanent employer-sponsored migration.
Business ‘Red’ Tape
19 The ABCB must receive stable and adequate funding from all governments to enable it to carry out its critical regulatory role.
20 Master Builders recommends the Government compensate first new home buyers for the expected cost of the carbon tax and the move to six star for residential housing by broadly commensurate increases in the value of the First Home Owner Grant.