Manufacturers seek company tax cuts
The nation's manufacturers have urged Treasurer Wayne Swan to deliver a Budget deficit, led by a cut in company tax, fearing further cuts in government spending will cripple the economy.
In a major departure by a leading business group, the Australian Industry Group, after a nationwide survey of firms, says austerity measures could end up increasing government debt by weakening nationwide economic activity.
Group chief executive Innes Willox said with consumer and business confidence already low, there could be a substantial risk if a Budget surplus was built on major spending cuts or tax increases.
"There is a growing and very real concern that an excessively contractionary Budget in 2013-14 will not only further slow the economy but will also put downward pressure on future growth and therefore on future taxation revenue collections," he said.
"This would be a worse outcome for both the Federal Budget in 2013- 14 and for the public sector debt position."
Of five options, 45 per cent of those firms surveyed rated bringing the Budget back to surplus as the least important.
The four other options, including an increase in training and a lift in research and development tax incentives, would all cost the Budget bottom line.
More than a third of firms said cutting the company tax rate, a move that was dropped last year in the face of opposition from the coalition, was the highest priority.
The industry group wants the company tax rate cut to 25 per cent -a move that would cost at least $5 billion a year in forgone revenue.
More spending on infrastructure was ranked second.
Senior Cabinet ministers have conceded even this year's reduction in the Budget deficit, from $43.7 billion last year to something between $10 billion to $20 billion, has contributed to the softness in the economy.
Julia Gillard conceded the manufacturing sector was suffering because of the high Australian dollar.
"So if you are in the manufacturing business, if you're trying to export, then your customers are basically paying 50 per cent more for your products or services just because of a movement in our currency, not because you are charging more in your costs," the Prime Minister told ABC TV.
The softness in the economy and the strength in the Australian dollar are expected to be key factors in tomorrow's Reserve Bank board meeting.
Financial markets have put the chance of a rate cut at better than a 50-50 call because of signs previous cuts have failed to boost consumer spending and the housing sector.
After key central banks, led by Europe, cut their lending rates last week, there is increased pressure on the Reserve to take pressure off the Australian dollar.
