Budget 2014: Business welcomes budget, but accountants argue Joe Hockey’s job only half done

Business groups have generally welcomed the budget, but accounting and tax professionals say it is in need of real revenue reform.

The head of peak business lobby the Australian Chamber of Commerce and Industry (ACCI), Kate Carnell, says "this is the budget we had to have".

"It's a budget that delivers short-term pain for all of us, including short-term pain for business, but there is significant long-term gain for Australia," she said.

ACCI has welcomed the move to cut government spending to address the budget deficit, as has Institute of Chartered Accountants Australia chief executive Lee White.

"We've actually seen a strong debut by the Treasurer in delivering his first budget," he said.

"We certainly are seeing signs, very clear signs, of leadership and commitment to improve the economic growth of this country."

Mr White says the trimming of public agencies was a good sign that the Government was willing to take tough decisions to spread the pain of budget repair, while prioritising spending towards infrastructure in a move to boost productivity.

Accounting and consulting firm PwC is also a big fan of the infrastructure spending.

"We're very pleased to see infrastructure as one of the major components of this budget," said Jeremy Thorpe, a partner at PwC.

"We recently polled Australian CEOs and 83 per cent said that infrastructure investment was the number one priority for Australian Government."

Broad-based tax reform needed, say accountants

However, both PwC and accounting groups have slammed the short-term deficit levy, and argue broad-based tax reform is needed, including an increase in the GST.

"Tax reform is the missing element in re-establishing our budget position in a more sustainable and balanced way," Mr Thorpe said.

"If we don't get our budget position, including tax reform, correct, we are at risk of ultimately seeing Commonwealth and state debt equalling our national GDP within 25 years – it's unsustainable."

The critical importance of taxation reform is a view strongly shared, perhaps unsurprisingly, by the Tax Institute.

"The Government has attempted to tackle half of our budget problem: expenditure, without committing to a timeline in which to address the other crucial half of the equation: revenue," said Tax Institute board member Tim Neilson.

"The 2 per cent income tax 'levy' is the wrong direction to be taking Australia's tax system. It would place an even greater reliance on income tax revenue, when the Government should be relying less on income tax revenue and instead moving more towards relying on revenue from consumption taxes like the GST."

Mixed news for research and development

While business generally welcomed the budget, the news was not all good.

The auto industry has taken another hit, following on from the announcements of Holden and Toyota ceasing local production in 2017, with hundreds of millions of dollars in industry assistance to be cut, with a smaller amount injected into the heavily affected Victorian and South Australian economies.

The Government has also announced the cessation of a raft of industry programs, which it says will save more than $845 million, and their replacement with unified bodies that have about half the funding.

Australian Industry Group chief executive Innes Willox says his members will be expecting consultation on the structure of these new bodies.

"Our members and businesses more generally will be deeply concerned to ensure that the very best features of existing industry programs are retained and improved in the design of the new initiatives," he said.

"These include Enterprise Connect, the backing for innovation (unfortunately reduced as a result of the changes to the Research and Development Tax Incentive), automotive industry transition programs, and the important roles of Commercialisation Australia. The proposed focus on advice rather than grants is both prudent and welcome."

Mr Willox is also concerned about cuts for scientific organisations, and the implications for commercially applicable research.

"The cuts to research funding for CSIRO and DSTO will be of considerable concern to many businesses," he observed.

"This should be matched by refocusing public sector research with a clear orientation on building successful links with business."

However, Ms Carnell says the $20 billion medical research fund, which is expected to distribute about $1 billion a year in funding within a decade, might help Australian biotech companies invent new treatments and products and bring them to market.

"Access to research dollars is bread and butter in that space, there's no doubt about that," she said.

"And so these sorts of dollars is something - well, it doesn't exist anywhere else in the world - so it's a very real positive for those businesses at the leading edge of technology, being able to access research dollars to deliver new products."