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15 April 2015

Tony Abbott moves to reassure business and lay out his blueprint for growth

The Abbott government's second budget will set the course for a "nimble" five-pillar Australian economy, according to Prime Minister Tony Abbott, and will contain new money for families and for small businesses while delivering deficits that will "decline every year".

In a reassuring speech to the Australian Chamber of Commerce and Industry in Sydney on Wednesday, belying his position in the polls and ongoing internal criticism, Mr Abbott will lay out his blueprint for growth based on a small business tax cut which is "more than paid for by not proceeding with the paid parental leave scheme" and new incentives for families to make returning to work after childbirth "worth it".

"All parents do the sums: they work out the additional income of the second parent – mostly mums – going back into the workforce," his speech notes say.

"Our task is to help parents with the challenges of having a family, especially when their children are very young: so when they ask the question: is the extra income really worth it ... so that when parents feel like getting back into the workforce, they can say – yes, it is worth it."

But mindful of the budget's parlous state - even before being slammed by a precipitous drop in the iron ore price which has wiped as much as $25 billion off revenue over the next four years alone - Mr Abbott has flagged there will also be cuts in order to make savings in next month's keenly awaited budget.

"This is why our childcare initiative for families is contingent on the delivery of savings to pay for it: because we can't have the spending without the saving to make it sustainable and our small business tax cut will be more than paid for by not proceeding with the paid parental leave scheme that's already been taken off the table," his speech notes say.

He also pledged that there would be "no big new spending that's not directed to making our economy stronger" - giving the government room for some spending on economy building grounds.

While some Liberals remain unconvinced that they can win under the leadership of Mr Abbott and his Treasurer Joe Hockey, the pair believe the political stocks of the government can be rebuilt with a budget containing moderate policies and justified on the basis of "fairness".

Business has become increasingly concerned in the months since Mr Abbott survived a revolt in his party room that the Coalition government has lost its reform courage due to its own political difficulties.

That nervousness has not been helped by a bitter stoush over the GST, criticism from former treasurer Peter Costello that the government has become too inclined to increase taxes, and credit rating doubts over Western Australia and now BHP.

But Mr Abbott will argue the plan is for solid, confidence-building reform aimed at increasing efficiency and overcoming past policy mistakes - by both sides of politics.

Declaring this year's budget will be responsible, measured and fair, he will tell the big end of town that the focus in 2015 will be on "jobs, growth and opportunity".

And while some in the corporate sector will read the new focus on fairness as code for timid and even populist policy in place of structural reform, Mr Abbott will argue the major work on budget repair has already been done.

"Despite difficulties in the senate, the budget measures already implemented have produced $30 billion of savings over the forward estimates and far greater savings beyond that," he will say.

"The abolition of the mining tax alone, with the abolition of the tax and the spending package that the former government had linked to it, will save the budget $50 billion over the next decade."

He will cite Treasury advice concluding that Labor's Minerals Resource Rent Tax not only failed to redistribute the bounty of the mining boom but sent the budget seriously backwards in the process.

"Labor booked $17 billion in expenditure over four years against a tax that would not have raised a single cent," he will say.

Acknowledging the threats to the economy, from the slowdown in China's growth rate to the not unrelated collapse of iron ore prices, Mr Abbott said the challenges were real but not insurmountable.

"Our economic plan is flexible and nimble enough to adapt to the challenges we face. Our plan is for a strong five-pillar economy: with manufacturing, agriculture, education, and services – as well as mining – because there's strength in diversity; in our economy no less than in our society."

Last year's budget was part of a broader economic foundation upon which the coming budget will build.

Besides budget repair, this economic foundation has included reducing business costs, opening up opportunities through Free Trade Agreements, cutting taxes and building vital infrastructure.