Budget doesn’t add up for industry

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The Government's promise to deliver a surplus in 2012-13 will come at a considerable cost to industry.

The Federal Government has put a strong emphasis on boosting consumption by households in the short term, but a number of measures – in particular the abandonment of the commitment to cut the company tax rate – will undermine businesses' ability to boost productivity and growth over the longer term.

Manufacturers are undoubtedly among those that will see the scrapping of the company tax cut, which was to be financed from the Minerals Resource Rent Tax, as a major blow.

It will reduce incentives to invest and innovate and is a particular setback for those businesses in non-mining trade-exposed industries.

Manufacturers need to be able to invest in lifting productivity to overcome the impacts of the strong Australian dollar, weaker global demand and the impending carbon tax.

The lack of commitment from both sides of politics to reach a consensus on business tax reform is deeply disappointing, as Australia clearly needs an agreed long-term path to substantially lift the competitiveness of the business tax system.

The Government sought to soften the blow of failing to deliver the 1% company tax cut by giving incorporated businesses the ability to claim back tax losses against previous profits, with effect from 2013.

This will be worth an estimated $713m over four years, but its impact will primarily be felt in the later years and it will not provide immediate relief.

There were also a number of other positive developments for industry to take from the 2012-13 Budget announcement, these included initiatives in the areas of skills, education and training, a commitment to a higher permanent immigration intake of 190,000, and initiatives to boost skills excellence and manufacturing innovation.

Higher education, vocational training, education and workforce participation programs were largely quarantined from cuts.

The participation of older workers was highlighted, and general workforce participation will be encouraged by raising the tax free threshold for low income earners.

A $54m package investing in initiatives to boost student enrolments in maths and science and the professional development of teachers is a welcome development, as escalating skills shortages in these core subject areas are having a significant impact on a broad range of industry sectors.

Further, $29.8m has been allocated over four years for the establishment of a Manufacturing Technology Innovation Centre (MITC) to better link business capability, innovation and commercialisation.

The MITC will create networks with manufacturers, industry bodies and research organisations to improve business performance through utilising new technologies, business processes and technical knowledge.

However, manufacturers will certainly be concerned by the significant cuts that have been made to defence spending, especially delays to the JSF.