Manufacturing News

Rising inflation offers many challenges ahead

IT’S been more than a decade since Australia has confronted a significant inflation threat.

Many younger manufacturers haven’t experienced the pressures that accompany accelerating inflation — rising interest rates, increased business costs and higher wages — but unfortunately it’s something they have to contemplate now.

Over the past few months, Ai Group has been vigilant in calling on both the Australian Fair Pay Commission and the Federal Government to act with restraint with regards to the 2008 Minimum Wage Review and the Federal Budget respectively.

It’s vitally important for both the Review and the Budget to be approached with a great deal of caution, particularly given the present volatile global economic conditions.

In our submission to the Minimum Wage Review, we proposed a responsible minimum wage increase of $13.30 a week, representing a rise of 2.5%. However, when combined with the July 1 tax cuts, this will amount to around $20 or 4.1%.

Even higher benefits result for most low income families with children. A single income family earning the minimum wage and with two children will receive an increase of more than $27 once the tax cuts and changes to the Family Tax Benefit are taken into account.

It’s important for the Fair Pay Commission to steer away from a wage increase that’s too high when it makes its decision in July. An excessively high outcome will only fuel inflationary pressures and place further upwards pressure on interest rates, harming the very people the minimum wage review process is intended to benefit — the low paid.

A similarly challenging balancing act is needed for the 2008/09 Budget process. Our recently released report How Fast Can Australia Grow? Mark III estimated we are on track for a decade of sub 3% growth a year in GDP, a figure that highlights the profound importance of taking action now to boost our economic capacity.

In our pre-budget submission, we support the full delivery of the previously promised income tax cuts, believing those tax cuts are a far more cost effective and less economically risky means than wage rises of expanding economic capacity by stimulating workforce participation.

We also propose higher and better focussed investment in education and training; the delivery of already promised investments in infrastructure; boost Australia’s business capabilities and innovation performance; improve export facilitation programs; and at least maintain current levels of net migration.

We also called for the Budget to be used to kick-start the process of preparing the economy for the adjustments required by climate change. Australian business supports progress on a domestic Emissions Trading Scheme.

However, the Scheme will leave many businesses and their employees in trade-exposed industries operating at a disadvantage relative to competitors abroad and it will require a massive investment effort by the business community as products and processes are re-evaluated and re-engineered.

To deal with these issues, we are calling for a phased reduction in the company tax rate to 25% by 2010, the year in which the Emissions Trading Scheme comes into operation; active programs to inform business and households of energy saving and emission reduction opportunities; and measures to expand the capacity of environmental advisory networks.

All of our proposed Budget measures need to be delivered in a fiscally responsible way that addresses inflationary forces and relieves pressure on interest rates.

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