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Can the budget boost business confidence?

Wednesday, 8 Apr 2015 ( #713 ) - Australia
Local News Story
Glenn Stevens, Governor of the Reserve Bank of Australia.
The hope that consumer confidence would get a boost by a rate cut this month was dashed after Tuesday’s surprise decision by the Reserve Bank to keep the cash rate unchanged at 2.25%. The move shocked some in the market who felt a cut was inevitable as a result of the plunge in iron ore prices.

However, in his statement on Tuesday, Reserve Bank governor Glenn Stevens did go on to say that "further easing of policy may be appropriate over the period ahead", cementing the view among most analysts that a rate cut was still likely, and would probably occur in May.

Commenting on the decision by the Reserve Bank to keep rates steady, Business Day contributing editor Michael Pascoe wrote, "As the Reserve Bank knows better than anyone, the missing ingredient for the Australian economy is business confidence: the (willingness) to invest in a new employee, a new piece of equipment, to have a crack."

Igniting business confidence is certainly the key and it’s something the government is desperate to achieve.

With the speculation of a rate cut off the table for the time being, attention has turned to next month’s federal budget and whether it can spark some enthusiasm in the business sector.

While it’s hard to get too excited about a budget that prime minister Tony Abbott has vowed will be "prudent, frugal and responsible", small business can, at least, look forward to his promise that there will be much in it for them.

According to comments made by Abbott at a press conference last month, small businesses will get the tax cut they have been yearning for "because we want to unleash the creativity of our small business people and the best way to do that is for the dead hand of Government to rest less heavily upon them". News spoke to independent forklift dealer Ross Grassick of Lencrow Group who says that whatever budget is put forward in May by the government, it must show balance to people’s living situations as well as give confidence back to business.

"The Australian economy is the biggest business in this country, yet it is treated like a pawn in the game of government," says Grassick.

"The budget must be commercial and the outcome will not suit all parties, with a main aim to make Australia prosper into the future - not just for the term of office. The way the last budget was handled by both houses showed a lack of vision for the future."

On the issue of encouraging capital expenditure, Grassick says government should provide a short-term investment allowance on new equipment to help clear the excess equipment which has resulted from the slump in mining activity. "This will have a flow onto the used equipment sector. This could be backed up with an increase in tariffs on used equipment and grey imports."

John Flinn, MD of Hystandard Handling Equipment, says he’d like to see the May federal budget include some incentive for business to take on and train the next generation of tradespeople. It’s an issue about which  Flinn is passionate.

He tells News that his company employs two apprentices each year in Sydney and two in Melbourne. "There is a drop-out factor as the industry is not for everyone; but overall, numbers are not encouraging."

Flinn says the industry, as a whole, needs to start putting something back and stop relying on a few forklift companies to continue investment in Western Sydney youth.

On the issue of how the budget could encourage investment in new equipment, Flinn says that whatever it contains, it needs to be one that can "substantially get through the Upper House so that business can gauge a level of certainty - that seems to be the thing that is lacking".

He says while he believes that confidence is re-growing, business needs certainty in direction from government so that it can plan for, at least, the short to medium term.

In the aftermath of Tuesday’s rate decision, the Australian Chamber of Commerce & Industry signalled its view ahead of next month’s budget that economic reform is essential for Australia’s long-term benefit.

"Past giants of economic reform did what was right for the long-term benefit of Australia and not because it was politically expedient - it very rarely, if ever, was. They shared a commitment to the national good and emerged from both the Liberal and Labor parties and even the Senate cross-benches.

"There is no escaping that reform is hard and often unpopular in the short term, but achievements by those who came before show that long-term benefits can be achieved if approached in the right way. Our message to today’s leaders is simple: governing is not just the responsibility of government, it is the duty of all members of Parliament, and we must stand on the shoulders of reform giants before it is too late."

With Tony Abbott confirming that next month’s budget "certainly will be much less exciting than last year's … and inevitably, it will be a much less exhilarating budget for those who are budget devotees and structural reform enthusiasts", it’s hard to imagine how ‘dull and routine’ will boost anyone onto the shoulders of reform giants.
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