Pre-Budget Analysis: AMP Economist and Business Council Outline Fiscal Priorities Amid Global Oil Supply Shock
Introduction
The Australian federal budget, scheduled for delivery on May 12, has become a focal point for economic debate as global fuel market disruptions intensify. AMP chief economist Shane Oliver and the Business Council of Australia have issued separate assessments identifying key fiscal measures they consider necessary to mitigate cost-of-living pressures and restore economic stability.
Main Body
The current global oil supply disruption, caused by conflict involving Iran, has created a volatile economic environment. According to Oliver, this situation could encourage short-term populist spending rather than structural reform. He expects some form of cost-of-living relief but insists that such measures must be modest and precisely targeted at low-income households and energy-intensive businesses that are at risk of failure. Oliver compares this to the pandemic-era stimulus, which he describes as timely but poorly targeted and excessive, and which contributed to later inflationary pressures. A key recommendation from Oliver is a significant reduction in total government spending. He points out that public spending across federal, state, and local levels has risen from a 40-year average of 22.5% of GDP to 28%, and he advocates for cuts of about $102 billion. Specific areas for reduction include the National Disability Insurance Scheme (NDIS), the public service, and increased means-testing of welfare. The government has already announced NDIS reforms that would remove at least 160,000 participants by 2030. Oliver also advises that any extra revenue from higher energy, iron ore, and gold prices should be largely saved. The Business Council of Australia shares concerns about poorly targeted spending, noting that billions allocated to health, aged care, electricity rebates, and home battery subsidies are largely not means-tested, while welfare payments lag behind. Council chief Bran Black describes a pattern of taxing middle- and higher-income households only to return the funds via subsidies, creating what he calls a 'welfare cycle'. On taxation, Oliver distinguishes between genuine reform and one-time tax increases. The government has suggested possible changes to capital gains tax concessions, a minimum tax on trusts, an export levy on gas producers, and road-user charges for electric vehicles. Oliver acknowledges that each proposal has some merit—for example, the 50% capital gains discount is too generous, and trusts can create unfair advantages—but he warns that if these are the only tax changes in the budget, they represent a tax increase rather than comprehensive reform. He argues that Australia's heavy reliance on income tax (62% of revenue compared to 35% in other OECD countries) requires a shift toward a higher GST, lower personal tax rates with higher thresholds, and replacing stamp duty with a broad-based land tax. However, he admits that such changes require political courage. Productivity stagnation is identified as a major obstacle to improving living standards. Oliver notes that output per hour worked has not grown over the past decade. Black attributes this to excessive regulation, giving examples such as a Victorian café needing 37 licenses and approvals before opening, and a tradesperson requiring hundreds of dollars in permits to work across state borders. He argues that such duplication creates costs that are ultimately passed on to businesses and consumers, and that reducing regulatory overlap would help lower prices during global volatility. Finally, Oliver calls for reform of the Charter of Budget Honesty, introduced in 1998 to promote transparency. He argues that its effectiveness has weakened due to the growth of 'off-budget' spending, where expenditures labeled as 'investment' hide the true fiscal situation while still increasing public debt. He recommends that projects justified by domestic manufacturing or supply-chain resilience should undergo independent cost-benefit analysis by bodies such as the Productivity Commission, to prevent taxpayer money from funding politically attractive but economically questionable initiatives.
Conclusion
As the government prepares its budget, the recommendations from Oliver and the Business Council present a clear set of fiscal priorities: targeted relief, substantial spending cuts, genuine tax reform, productivity-enhancing deregulation, and improved budgetary transparency. The extent to which the government adopts these proposals will determine whether the budget acts as a stabilizing force or worsens existing economic pressures.