Pre-Budget Analysis: AMP Economist and Business Council Outline Fiscal Priorities Amidst 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, arising from conflict involving Iran, has created a volatile environment that Oliver argues could incentivize short-term populist spending rather than structural reform. He anticipates some form of cost-of-living relief but insists such measures must be modest and precisely targeted at low-income households and energy-intensive businesses at risk of failure. Oliver draws a parallel with pandemic-era stimulus, which he characterizes as timely but poorly targeted and excessive, thereby contributing to subsequent inflationary pressures. A central recommendation from Oliver is a substantial reduction in aggregate government expenditure. He notes that public spending across federal, state, and local levels has risen from a 40-year average of 22.5% of GDP to 28%, and advocates for cuts totaling approximately $102 billion. Specific areas identified for reduction include the National Disability Insurance Scheme (NDIS), the public service, and increased means-testing of welfare. The government has already signaled NDIS reforms that would remove at least 160,000 participants by 2030. Oliver further advises that any revenue windfall from elevated energy, iron ore, and gold prices should be largely saved. The Business Council of Australia echoes concerns about poorly targeted spending, pointing to billions allocated to health, aged care, electricity rebates, and home battery subsidies that are largely not means-tested, while welfare payments lag. Council chief Bran Black describes a pattern of taxing middle- and higher-income households only to return the funds via subsidies, increasing what he terms 'welfare churn'. On taxation, Oliver distinguishes between genuine reform and ad-hoc revenue increases. The government has flagged potential 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 each proposal has merit—for instance, the 50% capital gains discount is overly generous, and trusts can facilitate unfair advantages—but warns that if these constitute the entirety of the budget's tax agenda, they represent a tax hike rather than comprehensive reform. He argues Australia's over-reliance on income tax (62% of revenue versus 35% in other OECD countries) necessitates a shift toward a higher GST, lower personal tax rates with higher thresholds, and replacement of stamp duty with a broad-based land tax, though he concedes such changes require political courage. Productivity stagnation is identified as a critical impediment to living standards. Oliver notes that output per hour worked has plateaued over the past decade. Black attributes this to excessive regulation, citing examples such as a Victorian café requiring 37 licenses and approvals before operation, and a tradesperson needing hundreds of dollars in permits to work across state borders. He contends that such duplication imposes costs ultimately borne by businesses and consumers, and that reducing regulatory overlap would help lower prices amid global volatility. Finally, Oliver calls for reform of the Charter of Budget Honesty, introduced in 1998 to promote transparency. He argues its effectiveness has been eroded by the proliferation of 'off-budget' spending, where expenditures labeled as 'investment' obscure the true fiscal position while still adding to public debt. He recommends that projects justified on grounds of domestic manufacturing or supply-chain resilience undergo independent cost-benefit analysis by bodies such as the Productivity Commission, to prevent taxpayer funding of politically attractive but economically dubious initiatives.
Conclusion
As the government prepares its budget, the recommendations from Oliver and the Business Council present a coherent 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 serves as a stabilizing force or exacerbates existing economic pressures.