The Business Council of Australia has called on the federal government to seek only modest savings in the May budget, avoid major new spending commitments that are not offset by cuts elsewhere and says gradual budget repair must start now, or risk harsh and inequitable cuts in the future.
And BCA chief executive Jennifer Westacott says a "tipping point" has been reached where reform must be implemented to avoid a decline in living standards.
In a coded rebuke to government, Ms Westacott said while the scale of repair proposed in the first Abbott budget was a modest $36 billion over a $4 trillion, four-year budget period, the question was "whether or not the policy choices were right choices, we supported some, others we thought needed more work".
Calling for a "fundamental reset" of the nation's fiscal strategy and budget process, the BCA's pre-budget submission urges both major political parties to come together and agree on a 10-year growth plan while also urging a pair of Productivity Commission reviews of health care, and the aged and retirement income system.
The 10-year plan would have four goals: preserving Australia's AAA credit rating, returning the budget to surplus, ensuring the sustainability of services and an adequate safety net and investing in productivity-enhancing infrastrcture.
The BCA, which represents Australia's largest companies, highlights in its submission data from the Parliamentary Budget Office that shows real spending growth is projected to grow 2.7 per cent a year over the medium term, with aged care costs expected to nearly double to $24 billion by 2024-25, spending on public hospitals to rise 40 per cent to $19 billion in the same period and childcare outlays to reach $8.5 billion, a 70 per cent rise.
Ms Westacott said that "no government or opposition can not believe that important reforms can and should be done, the alternative is to explain to the community why living standards will decline. This is fundamentally a living standards issue, we are at a tipping point where we have to change our spending trajectory to lock in living standards."
"We have to press the reset button, this is about transition and redesign of spending programs, we can't wait until the end of the decade. We need a modest correction in this budget, we certainly don't need more spending in this budget," she said.
Ms Westacott singled out waste and duplication in the health system, for example, which needed to be trimmed but "has to be done properly and ensure protection for the vulnerable".
She added that any changes to the health or pension systems would require a lot of work and consultation with the community because "otherwise the community will reject it" and said the recently released McClure review of the welfare system provided a "fantastic road map" for government.
The Abbott's government's medium-term changes proposed to the health and pension systems in its budget were some of the least popular.
The submission states that "Australia's $40 billion deficit has been 10 years in the making. It is structural, not a cyclical blip that will remedy itself" and suggests a return to surplus in 2019-20 is "optimistic" as revenues fall and spending rises.
And the council also warns in its submission that simply allowing bracket creep in the income tax system, which would see people slowly move into higher tax brackets, would take two decades to return the budget to surplus while also acting as a dead weight on the economy.
"Spending is the main driver of the structural deficit and only a slower spending trajectory can fix it at its source. Only spending redesign can ensure that the community's scarce resources are being used to deliver the best value for money," the submission noted.
The submission notes that global financial crisis helped cause a $70 billion deterioration in the budget in two years and that if another crisis hit, Australia's starting point would be a $40 billion deficit and net debt of 15 per cent - a far weaker position than in 2008 when there was a $20 billion surplus and zero debt.
