A peak employer group has warned that tax increases are inevitable if the Federal Government does not undertake “fiscal repair” in its upcoming budget.
The Australian Industry Group (Ai Group), in its 2026-27 pre-budget submission released this week, says the 2025 economic recovery is welcome but remains fragile.
“The Australian economy is at a critical juncture, with the burdens of high inflation, low productivity and regulatory complexity weighing on the prospects for a sustained recovery,” the submission says.
“The 2026-27 Budget should make regulatory reform its centrepiece to drive a new round of investment and raise our national economic potential.”
Ai Group says the Federal Budget is also under mounting pressure because of the increase in spending since the COVID-19 pandemic.
“Unless fiscal repair is undertaken now, additional increases to taxation that further stifle economic recovery become inevitable,” it says.
“The spending path of high-growth programs needs to be better controlled to restore budget sustainability, while revenue losses, such as from the emerging trade in illicit tobacco, should be recognised and addressed.”
Ai Group says the return of inflationary pressures and below-average productivity growth is limiting the potential of the economy.
The best way to address this was “an ambitious and achievable package of regulatory reforms”.
“The regulatory burden on the Australian economy has been steadily growing, as poorly-designed compliance regimes multiply across state and federal governments,” the submission says.
“Reforming these systems provides an opportunity to lift investment, productivity and technology in a fiscally-constrained environment.”
The submission calls for the 2026-27 Federal Budget to do the following.
- Support the transition from public to private sector-led growth by prioritising reforms which raise business investment levels
- Improve fiscal sustainability by managing the future path of high-growth spending programs
- Raise resourcing to combat the trade in illicit tobacco to address risks to public health and the budget
- Accelerate and resource the Single Economic Market reforms agenda to reduce regulatory burden, including adoption of the ‘tell-us-once’ regulatory principle
- Reduce the company tax rate to 25 percent to restore Australia’s international tax competitiveness and drive increased business investment
- Rationalise and simplify Australia’s system of business taxation, to reduce the compliance burden of overly-complex tax arrangements
- Continue the reform “nuisance tariffs”, with a focus on those identified by the Productivity Commission but not captured in initial tranches of reform
- Moderate energy costs through reforms to better coordinate demand and deliver faster project approvals
- Move towards the adoption of a comprehensive national Road User Charge to promote tax sustainability and advance the energy transition in transport
- Ensure Australia has the skilled workforce to meet future needs through supporting more employers to employ more apprentices and trainees and boosting education and training in the workplace context
- Adopt a productivity-enhancing approach to care sector funding arrangements
- Accelerate and resource National Construction Code modernisation to deliver productivity, cost and innovation uplifts in the housing sector
The full submission is here
