It is critically important the Turnbull government sets a clear path to a sustainable budget, but the Australian Industry Group has warned against excessive spending cuts or tax increases in the next financial year.
In its 2016/17 budget submission, the Ai Group says while business conditions have improved over the past six months or so, they remain disproportionately exposed to downside risks.
That includes a loss of confidence and demand if fiscal policy is tightened excessively, the group's chief executive Innes Willox said on Monday.
"The budget should not shy away from making headway into what is clearly an unsustainable fiscal
trajectory, but the timing of the impacts should recognise the tentative nature of the rebuilding under way in areas of the economy outside the mining and energy resource sectors."
He says the economy faces significant pressures from low productivity, entrenched demographic trends and an over-reliance on volatile commodity prices.
Among its proposals, the group calls for investment in skills and education, an increase in rigorously assessed infrastructure project investment, and a migration program with a strong emphasis on skilled workers, while lifting the Syrian refugee intake.
It also calls for additional revenue for the emissions reduction fund and a commitment to defence investment that provides opportunities for Australian businesses.
Mr Willox said with tax reform now part of the budget process, he restated his call for a reduction in the company tax rate that would lift investment and productivity, and result in higher wages and living standards.
Replacing highly inefficient state taxes would also assist in removing blockages to doing business and employment creation.