Business group calls for kind budget

The federal government is being urged to go easy on funding cuts and tax hikes in its budget as the nation grapples with a weakening economy.

This is the message from the Australian Industry Group (Ai Group) in its submission to the coalition ahead of the May budget.

"The reality is the economy at present is very unlikely to withstand big aggregate spending cuts or tax increases in 2014-15 without provoking slower growth and lower revenue collections," Ai Group boss Innes Willox said in a statement.

As business manages the wind down of the mining boom the coalition government's first budget will be an important driver of confidence and should address productivity and competitiveness, he added.

The Ai Group wants funding for skills and jobs programs to be maintained and in some instances increased, with more money for business research and innovation.

Defence spending should increase to two per cent of GDP from the current 70-year low of 1.59 per cent, to offer security for Australia's naval shipbuilding industry, Mr Willox said.

The government should also give consideration to the Productivity Commission's recommendations on public infrastructure measures including the revision of "onerous" tendering processes and the thorough cost-benefit analysis of all spending.

The range of measures will ease budgetary pressures in coming years, Mr Willox said.

"This will ultimately help the fiscal consolidation objective by growing the tax base and assisting the recovery in tax revenues."