The just-released OECD latest Economic Survey of Australia says it recognises the strong performance of the Australian economy and its resilience to the global economic crisis, but it noted that “activity has moderated” with GDP expected to grow by about 3% annually over the 2013-14 period.
The OECD says Australia needs to maintain flexible markets, introduce tax reforms and enhance its medium-term fiscal strategy, “so its economy is prepared to take full advantage of the wide-ranging changes taking place”. The OECD report said this means ending public subsidies for industries or sectors where the country no longer has a comparative advantage, including agriculture, automotive manufacturing and energy. Resulting budgetary savings could be used to fund a reduction in Australia’s 30% corporate tax rate, which the OECD said “remains too high”.
The OECD said the medium-term objective of reducing net debt was welcome, but the Government should also consider creating a stabilisation fund to capture mining-related revenues and insulate budget and spending decisions from commodity price swings.
Tax reform measures recommended by the report include:
- reduce the corporate tax rate;
- broaden the base of the GST and consider increasing “its relatively low rate”;
- possibly extend the loss carry back scheme to unincorporated firms;
- broaden the MRRT coverage;
- consider replacing state royalties by a mining rent tax modelled on the Federal approach, allowing States to set their tax rates.
[LTN 244, 17/12]