OECD welcomes Mid-Year Economic and Fiscal Outlook restraint, but urges GST increase
The Coalition came to power with a promise of budget repair, but what was already going to be a long-term process has become even longer.
In his mid-year budget update on Monday, Treasurer Joe Hockey said it would now take until the 2020 financial year to reach a surplus.
Despite this, the Paris-based Organisation for Economic Cooperation and Development (OECD) - a club of the advanced economies - is not worried.
"The key is getting the right pace of fiscal consolidation," said the economist heading the OECD's Australia desk, Philip Hemmings.
He said that pace needs to slow down as iron ore, coal and gas prices tumble.
"What's going on at the moment is a larger than expected fall in the commodity prices, and it's appropriate for fiscal policy to be accommodative in these circumstances," he said.
However, the OECD's annual report on Australia also argues that does not mean the nation should not worry about this year's forecast $40 billion-plus deficit, or those to follow over the five years after that.
"In the Australian context, we would emphasise that what's very important is that there are very large fiscal buffers for Australia because of its exposure to commodity market developments," Mr Hemmings said.
Even though Australia has only around a third of the public debt of an average OECD member country, Mr Hemmings explained that a high level of private debt and reliance on overseas funding means federal and state governments should be more conservative in their borrowing than other developed nations.
Increase the GST, cut super concessions: OECD
Mr Hemmings suggested one key tax change that would help balance state and federal budgets without damaging the economy.
"One of the key rooms for improvement in the Australian tax system is if it can be shifted away from taxes on income and towards taxes on consumption," he said.
"In particular, we think there is room to increase the revenues raised from the goods and services tax, either by raising its rate or by widening its base."
Another area of growing spending is superannuation tax concessions, estimated by this week's Mid-Year Economic and Fiscal Outlook to cost the budget $36 billion this financial year, and around $50 billion annually in three years' time.
"We do see room for reform for instance in the way in which is superannuation is taxed or, rather, the exemptions on superannuation payouts that operate in Australia, so there's room for some tax savings on that front," Mr Hemmings said.
On the fiscal front, the OECD's report also lends support to the prospect of extending land taxation to owner-occupiers, the Minerals Resource Rent Tax recently scrapped by the current Government and also a "stabilisation fund" to quarantine extra revenue during boom times to help offset downturns.
Those recommendations should give more food for thought for the Federal Government's planned tax review, due to report towards the end of next year.
The OECD has given the Government other things to think about too.
It has warned that the proposed change to unemployment benefits for those under 30 years of age, as well as planned university fee deregulation, needs to be monitored closely to ensure they do not disadvantage and further marginalise lower socio-economic groups.
