A budget surplus voters won't wear

The OECD has told Wayne Swan how he could run a $100 billion surplus if he wants one.

The OECD has told Wayne Swan how he could run a $100 billion surplus if he wants one.

THE OECD has told Wayne Swan how to get his budget back into surplus. Indeed, it has told him how he could run a $100 billion surplus if he wants one. But there's a catch - most of its suggestions would be political dynamite.

They include scrapping tax breaks for superannuation and for owner-occupied housing. An emissions trading scheme with a target of a 20 per cent cut from 1990 levels - and no compensation. A GST imposed on food, healthcare and financial services.

But in a new report to its 35 member countries, Fiscal Consolidation: how much, how fast, and by what means?, the IMF does not call on Mr Swan to do any of this in 2012-13. It says fiscal tightening must take account of economic growth in ''a consolidation strategy that could be implemented flexibly, capable of adjusting the speed and intensity as new information becomes available''.

International Monetary Fund chief Christine Lagarde gave the same advice overnight in a speech in Washington, urging countries that ''have the flexibility to reconsider the pace of deficit reduction this year, to limit the harm to growth.

''We need more confidence and demand,'' Ms Lagarde said. ''The immediate focus of policies must therefore be to support growth where it is still weak.

''Let me be clear: in many countries, especially in the advanced economies, fiscal adjustment is essential. But the pace of adjustment matters.''

The OECD report finds Australia has the lowest government debt of any of the 28 rich countries studied. Gross debt is a bit over 20 per cent of GDP here, compared with almost 100 per cent in the United States and more than 200 per cent in Japan.

The main thrust of the OECD report is to warn countries to adopt medium to long-term plans to get their debt back below 50 per cent of GDP, to give them the flexibility to handle crises at the same time as dealing with the costs of ageing populations.

Even Australia, it warns, will need to tighten its budget to cope with the healthcare, aged care and pension costs as its population ages. An IMF report earlier this week reported that the life expectancy of 60-year-olds in Australia is increasing at the rate of nine years every half-century.

The IMF suggests six reforms it estimates could improve federal and state budget bottom lines by 8.9 per cent of GDP, or roughly $138 billion a year. But few appear politically feasible. They include:

?Cut the greenhouse gas emissions target to 20 per cent below 1990 levels, driving up emissions permit prices, with no compensation (saving: $65 billion a year).

?Scrap tax breaks for superannuation and owner-occupied housing ($42 billion).

?Extend the GST to food, healthcare and financial services ($9 billion).

?Tighten eligibility for family benefits ($8 billion), and find savings in healthcare ($8 billion) and schools ($6 billion).

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