OECD presses for rise in GST rate, broader mining tax
THE Organisation for Economic Co-operation and Development has urged the government to consider raising the GST and widening the mining tax, to shore up the budget's long-term health.
In its latest review of the nation's economy, published on Friday, the Paris-based group also gave Treasurer Wayne Swan approval to delay the return to budget surplus this financial year if the economy deteriorates more than expected.
With growth of the $50 billion-a-year GST slowing due to weaker household spending, the OECD said the tax rate of 10 per cent was low compared with other countries.
It urged the government to look at raising the GST rate, and removing exemptions for fresh food, medical services and school supplies.
It also said the mining tax - which is only levied on to coal and iron ore miners - should be broadened to apply to other natural resources, and corporate taxes be cut.
The suggested policies are just a few of the broad-ranging reforms the OECD said Australia needed to consider in order to ensure the economy continues to benefit from Asia's industrialisation.
"Tax reforms, including a lower corporate tax rate, a broader resource rent tax and more efficient state taxes would facilitate ongoing structural adjustments," it said.
The federal government has ruled out raising the GST, but is under growing pressure to consider changing the tax from business and cash-strapped state governments, which receive all GST revenue.
The OECD said Australia was weathering the aftermath of the global financial crisis well, and its public finances were in "much better shape" than most developed countries.
However, it said the government should abandon its promise to deliver a surplus of $1.1 billion in 2012-13 if the economy weakened more than expected.
"In case of a sharper-than-expected cyclical weakening, the central bank should loosen further and the fiscal automatic stabilisers should be allowed to work, even if this postpones the return to budgetary surplus," it said.
The comments come amid reports the Treasury has advised the government to abandon its return to surplus this year, after figures last week showed weakening growth and a decline in national income.
Market economists also say the government should be prepared to ditch its surplus pledge - which will require a budget tightening equal to 3 per cent of the economy in one year. Prime Minister Julia Gillard on Friday dismissed calls for the surplus pledge to be abandoned, and said next May's budget would provide a detailed plan of how it would meet its spending, including for the Gonski school reforms and disability insurance scheme.