Home > media > Australia needs to hike the GST if it is to grow more, says the OECD

Australia needs to hike the GST if it is to grow more, says the OECD

March 19, 2017

Australia needs to hike the GST if it is to grow more, says the OECD

Karen Gilchrist, CNBC, 2 March 2017

Australia’s economy has adjusted well to the end of the commodity boom, however sustained growth will require a shake-up of current tax policy, the Organisation for Economic Co-operation and Development (OECD) has said.

Fiscal reform which shifts away from corporate income tax and “inefficient taxes” and instead raises the Goods and Services Tax (GST) and land taxes, is one way to support the economy as it adjusts to the global risk of a “low growth trap”, the report on the country said.

Australian GST is a value added tax of 10 percent on most goods and services sales. It is currently levied on most transactions in the production process but is refunded to all parties except the final consumer. Land tax is imposed on owners of freehold land.

Commodity prices peaked in 2011, before reaching their lowest level in over a decade in mid-2015.

Given the economy’s exposure to the swings of the global commodity markets, the OECD also recommended a spending ceiling during boom periods, which would help manage debt in the long term.

“The economy is now rebalancing following the end of the commodity boom,” notes the report. However, combatting inequality must remain front and centre of the country’s political agenda, the OECD recommended.

Real incomes for the top fifth of Australian households grew by more than 40 percent between 2004 and 2014 while those for the lowest fifth grew by approximately 25 percent over the same period.

At approximately 18 percent, Australia’s gender wage gap is marginally higher than the U.S. and the U.K. (both 17 percent), and significantly higher than New Zealand’s (6 percent).

“Australia’s adjustment to the end of the commodity boom has not been painless,” the report continues.

“Unemployment has risen, and inequality is rising. In addition, large socioeconomic gaps between Australia’s indigenous community and the rest of the population remain.”

It recommends introducing innovation programs and adjusting regulation to encourage market entry by new businesses and reduce the dominance of incumbents.

“Developing innovation-related skills will be important for the underprivileged and those displaced by economic restructuring and can help reduce gender wage gaps,” the report added.