Cut taxes, add jobs, OECD tells Australia
21 February 2014
Posted by: Author: David Crowe
Author: David Crowe (The Australian)
JOE Hockey is being urged to cut the company tax rate and lift the nation’s productivity in a global report that challenges him to undertake big reforms just as he seeks commitments from others to do the same.
The findings come with a stark warning about the world economy including an alert about the danger of endemic unemployment in nations that do not reform in the wake of the global financial crisis.
The OECD conclusions, issued this afternoon at the G20 gathering of finance ministers in Sydney, will shape debate this weekend on reforms meant to lift the world’s economic growth.
While the report expressed most concern about struggling economies in Europe, the OECD urged changes in all advanced economies including those, like Australia, that are growing better than others.
"Weak global demand, pressures from budgetary consolidation and remaining dysfunctions in financial markets are exerting a drag on trade, investment and job creation, notably among smaller firms whose access to external sources of funding is often critical,’’ the report said.
"The current pace of activity thus reflects a combination of both cyclical weaknesses and structural deficiencies in policy settings, although the relative contribution of these factors is difficult to assess."
"Clearly, addressing financial market failures and restoring healthy banking-sector balance sheets particularly in the euro area remain top priorities.’’
The OECD, which is the peak economic observer of the world’s wealthiest nations, noted how well Australia had withstood the global financial crisis but nonetheless pointed out room for reform.
"The Australia weathered the global economic crisis relatively well and enjoyed robust growth in per capita income, fostered by favourable terms of trade and high employment rates,’’ said the report, called Going For Growth.
"However, as the mining boom recedes, GDP growth has eased and the economy is rebalancing away from the resources sector."
"Also, productivity gains have slowed in recent years and the level remains below that of leading OECD countries."
"Reforms to enhance investment in infrastructure and knowledge-based capital as well as to boost labour force participation would help to ensure that Australia’s good economic performance can be sustained in the long run.’’
The comments add to Australia’s domestic political debate over productivity growth as Labor and the unions point to recent official statistics to note that labour productivity is growing well, while business leaders warn of inefficiencies and urge a more flexible workplace relations regime.
The OECD findings would not reflect the most recent figures from the Australian Bureau of Statistics showing a rise in labour productivity.
The Going for Growth report includes an analysis of each OECD country and notes that Australia should tackle tax reform to lift the economy.
Australia should "improve efficiency of the tax system by reducing the comparatively high headline company tax rate and relying more to indirect taxes, such as goods and service tax (GST)’’ the agency concluded.
A table in the report showed that Australia’s direct tax burden, as a proportion of GDP, was above the average among OECD nations.
The OECD also said Australia should enhance investment in infrastructure by allowing more tolls and congestion charges.
This article first appeared on theaustralian.com.au.