IMF: Australia Needs More Tax and Lower Interest Rates

The IMF has called on the government to cut company tax, end bracket creep and boost infrastructure spending to help insulate the economy against the biggest slump in the terms of trade in 150 years and the prospect of a further economic deterioration in China. As the nation’s policy heavyweights gather in Canberra at the Prime Minister’s request to forge a path of economic reform, the IMF has called for an “ambitious reform agenda” to pull Australia’s sub-par growth rate back up to its trend rate of 3 per cent.

While acknowledging there are “few low-hanging fruit”, the IMF focused on cuts in personal and corporate income tax, to be paid for by “broadening the base of the GST — receipts from which are low by international standards — and possibly raising the rate, while at least fully compensating those on lower incomes through lower income taxes and higher transfers”. While supportive of the Coalition’s plan to return the budget to surplus in the ‘medium-term’, it played down the urgency suggesting the existing trajectory that will see a small federal surplus around 2023 was too “front loaded, given ample fiscal space”, suggesting more borrowing to invest in infrastructure.

“Boosting public investment would support demand, take the pressure off monetary policy, and insure against downside risk,” it said, arguing the commonwealth should consider guaranteeing state government borrowings to encourage states to invest. While forecasting no recovery in iron or coal prices from their current low levels, the IMF is nevertheless broadly optimistic about Australia’s outlook, anticipating a “cyclical recovery” that will see Australia’s economic growth accelerate from a disappointing 2 per cent over the year to June to 3.1 per cent by 2017, as the unemployment rate falls steadily to 5.5 per cent by 2020.

The Australian