SYDNEY: Australia should slash corporate and individual tax rates, and impose higher taxes on land and consumption, the International Monetary Fund (IMF) has recommended.
“Significant corporate income tax reductions in other large advanced economies”, namely the United States, is one factor which will have “capital flow implications” for Australia, according to the IMF.
The implication from the IMF’s comment is if the US successfully passes the Republicans’ proposed tax cuts, it would make America a more attractive place to invest. More capital would then flow to the US, at the expense of other countries with higher tax rates, like Australia.
The IMF also criticised the various states’ stamp duty tax regimes for being “inefficient” — as part of its annual health check of the Australian economy. “As demonstrated by the recent reform in the Australian Capital Territory, the transition can be gradual, which helps to avoid a disruptive impact on state revenues.” Overall, the IMF gave the nation’s economy a mixed scorecard.
The positives include Australia’s continuing transition from the mining boom despite “setbacks”, strengthening domestic demand growth, and employment growth picking up markedly since the start of the year. On the downside, the IMF warned that economic growth would probably be “modest”, especially with persistent low wage growth being a drag on household incomes and consumption.
In addition, housing unaffordability is likely to remain the norm for some time and “unlikely to be corrected soon”.
The fund also said the Federal Government’s budget repair strategy is “appropriately anchored by medium-term budget balance targets”. But it also said the Government’s hopes for strong wage growth seems a little optimistic, as the “rebound to trend might not be as quick as expected”.
