I know its late in the week and year, not to mention late in the cycle, but the OECD’s December Australian Review has suggested Australia pursue some policy reforms close my own heart:
MACROECONOMIC POLICY
- Delay return to budget surplus if economy slows faster than expected
- Consider creating a stabilisation fund to better insulate public spending from revenue changes caused by volatile terms of trade
TAX REFORM
- Reduce corporate tax rate and a possibly extend loss carry-back scheme to unincorporated firms
- Review tax credit for business for excise taxes on fossil fuels in sectors not covered by the new carbon tax
- Broaden the minerals resource rent tax coverage
- Consider replacing state royalties with a mining rent tax modelled on the federal approach, allowing states to set their tax rates
- Rationalise other state taxes such as reducing or removing conveyance duties
- Broaden the base of the goods and services tax (GST) and consider increasing its relatively low rate
While support for a broadened resource rent tax and SWF is welcome, one wonders how well this has been thought through. One of the rationales for a federal level resource rent tax is that it removes the vulnerability that states have in competing with one another for investment. That is, one federal body has more power to negotiate a better deal than many smaller entities. As well, having eight different and complex rent taxes running simultaneously at state and federal levels is the greatest avalanche of red tape in the history of taxation, even if a profits-based tax regime would be better for mining in theory.
And surely the OECD is joking when it suggests that this might help folks feel the boom is being more fairly distributed. How the Hell would anyone know under this proposed regime of uber-complexity?
Raising the GST makes sense so long as there are offsetting cuts in income tax or inefficient taxes. Usually I welcome corporate tax cuts, but just passing raised GST revenues to the business sector when its facing a demand deficit born of household deleveraging isn’t going to boost investment metrics much when profits already suck.
But as these international bodies show over and again, never let common sense get the way of ideology.
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