OECD Recommends Major Tax and Housing Reforms for Australia
The Organisation for Economic Co-operation and Development (OECD) has released its annual economic survey of Australia, urging the Albanese government to implement significant reforms to address longstanding fiscal and social challenges. The report, led by former Liberal senator Mathias Cormann, highlights the need for tax system adjustments and enhanced housing affordability measures as the economy transitions to a post-pandemic normalisation phase.
Broadening the GST and Tax Reform Proposals
In a key recommendation, the OECD advocates for broadening the Goods and Services Tax (GST) and considering an increase in the rate above the current 10%. The organisation suggests that the additional revenue generated should be utilised to reduce Australia's heavy reliance on personal income tax, which it views as an inefficient burden on households and businesses.
The report estimates that implementing this tax reform could expand the economy by approximately 1.6% over the next decade. It emphasises the importance of expenditure restraint and revenue-enhancing tax reforms to place the federal budget on a more sustainable trajectory, noting that recent updates confirm deficits are projected to persist over the coming years.
Addressing the Housing Affordability Crisis
The OECD identifies Australia's increasingly unaffordable housing market as a critical issue, supporting federal and state-level initiatives to boost home supply. Recommendations include easing land restrictions, increasing urban density, and replacing state-based property stamp duties with a land tax to improve efficiency and fairness.
Furthermore, the organisation calls for raising targets for social housing and increasing public funding, pointing out that social housing currently accounts for only about 4% of Australia's housing stock. This figure has declined from 6% in 1990 and is roughly half the OECD average, contributing to problems such as overcrowding, financial strain, and reduced labour mobility.
Climate Action and Emissions Reduction Efforts
While acknowledging that Australia is broadly on track to meet its 2030 emissions reduction goals, the OECD stresses that further efforts are necessary. The report highlights the need to reduce transport emissions, manage a higher share of renewables in the energy mix, and tackle agricultural emissions more effectively.
It advocates for a gradual increase in petrol taxes, which are currently well below European levels, to encourage the adoption of low-emission vehicles. The OECD notes that Australia has made relatively rapid progress on the energy transition in recent years, but still faces challenges due to historically high per capita carbon emissions and low implicit carbon prices.
Economic Outlook and Productivity Challenges
The survey indicates that Australia's economy is now normalising after a period of weak growth following the pandemic. Interest rate cuts and a rebound in households' real disposable incomes are expected to drive average economic growth to a little more than 2% over the coming years.
However, the OECD warns that longstanding challenges such as slower productivity growth, high housing costs, and high carbon emissions must be addressed to ensure sustainable development. The organisation's recommendations aim to foster a more resilient and equitable economic environment, leveraging tax reforms and targeted investments in housing and climate initiatives.
