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Australia Needs Broader Tax Reform
Australia Needs Broader Tax Reform

Australia Needs Broader Tax Reform

Australia Needs Broader Tax Reform

The International Monetary Fund has backed the Australian government’s pursuit of a lower corporate tax rate, but has again called for a broader tax reform package.
The IMF estimates broad-based tax reform could boost economic growth by at least a further 1.3 percentage points through lower corporate and personal income taxes, while increasing the GST and introducing a land tax, AAP reported.
The government’s aim to reduce the corporate tax rate to 25% would grow the economy by up to 1% but only when fully implemented in a decade’s time, according to the treasury.
“For a country like Australia looking at the international standing of corporate tax rates is important and we would endorse that,” the IMF’s Thomas Helbling said after the annual assessment of Australia was released on Wednesday.
But he said there are inefficiencies in the current taxation system, with corporate and personal taxes relatively high, while land and consumption are taxed relatively low. He believes there is also scope to reduce “generous” tax exemptions, some of which are not means-tested.
Treasurer Scott Morrison said the report reinforced the need for Australia to maintain its international competitiveness. “The report notes that Australia’s corporate tax rate is currently in the top tier of advanced economies,” Morrison said in a statement, but he did not comment on the IMF’s call for broader tax reform.
Two years ago, Prime Minister Malcolm Turnbull ditched a plan to raise the GST as a funding mechanism for broad-brush tax cuts because modeling showed it would lift growth by just 0.3%.
The IMF report suggests while there are concerns about raising tax on consumption, or the GST, at a time of low wage growth, this could be addressed by broadening its base.
Helbling told reporters via a teleconference that moving to a land tax from stamp duty would be more efficient and improve the functioning of the housing market. However, the report concedes any change would have to be gradual, given the importance of stamp duties to state revenues and the additional burden on existing property owners.
The IMF also believes lower capital gains discounts and limits to negative gearing for investors are “desirable”.
The report also warned that wage growth in Australia is “weak” and inflation is “below its target range”.

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