The International Monetary Fund has piled pressure on Treasurer Josh Frydenberg to pursue serious tax reform, arguing the economy would grow faster and more equitably after the pandemic if the corporate tax rate was cut and tax breaks for debt-fuelled housing were curtailed.
The 10 per cent goods and services tax should be increased and/or broadened to cover some items currently exempted, while compensating low-income households with payments, the IMF said in its review of Australia’s economy.
The IMF’s Article IV review of Australia urged state governments to switch away from stamp duties on property purchases and towards annual land tax based on value, to encourage people to move for jobs and to give states a more predictable revenue stream.
To improve housing affordability, the IMF said tax reforms to “discourage leveraged housing investment by households could help dampen investor demand in residential real estate” – an implicit endorsement of Labor’s 2019 election policies to curtail the capital gains discount and negative gearing, which Labor has since dumped.
Local governments could be offered financial incentives by federal and state governments to streamline planning and zoning approvals to boost the supply of new homes, the IMF said.
The IMF became the second independent international organisation in the past two days to highlight Australia’s over dependence on taxing corporate and personal income, and under-taxation of more efficient tax bases such as consumption and land.
Organisation for Economic Co-operation and Development analysis showed Australians are paying more personal income tax as a share of government revenue than any other advanced economy, except for the high-taxing Scandinavian welfare state of Denmark.
The high dependence on personal and corporate tax was offset by an under-utilisation of consumption taxes such as the GST, the OECD showed.
To help lift Australia’s waning productivity, Washington-based IMF directors on Tuesday “highlighted the case for rebalancing the tax system away from direct taxes towards indirect taxes.”
“A longstanding recommendation is for Australia to reduce its relatively high share of direct taxes by lessening the corporate income tax burden and relying more on indirect taxes, especially the goods and services tax.”
“This could improve the efficiency of the tax system without reducing aggregate revenues.”
“The impact of this reform should be made less regressive through targeted cash transfers.”
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