Tax lessons from the OECD

Earlier this week, the Organisation for Economic Cooperation and Development (OECD) released its most recent economic survey of Australia. Many of its observations and recommendations closely reflected the Institute’s position in a number of areas.

The report said that ‘the proposed changes in resource taxation are welcome but should go further’. The OECD confirmed the economic merits of moving to a rent tax approach to non-renewable resources to replace the existing state-based royalties system.

Similar to the Institute’s position, the OECD recommended that ‘the resource rent tax [should] be extended to all commodities and all companies irrespective of their size’. Members will recall that our submission to the Policy Transition Group about the Minerals Resource Rent Tax (MRRT) included recommendations that the policy design of the new MRRT should be easily adapted to other commodities in the future as Australia’s reliance on coal and iron ore exports diminishes over time. While this recommendation has not been received well by some parts of the mining sector, I believe it represents a sensible approach to policy-making.

In other parts of the report, the OECD made observations about the need for Australia to drive down its corporate income tax rate. The report noted that at 30%, Australia’s tax rate is ‘well above the average’ of all small to medium-sized OECD countries. This message is consistent with the policy arguments we made during the Henry tax review. (Dr Henry ultimately recommended that Australia should move to a 25% corporate tax rate.)

The OECD also delivered a strong message to the government about the need to ‘increase the weight of the GST in total tax revenues’. This means Australia should broaden the base of its GST system and increase its rate. This reflects the Institute’s own policy thinking over recent years – increasing revenue collected from the GST would allow Australia to abolish a raft of inefficient and distortionary state-based taxes such as stamp duty and other levies.

It seems to me that international economic thinking and analysis all point to the same conclusions. All we need now is for the government to start thinking the same way!