The Organisation for Economic Co-operation and Development (OECD) has urged the Australian government to broaden the Goods and Services Tax (GST), enhance efforts to reduce greenhouse emissions, and set ambitious social housing targets. This call to action comes as part of the OECD’s annual economic survey of Australia, released ahead of Treasurer Jim Chalmers’ fifth federal budget in May.
According to the OECD, Australia’s economy is “now normalising” after enduring a prolonged period of weak growth due to the pandemic. The report anticipates that interest rate cuts and a rebound in households’ real disposable incomes will drive average economic growth to “a little more than 2% over the coming years.”
Addressing Longstanding Economic Challenges
The OECD report highlights several persistent issues that Australia must tackle, including slow productivity growth, high housing costs, and significant carbon emissions. The organisation specifically pointed to the detrimental effects of Australia’s increasingly unaffordable housing market, supporting federal and state-level initiatives to boost housing supply by easing land restrictions and increasing urban density.
“Housing shortages lead to overcrowding and financial strain, reduce labour mobility, worsen intergenerational equity, and increase congestion as people travel large distances to work,” the report stated.
Furthermore, the OECD recommends replacing state-based property stamp duties with a land tax, raising the target for social housing, and increasing public funding. It notes that social housing currently accounts for about 4% of Australia’s housing stock, down from 6% in 1990 and only about half the OECD average.
Fiscal Sustainability and Tax Reforms
With Australia’s finances projected to remain in deficit over the coming decade, the OECD report urges the Albanese government to adopt measures for fiscal sustainability. It calls for “expenditure restraint and revenue-enhancing tax reforms,” including a longstanding recommendation to broaden the GST and consider lifting the rate above 10%. The OECD estimates that such tax reforms could add 1.6% to the economy’s size in a decade.
The Paris-based organisation, often referred to as the “club of rich nations,” is led by Australia’s former finance minister, Mathias Cormann. Its recommendations carry significant weight in economic policy discussions globally.
Climate Action and Emissions Reduction
While the OECD acknowledges that Australia is “broadly on track” to meet its 2030 emissions reduction targets, it emphasizes that “further efforts will be needed” to address transport emissions, manage a higher share of renewables in transport, and tackle agricultural emissions.
“Australia was for many years an international laggard on climate action and still has among the highest per capita carbon emissions of any country in the world and among the lowest implicit prices of carbon,” the report noted.
Despite these challenges, the report recognizes Australia’s recent progress in the energy transition, with a growing number of climate policy instruments being adopted. It advocates for a “gradual” increase in petrol taxes, which are currently “well below European levels,” contributing to the low uptake of low-emission vehicles.
Implications and Future Steps
The OECD’s recommendations underscore the need for comprehensive reforms to ensure Australia’s economic resilience and environmental sustainability. As the government prepares for the upcoming federal budget, these insights may shape policy decisions, particularly in areas of taxation, housing, and climate action.
Looking ahead, the implementation of these recommendations could significantly influence Australia’s economic trajectory, potentially leading to improved fiscal health, enhanced social equity, and a stronger commitment to environmental stewardship.
As stakeholders await the May budget, the focus will be on how the government balances these priorities to address both immediate economic needs and long-term challenges.
