IMF Backs Australian Tax Policy

by Mary Swire, Tax-News.com, Hong Kong

10 October 2011

The International Monetary Fund (IMF) has endorsed the Australian government's tax policies in its latest review of the country's economy.

The review of the tax system released in May 2010 provides a blueprint for tax reform and the IMF welcomed the progress already made in adopting many of its recommendations, which include reducing the company tax rate, taxing some mineral resource rents, taking steps to reduce effective marginal tax rates for low-income earners, and reducing the complexity of the tax system. Staff also supported the proposed introduction of a carbon price as a transition to a permits trading system to mitigate greenhouse gas emissions.

The IMF emphasized the importance of carrying through tax and structural reforms, saying that a priority should be to remove inefficient taxes such as state stamp duties (including on home sales that discourage worker mobility) and insurance taxes. The Fund said that there is scope to improve work incentives by further reducing effective marginal tax rates and to encourage investment by reforms to business tax.

The IMF also said that while tax reform entails difficult political choices, options to replace the lost revenue from these reforms include more reliance on a consumption-based tax, reforming land taxes, and broadening the coverage of the minerals resource rent tax beyond coal and iron ore.

The report stated that Australia was one of the few advanced economies to avoid a recession in recent years, reflecting its strong position at the onset of the crisis and a supportive macro policy response. The good performance was also attributed to a healthy banking system, a flexible exchange rate, and robust demand for commodities from Asia, especially China.

Wayne Swan, Australian Treasurer, was pleased with the findings of the IMF, saying: “The report is a timely reminder of Australia's strong fundamentals given the recent heightened concerns about the global economic outlook. While Australia is not immune to volatile global conditions, we can't lose sight of our impressive economic credentials and our proven track record of dealing effectively with global instability.”

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