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OECD report says Government should lower maximum tax rates and increase competition in telecommunications.

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Thursday 3 February 2005

OECD report says Government should lower maximum tax rates and increase competition in telecommunications


ELEANOR HALL: In an apparent criticism o f the Federal Government, the OECD has released its latest report card on the Australian economy, warning that in recent years the 'pace of reform has not been as strong as it could have been'. 


The Treasurer has responded by blaming the Labor Party for blocking the Government's proposed Industrial Relations reforms in the Senate. 


But Labor politicians say the OECD report supports their view that the Government has become complacent about Australia's economic future. 


Chief Political Correspondent Catherine McGrath in Canberra. 


CATHERINE MCGRATH: Treasurer Peter Costello is putting a positive spin on the OECD report. 


PETER COSTELLO: It notes that Australia's become a model for the developed world in terms of structural reform and macro-economic management. 


CATHERINE MCGRATH: And Shadow Treasurer Wayne Swan sees it this way. 


WAYNE SWAN: This report exposes the failure of the Government's so-called tax reforms of 2000 and puts forward a persuasive case to lift the tax burden on hardworking Australians. 


CATHERINE MCGRATH: Both are right to some extent. 


The OECD report backs the economic reforms of the last 13 years under both Coalition and Labor governments, but it's sending out a big warning signal. It says the problems are in the medium and longer term, and to address them, urgent policy actions are needed. 


Economist with TD Securities, Steven Koukoulas. 


STEVEN KOUKOULAS: When the Howard/Costello Government got elected in 1996, they hit the ground running with a range of labour market reforms, taxation reforms.  


In the last three or four years, and certainly it was highlighted during the election campaign when there was a distinct lack of policy discussion, let's say on the economy anyway, that I think it's fair to say they've been coasting a little bit. 


CATHERINE MCGRATH: Is the OECD saying that the Government has to do more otherwise our economy is going to be severely restricted? 


STEVEN KOUKOULAS: I think the OECD is saying that the Government has got to take advantage of what are incredibly favourable circumstances, not only in the domestic economy, but also in the global economy, to ensure that when there is a downturn, that we're able to weather that downturn better than perhaps if we just let the economy keep drifting. 


CATHERINE MCGRATH: The Government has getting ready for major legislative changes when it takes control of the Senate on July the 1st.  


In the pipeline already are industrial relations and welfare changes.  


The question the Government is grappling with now is, how far should it go. The OECD is urging the Government to go all the way. 


The OECD lists the challenges ahead, saying Australia has to lift its productivity rates and level of workforce participation. 


It suggests reducing high marginal tax rates and says infrastructure spending has been too low, while more competition is needed in telecommunications, suggesting Telstra be forced to sell its share in the pay TV operator Foxtel. 


Peter Costello is using this report to back the Government's position on the need for more reform. 


PETER COSTELLO: It's important that we continue to keep the economic reform program running in Australia, and that's a point that the OECD makes. 


The OECD says that the priority for tax reform should be simultaneous continuation of policies, which contribute to the lowering of high effective marginal tax rates, and the raising of the threshold at which the maximum marginal income tax rate cuts in. And the Government would agree with that assessment. And we agree with raising the threshold at which the maximum marginal income tax rate cuts in, and we'll be raising that on 1 July 2005. 


CATHERINE MCGRATH: Wayne Swan is making a political point of his own, on tax rates. 


WAYNE SWAN: One of the reasons why these problems have not been fixed is that the Government spent $66-billion in a spending spree in the last election campaign, and didn't invest in reform of the system. 


And that's why this report blows the whistle on the record of Peter Costello and John Howard. 


CATHERINE MCGRATH: Shadow Treasurer Wayne Swan.  


And economist Steven Koukoulas is warning that there are worrying signs ahead, especially with problems like the country's poor trade performance. 


STEVEN KOUKOULAS: In a sense, the timing of this report is quite fortuitous, in terms of giving the Government a prod to do something. I don't think it's overstating the case that something needs to be done, particularly when we consider the imbalances in the economy at the moment, which particularly relate to the household sector, with huge levels of household debt and a record-high debt servicing burden. 


And the other imbalance, and we saw this earlier this week, with just another shocking trade performance, is that the economy is sustaining its growth performance largely on borrowed time and borrowed money. 


Foreign debt, 50 per cent of GDP, the current account deficit's at a record high and in the short-term we can survive these imbalances, but eventually, when the economy does experience an inevitable downturn at some stage in the next few years, that we could be in for a nasty adjustment. 


ELEANOR HALL: Steven Koukoulas, from TD Securities, speaking to Catherine McGrath.