Australian economic growth could slip below 3% by the end of 2016 and stay there until 2018, by which time the Reserve Bank will be raising the official interest rate, according to the latest OECD assessment.
The economy was growing at 3.3% as of June but many economists expect the economy has since hit a soft spot and anticipate only modest growth when the national accounts for the September quarter are released on 7 December.
The OECD says that in the event that growth does slip, government spending on infrastructure, funded by borrowing, should play a leading role in recovery, rather than further interest rates cuts given the concerns about the housing market and the already low rates.
“There is space for fiscal loosening given the low public-debt burden. Returns would be high for accelerated infrastructure development and investing in skills, an area where Australia falls short of top-performing countries.”
The report also recommends structural tax reform, including consideration of a land tax and changes to the GST.
Asked about the OECD report on ABC News Breakfast, the finance minister, Mathias Cormann, said the best way to increase revenue was to increase economic growth.
He brushed aside the report’s suggestions of higher land tax or GST, noting Australia had “had a debate” on higher GST before the July election and the government had decided against it.
Cormann said the report was not cause for a rethink, describing the tax issues as “well and truly settled”.
“They are settled in the lead-up to the last election and the government is delivering on the commitments that we made and that includes, of course, a commitment to reduce our business tax rates to make them internationally more competitive, which is even more important now that the United States, of course, has flagged substantial reforms in this area.”
Cormann added one of the main OECD recommendations was for infrastructure spending, which he said the government was already pursuing.
Asked whether the government should take on more debt to pay for it, he replied: “You’re in a better position to borrow for infrastructure if you don’t have to borrow for day-to-day living expenses.”
This Thursday’s business investment numbers for the quarter will be crucial in gauging economists’ forecasts.
Treasury will use the national accounts as a basis for its forecasts for the mid-year budget which the treasurer, Scott Morrison, will release on 19 December.
The Organisation for Economic Cooperation and Development November Economic Outlook for Australia was released in Paris on Monday.
• Reporting by Paul Karp and Australian Associated Press
