SHANE WRIGHT, ECONOMICS EDITOR, The West Australian October 29, 2010, 2:55 am The world's premier economic organisation has urged the Gillard Government to extend the mining tax to resources other than iron ore and coal, and to amass big Budget surpluses to protect Australia from future financial turmoil.
In its annual review of the Australian economy, the International Monetary Fund warned that the country's growing dependence on mining could amplify the business cycle and make the nation more vulnerable to wild swings in commodity prices.
It backed the Reserve Bank's plans to increase interest rates, while arguing that if the global economy slowed the RBA was in a good position to cut rates rapidly.
The IMF report gave a generally upbeat assessment of the economy and the Government's stimulus program. But it said Australia was increasingly reliant on a commodity price cycle that left the country wide open to fluctuations that would hurt the Budget and economic activity in down periods.
It was supportive of the original resources super profits tax and described the mineral resources rent tax as a "step in the right direction", but it urged the Government to go even further.
"The recent review of the tax system is welcome, including the introduction of the MRRT. However, consideration should be given to broadening the coverage of the MRRT beyond iron ore and coal," it said.
In another challenge, the fund said the Government should look at increasing the spread of consumption taxes - either through an increase in the GST or extending it to food - so that personal income taxes could be cut and State taxes such as stamp duty could be abolished.
The IMF is particularly concerned about how the Government will manage the flow of revenue out of the mining boom.
It said the Budget surpluses run under former treasurer Peter Costello and in the first year of Wayne Swan's tenure as Treasurer were not big enough, arguing the Government should amass huge surpluses which could be used to offset falls in commodity revenue.
"Staff recommended saving revenue windfalls," the IMF said.
"In addition, this would build a buffer against a sharp fall in commodity prices."
But the Government said its commitment to keep a lid on the total tax collected by Canberra meant it was difficult to run much bigger surpluses.
Mr Swan said the fund had backed the Government's actions through the global financial crisis.
"The IMF has said Australia's economy is recovering solidly, our public finances are strong, and our fiscal strategy will help us deal with future global shocks," he said.
