The 1999 Survey of Australia released by the OECD today provides a very favourable assessment of the performance of the Australian economy over the past year and a strong endorsement of the Governments approach to macroeconomic and structural policy, including in particular taxation reform.
The Survey notes that over the past year Australia has experienced strong economic and employment growth, a continued pick-up in productivity growth, reduced public sector borrowing and much lower inflation than experienced at any time since the 1960s. The OECD highlights the resilience of the Australian economy in the face of significant weakness in many of its trading partners, especially in Asia.
The OECD provides strong support for the Governments economic policy settings, observing that the impressive performance of the Australian economy represents the fruits of a consistent and comprehensive set of interacting macroeconomic and structural policies. Moreover, the OECD also notes that the introduction of a more efficient tax system in July 2000 should help to consolidate the productivity gains that are now being seen.
With respect to the outlook for the Australian economy, the OECD is expecting economic growth in Australia to ease in the year ahead, and pick up again in 2001. They note that continued favourable economic growth will allow further falls in the unemployment rate to around 6 1/2 per cent in 2001. In addition the OECD projects that an improved international outlook will lead to a lower current account deficit equivalent to around 4 per cent of GDP in 2001. Consistent with the Governments projections, the OECD assumes the introduction of the GST will add 2 - percentage points to the price level in the year after its introduction. Abstracting from this one-off effect, the OECD expects inflation to be around 2 per cent in 2001.
The Survey notes the success of monetary policy in keeping inflation under control and that the Governments fiscal policy are consistent with the medium term objective of achieving budget balance over the cycle. The OECD emphasises the importance of preserving the budget consolidation which the Government achieved on coming into office.
The Governments reform of the institutional framework for fiscal policy, including the Charter of Budget Honesty and the introduction of accrual budgeting is fully endorsed in the Survey, with the OECD stating that With these reforms, fiscal institutions in Australia represent best practice in terms of assuring prudent and efficient fiscal management.
The OECD also endorses the reforms the Government has taken to make the labour market more flexible and to enhance the economys adaptability to external shocks and a changing economic environment.
The substantial improvements to be achieved under A New Tax System are acknowledged by the OECD. The OECD has long advocated that Australia should reform its indirect tax system and introduce a broad based consumption tax. In the 1999 Survey, the OECD notes in particular that the Governments tax reform will result in benefits from removing distortions between different goods and services, will assure longer term revenue security, as well as improving incentives to work and save.
The Government welcomes the 1999 OECD Economic Survey on Australia and the contribution it can make to assessing our economic and policy credentials.