IMF suggests raising tax for reducing budget deficit

The International Monetary Fund said Australia needs to increase taxes paid by its people to effectively reduce the budget deficit since reducing capital expenditure by the government alone would not be enough. It said that Australia has very little chances of benefitting by focusing solely on the spending cuts because it is already spending much less than other developed countries.

"There may be limited scope for this avenue since expenditure is already relatively low compared to other advanced economies,” it said in a statement, dismissing Treasurer Scott Morrison’s remarks that Australia suffers from a spending problem, not a revenue problem. It also pointed out that Australia will be under more pressure as the health expenditures increase.

Last week, Morrison said his main focus now would be to reduce the government spending to fix the deficit that has been created. He also added scsthat the government is not considering to raise taxes to achieve the end.

"I think we've got a spending problem not a revenue problem," Morrison said, "and only when we've made further progress at a Commonwealth level and at a state, then and only then do you get to open up those other questions about revenue."

A cash rate of 1.7 percent in 2015 is also predicted in the IMF’s report prepared by its executive board in consultation with Australia. The current rate of 2 percent and an average rate of 2.13 percent indicates multiple cuts in the coming months.

It said that the slashing of cash rates on two previous occasions have led to increase in business confidence and a boost in the housing industry.

Consumer spending power has however been moderate, according to the report, which shows slow income growth.

"The problem is concentrated in Sydney and is fuelled by investor credit and interest only loans. Current rates of house price inflation imply rising overvaluation," it said in the context of overvaluation of the house prices.

The IMF has also suggested a number of tax reforms for Australia, like reducing the tax discount for capital gains, abolishing negative gearing and stamp duty on conveyance and increasing land tax to fill up the gap created by abolishing stamp duty. It said that aiming for small budget surplus over a long-term would be beneficial for Australia.

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