Weighing up other options ... although it has ruled out raising the GST, weaker household spending is forcing the federal government to consider a tax overhaul. Photo: Andrew Quilty
THE Organisation for Economic Co-operation and Development has urged the federal government to consider raising the GST and widening the mining tax, in a bid to shore up the budget's long-term health.
In its latest review of the nation's economy, published on Friday, the Paris-based think tank also gave the Treasurer, Wayne Swan, the green light to delay the return to budget surplus this financial year if the economy deteriorates more than expected.
With growth in the $50 million-a-year GST slowing due to weaker household spending, the OECD said the tax's rate of 10 per cent was low compared with other countries.
As part of a suggested tax overhaul, it urged the government to look at raising the tax's rate, and removing exemptions for spending on fresh food, medical services and school supplies.
It also said the mining tax, which is levied on to coal and iron ore miners, should be broadened to apply to other natural resources, and corporate taxes cut.
The suggested policies are just a few of the reforms the OECD said Australia needed to consider in order to ensure the economy continues to benefit from Asia's industrialisation.
''Tax reforms, including a lower corporate tax rate, a broader resource rent tax and more efficient state taxes would facilitate ongoing structural adjustments,'' it said.
The federal government has ruled out raising the GST, but is under growing pressure to consider changing the tax from business and cash-strapped state governments, which receive all GST revenue.
Over the shorter term, the OECD said Australia was weathering the aftermath of the global financial crisis well, and its public finances were in ''much better shape'' than most developed countries. However, it said the government should abandon its pledge to promise to deliver a surplus of $1.1 billion in 2012-13 if the economy weakened more than expected.
The comments come amid reports Treasury has advised the government to abandon its return to surplus this year, after figures showed weakening growth and a decline in national income.
Market economists also say the government should be prepared to ditch its surplus pledge, which will require a budget tightening equal to 3 per cent of the economy in one year.
Beyond this year's budget, there are growing concerns over the budget's ability to fund services over the long term.
The Prime Minister, Julia Gillard, on Friday dismissed calls for the surplus pledge to be abandoned and said the budget would provide details of how it would meet its spending.