Australia has done well with economic growth but still needs to make major reforms including encouraging infrastructure development and knowledge-based capital, according to an interim report from the OECD released at the G20 meeting in Sydney today.
The policy analysis report, Going for Growth, says Australia has weathered the global economic crisis and enjoyed robust growth in per capita income.
This was fostered by favourable terms of trade and high employment rates.
However, as the mining boom recedes, GDP growth has eased and the economy is rebalancing away from the resources sector.
Also productivity gains have slowed in recent years and the level remains below that of leading OECD countries.
The OECD recommends:
Reforms to enhance investment in infrastructure and knowledge-based capital as well as to boost labour force participation would help to ensure that Australia’s good economic performance can be sustained in the long run.
Australia was praised for its action on one of the OECD’s recommendations to extend childcare to allow parents more participation in the work force.
Local authorities are implementing the entitlement of 15 hours a week early childhood education for all children aged four years old.
The reports says expanding early childhood education service may put pressure on the fiscal balance in the short run.
“However, it contributes to narrowing income inequality by enabling a more equal formation of human capital at early age and by facilitating full-time labour participation by women,” the OECD says
Here’s the key standing policy recommendations to Australia from the previous reports:
- Enhance capacity and regulation in infrastructure
- Relax screening procedure in foreign direct investment
- Shift the tax burden from direct to indirect taxes
- Expand support to innovation
- Improve performance of early childhood education
Australia’s overall good performance has been supported by comparatively low regulatory barriers to competition.
Pro-competition regulation raises living standards by increasing investment and employment as well as by encouraging companies to be more innovative and efficient, thereby lifting productivity.
The 2013 up-date of the OECD indicators of Product Market Regulation shows that the stance of regulation in areas such as state control and barriers to start-ups and foreign trade is overall favourable to competition, at least in international comparison.
Going for Growth is the OECD flagship report analysing structural policy settings and economic performance to provide policymakers with concrete reform recommendations to boost growth.
A previous recommendation to Australia was to improve efficiency of the tax system by reducing the comparatively high headline company tax rate and relying more to indirect taxes, such as goods and service tax.