NO.091

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 Government’s 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 Government’s economic policy settings,

observing that the impressive performance of the Australian economy ‘ represents

structural policies’. Moreover, the OECD also notes that ‘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 Government’s 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 Government’s 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 Government’s 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

efficient fiscal management.’

The OECD also endorses the reforms the Government has taken to make the labour market

more flexible and to enhance the economy’s 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 Government’s 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.

CANBERRA