IMF to Australia: boost buffers as mining booms

The International Monetary Fund said Friday that Australia needs to take advantage of the ongoing mining boom to enact tax reforms and build a rainy-day fiscal cushion. Calling Australia's economic performance in recent years "enviable", the IMF said in its annual report that there were few serious weaknesses in the economy. Australia "was one of the few advanced economies to avoid a recession in recent years, reflecting its strong position at the onset of the crisis and a supportive macro policy response," the IMF said. "The good performance can also be attributed to a healthy banking system, a flexible exchange rate, and robust demand for commodities from Asia, especially China." But, it underlined, while the economic outlook is "favorable", the economy does face real risks: a stall in the global economy or faltering Asian growth could hit income from commodity exports. Moreover, it added, partly due to the disastrous cyclones and flooding in Queensland and Western Australia, the government had a wider-than-expected budget shortfall in 2010-2011 of 3.5 percent of GDP. "Directors stressed that over the medium term, the government should grasp the opportunity provided by the mining boom to strengthen fiscal buffers further, recommending that a budget surplus of at least one percent of GDP be targeted for the period beyond 2013/14." "A reduction in government debt and buildup of public funds would give fiscal policy the flexibility needed to respond to larger shocks and deal with the long-term pressures from aging and rising health care costs." It also urged reform to taxes such the state stamp duties on house sales -- which it says discourage worker mobility -- and reduction of the effective marginal income tax rates, while the economy is strong and government income buoyant. It said that Australia could supplant the lost income from such reforms with more dependence on consumption and land taxes, and broadening the proposed minerals resource rent tax to cover more than coal and iron.