Former Reserve Bank board member John Edwards has become the latest economic heavyweight to warn that Australia's prized AAA credit rating is in jeopardy without significant budget repair.
Dr Edwards told The World Today that the Government needs to consider tax increases and take hard decisions on tax concessions, including negative gearing for real estate investments.
"I think our credit rating could be at risk if we are not more attentive to repairing our budget deficit," Dr Edwards said.
"We can do it quicker than the Government is forecasting and more confidently.
"But I think we have to recognise that it's going to take some tax increases mainly in the form of withdrawing existing concessions.
"We're not going to be successful in keeping a AAA credit rating unless the agencies are confident that we are going to close that deficit and, at the moment, I don't think they would be."
Dr Edwards agreed reform of negative gearing was a priority after NSW Planning Minister Rob Stokes raised the prospect, hinting at a split on the issue with Commonwealth Treasurer Scott Morrison, who has repeatedly said changes to negative gearing are not on the agenda.
"I think it would be helpful to reduce negative gearing if only to enhance the rate of growth of tax revenue which is what we need to do if we're going to close the deficit," said Dr Edwards, also a former economics advisor to prime minister Paul Keating who, as treasurer in the 1980s, rolled back negative gearing for a short time before reintroducing it.
Dr Edwards raised the urgency for tough policy decisions in his Lowy Institute paper, "How to Be Exceptional: Australia in the slowing global economy", which was released today.
In the paper, he argued Australia has a chance to avoid any fallout from Brexit and Donald Trump's election as US president, but only if the Government implements difficult reforms.
Dr Edwards said to avoid an age of "secular stagnation", the Government needs to make work more attractive for women, keep older people in the workforce and provide better retraining for displaced workers.
"The only way to do it is to think about it in the longer term. This is a 30-year challenge, not a four-year challenge," Dr Edwards added.
"The policies we need to pursue are not all actually that expensive and they have a big payoff in terms of economic growth."
Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.
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