SYDNEY -- Households will need to get ready for a decade of lower incomes, higher taxes, and fewer tax breaks, according to noted economist Ross Garnaut, distinguished professor of economics at the Australian National University.
Garnaut has warned of a long and tough China-induced downturn in Australia that will require restraint in government spending and wages growth for the rest of the decade, according to today's Australian Financial Review.
arnaut believes tax cuts and benefits introduced since 2004 would need to be reconsidered, and that older people who had become used to virtually no taxation may be faced with having to pay taxes.
If he is correct, we may see the government forced to increase taxes and cut spending for several years. Tax breaks for superannuation could be wound back, causing more retirees forced to pay taxes, while companies could see an increase in company tax rates and other levies.
Australia's terms of trade (the measure of our exports compared to imports) would be hit by three "mutually reinforcing negatives," he said. First, China is shifting focus away from heavy industrial investment and exports, which has driven demand for commodities and energy down. The second hit is Australian reform, including the Minerals Resource Rent Tax and carbon tax schemes, which could make Australia less competitive. And the third threat is the current global economic downturn.
A potential fourth negative is China's leaders being unwilling to unleash further economic stimulus, which would temporarily support demand for Australia's resources.
Australia's terms of trade have fallen by at least 10% over the last 12 months, according to economists, hit mainly by falling coal and iron ore prices. And more declines are likely. Falling commodity prices have seen our biggest resource stocks take a hammering. While the S&P/ASX 200 Index
The Foolish bottom line
Australia's economy needs to go through tough periods every now and then, despite the short-term pain it may cause. Otherwise, we could end up facing the same issues Greece faces currently.
If you're in the market for some high-yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favorite income ideas. But hurry -- the report is free for only a limited time.