The OECD's report card on Australia also challenges Treasurer Scott Morrison's plans to continue tightening the budget, claiming there is still "space for fiscal loosening" if borrowed money is used for "accelerated infrastructure development and investing in skills – an area where Australia falls short of top-performing countries".

"There is room for spending increases, notably an acceleration in the public investment programs under way in telecommunications, roads and public transport systems," it says.

Such a recommendation is likely to run headlong into increasingly restive ratings agencies who fear the growth in Australia's debt may soon be incompatible with its AAA credit rating.

'Trouble ahead'

Globally, the OECD continues to see considerable trouble ahead, and warns that the world economy "remains in a low-growth trap" that should be shaken up through more budget spending across the world's developed economies.

OECD's latest Economic Outlook shows sharp boost in services exports OECD

There also appears to be alarm at Donald Trump's protectionist agenda, with the organisation's economists suggesting that the best foil to populism is to avoid trade protectionism that ends up hurting many lower-income households, while also ensuring "social measures" to share gains from globalisation.

"Some argue that slowing globalisation would temper the brunt of adjustments to workers and firms," said Catherine Mann, chief economist at the OECD.


"Protectionism and inevitable trade retaliation would offset much of the effects of the fiscal initiatives on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened fiscal position.

"Trade protectionism shelters some jobs, but worsens prospects and lowers wellbeing for many others. In many OECD countries, more than 25 per cent of jobs depend on foreign demand."

Global GDP growth set to rise, says the OECD OECD Economic Outlook

On the impact of Reserve Bank rate cuts in 2016, the OECD argues that the benefits are starting to "narrow," in what appeared to be an expression of concern over rising house prices despite a regulatory crackdown to slow rampant Sydney and Melbourne house prices.

Instead, it expects the economy to gradually accelerate towards 3 per cent growth by 2018, helped by an apparent increase in household spending "as wages and employment rise."

GDP growth 'slowing'

That claim is set to be tested as early as next week, with national accounts expected to show GDP growth slowed sharply in the September quarter, when the weakest wages growth in two decades is expected to have dragged on consumption.

Some economists have even forecast GDP shrank in the quarter, an outcome that would pull annual growth down to the low-2 per cent realm.


The OECD believes the economy is expected to strengthen over 2017, helped by a pickup in natural gas exports and the end of the contraction in mining investment.

Unemployment is expected to decline from around 5.7 per cent in 2016 to 5.3 per cent in 2018, keeping households spending, even though some are likely to dip into their savings.

Mr Morrison's mid-year economic and fiscal outlook, due to be published on December 19, will almost certainly be built on the same set of economic assumptions and forecasts as outlined by the OECD.

Still, the OECD warns that commodity prices are a big risk, especially those linked to China, while domestic non-resource investment may stay "lacklustre, damping growth prospects."

Housing market risk

It also notes that any sudden shift in house prices downwards "would weaken consumption demand and construction activity".

"The housing market remains a risk."

A spokesman for Mr Morrison said he welcomed the OECD's acknowledgement of key components of the government's national plan for economic growth that will support jobs, wages and services.


"The government is investing in and will continue to invest in productive infrastructure that boosts economic activity. Our record $50 billion investment in infrastructure is a clear example of this."

In new language from the OECD, the report emphasises the need for Canberra to combat social inequality through welfare payments.

However, the OECD also simultaneously doubles down on its support for a bigger GST and land-tax, both imposts that tend to hurt lower-income households harder.

It says while Mr Morrison's proposed company tax cuts are now in the pipeline, they "fall short of a major shift in taxation as recommended in OECD economic surveys, which stress the importance of efficient taxes bases, such as goods and services tax and land tax".

"Tax reform should be a core element of structural policy," the OECD says.

Finally, the institution argues that with general government debt-to-GDP around 45 per cent and set to fall, there "is already fiscal space to respond to an unanticipated downturn in activity."