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Ignore tax cuts at our peril: Treasury

AAP logoAAP 18/10/2016 Colin Brinsden, AAP Economics Correspondent

The head of Treasury has warned Australia can ignore the need for a more competitive tax system for business at its peril.

As the Turnbull government struggles to garner parliament's support for its 10-year tax plan - the cornerstone of this year's budget - John Fraser has reiterated to a Senate hearing the positives of a reduction in the company tax rate from 30 per cent to 25 per cent.

Incremental reductions would encourage investment both domestically and from foreign companies, while flowing through to the wages of Australian workers, he said.

Other countries were also in the process of lower their tax rates.

"If we ignore tax competition, we ignore it at our peril," Mr Fraser said.

Treasury will be reviewing its economic forecasts and assumptions in the next couple of weeks for the mid-year budget review due mid-December.

Notably, coking coal prices have more than doubled from the assumption made in the May budget to over $US200 a tonne.

Nigel Ray, deputy secretary of Treasury's macroeconomic group, told the hearing while that hike should lift revenue, he was unable to provide the quantum at this stage.

"I wouldn't expect these prices to last forever," he warned.

Treasury uses the average of the previous four weeks when putting together its predictions ahead of the mid year budget review due in December.

"Nobody has a crystal ball," Mr Fraser said.

"The streets of Manhattan and Zurich and London are littered with the bodies of commodity traders who get it wrong."

That is why Treasury falls back on its assumption rather than making forecasts for commodity prices.

Mr Fraser is also confident Australia can retain its triple-A status among the world's major credit rating agencies.

Asked whether Australia could lose one of its triple-A ratings in the next 12 months, Mr Fraser replied: "No, absolutely not."

But it would be "very foolish" not to be mindful of the pressures Australia would face if debt continued to rise or there was a significant rise in interest rates.

"Our position at the moment is very good. There are a lot of my opposite numbers around the world who's opening question is 'gee, you are doing very well'."

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