The OECD has called on the government to broaden the GST, do more to reduce greenhouse emissions and adopt ambitious social housing targets as part of its annual economic survey of Australia.

Ahead of Jim Chalmers’ fifth federal budget in May, the Organisation for Economic Co-operation and Development said Australia’s economy was “now normalising”, after struggling through a lengthy period of weak growth following the pandemic.

Interest rate cuts and a rebound in households’ real disposable incomes would drive average economic growth up to “a little more than 2% over the coming years”, it said in the report.

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“But longstanding challenges of slower productivity growth, high housing costs and high carbon emissions need to be addressed.”

The OECD called out the damage from Australia’s increasingly unaffordable housing market and backed federal and state-level efforts to boost home supply by easing land restrictions and increasing density.

“Housing shortages lead to overcrowding and financial strain, reduce labour mobility, worsen intergenerational equity and increase congestion as people travel large distances to work,” the report said.

The organisation also advocated in the report for replacing state-based property stamp duties with a land tax, raising the target for social housing and increasing public funding.

“Social housing accounts for about 4% of the housing stock in Australia, down from 6% in 1990 and only about half the OECD average,” it said.

The Paris-based organisation, sometimes referred to as the “club of rich nations”, is a bastion of economic orthodoxy and is led by Australia’s former finance minister, former Liberal senator Mathias Cormann.

December’s mid-year budget update confirmed that the nation’s finances remain mired in deficits over the coming decade.

In its report, the OECD urged the Albanese government to do more to put the budget on a more sustainable footing, calling for “expenditure restraint and revenue enhancing tax reforms”.

Among those tax reform measures were a longstanding recommendation to broaden the GST and to consider lifting the rate above 10%, with the proceeds used to reduce Australia’s overreliance on personal income tax.

The OECD estimated that this tax reform would add 1.6% to the size of the economy in a decade’s time.

It also said Australia was “broadly on track” to meet its 2030 emissions reduction ambitions, but that “further efforts will be needed to reduce transport emissions, manage a higher share of renewables in transport and tackle agricultural emissions”.

“Australia was for many years an international laggard on climate action and still has among the highest per capita carbon emissions of any country in the world and among the lowest implicit prices of carbon,” the report said.

“In recent years, however, Australia has made relatively rapid progress on the energy transition, with a growing proportion of climate policy instruments adopted in most areas.”

The report advocated for a “gradual” lift in petrol taxes, which it said were “well below European levels”, which was “contributing to the low take-up of low emission vehicles”.