IMF urges Australia to slash spending and reform taxes
The Reserve Bank of Australia and Albania’s government have received the nod from the International Monetary Fund, but the fund says bold tax reform is still needed.
The country has successfully managed a soft landing amid global uncertainty, the Washington-based agency said in its annual assessment of the Australian economy on Thursday.
Inflation fell, the labor market was strong and growth was resilient.
The IMF has supported the RBA’s cautious stance on monetary policy, given the uncertainty about the global economy, the strength of the labor market and the current low cash rate.
He applauded the federal government’s emerging efforts to boost Australia’s particularly weak productivity, restore budget balance and ensure economic resilience.
But the fund said deeper reforms were needed to improve living standards and correct intergenerational inequality.
Suggestions included bringing back the mining tax and reducing personal income tax.
“The increase in indirect taxation, the reintroduction of the source income tax and the elimination of income tax exemptions could offset lower corporate and labor taxes, thereby lowering the cost of capital and increasing incentives for investment and employment,” he said.
Out-of-control spending on programs such as aged care and the $52 billion NDIS must be reduced, and productive infrastructure investment must be maintained.
Budget inequalities between states and territories have widened due to rising infrastructure, health and social protection spending, as well as unequal commodity revenues, increasing the Commonwealth’s need to coordinate areas such as climate management and tax reform.
The IMF said a switch from stamp duty to recurrent property taxes would encourage more efficient use of land.
Meanwhile, savings from tax regulations affecting housing demand and investment could be channeled into building more housing, potentially mitigating negative impacts.
The IMF called on the RBA not to cut further interest rates if future data continues to point to tightness in the economy.
However, it was stated that if the data shows a faster softening than expected, more cuts may be necessary.
He also welcomed efforts to improve transparency since the central bank’s last review and called on the government to remove the treasurer’s power to override the RBA, which was recommended in the review but never implemented.
Finance Minister Jim Chalmers described the IMF report as strong support for Labour’s responsible economic and financial management.
“Since our roundtable in August, we have made significant progress on productivity reform on housing, environmental approvals, better regulations, artificial intelligence and trade simplification, with more on the way,” he said.
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