The International Monetary Fund (IMF) has released its Staff Concluding Statement of the 2019 Article IV Consultation Mission to Australia. A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country.

Key findings

  • Economic growth should continue to recover gradually toward its medium-term potential, with inflation remaining below the target range in the near term. Risks to the outlook are tilted to the downside amid subdued domestic confidence, heightened global policy uncertainty and the risk of a faster slowdown in China.
  • In this context, macroeconomic policies should remain accommodative, and the expected reduction in state-level infrastructure spending in FY2020/21 should be reconsidered. If downside risks materialize, stronger fiscal and monetary stimulus would be warranted. Macroprudential policy should stand ready to tighten in case of increasing risks to financial stability.
  • Continued efforts are warranted to foster strong, inclusive, and sustainable growth. Priorities for structural reforms include supporting business investment, strengthening innovation capacity, making the tax system more efficient, and pursuing policies to limit greenhouse gas emissions.

On fiscal and tax policy

The consolidated fiscal stance is appropriately expansionary for FY2019/20. Fiscal policy will be supportive for demand via reductions in personal income and small business corporate taxes, additional infrastructure spending, and the government’s announced support measures for small- and medium-sized enterprises (SMEs). However, fiscal policy aggregated across all levels of government will be contractionary in FY2020/21, as state-level infrastructure investment is expected to decline.[1] States should reconsider this and attempt to at least maintain their current level of infrastructure spending as a share of GDP to continue addressing infrastructure gaps and supporting aggregate demand.

The authorities should be ready for a coordinated response if downside risks materialize. Australia has substantial fiscal space it can use if needed. In addition to letting automatic stabilizers operate, Commonwealth and state governments should be prepared to enact temporary measures such as buttressing infrastructure spending, including maintenance, and introducing tax breaks for SMEs, bonuses for retraining and education, or cash transfers to households. In case stimulus is necessary, the implementation of budget repair should be delayed, as permitted under the Commonwealth government’s medium-term fiscal strategy. In addition, unconventional monetary policy measures such as quantitative easing may become necessary in such a scenario as the cash rate is already close to the effective lower bound.

Broad fiscal reforms would help promote efficiency and inclusiveness. Australia should continue to reduce distortions in its tax system to promote economic efficiency and in doing so should be mindful of distributional consequences considering income inequality. Recent reforms in personal and corporate income taxes have helped to improve the efficiency of the tax system. A further shift from direct to indirect taxes could be made by broadening the goods and services tax (GST) base and reducing the statutory corporate income tax rate for large firms. The impact of these reforms could be made less regressive for households through targeted cash transfers. Transitioning from a housing transfer stamp duty to a general land tax would improve efficiency by easing entry into the housing market and promoting labor mobility, while providing a more stable revenue source for the States. Such reforms could be complemented by reducing structural incentives for leveraged investment by households, including in residential real estate.


Further reading

IMF Mission to Australia: Broad Tax Reform to Support Productivity and Inclusive Growth Desirable (21 November 2018)


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