The International Monetary Fund (IMF) has released ‘Completing the Rebalancing after the End of the Mining Investment Boom’, the Staff Concluding Statement of the 2018 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.

Preliminary findings

The Concluding Statement finds that:

  • Australia is now on the final leg of its rebalancing and adjustment after the end of the commodity price and mining investment boom.
  • The economy’s strong growth momentum is expected to continue in the near term.
  • The balance of risks to economic growth is tilted to the downside with a less favorable global risk picture.
  • The housing market downturn is another source of risk.
  • Notwithstanding recent strong growth, it is not yet the time to withdraw macroeconomic policy support given remaining slack.
  • With the economy expected to return to full employment, the government’s medium-term fiscal strategy appropriately aims to reach budget balance by FY2019/20 and run budget surpluses thereafter.
  • The Australian banks are well capitalised and profitable.
  • Managing financial vulnerabilities and risks from high household debt requires macroprudential policy to hold the course.
  • The Australian authorities have developed a robust regulatory framework, but further reinforcement in two broad domains would be beneficial:
    • The systemic risk oversight of the financial sector could be strengthened.
    • Financial supervision and financial crisis management arrangements should be further bolstered.
  • The cooling of the housing market is welcome and contributes to improving housing affordability.
  • Housing supply reforms will be critical to restoring housing affordability, and progress has been ongoing.
  • There is scope to expand infrastructure spending further to stimulate productivity.
  • Recent policy decisions should help encourage innovation.
  • Energy policy should further reduce uncertainty for investment decisions.
  • Broad tax reform to support productivity and inclusive growth would be desirable.
  • Australia’s continued efforts toward further trade liberalisation and promoting the global multilateral trading system are welcome.

Broad tax reform desirable

In regards to tax reform, the Statement notes that the share of direct taxes in Australia’s federal tax revenue is higher than the average of OECD economies, and shifting from direct to indirect taxes would lower tax distortions and enhance productivity. The Commonwealth government has to date lowered company tax rates for small and medium enterprises (SMEs) and introduced personal income tax cuts. The Statement assesses that these reforms should be combined with reforms to raise the GST revenue, lower the company tax rate more broadly, and reduce tax concessions. To offset the regressive element from higher GST revenue, an income tax-based rebate scheme to reduce the negative impact on lower income groups should be considered.

Positive economic report card: Australian Treasury

The Australian Treasurer welcomed the the IMF’s preliminary ‘on the ground’ assessment of the Australian economy as good news; highlighting the findings on budget management, strong economic growth, improved labour market conditions and housing affordability reforms. The assessment, the Treasurer noted, builds on recent findings from global credit rating agencies, Standard & Poor’s and Fitch, which reaffirmed Australia’s AAA credit rating and welcomed the country’s budget management.

(Source: IMF News | Treasury Media Release)

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