The fund said if inflation and wage pressures lifted or persisted for longer than expected,the RBA may need to take interest rates even higher.
It said one issue was the housing market,urging governments to look at ways to boost supply to help alleviate ongoing affordability problems.
“Amid rising interest rates,high inflation,and increasing housing supply,the earlier surge in housing prices has reversed,and housing prices are expected to continue declining significantly,” it said.
“Yet,affordability concerns are increasing given strongly rising rents and lower borrowing capacity amid much higher mortgage rates.
“A strong focus on boosting housing supply remains essential,supported by well-targeted support for lower-income households.”
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In the October federal budget,Treasurer Jim Chalmers warned of large,ongoing financial pressures due to the surging cost of programs including theNDIS,aged care,health and defence.
The IMF backed Chalmers’ decision to save almost all of the extra revenue that flowed into the budget due to high commodity prices and the stronger economy. It also saidreviews of programs such as the NDIS were a step towards reducing their impact on the budget.
But it said new specialist funds,including the National Reconstruction Fund,the government’s Rewiring the Nation program and the Housing Australia Future Fund,should be phased in “judiciously” to avoid adding inflationary pressures to the economy.
The fund said major tax reform needed to be on the government’s agenda so it could lift economic growth and take pressure off the budget.
“Tax reform could strengthen economic efficiency and public revenue. This should include a transition from currently high direct taxes to underutilised indirect taxes,with the regressive impacts mitigated by targeted cash transfers to vulnerable households,” it said.
“Longstanding recommendations include broadening the goods and services tax (GST) base to limit exemptions for healthcare spending,and restricting the capital gains tax exemption for the sale of main residences.”
The IMF noted the stage three personal income tax cuts,which start in mid-2024 and favour high income earners,should not be the only reform.
Rather,tax brackets should be increased “periodically” as this would help to reduce the impact on low income earners and women.
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