Canberra – Australia’s economic outlook remains cautiously optimistic, with the International Monetary Fund (IMF) acknowledging a “soft landing” for the nation’s economy despite renewed inflationary pressures. However, the IMF has simultaneously urged the Australian government to consider comprehensive tax reforms, including a potentially contentious increase to the Goods and Services Tax (GST), to bolster its fiscal position.
The IMF’s latest assessment, released overnight, praised the Australian government’s handling of the economy amidst a challenging global environment. , marked the date of the IMF’s most recent Article IV Executive Board Consultation on Australia, according to the organization. “Executive directors welcomed Australia’s progress toward a soft landing and internal balance,” the report stated, commending the country’s “robust institutions, flexible markets, agile policy toolkit and flexible exchange rate” as key strengths in navigating external risks.
The assessment comes as Australia grapples with a resurgence of inflation, prompting recent interest rate hikes by the Reserve Bank. The IMF acknowledged this development, noting that underlying inflation had risen above 3 percent in the third quarter of 2025 before easing. Despite these challenges, the IMF forecasts real GDP growth of 1.9 percent in 2025 and 2.1 percent in 2026.
Calls for Fiscal Reform
While acknowledging the positive trajectory, the IMF report emphasized the need for fiscal consolidation. Directors “encouraged comprehensive tax and expenditure reforms, while protecting and prioritising infrastructure investments to enhance productivity and support growth,” the report detailed. A central recommendation was a review of the tax system, with specific mention of increasing the 10 percent GST rate and broadening its base by removing existing exemptions, such as those for fresh food. The IMF suggested that revenue generated from such changes could be used to reduce company taxes.
The suggestion regarding the GST is likely to prove politically sensitive. Treasurer Jim Chalmers, however, has already signaled his resistance to such a move. Speaking to reporters in Brisbane on , Dr. Chalmers firmly stated that a higher GST rate was “off the table.” “We’ve made it clear that we don’t intend to go down that path when it comes to the GST,” he said.
The IMF also advocated for addressing housing supply constraints through a combination of supply-boosting measures and tax reforms. The report highlighted the need for a “holistic strategy” to tackle this issue, which is a significant contributor to cost-of-living pressures in Australia.
Capital Gains Tax and Federation Coordination
Beyond the GST, the IMF report touched upon other potential areas for tax reform. The fund called for a review of the capital gains tax system, potentially revisiting the 50 percent concession for individuals selling assets like property. This echoes previous discussions about intergenerational equity and the fairness of the tax system.
Interestingly, Dr. Chalmers indicated that a reduction of the 50 percent concession for capital gains tax is expected to be announced in the May federal budget, despite previously signaling a reluctance to alter the policy. He qualified this by stating, “We know there are intergenerational issues in our economy and in our budget. We’re dealing with them in other ways.”
The IMF’s assessment also extended to the broader Australian federation, urging improved fiscal coordination between the federal government and the states and territories. The report recommended “regular monitoring of sub-national fiscal positions” to ensure greater financial stability and accountability across the country.
Government Response and Broader Implications
Despite the IMF’s recommendations, Dr. Chalmers framed the report as a positive endorsement of the government’s economic agenda. “The IMF’s report shows that our economic agenda with cost-of-living relief, budget repair, and economic reform is the right approach,” he stated. He further noted that the IMF had described the government’s agenda as “bold” and recognized its efforts on multiple fronts.
However, Dr. Chalmers also acknowledged that not all of the IMF’s suggestions would be adopted. “There are some ideas in these reports that we agree with, some that we don’t, that we won’t be picking up and running with,” he said. This cautious response underscores the political realities facing the Albanese government as it navigates a complex economic landscape.
The IMF’s report arrives at a critical juncture for the Australian economy. While the nation has demonstrated resilience in the face of global headwinds, the re-emergence of inflationary pressures and the need for fiscal consolidation present significant challenges. The debate over tax reform, particularly the GST, is likely to intensify in the coming months as the government prepares its next budget. The IMF’s recommendations serve as a stark reminder of the difficult choices facing policymakers as they strive to balance economic stability, social equity, and long-term growth.
The broader implications of the IMF’s assessment extend beyond Australia’s borders. As a major global economy, Australia’s economic performance has ripple effects throughout the Asia-Pacific region and beyond. The IMF’s call for fiscal reform reflects a growing international concern about rising debt levels and the need for sustainable economic policies in a world facing increasing uncertainty.
