The International Monetary Fund has called on Treasurer Jim Chalmers to implement major tax reforms in the upcoming May budget, including increasing the Goods and Services Tax and winding back capital gains tax concessions.
In one of its strongest interventions on Australia’s fiscal settings, the IMF said a “comprehensive reform package” is needed to improve efficiency, equity and long-term sustainability across the tax system.
Key International Monetary Fund Recommendations
The IMF’s proposals include:
- Increasing the GST to strengthen state revenues
- Phasing out the Capital Gains Tax discount
- Reducing superannuation tax concessions
- Replacing stamp duty with a broader-based consumption tax
- Coordinating large infrastructure spending between federal and state governments
The fund argued that scaling back tax breaks — particularly property-related concessions — could create a more equitable system while generating additional revenue.
Political Reaction : Housing Concerns Raised
New Liberal deputy leader Jane Hume strongly opposed changes to capital gains tax, warning that increasing taxes on residential housing could reduce supply.
“If you tax residential housing, there will be less of it,” she said, arguing the move would hurt first-home buyers and renters.
The IMF also cautioned that expanding the federal government’s 5 per cent deposit scheme for first-home buyers may contribute to upward pressure on house prices by accelerating purchasing demand.
Growing Pressure on State Budgets
The IMF delivered rare and pointed criticism of Australia’s federal system, warning that rising state and territory debt poses risks to the broader economy.
It said continued acceleration in state spending could lead to:
- Higher construction costs
- Credit rating downgrades
- Increased borrowing costs
Because the Commonwealth is often viewed as a “de facto guarantor” of state debt, growing sub-national liabilities could eventually affect federal borrowing costs as well.
The IMF recommended reviewing the entire Commonwealth tax and spending framework and called for stronger federal-state coordination — a model more common during the 1980s when Canberra exerted tighter fiscal oversight.
Housing Supply and Zoning Reform
Beyond tax changes, the IMF urged:
- Relaxation of zoning restrictions
- Faster home approval processes
- Accelerated land release programs
- Review of federal taxes impacting housing demand
Savings from curbing speculative tax incentives could be redirected toward infrastructure supporting new housing developments.
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IMF vs Reserve Bank Growth Outlook
The IMF’s economic outlook is more optimistic than projections from the Reserve Bank of Australia.
IMF Forecasts:
- 2.1% growth in 2026
- 2.2% growth in 2027
- Inflation easing from 3.4% to 2.7% by 2027
- Private investment growth of 2%
RBA Forecasts:
- 1.8% growth in 2026
- 1.6% growth in 2027
The IMF expects private sector investment and stronger household spending to drive expansion, with the economy projected to reach $3 trillion.
Chalmers Responds
Treasurer Jim Chalmers welcomed the IMF’s overall assessment, saying it validated the government’s balanced approach to budget repair and productivity reform.
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He signalled that tackling inflation and boosting productivity would remain key priorities in the May budget.
“Economic growth is picking up, business investment is strengthening, unemployment is low, participation is near record highs, wages are growing, debt is down and the budget is stronger — but we know there are big challenges too,” Chalmers said.