IMF Advises Australia It Risks Economic Growth Due To Spending Cuts

international monetary fundThe International Monetary Fund (IMF) has warned the Australian government that it is putting its economic growth at risk by slashing spending in a bid to reduce its budget deficit. In its annual review of the Australian economy, the IMF highlighted that the country is exposed to serious risk from a heated-up housing market and the slowdown in China.

Reserve Bank governor Philip Lowe has however said that the government must continue on its path to correct the budget situation. According to him public finances must be made sustainable. Addressing the Committee for the Economic Development of Australia, Lowe said that the nation owes its economic success to having adequate buffers for times of adversity.

In a statement, Lowe said,

While the exact nature of the stimulus remains a matter of debate, regardless of where you stand on that debate, the fiscal buffers that we had did provide us with options that not all other countries had. We have a smaller buffer than we once did and a smaller buffer means fewer options.

He urged the government to have a better balance between revenue and spending.

Act On Video

Donald Trump winning the U.S. Presidential elections there was increased risk to global trade. The head of the IMF’s Asia and Pacific division, Thomas Helbling stated that while Australia was experiencing strong economic performance, there were dangers to it in the form of dropping commodity prices and declining mining investments.

IMF’s report listed other warning factors such as a global climate of uncertainty and Australia’s issues with unemployment. The report stated that the country was witnessing an average performance similar to what was occurring in other developed economies. The IMF also raised concerns on the country’s booming housing market, recommending that the government reconsider the tax treatment of the sector. In its view, the current policy was encouraging leveraged property purchase causing housing prices to spike.

The IMF has suggested that the Australian government should go easy on its plan to return to budget surplus, saying that growth-friendly measures must be introduced gradually to support economic development, particularly in the face of a possible downturn. It has cautioned that the plan to return to budget surplus within five years should not hamper investment into the critical infrastructure sector.

Treasurer Scott Morrison responded to IMF’s report saying that the government was committed to strengthening Australia’s resilience to global shocks and added that controlled expenditure and a strong tax system were important for sustainable growth.