But it also found state government stamp duties had contributed to the problem, along with other policies involving such tax arrangements as capital gains.

Coalition MPs are pressing to relax the interest rate buffer imposed by the Australian Prudential Regulation Authority on bank loans to first time buyers, arguing it has contributed to the cost pressure on young people. But the IMF rejected any change to the 3 percentage point buffer.

“Macroprudential policies should remain stringent to protect household balance sheets, especially in the context of rising housing prices,” it said.

“Additionally, the authorities are encouraged to proactively adapt their macroprudential
tools to pre-empt excessive buildup in household indebtedness, including when the time is appropriate for monetary policy easing.”

Last week, Treasurer Jim Chalmers revealed a $22 billion deterioration in the budget bottom line over the next four years. Next financial year’s forecast deficit is $46.9 billion, with Chalmers arguing much of the government’s extra spending was unavoidable.

The IMF says if the rate of inflation does not continue to ease, all governments would have to look at “expenditure rationalisation” to reduce aggregate demand across the economy. This could include axing infrastructure projects or targeting welfare payments more carefully.

In what would be a challenge for either side of politics, the fund says tax reform has to be on the agenda to help improve the economy’s performance and reduce structural pressures on the budget.

“Tax reforms should focus on efficiency and fairness, reducing dependence on direct taxes and
high capital costs, and phasing out tax breaks like capital gains tax discounts,” it said.

Chalmers said the IMF fund validated his budget settings.

“We’ve overseen a record-breaking fiscal turnaround – the budget is $200 billion better than what we inherited, and our back-to-back surpluses have helped in the fight against inflation, a point the RBA governor [Michele Bullock] has made,” he said.

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“The IMF has endorsed our efforts to make our economy more competitive, dynamic and productive, like our historic shakeup to Australia’s merger settings.”

The fund believes Australia is still on track for an economic soft landing over the next 12 months, with growth lifting from 1.2 per cent this year to 2.1 per cent in 2025. It forecast underlying inflation to ease to 3 per cent and unemployment to lift to about 4.5 per cent.

But it said the risks to the economy were tilted to the downside, with soft consumer spending and a deterioration in the global outlook the largest threats to its forecasts.

Much hinges on the Reserve Bank’s expected cuts to interest rates next year. A stronger jobs market or extra government spending could force the bank to leave rates higher for longer.

“Conversely, weaker-than-expected growth or a faster-than-projected increase in unemployment may prompt the Reserve Bank to lower interest rates sooner,” it said.

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