Phasing out of investor-friendly tax breaks could 'generate a more equitable and efficient tax system'
The International Monetary Fund (IMF) praised Australia’s handling of an economic “soft landing” but warned that tax reforms are needed to maintain financial and housing stability going forward.
In the global financial organisation’s latest health check on the Australian economy (otherwise known as the 2026 Article IV Consultation), the IMF welcomed the Reserve Bank of Australia (RBA)’s decision to raise interest rates this month to arrest reemerging inflationary pressures.
“Risks to Australia’s economic outlook are skewed toward slower growth and higher inflation,” said the IMF. Directors welcomed the central bank’s data-dependent monetary policy adjustment “in line with its dual mandate of price stability and full employment”.
IMF directors welcomed Australia’s “progress toward a soft landing and internal balance” and praised the country’s “robust institutions, flexible markets, agile policy toolkit, and flexible exchange rate” as key defences against global shocks.
The IMF expects Australia’s economic recovery to continue in the near term, with real gross domestic product (GDP) predicted to have expanded by 1.9% in 2025 and to grow by 2.1% in the current year.
But maintaining this mostly optimistic outlook will require comprehensive tax and expenditure reforms, coupled with supply-boosting measures, in order to address housing supply constraints.
The IMF took specific aim at Labor’s controversial 5% Deposit Scheme. It said: The 5% Deposit Scheme to improve affordability for first-home buyers may contribute to price pressures in the near-term by pulling forward home purchases while financial conditions ease.
“This highlights the critical need to increase housing supply, including by steadfastly implementing the authorities’ commitment to deliver 100,000 homes for first-home buyers, or considering limiting the guarantee program to the purchase of new dwellings.”
Although national dwelling investment is up, the government has fallen seriously short of its target of building 1.2 million new homes by 2029, pouring more fuel on house price inflation.
“Annualised completions of around 180,000 remain well below the peak levels seen in 2016 and the needed pace to achieve the authorities’ target of 1.2 million new homes over five years starting in 2024 under the National Housing Accord,” noted the IMF. “Consequently, housing affordability has deteriorated, now requiring 47% of median household income for new mortgages and 24% for rent, with the time needed to save for a 20% down payment extending to 11 years.”
The IMF added that high debt-to-income and investor lending “is driving the current momentum in housing credit growth”.
It recommended a phasing out of investor-friendly tax breaks, including superannuation bconcessions and the capital gains tax (GCT) discount “to generate a more equitable and efficient tax system”.
Some sources suggest Labor intends to scale back the CGT discount in its May Budget, although nothing has been confirmed.
“On tax reform more broadly, our priority is rolling out two more tax cuts and a standard deduction, legislating better-targeted super concessions and a boost to the low-income offset, and the work we’ve commissioned on multinationals,” Labor Treasurer Jim Chalmers said earlier this month. “Any steps beyond would be a matter for the cabinet and consistent with the directions we set at the reform roundtable.”
‘Creating a better tax system’ was one of the key reform areas emerging from last year’s Economic Reform Roundtable, although no specific mention of the CGT discount was made.
