The International Monetary Fund (IMF) has urged the Australian government to consider raising the Goods and Services Tax (GST), removing superannuation concessions, and scrapping capital gains tax discounts to help offset high spending by states and territories.
In its latest assessment of Australia’s economy, the IMF warned that rising debt levels in jurisdictions such as Victoria and the Northern Territory could affect the federal government’s borrowing capacity, as ratings agencies view the Commonwealth as a “de facto guarantor” of state debt. Escalating construction costs linked to major infrastructure projects have also increased the risk of credit rating downgrades and higher interest rates.
The report noted that Western Australia is the only state or territory where debt per resident is not expected to increase. Victoria’s gross debt is projected to exceed $240 billion within three years, equating to about $3,000 per resident.
To address these challenges, the IMF recommended that Treasurer Jim Chalmers consider reforming the tax system to make it more efficient, equitable, and sustainable. Suggested measures include raising the GST rate or removing exemptions, alongside changes to corporate income tax settings. The IMF also proposed phasing out tax concessions, including superannuation benefits and the capital gains tax discount.
While increasing the GST—currently set at 10 per cent—could provide a more stable source of revenue, economists caution that it may disproportionately affect low-income Australians. The GST currently generates around $80 billion annually for the federal budget, though Australia’s rate remains lower than in many comparable economies. Meanwhile, the capital gains tax discount is expected to cost the budget nearly $250 billion over the next decade.
Overall, the IMF praised the federal government’s economic management, describing the reduction of inflation without triggering a recession as a “soft landing.” Chalmers, who is set to deliver the federal budget in May, welcomed the report as a strong endorsement of the government’s policies but acknowledged that further reforms are necessary.
