IMF says Australia posed for strong economic growt

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    IMF says Australia posed for strong economic growth

    Wednesday September 18, 8:36 PM EDT

    By Mark Egan

    WASHINGTON, Sept 18 (Reuters) - The International Monetary Fund on Wednesday gave Australia's economy a resoundingly positive review, praising the government for its skillful economic management and forecasting a good performance ahead.

    In its annual review of Australia's economy, the Washington-based lender was effusive in its praise of the nation's economic performance. But with the broader global economic outlook still uncertain, the IMF suggested the Reserve Bank of Australia wait before raising interest rates again.

    "The sound policy framework and the absence of imbalances suggest that the conditions for sustained high growth are in place, and that the Australian economy will continue to perform well," the IMF's report said.

    The IMF said that it would suggest higher interest rates but that "near-term prospects now appear less certain" because of a weaker outlook for the global economy as well as some domestic risks including the country's ongoing drought and its housing market.

    "In these circumstances, directors thought that the timing and pace of further monetary tightening was uncertain and would depend on how economic prospects evolve in the period immediately ahead," the report said.

    The IMF said rising home prices should be closely monitored for any signs of a housing bubble that could have a potential impact on the soundness of the financial sector.

    The country has also suffered through an ongoing drought that could lower wheat crop and hamper farming.

    In spite of of those two factors, the lender gave Australia high marks for the handling of its economy through fiscal consolidation, the sound use of inflation targeting, structural reforms of product and labor markets, trade liberalization as well as sound monetary and fiscal policy actions.


    But even with all that, the IMF report had plenty of advice for the government, most notably changes to the tax system and wage bargaining as well as further efforts to make labor markets more efficient and flexible.

    "Reforming the personal income tax system should be a major priority to enhance incentives to work, save, and invest," the report said.

    The lender suggested the highest marginal rate of income tax be lowered roughly in line with corporate tax rates and should be applied to a higher income threshold than is currently the case, noting that too many Australians now pay taxes at the highest rate.

    The lender also urged overhauling the income support system, simplifying benefits, boosting incentives to return to work, lowering taxes for income-support recipients returning to work and tightening eligibility for some support programs.

    On labor reforms, the IMF noted much work had already been done but suggested the country might benefit from national wage bargaining instead of the current "complicated array" of federal and state bargaining.

    The IMF also urged changes to the minimum wage system, saying it can act as a significant barrier to work for low-skilled workers. Instead, it suggesting a "living wage" would be more efficiently provided through tax breaks and income support for the lowest-paid workers.

    Noting that the recent failure of several large firms was unlikely to hurt the Australian banking sector, the IMF said the issue had nevertheless raised concerns about the regulatory framework.
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