Wow, the top economic bodies of the world are so convincing. After yesterday’s OECD declaration that Australia should not cut the Budget and it faces systemic risks from housing and falling competitiveness, today the IMF says precisely the opposite. From the AFR:
An analysis by a team of IMF economists on the challenges facing Australia reports the dollar is 10 per cent overvalued and argues the Coalition may need to impose significant spending cuts to avoid tax rises.
“The sooner these policy decisions are made, the more fiscal flexibility that Australia will have,” IMF Asia and Pacific department mission head Brian Aitken said in an interview at the end of a 10-day mission to Australia.
“The earlier that it’s done, the more you can design these expenditure savings measures in a way that’s intelligent and not disruptive” to the economy, he said.
Mr Aitken highlighted the ballooning burden of caring for Australia’s ageing population and pointed to IMF modelling that indicates spending cuts of “a couple of per cent” of gross domestic product would be needed if the federal government wanted to keep tax revenue at the current level of around 23.7 per cent of GDP.
…The IMF downplayed concern about a housing bubble, saying most of the recent surge had been concentrated in Sydney. “We don’t see signs for concern about the recent house price increases yet,” Mr Aitken said.
The friendly chap also said the RBA could do no more for the dollar.
This is not as contradictory with yesterday’s OECD assessment as it seems, except perhaps around house prices. What these bodies are really arguing over is how the necessary adjustment to improved Australian competitiveness should take place. The OECD reckons the economy should be supported as improvements are engineered through stuff like corporate tax cuts and tax reform more broadly. The IMF sees it better done through cutting spending, which would force interest rates and dollar lower.
