Australia: Staff Concluding Statement of the 2025 Article IV Mission

IMF News, November 20, 2025

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Published: November 20, 2025

Context and recent developments

Australia is managing a soft landing amid an uncertain global outlook following a period of high inflation and excess demand; authorities are targeting reforms to boost productivity, maintain fiscal sustainability, and ensure economic resilience.
Growth and labor market
- Real GDP grew by 1.8 percent (year-on-year) in the June quarter.
- The unemployment rate is 4.3 percent.
Inflation and monetary policy
- Trimmed mean inflation fell to 2.7 percent (year-on-year) in 2025Q2, supported by broad-based services disinflation.
- Underlying inflation rose to 3 percent (year-on-year) in 2025Q3 due to renewed price pressures in prices of new dwellings purchased by owner-occupiers and market services.
- The Reserve Bank of Australia (RBA) reduced its policy rate by 75 basis points to 3.6 percent over 2025.

Outlook and risks

Growth and inflation projections
- Growth is forecast at 1.8 percent in 2025 and 2.1 percent in 2026.
- Headline inflation is expected to return to within the RBA’s 2 to 3 percent target band.
Fiscal and external positions
- Gradual fiscal consolidation is expected to narrow state and commonwealth deficits, supported by spending reforms and a normalization of infrastructure spending, keeping public debt at a low level.
- The increase in public savings should support a gradual narrowing of the current account deficit.
Key risks
- Downside risks to growth: global trade policy shifts and elevated uncertainty, potential easing of consumption growth, higher unemployment, and shifting external demand for coal (including weaker demand from China).
- Upside risks to inflation: persistence of inflationary pressures if a resilient job market drives stronger labor costs growth.

Recommended policies amid uncertainty — near-term macroeconomic stance and scenario planning

Near-term policy guidance
- Macroeconomic policies should aim to converge to a broadly neutral setting to support price stability and full employment as the economy returns to balance.
- Given elevated uncertainty, scenario planning and agility in policy adjustment are essential; monetary policy should adjust if risks materialize, complemented by fiscal automatic stabilizers.
Scenario analysis and institutional preparedness
- Scenario analysis can enhance preparedness for external shocks; Australia’s agile macroeconomic toolkit, strong institutions, and flexible markets position it to manage risks.
- Exchange rates would adjust to external shocks, allowing monetary policy to focus on domestic implications with fiscal automatic stabilizers providing support.

Recommended policies — monetary policy calibration and transparency

Monetary policy stance
- As the economy moves toward internal balance, monetary policy is appropriately converging toward a neutral stance, but precise assessment of the neutral rate remains challenging under elevated uncertainty.
- Non-linearities in monetary policy transmission imply the pass-through of recent easing will continue into next year; close monitoring of its impact is warranted.
- Guidance: remain cautious, agile, and data-dependent; if data signal residual tightness, the RBA should hold off on further easing; if data indicate faster-than-expected softening, a somewhat less restrictive stance may be warranted.
Communications and governance
- Clear communications by the RBA are essential; recent efforts (detailed alternative scenarios in the Statement on Monetary Policy, greater transparency around decision-making, improved clarity on broad direction) are welcomed.
- Further efforts: clarify the RBA’s monetary policy reaction function under alternative scenarios and increase public engagements by the Monetary Policy Board (MPB).
- Governance notes: the MPB was established earlier this year; the Treasury Secretary’s role on the MPB is retained but confined to acting in an individual capacity. Repealing the Treasurer’s power to override monetary policy decisions—as recommended by the RBA review—would further strengthen central bank independence.

Recommended policies — fiscal sustainability and fiscal policy as a structural tool

Near-term fiscal stance
- A broadly neutral fiscal stance in the near term is appropriate to safeguard the recovery.
- The Commonwealth’s 2025/26 budget balances energy rebate extensions and a modest tax cut with planned savings in care and disability spending, and is expected to deliver a broadly neutral stance in the near-term.
- The gradual phase down of pandemic and cost-of-living support is welcome.
Medium-term fiscal consolidation and tax reform
- Planned medium-term fiscal consolidation focused on greater spending efficiency will rebuild fiscal buffers and strengthen resilience to future shocks.
- A comprehensive tax reform package could complement consolidation by boosting economic efficiency, productivity, and intergenerational equity. Examples include:
- an increase in indirect taxation,
- the reintroduction of a resource revenue tax,
- removing income tax exemptions to offset lower corporate and labor taxes.
- Expenditure reforms should target efficiency savings in growing cost areas (such as NDIS and aged care), and protect productive infrastructure investment.
Subnational fiscal coordination
- Rising state and territory debt, driven by increased infrastructure, health and social protection spending and uneven commodity revenues, has caused missed sub-national fiscal targets and widening disparities.
- Recommendations: fiscal coordination across the federation, regular assessment of subnational fiscal positions, and publishing compliance with sub‑national fiscal rules (e.g., via an expanded oversight role for the Parliamentary Budget Office or the Commonwealth Treasury) to improve transparency and inform policy discussions.
- If structural spending pressures intensify, clearer fiscal anchors could help safeguard fiscal sustainability.

Recommended policies — financial stability, housing, and macroprudential readiness

Financial system soundness and vulnerabilities
- The Australian financial system remains sound with contained systemic risks; banks report ample capital and liquidity, robust profitability, and sound lending standards.
- Potential vulnerabilities arise from global uncertainty, easing financial conditions, and market volatility; ongoing stress tests and close monitoring by regulatory authorities are critical.
- The inaugural system-wide stress test by APRA will help assess interconnections across the financial system, including banks and large superannuation funds.
Housing market and supply-side constraints
- Housing imbalance persists due to skilled labor shortages, expensive land, low construction productivity, and complex regulations and approval processes; a rebound in housing prices has further deteriorated affordability.
- Government supply-boosting initiatives include social housing, supporting infrastructure, and advanced construction methods.
- Risks of expanded support for first-time home buyers: may contribute to near-term price pressures by accelerating demand as financial conditions ease.
Policy measures and macroprudential readiness
- Concerted efforts across levels of government are needed to meet national housing targets and improve affordability by:
- easing zoning and building restrictions,
- expediting land release and approval processes,
- enhancing construction productivity.
- As part of comprehensive tax reform, consider shifting away from stamp duties to recurring property taxes at state and territory level to promote efficient land use and review tax arrangements affecting housing demand and investment with potential savings redirected to support new housing supply.
- Regulators must stay vigilant and be prepared to tighten macroprudential measures (e.g., pre-emptively activating additional borrower-based limits) in response to evolving vulnerabilities.
- Reducing housing supply constraints can help diminish the need for capital flow management (CFM) measures that discriminate between residents and non-residents in the purchase of existing dwellings.

Recommended policies — structural reforms to lift productivity and growth

Diagnosis of productivity weakness
- Australia’s productivity growth has been weak over the past decade, with a particularly pronounced decline in labor productivity.
Reform priorities and recent commitments
- Authorities are implementing reforms to modernize competition policy and support business dynamism, innovation, and investment.
- Recent commitments include banning non-compete clauses for low- and middle-income workers, and banning wage fixing arrangements and no-poach agreements, starting 2027, to likely improve labor mobility.
- The authorities’ multi-pronged agenda discussed at the August 2025 Economic Reform Roundtable is an important initiative; maintaining momentum with clear implementation plans is essential.
Bundling and sequencing reforms
- Prioritize and bundle reforms to maximize synergies: address regulatory compliance costs, skills mismatch, and falling R&D expenditure.
- Streamline and harmonize complex and overlapping regulations across government levels to reduce burdens on investment and business operations.
- Leverage technology adoption (including AI), boost competition and business dynamism, and undertake labor market reforms—bundling reforms (e.g., labor market reforms with AI integration) could accelerate output gains and broaden support.
Green transition and industrial policy
- The green transition and recently announced 2035 commitments offer opportunities to enhance investment, productivity, and diversification while contributing to climate goals.
- Industrial policy (such as Future Made in Australia (FMiA)) should maintain a disciplined and narrow focus on addressing market failures and generating positive externalities.

The IMF’s 2025 Article IV team expresses deep appreciation to the Australian authorities and other interlocutors for their engagement and cooperation, particularly counterparts at the Treasury and the Reserve Bank of Australia.