IMF warns Australian inflation risks stalling; urges government spending cuts and capital gains tax reform to aid disinflation efforts.

The International Monetary Fund has issued a warning regarding the Australian economy, highlighting risks that inflation may not decrease as expected.

The organisation noted the strong jobs market and rising public sector demand as contributing factors.

To address these risks, the IMF has called for spending restraint from all levels of government.

In its latest report, the IMF suggested that prolonged high interest rates and significant cuts to government spending might be necessary if inflation fails to meet the Reserve Bank of Australia’s (RBA) target of 2 per cent to 3 per cent.

Additionally, the IMF proposed phasing out the 50 per cent capital gains tax discount to reform the tax system and address the structural budget deficit, which is currently impacting tax revenue significantly.

Concerns are rising among analysts about the stagnation of inflation in the US, with recent data showing core inflation rates steady at 2.8 per cent since April.

Though Australia has seen slight reductions in underlying inflation, progress has lagged behind that of other advanced economies.

The IMF noted that Australia’s RBA is one of the last central banks to cut rates, reflecting a later peak in inflation.

Market expectations suggest a possible cash rate cut during the RBA’s April meeting, just before the potential federal election in May.