By Shane Garrett, Chief Economist, Master Builders Australia

The IMF concluded its official mission to Australia late last year and published its report on Friday. This is a routine process which takes place each year.

Encouragingly, the IMF praised the government’s decision to ramp up infrastructure spending for offering support to the economy at the right time and also boosting Australia’s long term economic prospects and productivity. The IMF also notes that housing supply reforms are a vital tool for improving affordability, through improvements to planning and zoning arrangements. In this respect, the IMF specifically mentions the role of City Deals.

The IMF also recommended the gradual replacement of stamp duties with broader land taxes. Controversially, the IMF has also suggested limiting the CGT exemption for owner occupiers and gradually restricting investor incentives, including negative gearing.

Its overall assessment of the Aussie economy is favourable: unemployment is expected to hold below 5 per cent until at least 2024 and economic growth will continue at a modest rate of 2.6 per cent per year over this period.

The Australian financial system is assessed as being largely sound, and the IMF analysis suggests that our banks would be able to withstand severe economic stress that could arise, say, from difficulties in China’s economy and/or a major deterioration in our own housing market. Aussie banks have substantially toughened their financial defences since 2012, and are more than compliant with the minimum international standards (known as Basel III).

The most likely scenario is that economic growth will continue in Australia and that unemployment will remain quite low. However, there are a few risk factors that could cause things to take a less favourable course.

The debt burden of Australian households is the largest of any major economy. The current downturn in house prices is viewed as ‘orderly’ but should it become more severe, then it could prompt an even greater slowdown in credit circulation. Australia’s economic dependence on China also exposes us to any economic chill emanating from that source. The nature of these risks was underlined by last week’s restrictions by China on Australian coal imports.