In its concluding statement (article IV) on the Australian economic landscape, released on 2 October, the International Monetary Fund (IMF) said that “tax breaks, including from capital gains tax discount and superannuation concessions, could be phased out to generate a more equitable and efficient tax system”.
“Tax reforms should target system efficiency and fairness, reducing reliance on direct taxes and high capital costs that hinder growth,” the IMF said.
In Australia, these two tax breaks are worth around $70 billion a year – $19 billion in capital gains tax and $52 billion in superannuation concessions.
In recent weeks, the controversial issue of capital gains and negative gearing have been on the agenda following confirmation that the Treasurer instructed the Treasury to explore changes to the policy and options to scale them back.
AMP’s chief economist, Shane Oliver, previously argued that any changes to negative gearing could create distortions in the market, potentially exacerbating property affordability issues by reducing the supply of rental properties.
Capital gains, on the other hand, Oliver admitted, are potentially excessive and could use a revision.
“There is a case to consider removing the capital gains tax discount and return to the pre-1999 approach of adjusting capital gains for price inflation,” he said earlier this year.
The IMF report continued that Australia’s financial sector policies should prioritise maintaining stability while carefully addressing localised vulnerabilities arising from tightened financial conditions.
“Banks are in a strong position, showcasing high capital levels, solid liquidity, and healthy profits while also demonstrating resilience in recent stress tests conducted by the Australian Prudential Regulation Authority (APRA),” it said.
It stated that the IMF “welcomes APRA’s plan for the first system stress test to better understand interconnectedness across the financial system, providing a platform to quantify, assess and respond to identified risks”.
“The mission team also welcomes APRA’s close monitoring of lending standards and regular review of macroprudential policy settings and would reiterate its recommendation that the authorities consider pre-emptively expanding their toolkit to include additional borrower-based measures, such as debt-to-income and loan-to-value ratio, to manage household indebtedness and ensure financial stability amidst the housing market pressures,” it said.
