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The International Monetary Fund (IMF) has urged Australian Finance Minister Jim Chalmers to further improve the budget position by cutting spending and finding new sources of revenue, the Sydney Morning Herald reported.
The IMF also warned that if China, the world's second-largest economy, experiences a recession, countries that rely heavily on China will also be affected.
The IMF warned after a study of the state of government budgets that most countries have yet to repair their budgets damaged by the huge public spending during the pandemic.
Countries are likely to be weakened this year due to the record number of elections, with ruling and opposition parties often pledging to increase spending to attract voters during elections, the IMF said. However, the IMF is also concerned about the risk of a shock to the budgets of the countries most dependent on China, whose economic growth is expected to slow to its lowest level since the 70s.
China now accounts for more than one-third of Australia's exports, which is one of the world's most concentrated exports.
Treasurer Jim Chalmers will release the budget on 14 May (Image: The Sydney Morning Herald)
In its latest global fiscal outlook, the IMF said: "A slowdown in China's economic growth could put pressure on global growth and trade, posing a fiscal challenge to countries with strong trade and investment ties with China." ”
Australian Treasurer Chalmers will deliver his third budget in office on May 14.
He told Radio National on Wednesday that "China's economic slowdown has been a key point of discussion in our budget." ”
Last year, Australia ran a budget surplus for the first time in 15 years, and the Labor government is expected to keep it in the current fiscal year.
Australian Prime Minister Anthony Albanese has pledged to launch a "Made in Australia" plan in next month's budget (Source: Sydney Morning Herald)
Chalmers said the upcoming budget would contain "significant" investments to boost the economy, particularly in the manufacturing sector related to the transition to renewable energy. Just this week, the Labor government also pledged $585 million in loans to two major minerals companies in Queensland and South Australia.
In its mid-year report, Chalmers lowered its forecast for the size of future budget deficits to $18.8 billion in 2024-25 and $35.1 billion in 2025-26.
Commonwealth Bank chief economist Stephen Halmarick said Chalmers was likely to declare a fiscal surplus of between $10 billion and $20 billion for the 2023-24 financial year, which would be lower than the record $22.1 billion surplus for the 2022-23 financial year.
The IMF said Australia's overall debt, spending and income levels are relatively low compared to most developed countries.
Australia's total government debt-to-GDP ratio, which reached 57% in 2020, is expected to fall to 49.6% this year and 43.8% by 2029. By comparison, total U.S. government debt is expected to reach 123.3% of GDP this year, the UK is expected to reach 104.3% of GDP, and Canada is expected to fall slightly to 104.7%. But the IMF said government spending in almost all countries remained above pre-pandemic levels.