The IMF has slightly downgraded its growth expectations for Australia. It anticipates a slowdown from 3.6 per cent in 2022 to 1.6 per cent in 2023, which is down a touch from the 1.7 per cent predicted in November.

Growth is then expected to recover to about 2.25 per cent over the medium term.

In its report card on the Australian economy, the IMF anticipated a gradual deceleration in inflation toward the Reserve Bank’s two to three per cent inflation target by the end of 2024.

While the country is in better shape than other advanced economies because of a robust post-pandemic recovery and strong commodity prices, a “soft landing” is not guaranteed.

The IMF outlined several downside risks threatening Australia’s economic prospects, including the uncertain global environment, the housing market correction weighing on consumption and a potential drop-off in commodity prices.

In its regular assessment of the economy, it said further interest rate rises were justifiable.

“With a positive output gap, a tight labour market and high inflation, further monetary policy tightening, complemented by fiscal consolidation, is warranted,” it said.

IMF staff expect the cash rate to peak around 3.85 per cent. The Reserve Bank’s current official cash rate is 3.10 but its board meets again on February 7 following seven straight cash rate hikes last year.

“Given considerable uncertainty, the pace of further rate increases should be data-dependent, ensuring that inflation expectations remain well anchored,” the IMF said.

The agency also said the government would need to keep spending contained.

It welcomed the review of the National Disability Insurance Scheme and recommended reviewing other existing large-spending programs for efficiency gains.

Any immediate cost of living support should be temporary and targeted at low income individuals, the agency recommended.

The IMF also called for tax reform to make the system more “efficient and equitable”.

It said the stage three tax cuts would minimise the personal income tax burden but there could be scope to adapt them to assist with budget repair.

“With the cuts taking effect from the financial year 2024-25, there would be time, if needed, to re-assess the parameters to appropriately balance costs on the budget and benefits to the economy,” the report said.

Ordinary increases in tax thresholds were floated as an alternative solution to bracket creep.

The IMF also recommended broadening the GST base and reviewing property tax settings, such as stamp duty and capital gains tax exemption on main residences.

Treasurer Jim Chalmers said the government had no intention to take the IMF’s advice to reassess stage three tax cuts.

“Obviously we listen respectfully when those kind of suggestions are made to us but the government’s approach to the stage three tax cuts hasn’t changed,” he said.

“We’ve got other priorities in the budget – you’ll see them in May.”

He said the government would pursue tax reform, including a previously-flagged crackdown on multinational tax avoidance.

“We recognise when the budget is under as much pressure as it is now there is a role for spending restraint, which the IMF endorsed,” Chalmers said.

Shadow treasurer Angus Taylor said the report made it clear the government needed to rein in spending to ease budget pressures.

“You can’t tax your way out of a spending problem,” he said.

“The coalition will not support tax changes that increase the tax burden on the economy, sap productivity, raid people’s retirement or make inflation worse.”

-with AAP