The International Monetary Fund has cautioned Australia against costly budget handouts, warning that energy-driven inflation could persist and derail economic stability. The warning comes as Treasurer Jim Chalmers prepares to attend the IMF’s spring meetings in Washington, where global economic risks from the Middle East conflict will dominate talks.
In its latest World Economic Outlook, the IMF highlighted that an “unprecedented” energy crisis triggered by the war on Iran could push the global economy toward recession. Under a severe scenario, global growth could plunge to just 2% in 2026, with inflation averaging 5.8%. Australia’s economy would face downgrades, with growth forecast at 2% in 2026 and 1.7% in 2027 under a benign baseline.
The IMF’s chief economist, Pierre-Olivier Gourinchas, warned governments against populist fiscal measures that could add to inflationary pressures. “Higher fuel costs are already smashing household and business confidence,” he said, urging fiscal restraint. Chalmers acknowledged the “extreme uncertainty,” stating that Australians are “paying a hefty price for events on the other side of the world.”
With the budget due on 12 May, speculation mounts over potential tax changes, including adjustments to negative gearing, LNG export taxes, and electric vehicle subsidies. The government has promised cost-of-living relief, but the IMF’s warning suggests that broad handouts could exacerbate inflation, which is forecast to average 4% in Australia this year.
