The International Monetary Fund (IMF) is urging all advanced global economies, including Australia, to bank excess revenue if their economic growth exceeds expectations.
In its latest Fiscal Monitor, the IMF says risks to government balance sheets remain elevated, noting progress made in some regions has been offset by delays in fiscal consolidation in others.
For example, in the US the adjustment has been put on hold, while in Japan it was postponed even before the recent earthquake, which will bring additional fiscal burdens.
Still, in some other advanced economies, such as in Australia and South Korea, consolidation continues, helped by a strong pick-up in economic activity with output close to or above potential.
Their positions have been aided by buoyant revenues, the withdrawal of fiscal stimulus and expenditure restraint, it said.
“(But) in all advanced economies, if growth this year proves faster than in the baseline scenario presented in the April 2011 World Economic Outlook, additional revenues should be saved,” the IMF said in the report released in Washington.
In the world outlook, the IMF cut its Australian economic growth forecast for 2011 to 3.0 per cent from 3.5 per cent, saying flooding in key mining and agriculture regions is expected to detract from growth in early 2011.
“Over the year this will be offset by stronger private investment in mining and stronger commodity exports,” it said.
Treasurer Wayne Swan, who is just weeks away from delivering his fourth budget, didn’t disagree with the Washington-based institution’s assessment of the growth outlook.
The Australian Treasury had originally forecast 3.25 per cent growth for the 2010/11 financial year, but “it is going to be substantially less”, Mr Swan said.
Treasury’s analysis to date indicated the combined impact of natural disasters at home and abroad could cut growth by up to 0.75 per cent in 2010/11.
“We are both looking at lower growth than we were six months ago for our domestic economy, but in the years that come through, whether it is the calendar year or the financial year, we are looking at stronger growth,” he told Sky News.
Mr Swan reiterated that the government was determined to bring the budget back to surplus in 2012/13.