Slow wage growth a risk for Australia's economy: IMF report

A report by the International Monetary Fund (IMF) on Wednesday warned that wage growth in Australia is "weak" and inflation is "below its target range."

"Australia has enjoyed a comparatively robust economic performance while adjusting to the end of the large mining boom of the 2000s," the report said.

"But the economy has not yet returned to full employment and housing market imbalances along with high household debt have become important vulnerabilities."

Despite the stark warning, the IMF did find that near-term risks have become more balanced with stronger global economic prospects, recent employment growth and higher infrastructure spending.

"Near-term risks to growth are broadly balanced, but large negative shocks, most likely external, and their interaction with domestic housing markets remain concerns on the downside."

Although data from the Australian Bureau of Statistics released Wednesday showed Australian wages rose 0.6 percent during the December quarter, beating economists expectation of 0.5 percent, annual wage growth only slightly outpaced inflation in 2017 with an overall increase of 2.1 percent.

"There has been some encouraging signs that perhaps the strength of labor market over the past year is starting to filter through into faster wage growth," Capital Economics Chief Australia and New Zealand economist Paul Dales told Xinhua.

"But the bigger picture is still that wage growth is only a tiny bit above its record low and there are a handful of reasons to think that any further rise from here is going to be fairly modest and slow."

"So for me it's still a story where wage growth is unusually low and unlikely to significantly boost households incomes or inflation."

In order to spark wage growth, the Australian government have floated the idea of lowering company tax, which would see the rate of 27.5 percent for small business or 30 percent for larger companies, fall to 25 percent.

The IMF also appears to be in favor of this move and believes the cuts could add an increase of 1.3 percent to the nation's GDP.

"Australia's effective average corporate tax rates are currently in the upper third among advanced economies, but the international environment is evolving," the report said.

"A more comprehensive tax reform has the potential to increase efficiency of the tax system, increase investment and labor demand, and reduce inequality."

But not everyone is convinced that slashing company tax is the silver bullet Australia's economy needs.

"At the margins you might be able to boost wage growth a little if you used company tax cuts, especially if you make them conditional on raising wages," Dales said.

"But it would be a marginal boost and you wouldn't get much bang for your buck because the evidence by and large suggests that company tax cuts don't make a significant difference to economic growth or wage growth."