OECD calls for fiscal consolidation as Australian government spending grows
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The news: The Organisation for Economic Co-operation and Development (OECD) said fiscal consolidation at both state and federal levels is needed to stabilise Australia’s public debt levels, and will likely need to be sustained into the 2030’s given spending pressures tied to population ageing, defence priorities and the net zero transition.
The numbers: The OECD said that Australia’s economic growth is strengthening and increasingly driven by the private sector. GDP growth is projected to quicken to 2.3% in 2026 and 2027, up from 1.8% in 2025.
The OECD projects global growth slowing from 3.2% in 2025 to 2.9% in 2026, before picking up to 3.1% in 2027. GDP growth in the US is projected to decline from 2.0% in 2025 to 1.7% in 2026 and 1.9% in 2027.
The context: In its Economic Outlook published on Tuesday, referring specifically to Australia the research body said that as the country’s monetary policy has become less restrictive as inflation returned to target and combined with the planned modest tightening of fiscal policy in 2026-27, this would rebalance the macroeconomic policy mix while avoiding undue stimulus.
“The main fiscal priority is to progressively reduce structural deficits via greater spending control and well-designed revenue increases”, the report said. It added that tax and regulatory reforms should be directed at improving competition, removing barriers to house-building and facilitating the net zero transition.
On housing supply, the OECD said that policies at all levels of government are urgently needed to boost urban housing supply, and these should be part of a broader structural reform effort to reinvigorate productivity growth and improve dynamism, including via strengthened competition.
The OECD noted that reducing regulatory fragmentation within Australia’s federal system would lower a significant barrier to competition.
What they said: Commenting on the report findings, Treasurer Jim Chalmers said: “The private sector recovery is gathering pace and this is very welcome news…While we’re not immune to global uncertainty and people are still under pressure, the Australian economy is one of the best placed to manage the challenges coming at us.”
The OECD’s secretary general Mathias Cormann wrote: “Fiscal discipline is necessary to tackle high and rising public debt, and maintain fiscal space to react to shocks. Systematic and regular spending reviews, strengthened public procurement practices, greater digital technology adoption in government, and better targeting of social benefits would improve efficiency of public spending and free up spending for areas that better support opportunities and growth.”
The sources: OECD report, OECD press release
