By Katharine Murphy

The International Monetary Fund has urged the Australian Government to cut welfare benefits and attack trade union power to address Australia's persistently high unemployment rate.

In a new analysis of Australia's unemployment record released yesterday, the IMF said the Federal Government needed to address residual "inflexibilities in the wage bargaining system" which were probably caused by union power and the award system.

It also suggested that one factor in the high unemployment rates of the 1990s was "strong growth in real product wages" during the economic recovery following the recession at the start of the decade.

While the IMF acknowledged the Howard Government's efforts to deregulate the labour market and tighten the availability of social welfare benefits, it suggested the reforms were incremental in scope and might need tougher measures.

"Recent reforms to wage bargaining and the social welfare system will help address the unemployment problem, but more fundamental reforms are likely to be required to achieve decisive progress in bringing unemployment down and improving wage flexibility," the IMF said.

It suggested that "a more fundamental break from the past industrial relations and social welfare systems may be desirable" to accelerate reductions in structural unemployment and improve Australia's growth prospects.

The new IMF scorecard follows efforts earlier this week by the Treasurer, Mr Peter Costello, to revive the jobs debate.

Mr Costello said Australia could achieve unemployment rates of between 4 and 5 per cent with tax reform, further labour market deregulation and sustained levels of economic growth.

His comments led Australia's major business groups to renew their push for further radical labour market deregulation, with the Business Council of Australia and the Australian Chamber of Commerce and Industry calling for more aggressive measures.

The Minister for Workplace Relations, Mr Peter Reith, did not want to comment on the IMF's findings last night.

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