The OECD has warned Treasurer Joe Hockey not to be heavy-handed in cutting the budget, while putting borrowers on notice about rising interest rates.
In its latest Economic Outlook, the Organisation for Economic Cooperation and Development backs the government's aim of returning the budget to surplus by the early 2020s.
"But given economic uncertainties, it should avoid heavy front-loading," the Paris-based institution says in the report released on Tuesday.
Mr Hockey will hand down his mid-year budget review next month.
The OECD expects Australian economic growth will dip to 2.5 per cent in 2015 from an expected 3.1 per cent this year, weighed down by declining business investment.
However, it expects growth will have picked up to three per cent by 2016, supported by the wealth effects from higher house prices.
"Faster growth in housing construction and exports will also play a role," it says.
But the jobless rate is also unlikely to fall below six per cent until 2016.
Yet the OECD believes the Reserve Bank's long run of keeping the cash rate well below historical norms - 2.5 per cent since August 2013 - will come to an end next year.
"Short of negative surprises, withdrawal of monetary stimulus should start in the second quarter of 2015," it says.
The OECD says the booming housing market and mortgage lending, particularly to investors, will require continued close attention by the authorities.
It believes further prudential measures on mortgage lending should be considered to cool the market and head off risks to financial stability.
It also warns that the recent steep falls in some commodity prices raises the potential for rapid change in resource revenues, a key risk to the outlook.
At the same time, momentum in property prices could unwind sharply, while the speed at which non-mining investment picks is uncertain.
OECD FORECASTS FOR AUSTRALIA
GDP
2014 - 3.1 per cent
2015 - 2.5 per cent
2016 - 3.0 per cent
CPI
2014 - 2.6 per cent
2015 - 2.3 per cent
2016 - 2.6 per cent
UNEMPLOYMENT
2014 - 6.1 per cent
2015 - 6.2 per cent
2016 - 5.9 per cent
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