'Poison pill' for Australia’s economy: Turnbull government warned against overpromising tax cuts

Tax cuts in a “battlers Budget” would be a “poison pill” for Australia’s economy, an economic forecaster has said. The federal government is being warned against the personal income tax cuts flagged by Australian Prime Minister Malcolm Turnbull. The outlook for the year looks upbeat, with the budget expected to benefit from "growth-friendly" conditions. There are, however, concerns about overpromising on tax cuts.

Deloitte economist Chris Richardson has forecasted strong jobs growth. He also commented on planned tax cuts, saying the government must not make an attempt to win dissatisfied voters back by introducing the tax cuts now.

“Here we go again- a government lagging in the polls looks set to leave behind a poison pill,” Richardson says in a report. He believes that continued budget repair measures would help safeguard the nation’s prosperity against the next recession. Budget repair reportedly seemed unlikely until politicians stopped “mollycoddling” their bases.

Although the global picture and local outlook spell good news for the budget, Richardson said there remain some risks. "We shouldn't take the good news at the moment and make another set of permanent promises to ourselves around tax cuts," he told the ABC.

Given that the next federal election is due next year, he considers the coming year a "dangerous time" for the budget. He explained that the economic backdrop to the budget is seeing improvements, but the political backdrop is getting worse.

Australia's credit rating

The government's "loose rein on spending" had benefited sectors such as healthcare and education. The momentum, however, could drop off amid concerns over the nation’s credit rating.

Global rating agency Standard & Poor's has reaffirmed the AAA rating and retained its negative outlook on Australia. The agency suggested a possibility that the rating could be lowered "within the next year or so.”

It also warned that any income tax cuts would be scrutinised. S&P credit analyst Anthony Walker told the ABC that personal tax cuts are not currently factored into their rating considerations, given no official policy announcement yet. Walker added that the implications for their ratings on the government are going to depend on the magnitude of any tax cuts, other measures announced at the time, and on the ability of the government to return the budget to surplus.

According to Richardson, losing the AAA rating would hurt the track.