Loading "Let's have a discussion about what is the best tax mix for the states to drive productivity growth and economic growth," he told the Herald. Perrottet's call to action comes as experts at the nation's two largest banks say the Morrison government needs to do more than just rely on interest rate reductions and recent tax cuts to get the economy moving. Economists at the Commonwealth and Westpac banks urged the federal government to bring forward tax cuts scheduled for the future in order to juice the economy, arguing the current push for a budget surplus is "sucking" money out of the pockets of highly-taxed consumers. Westpac chief economist Bill Evans said it was clear from the most recent retail trade figures, which showed the actual volume of goods falling at the fastest rate since the 1990-91 recession, that the economy needed government assistance.

Mr Evans said the government could maintain its budget surplus by bringing forward the second tranche of tax cuts over the next two years in a move that would inject around $7 billion a year into the economy. "The second stage of tax cuts which the government has legislated to begin in July 2022 should be brought forward," he said. "That decision would not compromise the structural validity of the cuts but would recognise that the Australian economy is in need of a boost to demand, from fiscal policy, much sooner than 2022." Commonwealth Bank senior economist Gareth Aird said the government should go even further, pulling forward both the second and third tranches of tax cuts. The third tranche, legislated to start on July 1, 2024, will see the 32.5 per cent tax cut cut to 30 per cent, the 37 per cent rate abolished and the threshold for the 45 per cent rate lifted to $200,000.

Mr Aird said interest rate cuts on their own would not be enough to drive unemployment down to 4.5 per cent which the Reserve Bank believes is necessary to lift wages' growth. He said the budget was being brought back into surplus by a sharp lift in the proportion of household income paid to the government as tax, hurting ordinary consumers and the economy. "At present, the stance of fiscal policy adopted in the federal budget is contractionary. Growth in taxation is greater than growth in expenditure which is why the deficit has shrunk and the budget is now essentially balanced," he said. "Shrinking the Commonwealth budget in this manner in pursuit of a surplus effectively sucks money out of the economy." Loading Replay Replay video Play video Play video There have also been calls for the federal government to spend more on infrastructure in a bid to support economic activity.

But writing in the Herald today, Mr Perrottet questioned whether that would "shift the dial" given the NSW government was already building "almost as much infrastructure as the market can handle." Loading "What is clear is the status quo isn’t working effectively and we are faced with challenges that will demand structural reform," he writes. In June Mr Perrottet launched a review to identify ways the federal-state financial system could be improved and how the revenue base of states could be enhanced. A discussion paper released by the review panel said state governments will be under added budget pressures in the coming decade and warns “business as usual is not an option.”