The Turnbull government should not “repeat old mistakes” with its promise of personal income tax cuts this year, one of Australia’s most senior economists has warned.



Chris Richardson of Deloitte Access Economics urged caution, despite better news on the economy flowing through to the budget.

“That’s great but we shouldn’t repeat old mistakes by taking that and making permanent promises to ourselves,” Richardson said on Monday.

He said governments lagging in opinion polls risked leaving behind a “poison pill” for their successors.

“Labor did it with spending in 2013, the Coalition with tax cuts in 2007, and now 2018 looms as a ‘battler’s budget’ of tax cuts,” he said. “That undermines budget repair.”

In his latest quarterly business outlook, he emphasised that budget repair protected prosperity by boosting the firepower to defend against the next recession.

He said that was desperately needed at a time when neither the Reserve Bank nor Canberra had many policy options at their disposal, with interest rates already at record lows and the budget still in the red.

He said budget repair looked unclear until politicians stopped “mollycoddling their bases”.

Richardson also said he expected inflation to remain weak, which would keep the threat of any interest rate rises at bay.

“The global backdrop is picture perfect for Australia’s 2018,” he said.

Official inflation figures are due out on Wednesday.

Economists expect the consumer price index will rise by about 0.8%, lifting the annual rate of inflation to 2.1% – still near the bottom of the Reserve Bank’s 2% to 3% inflation target band.

The more interest-rate sensitive measures of underlying inflation – which smooth out volatile price swings – are expected to remain below an annual rate of 2%.

But Richardson said despite the positive outlook for growth and employment, workers were unlikely to be happy until wage growth finally climbed off the floor.

“That’s because jobs growth is excellent news for the few, while wage growth is positive news for the many,” he said.

Any wages growth was likely to be slow and modest, and below official forecasts.

By 2019, he said, the news on wages should be better, but the current favourable conditions on jobs and interest rates might be starting to fade.