Reserve Bank governor Philip Lowe has warned that any move to lower the corporate tax rate should not be at the expense of higher budget deficits.

Key points: RBA governor Philip Lowe tells MPs it would be a "big mistake" to fund lower corporate tax cuts with higher budget deficits

RBA governor Philip Lowe tells MPs it would be a "big mistake" to fund lower corporate tax cuts with higher budget deficits He says running sensible and restrained budgets is a form of economic insurance

He says running sensible and restrained budgets is a form of economic insurance The loss of the AAA credit rating is more a political than economic event

Dr Lowe concedes the global move to cut corporate tax cannot be ignored but worries it would be a "big mistake" to pay for it with a higher deficit.

"I think that's very problematic, and if we were to go down the direction of having lower corporate tax rates, I think it would be a big mistake to do that on the back of higher budget deficits," Dr Lowe told a parliamentary committee in Sydney.

"As a father of three teenage children, I don't like having to explain to them that we're racking up debt and they're going to have to pay it back."

Dr Lowe was responding to a question about the global push to lower corporate tax from the Standing Committee on Economics, which is holding its first meeting of the year.

"It's going on. We can't ignore it. We mightn't like it but we can't ignore it," Dr Lowe said.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison have been campaigning to cut Australia's corporate tax rate given Donald Trump's success in slashing the US corporate rate to 21 per cent.

However, Dr Lowe said the projected impact of the Trump tax cuts would be a factor in raising the US deficit from 2 per cent of GDP to just under 5 per cent of GDP in coming years.

The Federal Government's most recent economic update has forecast that Australia's budget deficit will move back into balance by 2021.

"It's important that we stay broadly on track. Running sensible and restrained budgets is a form of insurance," Dr Lowe said.

Credit downgrade would not hurt

In an otherwise upbeat assessment of the economy, Dr Lowe said fears about Australia losing its AAA sovereign credit rating were overstated.

"I think a credit rating downgrade is more of a political event than an economic event," Dr Lowe said.

"It wouldn't have any implications for monetary policy."

But Dr Lowe noted that the loss of the AAA rating, reconfirmed on a negative outlook by Standard & Poor's earlier this year, could hurt confidence.

"I'm not saying it doesn't matter. But it could act as a dent to confidence. Let's hope it doesn't happen."