Banking giant HSBC has slammed the federal government's budget stance, telling the Abbott government to start helping economic growth rather than hindering it.
The bank's chief economist Paul Bloxham says it is imperative the government spends money instead of cutting back, and takes advantage of low interest rates to invest in infrastructure to help stimulate economic growth.
The government's talk of a "budget emergency" last year had unnecessarily damaged consumer confidence, while doing nothing to improve the budget deficit, he said.
"This is a very big political challenge for a government that's been running a line that we have a budget emergency," Mr Bloxham told reporters on Thursday.
"We don't have a budget emergency."
Mr Bloxham said given Australia's low levels of net government debt, Treasurer Joe Hockey and Prime Minister Tony Abbott have the capacity to provide support for the economy at a time when domestic demand is below average.
"I think it would be the wrong tactic for us to replay the first half of last year where the government comes out and says we need to fix the budget bottom line ... there ought to be a change in direction in the approach the government is taking," he said.
Tightening the budget should be left until the economy is growing at an above-trend pace, Mr Bloxham said.
It would also conflict with Reserve Bank holding the cash rate at its lowest level in history.
"Policy would seem quite unbalanced in the scheme of things if you've got a central bank that's got interest rates at very low levels trying to stimulate demand and on the other hand you've got a government that's trying to tighten up fiscal conditions, therefore taking away from demand," Mr Bloxham said.
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