Economists at one of the world's largest investment banks are concerned about the prospect of a tough May federal budget at a time when non-mining sectors have yet to take up the slack from a rapidly declining mining boom.
Treasurer Joe Hockey again emphasised the need to get government spending under control during a rowdy parliamentary question time on Thursday.
He pointed to International Monetary Fund figures that showed under Labor there would have been the largest increase in spending among 17 advanced economies between 2012 to 2018.
"That's Labor legacy, the big promises, the big spending and don't worry about the bills, someone else will have to pay for them," Mr Hockey said.
"The challenge is we have got to rein that in."
His comments came as new data showed that private business capital expenditure (capex) unexpectedly dropped by 5.2 per cent during the December quarter to $38.3 billion.
At the same time, the first estimate for 2014/15 investment intentions slumped by a record 17.4 per cent compared to the equivalent estimate for 2013/14.
Chief economist at the the Australian branch of US investment bank JP Morgan, Stephen Walters, described the report as "bleak" with mining firms scaling back their spending intentions more quickly than expected and those outside the resources sector treading water "at best".
He also expects public investment will be a material drag on economic growth from here.
"The treasurer has been softening up voters for a large dose of `tough love' in the May Budget," Mr Walters said in a client note.
He said it implied the fiscal drag on economic growth over four years would be materially larger than the two percentage points his bank currently forecasts.
"This makes it all the more critical that other sectors of the economy step up," he said.
Shadow treasurer Chris Bowen agreed that the capex figures were disappointing.
"There seems to be little realisation from the current treasurer of the need for action to stimulate investment in the non-mining sectors," he told AAP.
Australian Chamber of Commerce and Industry acting chief economist Burchell Wilson said the data heightens the urgency for pro-growth policies and a reduction in business costs.
He said Australia is now in the unenviable position where growth remains below trend, unemployment is rising, and investment is falling.
"With interest rates already at record lows, it is difficult to see where the stimulus the economy needs is going to come from. And that means more jobs will be lost," he said.
"Business urges the opposition and the Greens ... to rethink their opposition to the repealing the carbon tax."
