A prominent economist has warned the federal government not to rely on a rebound in the iron ore price to help boost revenues and improve the budget bottom line.
Just days after a major global credit rating agency warned that Australia's top-tier rating could be at risk if the government just relies on spending cuts to repair the budget, Deloitte Access Economics economist Chris Richardson believes further tax writedowns are likely.
He says while the performance of the economy is favouring the tax take, the cost of past policy promises is still ramping up.
"So if you hoped the iron ore price rebound meant the long nightmare of tax writedowns has now run its course, then you'd better keep hiding under a blanket or risk major disappointment," Mr Richardson said in his latest business outlook released on Monday.
He said while the economy may not be "crash hot" it certainly hasn't been in recession, yet government spending keeps grabbing an ever bigger share of the revenue pie.
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The economy is swimming strongly against a global tide of China's slowdown, "rotten" commodity prices and a fast fading mining construction boom and Mr Richardson says these pressures are likely to linger.
China's transition will last years, while rallying commodity prices are still shy of levels to put momentum back in the mining sector.
A lower Australian dollar and interest rates have also lost some potency in supporting the economy, all of which means that economic growth will remain modest in the short term, Mr Richardson said.
