ANZ chief warns on tax rises

ANZ chief executive Mike Smith has urged the government to resist raising taxes to strengthen the budget, instead suggesting it cut spending and lower taxes.

After Prime Minister Julia Gillard this week said weaker tax receipts had blown a $12 billion hole in the budget, Mr Smith said on Tuesday that any budget "austerity" should be cushioned with other measures to lift activity.

Mr Smith argued against tax rises and suggested lower taxes would boost sagging rates of economic growth.

"You've always got to have a mix of looking at the income and the cost side, but tax increases generally do not create economic growth, they have a restraining or indeed a contracting effect on the economy," Mr Smith said.

"If I was him [Treasurer Wayne Swan] I'd be looking to reduce taxes. Certainly costs are an issue and costs have to be looked at. The best way to get the economy going is to stimulate economic activity, and the best way to do that for business is to reduce tax, because people then will invest."

Mr Smith said any budget pain should be cushioned by some form of stimulus.

"With austerity, it's best to have some sort of stimulus as well. I think austerity on its own is incredibly difficult to deal with, stimulus on its own can run away, and often you need a balance."