market down 7pc since rudd got in, page-20

The point is any tax cuts of this magnitude will effect interest rates/inflation

The economics forecaster Access Economics is warning the new Federal Government that the tax cuts it promised will boost interest rates.

The Coalition promised $34 billion in tax cuts and the Labor Party matched $31 billion of that pledge.

But Access Economics says delivering on those commitments will push up interest rates unless there are extra spending cuts.

It says adding another tax cut to an economy already at full stretch does not boost the size of the economy and create more jobs.

Instead it brings a bigger import bill and higher prices.

Access also warns they are not affordable in the medium term because commodity prices will fall.

And Access warns the Government to consider the costs to the budget of the ageing population and the way health costs are continually leaping ahead of inflation.

Access Economics director Chris Richardson says the economy is already at full stretch.

"We're increasingly choking on our own prosperity," he said.

"China keeps throwing money at us and that's pushing up inflation risks in Australia.

"To break that, we need to look at spending."

Mr Richardson says the Government should look at means-testing some welfare spending and finding savings in national security.

"[It is] politically difficult," he said.

"Partly it's difficult because people understand the need for tough decision when things are tough, but they don't understand the need for tough decisions when things are prosperous as we are now.

"We saw the big spending by the Coalition in recent years pushing up interest rates.

"The Government's inherited the same policy mix. It needs to break that stance."

Treasurer Wayne Swan says wasteful spending in recent years means this Government has inherited a substantial inflation challenge.

He says it has strengthened his resolve to identify savings above the $10 billion Labor's already found.