Repeating the approach of the post-COVID-19 pandemic inflation spike to ease price pressures on Australians would have the opposite effect, HSBC chief economist Paul Bloxham warned.
"The challenge is that some of the economics tools previously used to manage cost-of-living challenges actually added to demand and inflation problem," he wrote in a research note on Monday.
Subsidies to reduce household electricity bills, or cutting the fuel excise to lower petrol costs, would stimulate the economy as it underwent a supply shock due to the conflict in the Middle East.
"For households, there is little difference between getting a $500 reduction in their electricity bills as the May 2023 budget delivered and receiving a cheque for the same amount," Mr Bloxham said.
"Both boost disposable incomes and support more spending."
Instead, he said the budget should progress reforms that boost productivity and allow the economy to grow faster without contributing to inflation.
Treasurer Jim Chalmers has resisted calls to cut the fuel excise, despite unleaded prices vaulting above $2.20 a litre and diesel more than $2.60 a litre.
Economic developments had only heightened the urgency for reform, he told Sky News on Sunday.
"I see developments around the world and pressures on Australians here at home not as a reason to go slower, but a reason to go further, and that's the approach that I'll be taking to the deliberations that I lead with the cabinet colleagues," Dr Chalmers said.
"I'll be working up a number of reform packages for this budget and they'll be focused on savings, they'll be focused on productivity.
"I'll give the colleagues a whole bunch of options when it comes to tax reform."
While it was too early to determine the conflict's net impact on the budget, rising commodity prices and inflation could outweigh higher interest costs and slower growth to boost tax revenue and improve the government's deficit, UNSW economics professor Richard Holden said.
The budget bottom line was similarly helped by rising commodity prices following Russia's invasion of Ukraine in 2022 and there was a risk the government would repeat its response to that economic shock and make things worse, he said.
"They treated budgetary good luck as if it was good management, and then said, we can get away with spending a bunch more money," Professor Holden told AAP.
"That was a terrible misreading of events."
The Reserve Bank, which began its two-day rates-setting meeting on Monday, has maintained its preference for walking a "narrow path" by raising rates gradually so unemployment stays low and inflation returns to target over time.
Prof Holden said the strategy needed to be abandoned.
Markets and most economists expect the Reserve Bank board to go hard on inflation and lift the cash rate to 3.85 per cent on Tuesday.
Unlike the last tightening cycle, the government needed to support the bank with fiscal policy by cutting spending on programs such as the $52 billion NDIS, rather than make matters worse with additional cost-of-living support, Prof Holden said.
Dr Chalmers said soaring fuel prices had treasury forecasting inflation in the "mid to high fours" range but while growth could be hit, there were no expectations Australia would enter a recession.
Mr Bloxham said one might be needed to bring inflation back to the Reserve Bank's 2.5 per cent target.
"At a minimum, Australia almost certainly now requires a downturn to dis-inflate the economy," he said.
"Will it be a recession? Time will tell."
