Treasurer Josh Frydenberg says another interest rate cut will have a reduced impact on the economy, after former Liberal treasurer Peter Costello said tougher reforms are needed.
Reserve Bank of Australia boss Philip Lowe this week flagged another potential interest rate cut, from one per cent to a new record low of 0.75 per cent next week.
The coalition has so far refused to change course and lift spending to stimulate the economy, despite a wide spread of economists, businesses, unions and Labor urging them to do something.
"I agree with the independence of the Reserve Bank and them being able to set decisions on cash rates without prime ministers offering any external advice to them," Prime Minister Scott Morrison told reporters in Queensland on Friday.
But Mr Costello on Thursday said structural reforms in tax or competition were needed.
"What will a rate cut do for the economy? In my view, not much," he said in a speech.
"I think for a decade now, we've been pulling these easy levers -- interest rates and spending -- and we haven't been thinking enough about the hard levers."
Mr Frydenberg agreed with the Liberal heavyweight.
"Well Peter Costello is absolutely right that it's a law of diminishing returns once you start to reduce interest rates below a certain amount, the impact on the economy is reduced," Mr Frydenberg told ABC radio.
The Reserve Bank board is due to meet on Tuesday, with the official cash rate tipped to fall from one to 0.75 per cent after similar cuts in June and July.
Mr Frydenberg said the tough reforms Mr Costello wants are on the government's agenda.
Labor leader Anthony Albanese said Mr Costello had jumped on board with everyone else critical of the government's approach.
"He's joined the chorus saying this government has no economic plan for the country," he told reporters in Sydney.
Mr Albanese said Dr Lowe was calling for stronger wage growth while the government was attacking unions and driving down pay.
Finance Minister Mathias Cormann said the focus was on boosting productivity and cutting unemployment through measures including tax cuts, skills training, deregulation and investment in infrastructure.
So far the coalition has watched the worsening economic data in recent months but hasn't committed to any extra stimulus spending or changes.
Economists, businesses, unions and Labor want the government to lift Newstart, because it is barely enough to live on and a boost would stimulate the retail economy.
They also want the coalition to bring forward infrastructure spending: most of the government's planned $100 billion, 10-year building fund doesn't kick in for another four years.
Australian Associated Press