The federal government's near $9 billion stimulus package could drive up inflation and prompt a speedier rate hike by the central bank.
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Economists have warned the budget's $8.9 billion cost of living package could place added pressure to inflation, potentially forcing the Reserve Bank of Australia to begin lifting the cash possibly as early as May.
A number have flagged the budget was adding unnecessary stimulus to an already hot economy and did not address major reform issues needed within the tax system.
The concern is being fuelled by cash handouts and tax offsets to pensioners and low and middle income earners, which were spruiked by Treasurer Josh Frydenberg as a measure to ease recent cost of living pressures.
Higher inflation could prompt a faster and steeper rate hike by the RBA.
Budget forecasts outlined inflation for this year financial year would hit 4.25 per cent as a result of rising costs spurred on by a boom in fuel prices and material and supply constraints.
The RBA's inflation target to spark movement on the cash rate is between 2 and 3 per cent.
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KPMG chief economist Brendan Rynne said the proposed $420 one-off payment through the low-to-middle income tax offset could further stoke the "inflation genie".
"One impact therefore of this payment is likely to be a further stoking of the inflation genie rather than generation of much more economic activity," Dr Rynne said.
"The budget's temporary cost-of-living measures will add to consumption and pricing pressures in an already tight market."
Dr Rynne also highlighted the budget is "light on measures that would affect significant budget repair over the medium term, with no major tax reforms included".
Mr Frydenberg's fourth budget revealed a $20.9 billion improvement in the underlying cash deficit to $78 billion, with Treasury's outlook expecting unemployment to hit 3.75 per cent by the September quarter.
Ernst and Young chief economist Cherelle Murphy noted the stimulus package was relatively small, but flagged the added injection would place added pressure on the RBA and its monetary policy decision.
"The economy really doesn't need additional cash at the moment," she said.
It is expected the RBA is likely to hike rates later this year, however faster than expected inflation could see an earlier tightening of monetary policy.
Economists believe the RBA is on a precipice of up to 13 hikes with the rate possibly sitting around 2 per cent by the end of 2023.
The Commonwealth's halving of the fuel excise tax is expected to lower inflationary pressures by half a percentage point.
ANZ economist David Plank said the budget is mostly a political document and there were other alternative measures which could have been addressed to lower cost of living pressures.
Mr Plank also noted Treasury's economic forecasts were on the conservative side.
"If it turns out that the numbers are conservative and additional revenue be issued, (the question) is what is done without additional revenue," he said.
"My hope would be that there is a very strong case that additional revenue gets banked and flows through to a reduced deficit rather than it getting spent."
