In a move that will draw clear battlelines between the Coalition and Labor ahead of the election, Mr Turnbull told a Business Council of Australia dinner in Sydney that work on the tax cut was already under way.

"You know our plans on corporate tax. In the personal income tax space, I am actively working with the Treasurer and my cabinet colleagues to ease the burden on middle-income Australians, while also meeting our commitment to return the budget to surplus," he said.

Tax cuts could be announced in the May budget or earlier in the December mid-year budget update if Australia was going to an early poll.

The Asia-Pacific chief of the International Monetary Fund, Thomas Helbling, in Australia for consultations with the Treasury and Reserve Bank, said income tax cuts were best funded by increases in indirect taxes such as the goods and services tax and land tax or by removing "generous tax concessions".

The Fund would have no objection to income tax cuts so long as they could be paid for without endangering the projected return to surplus, he said.

Although the Australian economy was improving, the pickup was likely to be "modest". The Reserve Bank would need to keep interest rates "lower for longer", possibly for all of next year. It would be important to maintain government spending if the economy turned down, especially spending on infrastructure.

Australia's jobs market was in worse shape than the 5.5 per cent unemployment rate suggested. Hours worked per worker were falling, casual work was increasing and the forecast lift in wage growth had yet to eventuate. Only when wage growth recovered and unemployment fell to or below 5 per cent should the Bank consider pushing up interest rates.

Among the tax concessions Australia could cut were the substantial 50 per cent discount on capital gains tax and the capital gains tax exemption for owner-occupied housing. The government could impose a cap on the value of homes that received the owner-occupied exemption and replace the 50 per cent discount with a discount for inflation of the kind that prevailed before 1999.

Mr Turnbull re-stated his determination to cut the tax rate for all business, not just those with a turnover up to $50 million per year for whom cuts are presently leglislated.

"If we don't reduce our corporate rate to 25 per cent as planned over the coming decade, the only advanced nations that will exceed Australia are Japan and Malta," he said.

While agreeing that in time company tax cuts might be needed, the IMF warned against paying too much attention to the cut in the headline rate proposed in the United States.

"I just want to say that there are by now quite substantial differences in corporate tax rates and Australia has been able to attract capital and remain attractive," Dr Helbling said. "Also your 30 per cent rate is not as high as it seems, the average rate is lower."

The Turnbull government's personal tax plan could see a straight cut to the middle two tax income tax brackets, currently 32.5 per cent and 37 per cent.

Alternatively, tax relief could be delivered by correcting for bracket creep – as in the 2016 budget – to stop middle income earners being forced into higher tax brackets as wages climb with inflation.

Labor has already promised the top personal tax rate will be 49.5 per cent as it will re-instate the two per cent debt levy and impose a 0.5 per cent Medicare levy. That 0.5 per cent Medicare levy would also apply to the second top rate of 37 per cent.