Former Prime Minister John Howard has criticised the Rudd government's stimulus package in an address at an Italian Chamber of Commerce and Industry business luncheon held in Sydney yesterday.

"I think the stimulus package was too big given the big fall in interest rates. The concern I have economically is that just as the bank lifts interest rates, the government will continue to stimulate the economy. The two are supposed to run in harmony," Howard said.

He said it would have been better to give the $16 billion used to fund the stimulus package to the state governments to relieve payroll tax for a year.

"Doing that would have encouraged firms to keep hold of staff. Payroll tax is a real burden on employment and makes no sense," Howard said.

He was also critical of the Henry tax review, which is due to deliver its final report to the treasurer in 2009.

"Dr Henry's review could end up being a bit of a damp squib. Where are the big reforms?" Howard asked.

He said he did not believe that capital gains tax on principal place of residence or succession and death duties would be instituted as a result of the review.

"It makes no sense to increase tax levels at the upper end," Howard said.

The Rudd Labor government also came into the firing line.

"Mr Rudd has been cut a lot of slack but not enough has been done in the last two years," Howard said.

"They have been in government now for nearly two years and they are not a new government anymore. They haven't used that period when the public is tolerant for significant change and it will now be harder to bring about fundamental change.

"There has been a lot talk about the emissions trading scheme and money being spent on the stimulus package. But government is not about pleasing the wants of the consumers."