The federal bottom line is forecast to be $44.9 billion better off over coming years, Treasurer Jim Chalmers will reveal in what promises to be one of the most consequential budgets in decades.
Although Dr Chalmers has confirmed Tuesday’s fiscal blueprint will not show a return to surplus in any year in the four-year budget outlook, the forecast deficit will narrow in every year compared to December’s mid-year update.
The mid-year economic and fiscal outlook projected a cumulative deficit of about $143 billion from 2025/26 to 2028/29.
Economists had predicted a substantial improvement to the budget bottom line as a result of higher tax revenue, in part because of the Iran war.
The improvement in the budget was the result of savings and spending restraint by the government, Dr Chalmers said.
“We’re getting the budget in better nick because that helps to fund the things that Australians need and deserve like Medicare, aged care and cost-of-living relief,” he said.
“Responsible economic management is a hallmark of this government and this is our most responsible budget yet.”
Labor has been keen to portray this budget as one of spending restraint, after warnings by economists and Reserve Bank governor Michele Bullock that splashing out would only fuel inflation and risk further rate hikes.
That risk has increased in the past week thanks to big spending increases in the Victorian and Western Australian budgets, said HSBC chief economist Paul Bloxham.
Some big-ticket spending measures have been announced, including on defence, hospital funding and rail infrastructure, but these will also be partly offset by tax increases on property investors and people with trusts.
Media reports suggest a one-off tax handout to wage and salary earners of $200 to $300 will only kick in in 2027, so as not to stoke inflation in the near term.
Finance Minister Katy Gallagher has found $63.8 billion in gross savings in the budget, but it remains to be seen how much of that will be banked to narrow the deficit and how much will be merely shifted to other spending areas.
The centrepiece of the savings package will be a forecast $35 billion reduction in the cost of the runaway National Disability Insurance Scheme.
Growth in government payments when adjusted for inflation is forecast to average 1.5 per cent for the eight years to 2029/20, which is the lowest rolling eight-year average in almost three and a half decades.
“We’ve made responsible decisions to improve the budget position while continuing to invest in the services Australians rely on,” Senator Gallagher said.
The budget will show the sum of the policy decisions taken by the government improved the budget for the second time since Labor took power in 2022, after a $2.2 billion improvement in December.
However, that was only due to some creative accounting around the government’s home battery scheme.
The forecast cost of the scheme ballooned from $2.3 billion to $11.6 billion, which was counted as a parameter variation, but changes to the scheme to rein in its largesse were counted as government policy, making a $4.9 billion blowout look like a $6.7 billion saving.
Budget watchers will keep a keen eye out for similar accounting sleights of hand.
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