Economists expect Josh Frydenberg will hand down a budget that is is tens of billions of dollars better off than was expected just a few months ago.
Deloitte Access Economics said this was the result of jobs returning after last year’s recession faster than Treasury assumed, soaring iron ore prices and households’ willingness to spend.
“Our red-hot recovery is helping the budget get better,” Deloitte partner Chris Richardson says in his influential, twice-yearly Budget Monitor.
The treasurer will hand down his budget on May 11.
All up, Mr Richardson expects deficits will be almost $100 billion better off over the four financial years to 2023/24 in the budget papers.
He is now forecasting a budget deficit of $167 billion for this financial year, just over $30 billion smaller than the $197.7 billion predicted in the mid-year budget review released in December.
For 2021/22, he expects a deficit of $86.8 billion rather than $108.5 billion.
Modelling by consultants PwC Australia projects even smaller deficits – $144.4 billion in 2020/21 and $43.8 billion in 2021/22.
On this trajectory, the budget could be back in surplus by 2034, rather than 2041 as estimated after last year’s delayed October budget, it says.
PwC chief economist Jeremy Thorpe says the government can increase spending and still bring in a bottom line that is below the 2020 budget projections.
Mr Richardson welcomed the treasurer’s decision to target an unemployment rate of under five per cent before starting budget repair rather than “comfortably below six per cent” as previously sought.
The jobless rate was 5.6 per cent in March.
But he says even when the economy is repaired and unemployment is comfortably under five per cent, the budget still won’t be as healthy as he would like to see.
“Our analysis shows that we may eventually need to save the equivalent of $40 billion a year to get the budget back into balance,” he said.
Mr Richardson said while this was less than many seem to fear, the politics in trying to achieve this was “horrendous”.
“The last budget that tried to save a similar share of national income was in 2014, and it is widely seen as having torpedoed the fortunes of Tony Abbott and Joe Hockey,” he said, referring to the former prime minister and his treasurer in their first budget.
“That’s a challenge. Budget repair shouldn’t start soon, and it can and should be be slow. But it won’t be fun.”
Shadow treasurer Jim Chalmers said the Deloitte report attributed much of the economic and budget improvement to factors unrelated to the Morrison government.
This includes the substantial and selfless sacrifices of Australians to suppress the virus, the re-opening of state economies and remarkably high global commodity prices.
“Instead of a comprehensive plan to create secure, well-paid jobs, the Morrison government’s vaccine debacle, cuts to support, ideological attacks on job security and superannuation, and a budget riddled with rorts and waste, will only make things worse,” Dr Chalmers said.