Federal budget 2023 a bit like wrestling in a phone booth

So what can be "observed" by watching Anthony Albanese's Labor government ahead of the May budget?

The first thing is that this budget - Treasurer Jim Chalmers' second already - is being shaped against the most uncomplimentary mix of political and economic constraints encountered by either side since the early 1990s - roughly 30 years.

And the second thing is that Anthony Albanese's government is being squeezed between reasonable expectations and unpalatable realities.

While fiscal circumstances have been more acute on a couple of notable occasions, they have not come freighted with such limited scope for pain relief.

In 2008, Wayne Swan faced a global financial meltdown in his first year in the job, and in 2020, Josh Frydenberg saw a virus freeze the very lifeblood of the economy - the interaction of people, goods and services.

Swan's programmed surpluses would never materialise and Frydenberg's BACK IN BLACK cups would gracelessly delaminate.

These exogenous shocks were huge, yet the domestic responses were essentially uncontested.

Spend the surplus, and do it fast. Then borrow in order to spend more. Put cash in voters' pockets, double the dole, and pay businesses to keep workers on-board even when there was no business to be done. All this as mortgage rates tumbled to record lows taking further pressure off households.

MORE MARK KENNY:

The threat to be avoided at all costs was collapsing demand and a deep recession.

To defeat that risk, fund consumption directly. Go early, go hard.

Tough times called for pleasant remedies.

But today's tough times demand even tougher remedies.

This time it is about applying pain - calibrated hardship. Whatever sense it makes economically, it is politically ruinous.

Where Swan and Frydenberg could ameliorate the stress on households and businesses, Chalmers has no such facility.

Even if he had a fat surplus rather than a stonking deficit, there'd be no putting dollars in the hands of low and medium income households struggling with soaring rents and mortgages, precisely because this spending would backfire.

At around 7 per cent, inflation outstripping wages is the reason the RBA has been on a 10 to 0 run of cash rate hikes.

It is desperately pulling money out of the economy, and while Labor's budget will not be as actively contractionary, neither can it risk being stimulatory.

Expect to hear the phrase "striking the balance" frequently in coming weeks.

It means finding the sweet spot which neither causes inflation nor punishes the vulnerable.

But, how to do it? With the consumer price index running at more than twice the RBA's target band of 2 to 3 per cent growth, the bank will meet on Tuesday with another hike possible.

While most economists think it will sit pat, few believe the current tightening phase has topped out.

That means more pain and if it's not at the May meeting, then probably a rise will come in June or July.

Who knows? Maybe both.

And after two federal budgets, some of the blame for the situation will begin to accrue to the incumbent government.

This is the context in which the debate has been raging over the cruelty of forcing the jobless to live on just $50 a day. Cruel, by the way, was the term invoked by former Treasury secretary, Ken Henry.

Remember, this is not $50 to meet semi-discretionary daily expenses, but 50 bucks all up to cover rent, food, clothes, health, transport and internet connectivity.

Try living on that, let alone appearing attractive to an employer. Come to that, try keeping up your self-esteem in such conditions.

"Whatever benchmark you use, this payment is so far short of the amount people need to just meet the basic necessities," the Grattan Institute's CEO, Danielle Wood, told me.

About a dozen Labor MPs have now publicly indicated they want it increased in this budget.

They join a wide array of people which includes employer and union peak organisations, welfare groups, academics, grizzled economists, even John Howard.

The government's own Economic Inclusion Advisory Committee proposed raising it to 90 per cent of the aged pension.

This would cost north of $5 billion a year, and has been ruled out.

Signals point instead to measures which are more modest and targeted to help the worst-off first.

This will include undoing Labor's hard-hearted mistake in budget 2012-13 to drop people (mainly mothers) from the Single Parenting Payment onto the lower dole when their youngest child turned eight.

While the government will not restore the original transfer age of 16, it could set it at 14.

Interestingly, all three of the key ministers involved, Albanese, Chalmers, and Finance Minister Katy Gallagher have personal backgrounds relevant here.

The former two were raised substantially by single mothers and Gallagher was, at one point, a recipient of the Single Parenting Payment herself. She says it saved her.

Targeted rent assistance is also a possibility and could also be increased without inflationary impact.

As for the dole, any increases will be modest and may flow only to the most economically disenfranchised cohort - older women - leaving wider increases for later.

And yet still, the government remains committed to next year's stage III tax cuts for higher income earners.

A glaring contradiction reminiscent of another Berra aphorism - "when you come to a fork in the road, take it".