In dramatic turnaround in government finances, Treasurer Jim Chalmers is expected to unveil a significant but fleeting $4 billion surplus when he delivers his second budget on Tuesday night.
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A surge in income tax payments from the strong jobs market and a huge lift in company tax receipts from soaring commodity prices has delivered a massive boost to government finances, delivering the first surplus in 15 years.
The budget papers are anticipated to show a $143 billion improvement over four years compared to the Morrison government's last budget.
Prime Minister Anthony Albanese told the Labor caucus the budget was about the "aspiration of people for a better life".
"This budget will be in the best tradition of the Australian Labor Party. Dealing with ... immediate challenges, but always with the eye on the future, on the medium- and long-term, to make sure that we're delivering, laying now those foundations for a better future," the Prime Minister said.
The government is under intense but potentially conflicting pressures to deliver substantial cost-of-living relief without making the inflation challenge worse while at the same time reducing debt and putting the budget on a credible and sustainable path to structural repair.
The budget will contain $14.6 billion of living cost relief, including energy bill support for more than 5 million households and $1.9 billion to lift the cutoff for access to sole parent payments from eight to 14 years.
The spending will be offset by $17.8 billion of savings and funding reallocations, which includes $7.6 billion of savings in defence.
As part of budget repair, Dr Chalmers is expected to announce that 82 per cent of the revenue windfall from this financial year will go to paying down government debt, making inroads on the swelling interest bill, which is due to reach $17.7 billion this financial year, $19.8 billion in 2023-24 and almost $112 billion over the next five years.
The government said it was taking a cautious and conservative approach to managing commonwealth finances and, in a swipe at the Morrison government, indicated there would be no presumptive 'Back in Black' mugs.
The Treasurer said the surplus was the result of the government's responsible economic management.
"This outcome would never have been possible without our decision to return most of the upward revisions to revenue to the bottom line," Dr Chalmers said.
"Debt and deficits would be bigger and the inflation challenge even more serious if we'd taken the path taken by our predecessors."
But opposition treasury spokesman Angus Taylor scoffed at the potential surplus and called for much greater spending restraint.
"A drover's dog could deliver a surplus with the record revenue being served up to Labor as part of this budget," Mr Taylor said.
The test for the government is whether it can reduce spending to bring down inflation and not worsen the budget bottom line, he said.
Judo Bank's chief economic adviser Warren Hogan said Tuesday's budget was "a historic turning point for this government".
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The Albanese government's first budget last October was a "tweak and touch-up" economic statement, Mr Hogan said.
"This is their big budget. From here on in they own everything. That honeymoon, blaming the previous incumbents, is all gone. Now they have to own it."
The economist said the nation's inflation problem was bigger than many appreciated but he was comfortable with the approach the government appeared to be taking in offsetting spending with savings and banking most of the revenue windfall.
"I will be happy that at least they are not making things worse."
His assessment was shared by other leading economists including Saul Eslake and Stephen Koukoulas, who thought the budget was likely to strike a reasonable balance between providing assistance to households and businesses without fueling inflation.
"It is quite possible that the overall impact of the budget will be quite small," Mr Eslake said. "It would be a tough ask to do any cutbacks when the economy is only going to grow by 1.5 per cent."
Mr Koukoulas said that, "at the moment [the budget] looks reasonably balanced".
But Institute of Public Affairs deputy executive director Daniel Wild urged the government to cut spending.
Mr Wild said government expenditure jumped by almost 29 per cent between 2020 and 2022 as part of the COVID response, and this had fueled inflation and interest rates.
"Spending on the COVID response ... is the spark that lit Australia's current inflation and cost-of-living crisis," he said.
He warned that without a change in the current spending trajectory, inflation was likely to increase by a further 1.6 percentage points in the next three years.