Whatever shape Scott Morrison's second budget finally takes, at least the federal treasurer can build it on a more solid economic backdrop.
The International Monetary Fund is expecting the Australian economy to be running at a pace around three per cent over the next couple of years - a level usually associated with stronger employment growth.
Indeed, it expects the jobless rate to be close to five per cent by the end of 2017 rather than six per cent now.
It comes in stark contrast to the shock quarterly contraction in the economy last year when annual growth rate dipped briefly below two per cent.
It also means Australia is on course to claim the world record for the longest period without a recession at over 26 years - an impressive mark held by the Dutch - to generate some positive headlines and lift the spirits of consumers.
A stronger outlook potentially offers higher income tax revenues, although wages growth remains stubbornly subdued.
Such economic strength derives from an improved global outlook, which the IMF says is helping to push up commodity prices.
That suggests higher national income for Australia from exporting our raw materials abroad.
The Washington-based institution calculates the average Australian-South African coal price rose 20 per cent between August 2016 and February 2017.
Since then, coking coal topped $US300 per tonne earlier in April after Cyclone Debbie temporarily closed mines and ports in Queensland.
Morrison's mid-year budget review assumed the coal price for budget calculations would gradually decline from $US200 to $US120 by March 2018.
Iron ore too struck its highest level since mid-2014 earlier this year at more than $US90 per tonne, subsequently easing to around $US$64.
In the mid-year review, Treasury assumed an iron ore price of $US68, before easing to $US55 by the September quarter.
ANZ senior economist Cherelle Murphy believes commodity price outcomes since December will boost revenue substantially.
"The good news is, to retain its much-prized AAA credit rating, the government is not likely to have to lean on the household sector with further cuts to payments or higher taxes," she says.
However, the government still has little flexibility to produce an upside budget surprise, new spending or a boost to national infrastructure unless it finds offsetting savings.
As such, Murphy expects Morrison to stick his 2020/21 target for a return to a budget surplus.
The government's most recent monthly financial statement for February showed the 2016/17 deficit at $36.6 billion, some $3.5 billion smaller than had been expected after eight months of the financial year.
The deficit for the full 2016/17 financial year is $36.5 billion.
Avid budget watcher Chris Richardson says at first blush it would seem the nation is making healthy and continuing progress from the peak deficits registered at the height of the global financial crisis in late 2009.
But you would be wrong.
"Spending continues to climb at a solid clip, and attempts to rein it in remain fruitless vote losers," he says.
The improvement in both federal and state budgets is simply the "twin engines of chance" - a China boom and a house price boom - supporting the national tax take at the same time.
"That's great, but it probably won't be a long-lived combination," the Deloitte Access Economics economist warns.
The federal budget will be handed down on May 9.
Share
