When Joe Hockey released his budget in May, he insisted its forecasts were the best available.
But one month on, a senior research fellow at Victoria University believes the treasurer's economic growth forecasts are overly optimistic by a full percentage point.
That is, the average growth rate over the next four years should be more like 2.25 per cent, rather than the 3.25 per cent predicted by Mr Hockey.
Janine Dixon from the university's Centre of Policy Studies says the budget is based on the unlikely combination of strong productivity growth and rising wages.
She says the budget anticipates the unemployment rate falling to five per cent by 2020, which would give growth a kick along from the eventual return to work of around 150,000 people that are presently unemployed.
But for the economy to absorb those workers at a time when the terms of trade continues to fall - even under the government's optimistic productivity scenario - modelling shows inflation-adjusted wages would need to fall by 0.2 per cent each year for the next five years.
"Under a more sober assessment of productivity growth, a reduction in unemployment will be possible only if there is a sustained fall in real wages, undoing the last five years of wage growth," Dr Dixon told the Melbourne Economic Forum on Wednesday.
The budget forecasts wage growth, after adjusting for inflation, being flat in 2015/16 but rising to 0.75 per cent by 2018/19.
"We are entering a period in which GDP growth - strongly skewed towards a mining sector for which prices are falling and foreign ownership is significant - will not translate into growth in domestic incomes," Dr Dixon said.
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