Australians are toning down their spending habits even before any nasties are revealed in the federal budget.
Less than a week out from budget day, new data shows growth in retail spending has crawled to a snail's pace.
On top of that, consumer confidence has deteriorated sharply on the prospect of a tough budget.
Finance Minister Mathias Cormann on Wednesday all but confirmed that high-income earners, most likely those with incomes over $150,000, will have to pay extra tax to help bring down the budget deficit.
A temporary deficit tax levy is part of an "immediate special effort" needed to bring the nation's finances under control.
That effort will be spread as fairly and equitably as possible, Senator Cormann told reporters in Canberra shortly after cabinet signed off on the government's first budget.
Commonwealth Bank of Australia economist Diana Mousina is concerned about the negative impact a hike in income tax will have on an economy stuck in a "sub-trend groove".
The Organisation for Economic Cooperation and Development is also worried, warning the government not to be too heavy-handed at a time when economic growth is struggling below its long-term average of 3.25 per cent.
Shadow treasurer Chris Bowen jumped on the report, saying the government's commission of audit was recommending deep spending cuts.
"The government needs to reject the commission's recommendations and spare the Australian economy and Australian families," he said in a statement.
Retail spending grew just 0.1 per cent to $23.1 billion in March, its slowest pace in almost a year.
Key labour force data, due for release on Thursday, is expected to show employment grew by just 8000 in April, not enough to stop the jobless rate rising.
Economists forecast the unemployment rate will tick up to 5.9 per cent following a surprise fall in March.
The government's leading employment indicator, released on Wednesday, fell for a seventh straight month in May, pointing to jobs growth below its long-term average,
The OECD expects the unemployment rate to peak above six per cent and not edge down until the second half of next year.
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