Treasurer Scott Morrison has said his first budget won’t be a typical one.
It will be a sober, responsible economic plan, which won’t be throwing money around but shows the government living within its means.
“We will continue to reduce the deficit and we will do that by not spending more than we save,” the treasurer says.
While that sounds fairly typical for any treasurer, there are many threads to the May 3 budget that remain unsaid.
With an early federal election potentially just weeks away, this budget more than usual has to stop the government’s slippage in opinion polls.
It has to show voters why they should return the coalition to power at a July 2 election, rather than restoring Labor to government after just one term.
It has to satisfy Morrison’s own backbench with some still smarting from Tony Abbott’s exit at the hands of Malcolm Turnbull last year – and why Morrison is delivering his first budget instead of Joe Hockey handing down his third.
Crucially, it also has to get the nod of approval from global credit rating agencies if Australia wants to retain its triple-A rating.
While agencies like Standard & Poor’s, Moody’s Investors Service and Fitch Ratings fell from grace in the run-up to the 2008-2009 global financial crisis, they still wield enormous power.
A credit rating downgrade would have huge repercussions for government and business because it lifts the cost of borrowing money abroad.
The potential loss of even one AAA rating would be an extremely bad look during an election campaign likely to centre around economic management.
Moody’s took the unusual step just weeks out from the budget to raise concerns that potentially limited spending cuts won’t be enough to get a meaningful improvement towards a promised balanced budget by 2021 without taking measures to raise revenue.
“Government debt will likely continue to climb, a credit negative for Australia,” it said.
An analysis by Deloitte Access Economics showed the budget out to 2018/19 being $21 billion worse off than just a few months ago as the slowdown in China hits company tax receipts and subdued wage growth restrains personal income tax revenue.
That would mean a deficit of $41.7 billion in 2015/16, $4.3 billion worse than forecast in December and larger than the $37.9 billion recorded in the previous year.
It could have been worse if not for a substantial rise in the iron ore price, recently hitting a two-year high of $US70 per tonne compared with the $US39 figure used in the mid-year budget review.
For 2016/17, Deloitte and other economists are expecting a deficit of between $31.5 billion to $38.6 billion compared to the government’s $33.7 billion forecast.
The budget will contain the result of the government’s year-long review of the tax system, but Morrison has made it clear it will be aimed at lowering the overall tax burden, not increasing it.
Neither will it be the broad-brush reform as initially promised.
GST and tax concessions through negative gearing and capital gains tax will remain unchanged.
Previously promised tax cuts to counter the effects of wage inflation, or bracket creep, are expected to be limited to some modest tinkering of thresholds while there could be a plan for a staged cut in the company tax rate.
There could also be some modest changes to superannuation tax concessions.
“Every page that you see in this budget will be about growth and jobs,” Morrison says.
Voters won’t have to wait long to show whether they agree.