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Surplus of $1.5b right on budget

THE federal budget today will promise a slender surplus of $1.5 billion for next financial year, $2 billion the year after, to be delivered amid a worsening global economic picture and uncertainty over Julia Gillard's leadership.

Despite the cuts made to achieve the surplus, the budget will seek to tackle concerns about the carbon tax, which begins on July 1, by providing extra compensation on top of that already promised.

After Ms Gillard assured the caucus yesterday that the government would ''conquer'' the myriad challenges it faced, including the carbon tax, and the Craig Thomson and Peter Slipper scandals, the Treasurer, Wayne Swan, told cabinet last night the surplus was important.

''It provides a buffer against uncertain global conditions and allows the Reserve Bank to cut interest rates for families and businesses, like we saw last Tuesday,'' he said.

He said the budget would forecast the surpluses to keep building in later years.

The $1.5 billion surplus is the same as that forecast in the midyear budget update at the end of last year. That update forecast a $1.9 billion surplus for 2013-14, which is virtually the same as the $2 billion to be forecast today.


But the government has lost $5 billion in revenue since that was released, meaning it has had to cut harder to achieve the same surplus and provide extra compensation for the politically damaging carbon tax.

The government has already announced the education tax refund will be converted into a series of periodic payments for low- and middle-income earners.

Instead of having to collect receipts for education expenses and claim money back, each year families will receive a ''school kids bonus'' of $410 for

each primary-school child and $820 for each one at high school.

As the Herald signalled last week, it is believed there will also be a one-off, cost-of-living bonus for the unemployed, low-income earners and pensioners.

These bonuses would be on top of the already legislated carbon tax compensation of pension increases and tax cuts.

The budget is being delivered against the backdrop of deteriorating economic events and political upheaval in Europe, and unrest in the Labor Party.

At the caucus meeting yesterday - the first gathering of Labor MPs for six weeks - the Prime Minister acknowledged the government had ''political challenges''. She said Labor would ''conquer'' and ''deal with'' these and step up the campaign to sell the carbon tax, national broadband network and the national disability insurance scheme.

Two members of the Left faction, Stephen Jones and Doug Cameron, both from NSW, spoke out against planned cuts to welfare that would involve single parents losing their parenting payment and being put on the dole when their youngest child turned eight.

Addressing the shadow cabinet, the Opposition Leader, Tony Abbott, took aim at the school children's bonus. ''Everyone knows what this is about. This is disguised carbon tax compensation,'' he said. ''It is yet another carbon tax bribe paid with borrowed money.''

The payments are not tied to education expenses and the government admits they are a cost-of-living measure.

The Coalition would not say whether it would oppose the bonus legislation when it came before Parliament.

The shadow treasurer, Joe Hockey, said the government had confused its message about a tough budget by handing out money as well as cutting costs.

''Wayne Swan doesn't know whether he is Santa Claus or the Christmas Grinch,'' he said.