Josh Frydenberg's third budget expects the nation will still be wearing sizeable deficits for years to come, as government debt approaches $1 trillion.
Economists had expected a much-improved budget bottom line in response to the strong economic rebound from last year's recession, a rapidly declining unemployment rate and a spike in the iron ore price.
Instead, deficit reductions were relatively modest as the treasurer went on another spending spree in a budget he describes as 'securing Australia's economic recovery'.
Deloitte Access Economics economist Chris Richardson estimates the recovery gave the budget around $100 billion more than forecast, but the government has decided to spend some $96 billion of that in tax cuts and increased spending.
"They have taken what the economy has given them and have spent almost all of that," Mr Richardson told AAP.
Billions of dollars will be spent on aged care, infrastructure, the NDIS and employment incentives such as additional childcare funding, as well as tax initiatives like the further extension of the low and middle income tax offset.
"Our recovery needs to be secured," Mr Frydenberg told ABC television.
"They're the initiatives that we put in place designed to boost aggregate demand, overall economic activity, and create more jobs, because we cannot take the gains that we've made for granted."
For the current financial year, Mr Frydenberg predicts a deficit of $161 billion, compared to the $197.7 billion forecast in the mid-year budget review released in December.
Economists were looking for a figure of about $155 billion.
For 2021/22, the deficit is now seen at $106.6 billion, only a shade smaller than the $108.5 billion previously forecast, but well shy of the $80 billion economists had been punting for.
The deficit is on track to still be $57 billion in 2024/25.
Commonwealth net debt is forecast to rise to $617.5 billion in 2021/22 before hitting $980.6 billion in 2024/25.
But economic growth is expected to accelerate to a speedy 4.25 per cent in 2021/22 and faster than the 3.5 per cent previously predicted.
However, growth is still expected to slow to 2.5 per cent the following year and below the long-term trend rate of 2.8 per cent.
There have been major revisions to the unemployment rate outlook after the labour market's spectacular recovery from the depths of the pandemic.
The jobless rate is now expected to ease to 5.5 per cent this financial year, before falling to five per cent in 2021/22 and 4.75 per cent in 2022/23.
"This would mark the first sustained period of unemployment below five per cent since before the Global Financial Crisis and only the second time since the early 1970s," the budget papers say.
These predictions compare with December's respective forecasts of 7.25 per cent, 6.25 per cent and 5.75 per cent.
The unemployment rate was 5.6 per cent in March.
One source of unexpected revenue for the nation has been the spike in the iron ore price to a record level above $US200 per tonne due to strong Chinese demand and unresolved supply disruptions in Brazil, another major exporter of the red metal.
"Treasury's industry liaison suggests that in the near term, global iron ore supply is not expected to recover rapidly and the sustained demand for steel production is expected to drive iron ore demand," the budget papers say.
However, in Treasury's figuring, the iron ore price is assumed to decline to $US55 per tonne by the end of the March quarter 2022, three quarters earlier than was assumed in the 2020/21 budget.
Australian Associated Press
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