Federal budget 2023 | Jim Chalmers tempers expectations ahead of budget release

The government hopes people are satisfied with the assistance it offers.

But the uncomfortable reality of the current situation is that the root cause of so much household pain - high inflation - is also the very reason why the sort of cash splashes that past governments have indulged in are off the cards now.

Anything the government does that adds to aggregate demand, especially policies like cash handouts, would leave it open to accusations that it is making the inflation problem worse.

It is why it has plumped for measures like energy price caps and lower prescription medicine costs.

Treasurer Jim Chalmers told The Canberra Times the government's approach to energy bill assistance was an example of how it was designing the help it provides to reduce, not add to, inflation.

"In areas like energy bill relief we're taking some of the sting out of these higher prices. We're trying to put downward pressure on inflation rather than upward pressure," the Treasurer said.

Similarly with medicines, the government's move to allow 60 days' worth of a prescription to be filled at one go rather than forcing patients with chronic illnesses to go to the pharmacy every month effectively halves their medication cost without adding to price pressures.

But, with inflation still growing at 7 per cent and not expected to fall back to within the central bank's 2 to 3 per cent target band for another two years, the opposition says it is not enough for fiscal policy to be neutral.

Shadow treasurer Angus Taylor argues that so far the heavy lifting in fighting inflation has been left to the Reserve Bank of Australia.

Mr Taylor says the government needs to exercise spending restraint in Tuesday's budget.

"Inflation is still far too high and the government must do everything in its power to bring it down, and that means controlling its spending," he said.

"There's a long list of government ministers looking for more money to spend. This is not the way to take pressure off Australian households and families with inflation and interest rates."

Others think Mr Taylor has a point.

KPMG chief economist Brendan Rynne says while current levels of government spending may not add to inflation, "equally it is unlikely bring inflation down".

"Fiscal policy needs to work hand-in-glove with monetary policy to help bring inflation down. At this stage, simply not adding to aggregate demand may not be enough," Dr Rynne says.

Dr Chalmers admits the budget is burdened with big and fast-growing spending commitments.

The National Disability Insurance Scheme, which is estimated to cost around $34 billion this financial year, heads the list, followed by the cost of servicing Commonwealth debt.

The Treasurer revealed on Friday that the interest bill on government debt is set to cost almost $20 billion next financial year and almost $112 billion over the next four years.

"The cost of servicing the debt is a top-two pressure on the budget," Dr Chlamers told The Canberra Times.

"The budget is heaving with a trillion dollars of debt," he said. "It is the NDIS and interest costs, then daylight and health care, aged care, defense."

In addition, Finance Minster Katy Gallagher says that since last October the government has identified an extra $7.5 billion of "zombie, legacy unfunded programs" for which it has had to find funds.

"We've made room for that in the budget because these are services that people rely on, agencies that people rely on, to deliver services that people value," Senator Gallagher told The Canberra Times, such as public dental care and the MyGov website.

"Right across government, things were just going to fall off a cliff," she says.

A tide of spending announcements in the lead-up to the budget, for everything from the $368 billion AUKUS deal and a 15 per cent pay rise for aged care workers to $33 million for the National Library of Australia's digital archive has helped feed an impression that this will be a big-spending budget that will add to price pressures in the economy.

But Dr Chalmers urges people to look carefully at how the government is spending taxpayer money, not just how much.

"It's an oversimplification to look at the level of spending and then make a judgement from that on whether the budget is contractionary or expansionary," the Treasurer says.

"The quality of spending matters. It matters as much as the quantity of spending."

So far, the public has heard much more about spending commitments rather than where the government will find savings, and the budget will be examined closely to see where the axe is falling.

Beyond the here and now, Dr Chalmers sees the budget as helping lay the foundations for future reform and growth, not least the transition to a cleaner energy economy.

A big part of this is to put the budget on a more sustainable footing, not least by reducing the debt burden.

The unexpectedly strong and sustained surge in commodity prices, combined with high income tax receipts because so many of us have a job, has delivered a big windfall likely to be well in excess of $20 billion to government coffers.

While Dr Chalmers would not be drawn on whether he will be unveiling a surplus on budget night, private economic forecasters reckon he will come close.

Many think the deficit, which had been expected to top $36 billion, is likely to be around $8 billion.

But, while sustained strong employment is likely to hold up income tax receipts, commodity prices are expected to moderate, reducing the size of future revenue boosts.

After claiming to have saved "99 per cent" of unexpected revenue gains in the October budget, the treasurer says, "we will bank significantly more than most in this budget".

While this may go some way to helping repair the budget, the current trajectory of debt shows there is a long way to go.

After reaching almost $895 billion last October, gross government debt is expected to swell to $1.15 trillion by mid-2026.

While the stock of debt is modest by international standards, reaching 43 per cent of GDP in the next three years, independent economist Chris Richardson says there are good reasons to get it down.

"There is a genuine case for repairing the budget, both to support monetary policy and improve the position of the country to handle future shocks," he says.

In both of the most recent major crises, the COVID-19 pandemic and the global financial crisis, expansive government spending was vital to support the economy and help drive recovery.

Dr Chalmers says the government is alive to the need to repair the budget and put it on a sounder footing.

"A substantial part of the task of the expenditure review committee, the cabinet more broadly, and particularly the work that Katy Gallagher and I do, is to clean up the mess that we inherited and try and get things on a more sustainable footing," he says.

The challenge is to simultaneously reduce the debt, find savings and fund the services that the public expects while also making room for the priorities the government wants to pursue.

Not the least of the pressures is the expectations loaded on the government to deliver a budget that improves people's lives, particularly those on low incomes or dependent on welfare and support payments.

Asked what a Labor budget actually means, Senator Gallagher says, "a lot of people would expect a Labor government to ensure that essential services are funded [and] where there's problems that we're addressing them".

And, she adds, "I think people expect Labor to do the right thing by women, and I think you'd be hard pressed to find a budget that leans more into pursuing women's equality".

But the intensity of expectations is no clearer than around an increase in the JobSeeker allowance.

A score or government backbenchers including Canberra MP Alicia Payne have publicly urged that the payment be significantly increased from its current level of $49.50 a day.

Mr Richardson says there is "a magnificent case" for raising JobSeeker.

"Australia does an okay job at fairness but the single thing that would move the dial on this is raising JobSeeker," he says.

"You can improve the budget and lift JobSeeker at the same time. The politics are hard to do but that is what you are there for. This is the job description."

So far the government has been non-committal about whether the budget will include an adjustment to the JobSeeker payment, but it is not hard to anticipate the howls of protest if it is not.

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For a government that has trumpeted its reformist credentials, Tuesday's budget will be a stiff test.

But the Treasurer is trying to urge people not to rush to judgement based on the coming financial statement alone.

"I have always seen budgets not as moments in time but staging points of progress," Dr Chalmers says. "And that's how we see the budget."

"You can't do everything that you want to do every budget. You've got to sequence and prioritise. Everything that we want to do is built in one way or another on the foundations of a more responsible budget."

After reaching almost $895 billion last October, gross government debt is expected to swell to $1.15 trillion by mid-2026.

While the stock of debt is modest by international standards, reaching 43 per cent of GDP in the next three years, independent economist Chris Richardson says there are good reasons to get it down.

"There is a genuine case for repairing the budget, both to support monetary policy and improve the position of the country to handle future shocks," he says.

In both of the most recent major crises, the COVID-19 pandemic and the global financial crisis, expansive government spending was vital to support the economy and help drive recovery.

Dr Chalmers says the government is alive to the need to repair the budget and put it on a sounder footing.

The challenge is to simultaneously reduce the debt, find savings and fund the services that the public expects while also making room for the priorities the government wants to pursue.

"I have always seen budgets not as moments in time but staging points of progress," Dr Chalmers says.

"And that's how we see October and the next budget."