Australian households should not expect a generous cash splash in the federal budget as it could undo the hard work of taming inflation and lead to interest rates staying higher for longer.
With just two months to go, Treasurer Jim Chalmers has been laying the groundwork for the May 14 budget that is landing at a critical juncture in the battle to bring inflation back within target.
Speaking at the Committee for Economic Development of Australia event in Sydney, Dr Chalmers played down the prospect of a second surplus due to falling iron ore prices and the weakening labour market.
Revenue upgrades are still expected but they will be more modest than in the past, with some of the proceeds to be banked but "in all likelihood not as much as we did in the first two budgets".
The treasurer said households were still "under the pump" and there was room for a little more "targeted" cost of living relief in the budget.
But for most Australians, he said cost of living support would come in the form of the stage three tax cuts, which will cost the budget $107 billion and start flowing to taxpayers mid year.
With inflation easing but still above target, the treasurer is wary about pumping any more money into the economy.
"There will not be big cash splashes in the budget, simple as that," Dr Chalmers said.
"Anything that's too costly, too splashy, risks undoing the good progress we've made together on inflation."
But the treasurer acknowledged the economic situation was evolving, with growth slowing to a crawl in response to an aggressive round of interest rate hikes.
His government's economic management priorities were shifting in response but inflation was still the primary focus, alongside adapting to slowing growth.
The government's plan to keep the economy growing is more "protein" than "carbs" - that is, there would be no "cost of living help as stimulus" as seen during the pandemic or the global financial crisis.
Rather, there would be a bigger emphasis on investment as a driver of growth, with work already underway on whole-of-government strategy to better co-ordinate efforts.
Agenda items to help pave the way for investment included faster environmental approvals and improved access to skilled migration.
The treasurer also dampened expectations of the likelihood of a second consecutive financial year in the black in 2023/24.
The government is still "shooting for a surplus" but softening commodity prices and the weakening jobs market mean revenue upgrades will be smaller.
Rich Insight economist and budget expert Chris Richardson said another surplus was still likely but agreed it would not be as big as the record $22 billion logged last financial year.
He said the cost of living squeeze was leading to less spending and weighing on GST collections.
And while "war and inflation" were still boosting the tax take on profits, and inflation was leading to a larger slice of personal incomes going to government coffers, these influences were starting to wane.
"Inflation is slowing, and world markets have adjusted to war," Mr Richardson said.
With inflation moderating and growth slowing, few economists expect more interest rate hikes in this cycle and most believe the next move is down.
Ahead of the March interest rate call next week, Commonwealth Bank firmed up its prediction for no move before 75 basis points of cuts start in September.
CBA head of Australian economics Gareth Aird said the inflation challenge was not over but there was no case for more hikes given the economy was growing well below trend.
But he also said the federal budget could put its forecasts at risk if the government "injects any non-trivial stimulus" into the economy.
