In their preview of next month’s Budget, ANZ economists David Plank and Hayden Dimes said economic recovery would also shave $18 billion off the deficit and as much as $80 billion over five years.

In the mid-year economic and fiscal outlook (MYEFO), the Government said the underlying cash balance in 2021-22 was expected to be a deficit of $99.2 billion, a $7.4 billion improvement since the 2021-22 Budget despite the Delta lockdowns.

But Plank and Dimes said the improved labour market would drive further improvements because of the tax receipts generated as well as lower unemployment payments.

“Since MYEFO, there are already strong signs the deficit is likely to be revised lower this financial year,” they said.

“The December monthly financial statements showed the underlying cash deficit in one month was running $8.5 billion lower than forecast at MYEFO.”

Added to that was the fact that iron ore prices were running well above forecasts, which improves the company tax take.

“We expect the Government to announce new policy worth somewhere between $15 billion and $20 billion,” they said.

“The largest single policy will be the extension of the low- and middle-income tax offset to 2022-23. ”

The offset provides for a reduction in tax of between $255 and $1080 and costs about $8 billion a year. It was introduced by Scott Morrison when he was Treasurer under Prime Minister Malcolm Turnbull.

“In terms of police announcement that we know of since MYEFO, there has been around $2.3 billion worth of spending, including policies like the $800 payments to aged care workers.”

They said the Budget was likely to “represent a slowing in the fiscal pulse” as the Government winds back spending to get control of inflation.

“With an election around the corner, we struggle to see the Treasurer using this Budget to announce a shift to fiscal repair,” they said.

The forecasts came as ANZ also produced an update on the state economies. It said Queensland’s economy was slowing in December quarter, but still above trend.

It said the slowdown was caused by softer housing and housing components.

Exports, however, were outperforming, mainly on the back of coking coal which ANZ said was “extremely strong”.

“Queensland’s coal exports were up 45 per cent year-on-year in 2021 and accounted for 42 per cent of its aggregate exports. Our forecasts suggesty coking coal prices could soften to $US185 a tonne by the end of this year from the current level of $US430 a tonne, limiting future strength in Queensland export value,” the bank said.

“Construction work done fell in Queensland in the fourth quarter (-2.6 per cent), offsetting the rise in the third quarter and building approvals in Queensland dropped by the most of any state in December.”