Small tax cut likely budget centrepiece

Personal income tax cuts are expected to be the centrepiece of Treasurer Scott Morrison's third budget on Tuesday, which could prove to be his last before the next federal election.

"We continue to make the decisions to put our economy on the strongest possible foundation trajectory for the future to facilitate the creation of more jobs,"' Mathias Cormann told AAP in summing up what will be his fifth budget as finance minister.

"We continue to focus on getting the budget back into surplus as soon as possible and making sure that government lives within its means."

Armed with a tax revenue windfall, the Turnbull government has already ditched its planned Medicare levy increase from last year's budget, claiming the National Disability Insurance Scheme is now fully funded without it.

Economists at ANZ calculate the government can also afford personal tax cuts of $3 billion next year, building to $8 billion by 2020/21 without threatening a long-standing budget surplus projection.

It sounds a lot, but in reality, it would mean the average household earning less than $87,000 a year would get a tax cut of $6.50 a week.

"It would likely pay for a latte and a train fare each week in the first year, with a smashed avocado breakfast possible in three year's time," ANZ says in its pre-budget analysis.

Costello's 2003 round of tax cuts was worth $4 a week for the average income earner - or $5.75 in today's money - and that was when the budget was in surplus.

Mark Molesworth, a tax partner at consultants BDO, also expects a crackdown on the black or cash economy, as well as tax "integrity measures", which may include some sort of removal of work-related deductions.

In recent years, the government has also targeted foreign residents, multinational businesses and the big banks.

"Perhaps the financial planning sector can expect some attention this year," he told AAP.

Infrastructure spending is likely to be another big-ticket item - the centrepiece here being the already announced $5 billion funding for the Melbourne-airport rail link.

There has been a surge in tax revenue in the first few months of this year, the fastest pace in the past 20 years.

A strong global economy has helped lift company profits and tax revenue, along with losses incurred during the 2008-2009 global financial having finally worked their way through the system.

Record employment growth has also produced the double-whammy of additional tax receipts and less demand on welfare payments.

Commonwealth Bank chief economist Michael Blythe calculates this will result in a $10 billion improvement in the budget bottom line for this financial year (2017/18) and a further $27 billion over the next three years.

This would see the deficit shrink to $13.6 billion in 2017/18 before any new policy decisions from $23.6 billion as predicted in the mid-year budget review in December.

Blythe also puts the starting point for 2018/19 at a deficit of just $9.7 billion compared to a previous Treasury forecast of $20.5 billion.

But pre-election budget or not, the government's new-found wealth can't be seen to be squandered away, coming as it will under the watchful eye of the global credit rating agencies.

Australian Associated Press