Federal budget 2021: Australian economy has had a 'red hot recovery': Deloitte

Deloitte Access Economics' latest budget monitor says revenues for this financial year may end up $21 billion above what was forecast.

Report author, Deloitte Access Economics partner and principal Chris Richardson said the economy was "a lot happier".

"The remarkable recovery has left official forecasts well behind," he said.

"Compared to Treasury, we see the economy in 2020-21 and 2021-22 as having much lower unemployment but stronger inflation, a higher currency and higher long term interest rates.

"In total, that saves money. But it is the sheer size of that saving that stands out, because better job and joblessness news saved much more than usual, boosting the budget bottom line by a mammoth $17 billion in 2020-21, and then by a further $3 billion in 2021-22."

Mr Richardson said there were three elements that stood out in Australia's economic recovery. These were that jobs had returned much faster than Treasury had expected, an increase in iron ore prices and other export products and that families had increased their spending.

National income was also set to perform better than expected. Mr Richardson said it was set to be $31 billion, 1.6 per cent, stronger this financial year and would grow to be $114 billion, 5.2 per cent, better in 2022-24.

Deloitte estimated a cash deficit of $167 billion this financial year and $87 billion next year, this is $31 billion and $22 billion, respectively, better than Treasury's forecast.

But while Deloitte gave an optimistic assessment of the budget, Mr Richardson's analysis said the government may need to eventually save the equivalent of $40 billion a year to get the budget back into balance.

READ MORE:

The report said the government needed to wait until the unemployment rate was "comfortably below" 5 per cent.

"Attempting budget repair too early would risk hurting the economy - and therefore hurting the budget," Mr Richardson said.

"The good news is that appears to be the way the government is thinking."

Treasurer Josh Frydenberg had previously said the government would not cut spending until the unemployment rate was below 6 per cent, but he revised that down to below 5 per cent in a pre-budget speech last week.

Mr Frydenberg will deliver the federal budget on May 11.

Our journalists work hard to provide local, up-to-date news to the community. This is how you can continue to access our trusted content: