"What these figures prove is that a more competitive business tax rate - so far only for small- and medium-sized business - does boost jobs as we promised; wages growth has started to pick up, and business is paying more tax," said Finance Minister Mathias Cormann on Friday.

"It proves the point that our plan is right for the economy and it is right for our budget," he said.

In the mid-year fiscal and economic outlook the deficit was expected to narrow to $23.6 billion from $33.2 billion in 2016-17. Last year's budget anticipated 2017-18 deficit of $29.4 billion.

As of the end of February, the underlying cash deficit was $19.8 billion, or $8 billion less than the pre-Christmas prediction that it would stand at $27.8 billion that month, according to the department.

The fast-improving fiscal position is being driven by last year's jump in commodity prices, a surge in corporate earnings, and 2017's record 400,000 jobs boom, which is not only inflating income tax receipts but has sharply reduced the welfare burden.

Taxes on incomes are ahead of schedule by $1.3 billion, at $128.5 billion while company taxes are ahead of the MYEFO forecast by $3 billion.

Spending from July through February has averaged $38.1 billion a month, according to the department figures. MYEFO anticipated a monthly spending rate of $38.9 billion.


While still a long-shot, the numbers will stoke speculation that the budget may already be within striking distance of producing the first surplus in a decade. Technically, it could even be delivered this financial year.

In the mid-year fiscal and economic outlook the deficit was expected to narrow to $23.6 billion from $33.2 billion in 2016-17. Last year's budget anticipated 2017-18 deficit of $29.4 billion. David Rowe

However, an early surplus remains unlikely because Prime Minister Malcolm Turnbull needs much of the recent windfall to pay for promised pre-election income tax cuts.

It is understood Mr Turnbull and Treasurer Scott Morrison are eager to continue their practice over the last two years of under-promising and over-delivering on the budget.

By maintaining what they regard as modest assumptions about future economic growth, wage increases and prices for key exports such as iron ore, the budget's architects expect the May budget to maintain what has been a relatively low-key fiscal strategy.

While there will be additional money for infrastructure, most of the emphasis will fall on relieving household income and cost pressures.

It is understood Malcolm Turnbull and Treasurer Scott Morrison are eager to continue their practice of under-promising and over-delivering on the budget. Alex Ellinghausen

This will be the central framing for income tax cuts, which will help consumers weather weak wages growth and the likelihood of rising mortgage rates.