At the same time, record-low interest rates mean striking capital gains, especially in housing, so taxes on capital gains are gathering momentum.

The upshot is that Australia's tax system, having spent years as a hundred-pound weakling, has suddenly turned into the Incredible Hulk. National income will rise by some $73 billion this year, yet federal revenues will rise $41 billion. Remarkably, that says the marginal tax rate for the nation as a whole this year will be a truly mind-boggling 56¢ in the dollar.

Yep, you read that right – 56¢ in the dollar of this year's extra national income will line the pockets of the taxman.

That's why the deficit is shrinking faster than a contestant on The Biggest Loser. Just five months ago the previous year of deficits was running at $34 billion, and today that number is less than half that.

That's wonderful news, and it is worth congratulating a government that has, amid immense opposition, laboured mightily to nurse the budget back to health. But it is the "what next?" bit that has us worried.

It seems both the government and the opposition will take this love to town, promising duelling personal income tax cuts ahead of the upcoming federal election.

Yet the most common budget mistake is to take an improving trend and then immediately re-package it as permanent promises for the punters. You end up over-promising and under-delivering.


That's exactly what Paul Keating did with his L.A.W. tax cuts in 1993, while the 'BBQ stoppers' from Peter Costello in the mid-2000s – a swag of baby bonuses, family benefits and tax cuts – eventually came a cropper too. The most recent example came in 2012, when then Treasurer Swan's speech began with "The four years of surpluses I announce tonight …".

David Rowe

Wayne Swan was promising a lot. But our economy didn't deliver. China's slowdown was already starting, and the five minutes of economic and budgetary sunshine into which the then treasurer launched those promises soon disappeared.

In other words, Australia has a history of political promises made off the back of expectations of what the economy will deliver. In each case, the dividends from expected better news on the economy were promised away by the politicians before they ever really arrived.

So while today's trajectory in budget revenues is undoubtedly a thing of beauty, a lack of caution in responding to better budget news risks relegating us to a rerun of Wayne's World – a world in which we bet everything on a budgetary upturn continuing, but end up having to scramble and introduce artificial measures to try to maintain a promise of a return to surplus despite fading economic fortunes.

That'd be a mistake. We should wait to see the whites of the eyes of a surplus or two before rewarding ourselves with a pack of Tim Tams.

Waiting would be wise, because it would show today's surge as mostly temporary: businesses were always going to run out of tax losses at some stage.

Yet Treasury's advice to the Treasurer is probably happier than ours: its forecasts for 2019-20 and 2020-21 essentially shift onto autopilot, with a bunch of growth rates moving back to trend. That approach is entirely understandable: it's designed to deflect criticism that Treasury cooks the books in favour of the government of the day.


In practice, however, the official approach tends to bake current good news into the medium term, because using 'projections' rather than 'forecasts' means Treasury won't pick up much of the"better news now implies worse news later" seen in our forecasts.

So beware today's glut of good news. It's a little too good to last, and you should hope that both the government and the opposition treat it with caution.

Alternatively, you may prefer to wish for a pony – you may have better luck with that than with standing between politicians and a bucket of money.

Chris Richardson is a partner at Deloitte Access Economics.