Bamboozled by bracket creep, no idea about negative gearing? Use our jargon buster to help wrap your head around some of the terms being bandied about this budget.

Tax cuts are expected to be on offer in the 2018 budget, so they're probably the key terms to get your head around. Alternatively, you can jump to a key definition below.

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Tax brackets, rates and thresholds

Australia has five tax brackets, or income ranges, with a different rate of tax for each. This is what you pay now.

Taxable income Tax on this income 0-$18,200 Nil $18,201–$37,000 19c for each $1 over $18,200 $37,001–$87,000 $3,572 plus 32.5c for each $1 over $37,000 $87,001–$180,000 $19,822 plus 37c for each $1 over $87,000 $180,001 and over $54,232 plus 45c for each $1 over $180,000

There are a couple of ways the Government can reduce the amount of tax you pay.

One is to lower the amount or rate charged on each bracket. So instead of 32.5 cents per dollar for the third bracket, the rate might be cut to 30 cents per dollar.

The other way of delivering a tax cut is to change the threshold between tax brackets. For example, the first tax bracket could have a higher threshold, so it could be lifted from $18,200 to $20,000. That would deliver a tax cut for everyone with an income above $18,201.

But when everyone benefits from a tax cut, it is spread quite thinly and might not seem as generous.

It is quite likely there could be a combination of the two options, both lifting a threshold and cutting a rate.

To deliver a tax cut and return the budget to surplus on schedule means the Government will probably give a fairly modest tax cut, often referred to the equivalent of a sandwich and a milkshake.

Bracket creep

Bracket creep happens when wages increase with inflation and push people into a higher tax bracket.

The Government gets more tax revenue, but this can cause distortions if someone considered to be a low-income earner finds themselves slipping into a higher tax bracket.

Tax brackets are designed to be indexed to account for increases in inflation, but that doesn't happen automatically. So the Government ends up with more revenue without raising taxes.

Lifting the tax threshold is the usual way to deal with bracket creep.

Budget repair

Once the budget is back in surplus — which is forecast to happen in the 2020–21 financial year — the Government can start to use that money to begin paying off the debt, which it likes to call "repairing the budget".

Analysts say that the extra revenue that has been coming in recently could mean an earlier return to surplus and an faster start to budget repair.

But instead of taking that option, it is likely there will be a modest income tax cut instead and the return to surplus will happen as forecast in 2020–21.

Debt vs. deficit

Politicians of all stripes are fond of comparing the budget to a family's finances, but this often leads to confusion.

When a politician says they are balancing the books and returning the budget to surplus, it gives the impression that they are clearing the government's debt.

The reality is that the deficit is just the amount of money the government spends beyond what it receives in a financial year.

Just because you return the budget to surplus does not mean that the debt incurred by the previous deficits disappears.

Any deficits, or shortfalls, instead are added to existing government debt, which is expected to hit $317.2 billion this financial year.

While $317.2 billion sounds like (and is) a lot of money, by international standards Australia's public debt is quite low, sitting at 18 per cent of GDP — which is the value of what Australia's economy produces each year.

While government debt can pose problems, it is not quite the same as personal debt and can often serve a purpose.

Governments take on debt by issuing bonds to investors who are paid a return, with ratings agencies allotting a credit rating to government debt. A high credit rating, such as the one Australia has, allows governments to borrow at very low rates, with investors trading profit for security.

Some economists argue this ability to borrow at a lower rate than the market should be used to fund infrastructure projects that are likely to make a profit, as well as boosting productivity.

Forward estimates

The forward estimates are a series of projections, released alongside the budget, which predict revenue and expenses for the next four financial years.

The budget shows what the revenue and expenditure is expected to be for the upcoming financial year.

The forward estimates for the following three years are based on estimations of forecasting assumptions including the economic and population growth rates.

As they rely on assumptions about revenue and indicators, they are often subject to change — as the mining boom unfolded, the estimates often undervalued the amount of revenue, and since commodity prices peaked they have had to be revised downwards.

But the estimates are seen as a useful way of showing the Government's longer-term plans for spending.

GDP

The gross domestic product (GDP) is the annual value of goods and services produced by a country. GDP is generally recognised as one of the key indicators of the state of a country's finances.

Negative gearing

While the Coalition has directly ruled out changes to negative gearing in this budget, Labor's negative gearing policy means the issue is sure to remain in the headlines.

Negative gearing allows property investors to write the interest costs of their mortgages off as an income tax deduction against other sources of income, and has been blamed for soaring property prices as it subsidises loss-making real estate investments.

Labor wants to restrict negative gearing to new properties, as well as reduce the capital gains tax discount. (Currently investors are only taxed on half of their investment profits from capital gains if they hold an asset for at least one year.)

Nominal GDP

A version of the GDP that has not been adjusted for inflation. This means the GDP will appear higher than it actually is, as it fails to take into account the devaluing effect of inflation.

However, it is also the measure of GDP that is most closely related to government revenue and spending, as both are affected by inflation.

Parameter variations

Parameter variations refer to the budget's assumptions about the economy (such as growth, inflation and unemployment) and how these will affect revenue and costs.

PEFO and MYEFO

The Pre-election Economic and Fiscal Outlook (PEFO) is released by the Federal Treasury shortly before a federal election, and represents Treasury's and Finance's predictions on the current and future state of the economy.

While budget bottom lines are often open to manipulation by governments, the PEFO is put together independently and is the only outlook signed off by the heads of Treasury and Finance.

This is almost certainly the last budget before the next election, so the PEFO could be the next update on the state of the books.

The Mid-Year Economic and Fiscal Outlook (MYEFO) is an update to the budget that the Government releases halfway through the financial year.

The Prime Minister has been insisting the election will be held next year, so that would mean there is a MYEFO released just before Christmas.

Structural deficit

A structural deficit refers to a situation where the current tax structures of a country will fail to cover the expenses under normal economic conditions.

Governments commonly run deficits in times of economic downturn as a means of insulating the economy and ensuring services are not impacted, with the understanding that surpluses during peak times will help pay down the debt incurred by going into deficit.

A government can still run surpluses but be in structural deficit — for example, towards the end of the Howard government terms, revenue from the mining boom allowed it to post surpluses — however, under normal conditions the budget would have been in deficit.

Working out whether a government has a structural deficit is complicated by the changing nature of sources of revenue and costs for governments, but governments and economic organisations try to remove the influence of temporary impacts on the budget bottom line to assess the long-term prospects for the economy.

Superannuation concessions

Super concessions are tax breaks designed to encourage people to put more money into superannuation, in theory saving the government money down the track by reducing the burden these people will have on the public purse when they retire.

Currently superannuation is taxed at 15 per cent, with super earnings not taxed at all once you hit 60 years of age. Employers are required to put a minimum of 9.5 per cent of an employee's income into a super fund.

The superannuation concession allows people to voluntarily contribute more to their superannuation and still be taxed at the rate of 15 per cent (or 30 per cent if you're really well off), well below the majority of tax rates.

The concessions have been criticised for disproportionately benefiting the wealthy, who get a much bigger discount on their normal income tax rates than those in lower tax brackets.

With many wealthy people likely to be ineligible for the pension on reaching retirement anyway, critics argue that the concessions cost the government far more in lost revenue than it would cost to support wealthy individuals with the aged pension.

Tax expenditures

Tax expenditures are sources of revenue the Government goes without due to tax concessions. While they are not government spending, they represent significant losses of potential revenue for the Government.

While some of this is offset by increases in productivity and increased spending, it remains a significant source of potential revenue the Government is missing out on.

Among the most well-known examples of tax expenditures are superannuation concessions and the capital gains tax exemption on the family home.

Terms of trade

'Terms of trade' measures the relationship between the prices a country receives for its exports and the prices it pays for its imports.

A rising terms of trade means the nation is getting better prices for its exports relative to what it pays for imports, and vice versa.

Australia benefitted from rising terms of trade during the mining boom as the prices of iron ore, coal, and other commodities surged, while the price of many imports such as electronics and clothes stayed steady or fell.

Economists are cautious about drawing too many conclusions from high or low terms of trade figures, but trends in the movement of the terms of trade are useful for predicting changes in the standard of living.