The unrealistically pessimistic view of the economy as presented in MYEFO is designed to make Joe Hockey look like a fiscal hero come the May Budget, writes Stephen Koukoulas.

Joe Hockey's first fiscal policy announcement as Treasurer was a bit like the Irish joke when a tourist in Cork asks a local shopkeeper the quickest way to get to Dublin. The shopkeeper replies, "Well sir, if I were you, I wouldn't start from here."

Just about everyone agrees that fiscal policy should to be moved to a sounder structural footing and with small underlying budget surpluses more desirable than not over the course of the business cycle.

The job of Treasurer is difficult and for Mr Hockey, who is still on the steep learning curve in the role, he would prefer to be framing a budget where all of the hard work on fiscal management had been done.

For Mr Hockey, the hangover of the global financial crisis, seemingly chronically low inflation, a fall in the terms of trade, and persistent sub-trend economic growth are all unhelpful factors for a Treasurer looking to move the budget back to surplus.

Which is where the flair, resolve and hard work for any Treasurer begins and ends.

It is the role of economic policy makers to deal with what ever is served up to them, be it a terms of trade boom, a global banking crisis, currency mispricing or some other unforeseen shock. This is Mr Hockey's challenge. It is one of the key reasons for him having the most important economic job in Australia.

Unfortunately, Mr Hockey's Mid Year Economic and Fiscal Outlook was presented in a manner more like the Cork shopkeeper's lament rather than someone with a meaningful policy map or framework by which he would deal with the structural budget issues.

This is a critical reason why the first three months of the Abbott Government have been so disappointing. Government policies to date have added over $13 billion to the budget deficit while Treasury's assumption that the economy is weaker than assumed at the time of the Pre Election Fiscal Outlook has added a further $60 billion.

Of course, it would be nice and easy to start framing fiscal policy from a starting point where the budget was already close to surplus or where the Government's own decisions of spending $8.8 billion on the Reserve Bank and cutting the carbon price were not smashing holes in the budget numbers. But that is what Mr Hockey revealed in the MYEFO. And of course it would be better if there was a different economic growth outlook to help boost government revenue, or if tax scales, including for the GST, were a little higher or broader.

But dealing with the alternative is the basis for Mr Hockey's job description. As Treasurer, he was elected to make the big and often difficult decisions. Mr Hockey has to stop moaning and complaining about the economy and work to make the economy even better than the one he inherited three months ago.

One area where Mr Hockey has followed through is on his word prior to the election to 'fix' Treasury. It is disappointing to see Treasury humiliated and bullied into applying Mr Hockey's (or his office's) forecasts to the economic parameters underpinning the budget numbers.

He has, in effect, told Treasury to calculate the budget revenue and spending numbers using unrealistically weak assessments for GDP growth, inflation, wages, employment and the unemployment rate. They are not Treasury forecasts, they are Mr Hockey's forecasts.

The tactic Hockey is using is clear. The weaker the economic forecasts now, the 'worse' the budget position appears. Put in a nominal GDP growth rate 1 percentage point weaker than it is really likely to be, cut a quarter of a per cent from employment growth, and trim half a percentage point from inflation and wages growth, and all of a sudden, there is a deficit blowout of many tens of billions of dollars over the forward estimates.

These unrealistically pessimistic views on the economy mean that when the budget estimates are framed in May 2014 and there is the inevitable upgrade to the performance of the economy, all of a sudden the budget deficits will be smaller and there will be a series of budget surpluses in the forward estimates.

What is more, when the decisions to cut spending which Mr Hockey flagged in MYEFO are delivered, the trajectory of the budget will be for there to be a surplus in 2016-17, and surpluses after that. Mr Hockey will be a fiscal hero, at least in his own mind.

My bet is that when we see the budget in May, the bottom line fiscal numbers will not be all that different from those presented by Treasury and Finance in the PEFO in August. In that document, the previous government had a profile for the budget to return to surplus, cuts in net government debt, and its strategy locked in the triple-A credit rating.

What Mr Hockey is setting up for is to announce some big spending policies in the MYEFO, blame the previous government for the budget blow out, and then cutting spending to pay for his (and Mr Abbott's) spending surge.

Stephen Koukoulas is a Research Fellow at Per Capita, a progressive think tank. Between October 2010 and July 2011, he was economic policy advisor to the Prime Minister Julia Gillard. View his full profile here.