Leaders shape up for debate over budget's 'fairness', as Deloitte projects $45 billion 2015-16 deficit

Against the grim outlook of a continuing massive deficit, Tony Abbott and Bill Shorten are both seeking to frame the debate ahead of Treasurer Joe Hockey bringing down his second budget next week.

Abbott said on Sunday the budget would make “Australians feel more optimistic and confident about their future”.

“Our country is coming back. Our economy is strengthening,” he said.

“I am absolutely convinced that on budget night it will be seen as responsible, measured and fair.”

In his major pre-budget speech, Shorten on Monday will lay out “tests” the opposition says it needs to pass.

He will pose three questions for the budget: Is it the right plan for the future? Is it honest and responsible? Is it fair?

The budget will be important for Liberal MPs' views about Abbott’s future.

But Shorten will face some pressure too, when he delivers his reply two days after the budget. His performance will be judged partly on whether he includes new substance.

Deloitte Access Economics' latest budget monitor projects a deficit of $45.9 billion in 2014-15, $5.5 billion worse than the mid-year budget update, and little improved from the recorded $48.5 billion deficit in 2013-14.

The news will be as bad for the coming financial year, Deloitte says.

“China continues to carve chunks out of Canberra, leading to rampant revenue shortfalls,” it says.

But it says the biggest new bad news is in PAYG (pay as you go). “Wage growth jumped ahead of productivity gains during the boom, but it is now only limping along as businesses try to claw back their competitiveness. That’s set to tear a new hole in the heart of the budget.

“Add in the rising cost of Senate gridlock, and we see an underlying cash deficit stuck at $45.3 billion in 2015-16.” This was a “massive $14.1 billion worse” than at the official mid-year budget update.

The China-driven budget boom of the past decade “is threatening to become a budget bust, making the task of getting the budget back on to a healthier footing ever harder. As a simple illustration of that, even if you extended the GST to cover fresh food you wouldn’t fill the ongoing budget hole left by the iron ore price falls of the last six months”, the monitor says.

“We estimate revenues will fall shy of the latest official estimates by $5.2 billion in 2014-15 and by an ugly $10.8 billion in 2015-16.”

In one of a series of pre-budget announcements, the government has extended funding to provide $840 million over two years for preschool programs.

This is for 2016 and 2017. For the first time the new funding will be indexed against the CPI, which will mean an extra $30 million over the 2016 and 2017 calendar years.

Asked why the extension was only for two years, Abbott said the federation white paper would look at the question of who was going to take primary responsibility for pre-schooling in the future.

The government is also announcing the budget will contain considerable savings from stopping the asylum seeker boats.

Shorten will tell a McKell Institute function that “incredibly, a week before this year’s budget, we are still talking about last year’s budget”.

That budget had brought harm and hardship “without a sustainable trajectory for improving the budget balance”.

“Now they want to use last year’s failed savings to fund this year’s new spending'‘ – a reference to Social Services Minister Scott Morrison seeking to finance extra funds for his child care package – to be unveiled in the next few days - from 2014 budget savings in family benefits that have not got through the Senate.

“This is Escher staircase economics,” Shorten will say.

He will say that “dull” has become the adjective of the government’s choice for the budget.

But the 2014 budget failed not because it was too bold or because Australians are tired of change but because it was “fundamentally unfair”. The lesson is not to give up on reform but “do reform right, make change fair”.

“We can’t afford a ‘dull’ budget or an ‘ordinary’ effort, any more than we can afford a rerun of last year’s disaster. We can’t afford an outbreak of shallow populism any more than we can afford a repeat of last year’s extreme ideology.

“We can’t afford a budget that puts Tony Abbott’s job ahead of Australian jobs. We need a budget planning for the next ten years, not a plan for Tony Abbott to survive to the end of the year,” Shorten will say.

Planning requires helping mature age workers navigate the transition in the economy, addressing record rates of youth unemployment, and investing in schools and universities to drive skills needed for the next wave of industries, Shorten will say.

Planning also means delivering essential infrastructure, universal health care, the world’s best retirement income system, an innovation economy and a transition to a low pollution economy.

Being honest and responsible means “no more mugging confidence in the high street, no more hot air about ‘budget emergencies’ and ‘disasters’ behind every corner,” Shorten will say.

“Instead, it’s time for the government to take responsibility for restoring budget confidence and for a sustainable budget trajectory.”

He will say that “being fair means offering an equal opportunity – and expecting a fair contribution.

“It starts with recognising that inequality in Australia today is as high as it’s been in three quarters of a century. Egalitarianism is under threat.”

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.