Budget 2022: Cash payments, petrol cuts and $70 billion deficit

Direct cash payments to people earning under $126,000, a cut to petrol prices for six months, and money for pensioners will headline the federal budget to be handed down today.

Direct cash payments to people earning under $126,000, a cut to petrol prices for six months, and money for pensioners will headline the make-or-break budget to be handed down by Treasurer Josh Frydenberg today.

The budget bottom line will have a “significant turnaround”, with the deficit of $99.2 billion expected to drop to about $70 billion.

But economists warn there is no way to avoid the net debt tipping over the trillion dollar mark in the years to come.

Treasurer Josh Frydenberg will hand down his fourth budget on Tuesday. Picture: NCA NewsWire / Gary Ramage

There are also fears the big spending budget and cash payments could overheat the economy, driving up inflation which will increase costs and mortgage repayments.

More people back in work and fewer on welfare has driven the budget bottom line improvement, with more workers paying taxes.

The cash payments will not be a repeat of the $1080 low-and-middle income tax offsets, which had already been extended at the previous budget.

There is speculation it will be less than $400, but it remains unconfirmed.

Any direct payment will be “temporary and targeted” in a bid to prevent baking in costs to the budget.

The government has been under pressure to cut or freeze the petrol excise, as oil prices raise and fuel prices are spiking to $2.20 a litre.

A 5c a litre cut to the 44.2c excise is estimated to cost about $2 billion, while if the government were to go as high as 10c it would be twice that.

There will also be a big defence spend, as the Morrison Government seeks to shore up its national security credentials ahead of the election, and while there remain increased tensions with China.

Water security is also getting a huge cash injection, with the Hells Gate dam already confirmed to receive $5.4 billion, Urannah Dam $505 million and Paradise Dam $600 million.

The Great Barrier Reef is also receiving $1 billion – the largest single contribution – as the government fights to keep it off the World Heritage Council’s in-danger list.

Finance Minister Simon Birmingham said the government was aware of the cost-of-living pressures faced by families, but there had to be a balance.

“We want to make sure that we respond carefully to those issues. Carefully, because it’s important that we don’t add to those inflationary pressures,” he said.

Opposition treasury spokesman Jim Chalmers says the government’s budget will only focus on its re-election. Picture: Zak Simmonds

Opposition treasury spokesman Jim Chalmers said the government had committed more than $70 billion in the three months since the mid-year budget update in December.

“The Budget won’t be a plan for the future. It’ll be a plan for Scott Morrison’s re-election,” Mr Chalmers said.

Deloitte Access Economics director Chris Richardson said he expected the deficit to be about $70 billion for the next two years.

But he said the net debt, previously expected to reach $914 billion within four years, was still likely to reach $1 trillion in time.

Even with a better economy, even with a cash splash that big, it will be hard to not get a trillion dollar debt,” he said.

Mr Richardson also warned there could be negative impacts from government stimulus at this time.

“If you pour money on the economy when it’s strong, you add to inflation … prices will go up, mortgage repayments will go up,” he said.

Deloitte Access Economics director Chris Richardson. Picture: Richard Jupe

Commonwealth Bank chief economist Stephen Halmarick also expected the deficit to remain about $70 billion for the next two years.

“The economy is in better shape then thought even in December. Employment is much stronger than the government had previously expected,” he said.

“There’s a double whammy effect, less payments in JobSeeker and getting more in tax revenue.”

Mr Halmarick said interest rates were already likely to start rising from June and peak at 1.25 per cent in early 2023.

But he warned this could be pushed higher if the budget adds too much to short-term demand with its cash payments to ease cost of living.

“It’s a fine balancing act between that and not putting too much demand on the economy when inflation is on the rise,” he said.