Budget 2018: Rivers of gold are running again in Australia

Australian Prime Minister Malcolm Turnbull. Photo / AP

As my Deloitte Australian colleagues have said, the rivers of gold are running again, with the global and Australian economies doing their Budget plenty of favours; including Australia now forecasting a surplus of A$2.2 billion ($2.3b) in 2020, a year earlier than planned, after running annual deficits extending back to the GFC.

Net debt is expected to peak at 18.6 per cent of Australia's GDP in 2018, also a year earlier than forecast, before falling to 3.8 per cent by 2029.

This is particularly important for Malcolm Turnbull, who is looking to the next Federal election expected to be held between August 2018 and May 2019.

This was potentially then his election budget, capping off the term of a relatively new Conservative Government that has not had an easy time of it and looking to capitalise on some of the most favourable news since the last election.

Within that context, the Budget set out a number of initiatives to bridge the gap between the haves and the have-nots, which is expected to be a defining issue in their election, in a way that the incumbent Government there hopes will be favourably viewed by the electorate.

Initiatives included tax relief for low and middle income earners, addressing tax "bracket creep", and substantial investments in transport infrastructure. Their government will also continue to implement previously announced measures including a new child care package, and a A$1b National Housing Finance and Investment Corporation.

It is quite a deja vu feeling in all of this for us then, as Australia will shortly also test the populist movement sweeping the globe that has had political parties seek to garner the support of a growing cadre that feel they have been left behind; and who also have little confidence that positive economic news will benefit them in any meaningful way.

In contrast, on our side of the Tasman, the Hon Grant Robertson's first Budget is likely to be considerably more opaque, already foreshadowed to pivot to other priorities, and in particular to what our Government see as our social and infrastructure deficits.

In terms of also looking to appease business, they have reinforced that they are keeping to the Budget Responsibility Rules, including running sustainable surpluses and cutting net debt to 20 per cent of GDP within five years here; slightly longer that what was forecast by the previous Government.

Unlike in Australia, however, the Government is expected to keep their powder somewhat dry as to the extent of the pivot towards those social and infrastructure deficits; especially given that their position is also constrained due to the projected surpluses largely already being committed, including by reforms passed by the current Government in the "100 days" post-election period.

Like Australia, our Government is in the enviable position of having tax revenues outperforming forecasts that could easily be conservative on the upswing, giving them even more options in the future and in particular in the lead up to our election in 2020.

So in terms of putting the two Tasman Budgets together, we are dealing with quite different contexts and positions in the election cycle; including New Zealand having recently shifted from a centre-right to centre-left government.

In both cases we are dealing with budgets that are part of taking voters on the journey, with ours likely to be vaguer and more opaque given timing and a number of unanswered questions as to the ultimate destination sought by the Labour-NZ First government.

One such question is around the right balance between gathering tax revenues and addressing the Government's stated infrastructure and social deficits.

At an extreme, this could mean that subject to meeting crown debt targets (still considerably higher than in Australia) and continuing to run a surplus, all remaining revenue could be directed to additional services funding rather than any tax relief.

The likelihood is that this question will only start to be addressed next year, when the Budget is proposed to balance traditional financial reporting with a focus on wellbeing. The Tax Working Group deliberations add to the uncertainty, keeping the Minister from adding clarity on tax reform since that work is still in progress.

So while the upcoming Budget will have differences to what might otherwise have been the case if National held the Treasury benches, the differences may seem relatively small when considered in isolation.

But even relatively small differences compound over time, and can compound even further if the economy continues to outperform expectations and provides the Government with greater head room to fund their social and infrastructure deficits, notwithstanding the constraints it has set itself.

What is therefore most important in our upcoming Budget next week is the destination that is signalled, rather than overtly focusing on this year in isolation, which is largely just a marker on the journey.

Therefore, while Budget 2018 may not feel that different, it's really about discerning its recalibration and the trajectory over the next three years, and the intended destination over the longer term.

The context with Australia couldn't be more different.

- Thomas Pippos is chief executive of Deloitte New Zealand.