Australian government net debt will peak at A$375.1 billion ($399.76b) within the next two years - the highest level in 40 years.

Net debt will be equal to 19.5 per cent of the country's gross domestic product in 2018/19, according to the federal budget handed down by Treasurer Scott Morrison tonight.

Net debt is forecast to reach A$325b in the current financial year, before rising to A$355b in 2017/18 and reaching critical mass the following year.

However, Treasury forecasts say there will then be a turnaround, with debt falling to A$374.7b in 2019/20 and dropping down to A$366.2b in 2020/21.


Notably, the government is also forecasting a big turnaround in the budget deficit along the exact same timeline.

Budget papers indicate the deficit, which is A$37.6b for 2016/17, will dramatically fall from A$21.4b in 2018/19 to just A$2.5b in the following year.

The federal government then hopes to deliver a surplus of A$7.4b in 2020/21.

Australia's five biggest banks have been slugged with a new, multi-billion-dollar levy and a suite of stepped-up controls and penalties imposed by the federal government in the name of fairness and accountability.

The big four Australian banks of Westpac, ANZ, Commonwealth Bank and National Australia Bank, plus Macquarie Group, will be hit with a new levy that will reap A$6.2b in revenue for the government over the next four years.

Morrison said the new levy was part of a broader package aimed at improving accountability and competition in the banking sector.

Banks with liabilities of more than A$100b, which is currently the big four lenders and Macquarie, will be slugged with a levy of 0.06 per cent on those liabilities each year from July 1.

"This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks," Morrison said.

The federal government is counting on improving household consumption to help drive economic growth over the next four years.

Growth forecasts have only been revised lower in the current financial year, on account of unseasonal wet weather in the September quarter and Cyclone Debbie in March.

Morrison's budget forecasts gross domestic product to rise 1.75 per cent in the financial year ending on June 30, before leaping 2.75 per cent in 2017/18 and rising to three per cent in 2018/19.

"The lift in economic growth is expected to occur as the drag from falling mining investment diminishes and as growth [in] household consumption and non-mining business investment improves," he said.

"Exports are also forecast to continue to grow, supporting greater economic activity and growth."

Recent consumer confidence surveys have shown sentiment falling and just hours before the budget was released, the Australian Bureau of Statistics reported that retail sales fell 0.1 per cent in March.

The Reserve Bank of Australia has additionally been warning for months that record high household debt could lead to consumption growth being significantly curtailed in the event of any economic shock.