Budget week in Australia and New Zealand normally finds the two countries in a similar economic condition, with Australia looking the stronger. Not this week. Australia's Budget, to be delivered tomorrow, will be an answer to a projected decade of deficits. It is five years since New Zealand heard that phrase from John Key and Bill English, the first since the recession and global financial crisis.

It will be small, so small that it could easily disappear before it can be banked next year. Despite the economy enjoying 3 per cent growth at present, tax revenue is running below the Budget for the current year.

Herald video - Deloitte chief executive Thomas Pippos on this week's Budget:

Deloitte NZ chief executive Thomas Pippos with his thoughts on this week's Budget - is the surplus worth celebrating? What can business and the general public expect from this week's Budget.

The deficit for the nine months to March was nearly $200 million worse than forecast, better than the $900 million shortfall to February but still a worry when the economy has so much going for it.


Dairy prices have passed their peak but the Christchurch rebuild is still providing a stimulus. The Reserve Bank has begun lifting its base interest rate back to normal levels but that should not be enough to choke the growth spurt. Wage rises are outpacing inflation and consumer confidence remains strong. In fact, the conditions are right for the Government to present a more far-sighted path of economic development than it has so far.

It needs to give voters a reason to return it to power in September for a third term. A surplus will be a signal achievement, especially after absorbing $15 billion of the Christchurch repair bill, but it is a signal of spending controls so far. An election year Budget needs to look ahead.

Across the Tasman, Prime Minister Tony Abbott and Treasurer Joe Hockey must envy their New Zealand counterparts. They will deliver their first Budget tomorrow without a consensus of economic support for the austerity they argue Australia needs. Severe cuts to health, welfare, education and other sensitive areas of spending are a possibility, as well as a possible "deficit reduction levy" on high incomes.

The levy proposal has been condemned by former Liberal treasurer Peter Costello and others in Mr Abbott's party. As a blatant tax it would break an election promise. After his election, Mr Abbott's bark proved tougher than his bite on public spending.

Quite likely the Budget tomorrow will be softer than he and Mr Hockey have led Australians to expect. Its public debt is below 20 per cent of GDP and it can afford to reduce its annual deficits more gently.

New Zealand's public debt went well above 20 per cent with the costs of the recession and the earthquakes. The Government's aim to have it back down to that level by 2020 will require annual surpluses every year from here on. Opposition parties will call the surplus "smoke and mirrors" on Thursday.

It is a phrase easy to apply to a figure built on forecasts rather than cash in the bank. But if they do not believe the forecasts they have less room to go to the election with proposals requiring additional spending.

The Budget ought to give an indication of the Government's use of surpluses over the next few years. On Friday Mr English suggested that as well as repaying debt the Government would boost spending in its social priorities and eventually resume contributions to the NZ Superannuation Fund.

Its pre-Budget announcements in recent weeks give the flavour of those priorities: $20 million more for apprenticeships, $20 million to fight rheumatic fever, $3000 grants for unemployed beneficiaries to go to Christchurch. The sums are not large but the projects are practical and precise. That has been the secret to the return to surplus: not painful cuts but a focus on results.

It seems to be working.