Budget for 202324 due on May 9
Deficit to shrink sharply, almost near surplus
But red ink ahead from spending pressure, tax cuts

SYDNEY, May 1 Reuters Australia39;s Labor government is set to reveal a vast improvement in the budget bottom line next week as its coffers bulge with tax windfalls, yet the outlook will be a sober one as fiscal challenges loom large.

Treasurer Jim Chalmers has spent weeks using restraint and responsible to describe his second budget since coming to power in May last year.

There will be some money to offset cost of living pressures, particularly on energy prices, and perhaps a longdelayed rise in unemployment benefits. Chalmers has flagged more support for renewable projects and a ramp up in defence spending with an eye to China39;s expanding influence in the region.

Yet, he is well aware that too much fiscal largesse could stoke inflation just when the Reserve Bank of Australia RBA has aggressively lifted interest rates to fight it.

Instead, the aim is to bank any budget savings, and there are plenty to go around. High prices for Australia39;s commodity exports have delivered a windfall from mining profits, while job gains boosted income tax and lowered welfare payments.

As recently as October, Chalmers had forecast a deficit of almost A37 billion 24.47 billion for the year to end June 2023. Now, analysts expect it to be closer to A5 billion.

Indeed, the running 12 month total is actually in surplus, a big deal for a budget that has…