Multi-billion-dollar tax revenue and high commodity prices will likely result in a far healthier federal budget than initially predicted, according to Deloitte's annual Budget Monitor.
The report shows higher prices for iron ore and gas will result in $83 billion in additional revenue over the forward estimates and predicts the cash deficit will shrink to $8.7 billion this financial year.
Deloitte Budget Monitor author Stephen Smith said the impact on the deficit was "astonishing".
"The temporary surge in tax receipts – to the tune of $83 billion in additional revenue over the next four years – is delivering an astonishing turnaround in the government's fiscal position," he said.
Despite a significant reduction in the deficit, inflationary pressures are still a significant hurdle for government spending and addressing growing cost-of-living concerns.
"Anyone expecting the May 9 budget to include a cash splash aimed at Australians doing it tough is likely to be disappointed," Mr Smith said.
"Something will be included to cushion the cost-of-living blow, with a likely focus on offsetting yet another round of rocketing electricity prices.
"Do too much, though, and the government risks putting additional upward pressure on inflation and encouraging the Reserve Bank of Australia to hike interest rates further."
Investments to offset the cost of energy, child care and medicines have been announced, but the government is under pressure to do more for low-income households, especially those relying on income support payments.
There has been widespread speculation that the government may make an increase to the JobSeeker rate for over-55's, something Treasurer Jim Chalmers would not confirm or deny earlier this week.
Mr Smith said the government would need to strike a delicate balance when it comes to relief measures and inflation.
"A balancing act requires some balancing. JobSeeker should absolutely be increased, but inflation pressures haven't gone away," he said.
"A middle ground would be to phase in a lift to JobSeeker, and to change the indexation so that it keeps pace with other payments, such as the age pension, over time."
The report also noted that while the short-term forecasts will likely be in far better shape, the government still has to face the issue of structural deficits.
It is predicted that spending on defence, health, aged care, the NDIS and interest on debt will continue to grow over the medium- and longer-term forecasts.
"While higher spending appears unavoidable, importantly, that can't be via a blank cheque," Mr Smith said.
"That points to the importance of pursuing real tax reform as opposed to just budget repair."
He advised that Australians should be on notice that taxes will "likely need to be higher" in the future.
"The fact that the budget is in a healthier position right now provides the perfect opportunity for reform," he said.
"The aim should not just be more revenue, but a more productive, efficient, sustainable and equal society."
