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Caution urged for 'rivers of gold' budget

A leading economist says Australia's current economic climate is almost the "picture perfect" backdrop for boosting tax revenue and the looming federal budget but has urged the government to restrain spending as the boost in revenues may not last.

Deloitte Access Economics partner Chris Richardson says strong global and Australian economies are "doing the budget plenty of favours", and forecast overall revenues to grow by 9.8 per cent in 2017/18 - the strongest increase in sixteen years.

That will be followed by a further 5.7 per cent gain in 2018/19.

"The rivers of gold are running again," Mr Richardson said in Deloitte's latest Budget Monitor report, released on Monday, ahead of the budget on May 8.

"The world economy is the best it's been in years and because some of that strength is in China, there's also good news in commodity prices, which are a direct driver of today's stronger company profits."

Over the past four months the budget bottom line has been lifted by soaring corporate tax payments, driven by companies and super funds having finally run out of claimable tax losses racked up during the global financial crisis and returning to paying tax again.

The rolling annual cash deficit shrunk by $15.4 billion in the four months to February - a pace of improvement only seen twice before in the history of the budget, Mr Richardson said.

"Better still, there's more where that came from," Mr Richardson said.

"We project continuing outperformance versus official revenue forecast pretty much across the board in both 2017/18 and 2018/19."

But Mr Richardson warns the rivers of gold may turn back to a trickle by 2019/20 and 2020/21, with the current economic drivers of the budget boost not sustainable.

"Not all of it is permanent," he said.

"The better that global growth is now, the harder it'll be to maintain that thereafter as global capacity tightens and interest rates lift.

"And ditto the outperformance of the tax system - an earlier end to the impact of tax losses and a stronger than expected life in capital gains taxes are both essentially timing shifts."

Deloitte has forecast the budget will return to surplus in 2020/21, in line with the federal government's projections.

But the recent move by federal treasurer Scott Morrison to scrap an increase in the Medicare levy - axing $8 billion in future revenue for the National Disability Insurance Scheme - will leave a slim surplus, Mr Richardson said.

Anything more than small cuts to personal income tax on budget night would end any prospect of a surplus, he said.

Similarly any worse-than-expected slowdown in China - Australia's biggest trading partner - would see a return to surplus disappear from view.