Malcolm Turnbull and Scott Morrison are preparing the ground for a boost in infrastructure spending in the May budget, with the Treasurer to unveil budget changes that will enable him to borrow for worthwhile projects without endangering a return to surplus.
In his final pre-budget speech, to be delivered to business economists in Sydney on Thursday, Mr Morrison will also tell Australians that "things are beginning to look up – there are clearly better days ahead".
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The Treasurer's second budget will now highlight a different measure of the budget balance – the so-called "net operating balance", currently buried in the budget papers – to indicate whether the government's day-to-day spending and income are in balance, with spending on infrastructure hived off.
Capital spending, or so-called "good" debt, will be accounted for differently, as happens in major corporations and in such countries as New Zealand and Canada. Labor has also been debating, internally, whether to change how debt is accounted for.
"Bad" debt run-up for recurrent spending on such areas as welfare will also be highlighted, with Mr Morrison comparing it to household spending on a credit card.
The change is likely to be endorsed by credit rating agencies, keeping open the prospect of Australia retaining its prized AAA rating.
"It can be very wise for governments to borrow, especially while rates are low, to lock in longer-term financing and invest in major growth-producing infrastructure assets, such as transport or energy infrastructure," Mr Morrison will say.
"But to rack up government debt to pay for welfare payments, Medicare costs or other everyday expenses, is not a good idea."
![Infrastructure spending is set to feature heavily in the budget.](/web/20170502190955im_/http://www.theage.com.au/content/dam/images/g/u/1/f/g/l/image.related.articleLeadwide.620x349.gvsirc.png/1493272945288.jpg)
Mr Morrison's speech will also highlight a "greater sense of optimism for the global economic outlook", including strengthening economic conditions in the United States, China, Japan, and ASEAN countries including Vietnam and the Philippines, and more bullish forecasts about Australia's economy from the IMF.
"Growth in the Australian economy is expected to strengthen in the coming years," he will say.
![Treasurer Scott Morrison says they are making multinationals pay their "fair share".](/web/20170502190955im_/http://www.theage.com.au/content/dam/images/g/v/e/t/r/3/image.related.articleLeadwide.620x349.gvsirc.png/1493370596246.jpg)
Nevertheless, the Treasurer will play down suggestions of a significant windfall gain from higher than expected commodities prices, and promise that any bonus will be used to repair the deficit, not for new spending.
In the May 9 budget, Mr Morrison will keep in place largely conservative economic forecasts – another move designed to reassure credit rating agencies.
States and territories have long reported their surpluses and deficits in terms of "net operating balance". This means that they are able to report "surpluses" even if they are spending big on infrastructure.
A shift to highlighting the net operating balance at the Commonwealth level would not immediately turn the Commonwealth's deficit into a surplus, but it would allow it to ramp up its spending on infrastructure without pushing the newly highlighted measure into deeper deficit.
Although the underlying cash balance would continue to be reported and would remain the "key measure", over time the net operating balance would come to have greater prominence.
The budget will also assign the government debt across portfolios.
"Currently, when increases in expenditure are proposed, the public debt implications are considered separately," Mr Morrison will tell the business economists. "Imagine if in your own household or business someone wanted to spend more but didn't have to account for the credit card debt and interest to pay for it.
"What we are doing is beginning the process of changing this spending culture. Portfolios will be held responsible for the debts they are incurring."
The switch to a budget measure that separates operating spending from capital spending has long been resisted by the Commonwealth Treasury, amid concern it would make it too easy for unscrupulous governments to pass off recurrent spending as investment.
One way this could be done would be to classify the salaries of public servants planning investments as investment spending, while another would be to classify annual maintenance as investment.
It would enable the Treasurer to borrow much more for worthwhile projects without appearing to blow out the deficit, although first it would be necessary to lift the $500 billion ceiling on gross debt imposed by then treasurer Joe Hockey in 2013. Mr Morrison is able to do this administratively.
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