So, war and inflation explain most of the improvement in ongoing deficits.

This is an old story: budgets are often repaired by bursts of inflation, and that’s happening this time too. The only surprise is that it’s taken this long for the official figures to catch up with the impact on the budget of war and inflation. (Get those subscription renewals in now!) Well, not to readers of The Australian Financial Review, who were told last September to expect deficits to be $140 billion better then last October that the key driver was a pick-up in revenues of more than $200 billion and a week before the budget that the latest improvement would be $101 billion. That’s the key reason why expected deficits are now $143 billion less than in Josh Frydenberg’s last budget, and $101 billion less than in the October budget. The impact on the budget outlook has been extraordinary, with war and inflation (plus a faster pick-up in population) leading Treasury to revise up expected revenues by $275 billion (about half of that in last October’s budget, and the remainder in this week’s budget). That makes it part of a key problem (it makes cost-of-living pressures worse) as well as part of a key solution (it boosts the budget). Or, to put that another way, inflation takes money out of the pockets of families and businesses, and puts it into government coffers.

Inflation raises the tax take faster than it adds to government spending. A problem and a solutionīut inflation here at home is part of the story, too. The taxman gets a cut of that – which has helped the budget turnaround. And while those commodity prices have drifted off their peaks in recent months, they’re still close to the best they’ve been in more than a century and a half, meaning that the world has given us a remarkable pay rise. War pushed up the prices of a bunch of things Australia sells to the world.

Book the vanishing half