ECONOMISTS are divided about the budget's economic outlook, with some saying it is too pessimistic, some saying it is too optimistic, and others saying it looks about right.
The Prime Minister, Kevin Rudd, and the Treasurer, Wayne Swan, have vigorously defended Treasury's view that the economy will face a three-year slump before enjoying a sustained period of above-average growth.
Treasury forecasts growth to be flat in 2008-09, to contract 0.5 per cent in 2009-10, and to grow only 2.25 per cent in 2010-11.
But it then projects two years of 4.5 per cent growth, followed by four years of 4 per cent growth, which will help return the budget to surplus by 2015-16.
One criticism is that the forecasts for the next two years are on the gloomy side.
The Government will then look good if the economy enjoys a rebound sharper than predicted.
Economists from the investment bank Goldman Sachs JBWere said the forecast for the next financial year is "unrealistically bearish, particularly in relation to private consumption and dwelling investment".
"Treasury has low-balled the economic assumptions so that any improvement in economic news flow over the next two years can be attributed to sound economic policy, and sets the scene for the time frame of the next election," they wrote in a note to their clients.
But doubt is also being cast on the assumption growth will stay above 4 per cent for six years once the impact of recession fades.
Treasury has defended the projections, saying they reflect the historical tendency for the economy to bounce back in the immediate aftermath of a downturn.
An RBS economist, Felicity Emmett, said the projections of 4.5 per cent growth did "seem rather optimistic".
"And it certainly is more optimistic than what the IMF has implied in its commentary," Ms Emmett said.
The International Monetary Fund has warned the global recovery from recession will be slower than normal, reflecting the prolonged impact of financial crisis and strains on government budgets across the world.
Mr Swan said he did not "quite accept the view that the IMF has expressed" on the Australian economy, compared to Treasury's position.
"When it comes to the longer term and their forecasts for the Australian economy, I believe our Treasury has a far better hold and grip on those figures than they do, because what we are doing is dealing with the Australian experience," Mr Swan said.
ANZ's head of Australian economics, Warren Hogan, said Treasury's projections represent a "best case scenario".
"Any disappointment on the economic recovery will put intense pressure on the Government to hike taxes or cut spending if it is to return the budget to balance within any sensible time horizon," Mr Hogan said.
There is also plenty of sympathy for the view that economic forecasts are difficult at the best of times.
An interest rate strategist at Macquarie Equities, Rory Robertson, said Treasury's numbers are as plausible as anyone else's.
"I wouldn't pretend that I would have a better clue about where the economy will be in three years time than would anybody else," Mr Robertson said.
And the chief economist of BT Financial Group, Chris Caton, said you could only have an average growth rate if years below-trend were followed by years above trend.
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