The federal budget in simple language

The federal budget will be handed down in Canberra on Tuesday.AN ARMCHAIR GUIDE TO BUDGET TERMINOLOGY:BUDGET: Like a household budget, it estimates government income and spending. Income is generated through taxes and investments. Spending is on things like welfare, schools, roads, health and defence.

BUDGET OR FORWARD ESTIMATES: The budget covers this financial year – the 12 months ending June 30 – and a further four-year period, known as the estimates. The first two years are forecasts, the latter two are projections.

GDP (gross domestic product): The value of a nation’s output. As the economy grows, the government collects more revenue from company taxes and income tax. Things like deficits, revenue, spending and debt are often measured as a proportion of GDP.

UNDERLYING CASH BALANCE: The best guide to the nation’s financial health. It estimates the balance of income and spending, removing one-off events like asset sales (Telstra and Medibank Private are examples).

BALANCING THE BUDGET: The government can change tax rates, impose new taxes, abolish old ones, cut spending, introduce new programs and ditch existing ones. When outgoings exceed income, the government has to borrow to cover the shortfall (see GOVERNMENT DEBT).

CYCLICAL DEFICIT: During lean economic times governments can decide to do things like offer short-term tax breaks for business or pump money into the economy, with schemes like Labor’s controversial schools building program during the GFC. Because jobs disappear during an economic downturn, the government has to pay more in welfare and dole payments. These are known as “automatic stabilisers”. That may force the budget into a cyclical or temporary deficit, but it should return to surplus when the economy improves.

STRUCTURAL DEFICIT: The gap between income and spending that is not the result of changes in the economy. For example, income tax cuts in the 2000s when the government was enjoying the “rivers of gold” from the mining boom still have to be accounted for when revenue is not so abundant. It’s like a household taking on a mortgage based on overtime or bonuses that are flowing at the time. It still has to be paid for when that extra money dries up.

GOVERNMENT DEBT: To balance the books while the budget is in deficit, a government has to raise money through government securities or bonds – a type of IOU that pays interest. Gross debt is the amount of bonds a government has on issue. Net debt is the amount on issue minus government financial assets.

CONTINGENCY RESERVE: Money set aside for policies yet to be announced or negotiated for commercial or security reasons. It may also include decisions made too late to be counted in the current budget or budgeted expenses incurred outside the current financial year.

BUDGET PAPERS: Books containing nuts-and-bolts things like economic forecasts, financial strategy, spending and revenue measures, management of government debt. Masses of tables for the pointy-headed community.