[SYDNEY] Australia announced a series of spending measures - from fuel-tax cuts to cash handouts - designed to cushion the impact of rising living costs and catapult Prime Minister Scott Morrison back into contention for a May election.

At the same time, Tuesday's budget showed the deficit narrowing to A$78 billion (S$79.5 billion) in fiscal 2023 or 3.4 per cent of GDP and A$43.1 billion, or 1.6 per cent of GDP by 2026. That's better than the Group of 20 nations average, as Australia's soaring commodity prices and strengthening labor market deliver windfall tax revenue.

"A strong economy means a stronger budget," Treasurer Josh Frydenberg said in a speech to Parliament, while acknowledging the fallout on Australians from Russia's war on Ukraine.

"Events abroad are pushing up the cost of living at home," he said. "Higher fuel, food and shipping costs are increasing inflation and stretching household budgets." The spending measures highlight the centre-right government's priorities as it tries to reverse a slide in opinion polls. Morrison has been under fire over supply shortages during a recent outbreak of the Omicron variant of coronavirus and mismanaging the response to flooding in the nation's northeast.

Key budget announcements include a 50 per cent cut to fuel excise, effective from midnight, for the next six months at a total cost of about A$5.6 billion.

There is a one-off, A$250 "cost of living payment'' for six million Australians to be delivered within weeks, at a cost of A$3.9 billion; a separate one-off A$420 tax offset for low- and middle-income earners, starting July 1.

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For small businesses, a A$120 tax deduction for every A$100 they spend on training employees, and the same deduction for spending on digital technologies such as cloud computing, cyber security or e-invoicing.

The government also set aside significant funds to target women, with whom it has struggled since Morrison was accused of mishandling harassment and sexism allegations in the Parliament.

It pledged almost A$10 billion for cyber security, reinforcing the prime minister's efforts to elevate national security to a key pillar of his campaign amid Russia's invasion of Ukraine.

The budget is the government's last major chance to shape the political narrative before the election campaign. It's looking to springboard off conservatives' traditional strengths by underlining its strong economic management and defence credentials to argue now is not the time for change.

Opposition shadow treasurer Jim Chalmers criticised the budget ahead of its release, describing it as "panicked and desperate," packed with spending solely designed to win Morrison votes in May. Labor party leader Anthony Albanese will deliver the opposition's traditional budget reply speech on Thursday.

Economists have warned too much extra spending may harm an economy that's already running hot, particularly with the Reserve Bank of Australia one of the developed world's more dovish central banks.

RBA Governor Philip Lowe maintains he won't raise interest rates from the current record low of 0.1 per cent until core inflation is "sustainably" within the bank's 2-3 per cent target. Achieving that, he says, requires stronger wages growth in the economy.

The budget's forecasts give grounds for optimism that faster pay gains will emerge. It predicts the jobless rate will fall in the third quarter to 3.75 per cent, driving wages growth above 3 per cent for the first time in a decade.

That underscores the good story the government has to tell on the economy, which is powering ahead and where unemployment is already at a 13-year low. But inflation is also accelerating, and while not at levels seen in the US and UK, together with gasoline prices it is starting to hit households.

The forecast of narrowing budget deficits each year, and for net debt to peak at 33.1 per cent of GDP, suggests the country's triple-A credit rating is likely secure. Australia is one of only nine countries with the top score from all three major agencies. BLOOMBERG