A lean, but not mean budget? Perhaps. Not tough in the usual sense, cautious, with the underlying economic outlook more of the same? Certainly.

In fact we will face constant speculation about rising interest rates (and some rises), rising wages, the impact of the high Australian dollar (which is forecast to remain around $US1.07 or more for the next year or more) and a sluggish retail sector as consumers continue to save more and rein in their spending.

In short it's a dose of back to the future.

So there's very little in this budget for the stockmarket and investors except that what we have seen for the past year will be repeated for the next two (except for the bond market, see next story).

And that means more pressure on earnings for retailers and exporters from cautious consumers and the high value of the Australian dollar.

Treasury sees the household saving ratio remaining around its current level of 10%, as does the RBA (See graph below).

And if China catches cold and slows, all bets are off and the budget will see another revenue slide.

Outlays will rise by around 1% a year on average over the next four years; growth will dip in the year to June which is already expected and then a rebound of growth, inflation and employment in 2012 and 2013.

But in fact the economic outlook for the next two financial years will look a lot like what we have seen in the past 10 months or so.

The high value of the Australian dollar and strong and strong business investment will dominate, with the latter at all time highs and rising 30% or more from 2011-12 through 2012-13.

Employment growth will continue (4.5% in 2013); inflation will remain high, but start easing in the 2013 financial year (hopefully).

Interest rates will undoubtedly rise, though the government sees wages growing strongly which is similar to the way the Reserve Bank sees wage costs going.

"Wages growth returned to trend in 2010, and is expected to increase as the labour market tightens, Treasury said.

"The wage price index is expected to grow 4% through the year to the June quarter of 2012 and 4.25% through the year to the June quarter of 2013.

Underlying inflation is expected to increase steadily from 2.5% through the year to the June quarter of 2011 to 3% through the year to the June quarter of 2013.

"Following an initial spike associated with the recent natural disasters, headline inflation is also expected to be 3% through the year to the June quarter of 2013"

Nominal GDP is forecast to grow 6.25% in 2011-12 and 5.75% in 2012-13, reflecting strength in real GDP growth and the gradual forecast decline in the terms of trade.

Treasury reckons inflation will average 3.25% through 2011-12 and then ease to 2.75% the following year.

Australia's real GDP is forecast to grow 4% in 2011-12 and 3.75% in 2012-13.

Treasury says the main drivers of economic growth are expected to be business investment and commodity exports.

"The strong growth outlook is underpinned by unprecedented growth in resources investment and strong growth in non-rural commodity exports, which are surging in response to high global prices for Australia's bulk commodity exports," the Department said in the main budget papers.

That can be seen by the bullish investment forecasts for the next two financial years.

Mining companies are expected to invest $76 billion next financial year, about eight times as much as they were investing before the resources boom took off seven years ago. (And there will be a roughly similar investment the year after as well).

The government says about two-thirds of large mining projects by value included in its economic forecasts have received final investment approval, with the majority also already in construction.

The forecasts, like the RBA's last Friday are based the exchange rate is assumed to remain around its recent average level - a trade-weighted index of around 78 and a US$ exchange rate of around 107 US cents. Interest rates are assumed to move broadly in line with market expectations.

World oil prices (Malaysian Tapis) are assumed to remain around US$132 per barrel. The farm sector forecasts are based on average seasonal conditions in 2012-13.

"New business investment is forecast to grow by a strong 16% in 2011-12 and 14.5% in 2012-13, underpinned by record capital expenditure in the mining sector, while non-residential building investment is expected to remain subdued," according to Treasury.

That's after growth of around 4.56% in the year to June 2011 and a fall of 4.9% in the 2010 financial year.

Exports are forecast to grow a solid 6.5% in 2011-12 and 5.5% in 2012-13 as domestic production of non-rural commodities expands to meet global demand.

"However, the high Australian dollar is expected to weigh on growth in exports of manufactures and services, notwithstanding the improved global outlook," treasury cautioned.

Imports are forecast to increase strongly over the next two years, driven by robust domestic demand and the high Australian dollar.

"While import growth is expected to be broad-based, the largest contribution is expected to come from an increase in capital goods imports required for major resource projects."

The terms of trade are forecast to reach their highest sustained levels in 140 years, based on strong price rises for Australia's key non-rural commodity exports.

This reflects increased global commodity demand and significant supply disruptions - particularly to Queensland's metallurgical coal exports, due to the floods.

(But as we saw with the April trade figures, those disruptions seem to be largely over for the time being. See accompanying story).

The terms of trade are expected to decline gradually over 2011-12 and 2012-13, driven by a modest decline in non-rural commodity prices as increased global supply comes on line.

The current account deficit is expected to narrow sharply in 2010-11, reflecting the expected increase in the terms of trade, and then widen in 2011-12 and 2012-13, reflecting strong growth in import volumes and the expected gradual fall in the terms of trade.

The trade balance moved into surplus in 2010-11 and is expected to remain in surplus over the next two years.

The net income deficit is expected to widen over 2011-12 and 2012-13, as rising export earnings generate increased equity income outflows.

Employment is forecast to grow 1¾ per cent through the year to the June quarters of both 2012 and 2013, in line with

Treasury says the strong expected growth in the overall economy masks some significant divergences between sectors, with conditions outside of mining and related industries expected to remain challenging.

"Tighter macroeconomic settings and credit conditions, heightened consumer caution and the high Australian dollar are all weighing heavily on some sectors, particularly retailing, manufacturing and tourism."

Household consumption is expected to grow moderately in the context of a buoyant labour market and solid growth in household disposable income, with consumers remaining cautious following the GFC. Household consumption is expected to increase 3.5% in both 2011-12 and 2012-13.

Dwelling investment is expected to be subdued, with forecast growth of 1.5% in 2011-12 and rising to 3% in 2012-13, dampened by tighter credit conditions and ongoing supply constraints.

Public final demand growth is expected to decline sharply over the next two years, reflecting the conclusion of fiscal stimulus in line with the Government's fiscal consolidation strategy.

"This is notwithstanding reconstruction spending by the Commonwealth and State governments following the recent natural disasters," Treasury said.

The fall in the unemployment rate will be helped by the participation rate remaining around current record highs of 66%.

The collapse in tax receipts has ripped a $16 billion hole in government finances over this year and next.

Treasurer Wayne Swan last night revealed a budget deficit for 2011-12 of $22.6 billion, up $10.3 billion from November.

This year's deficit has increased $8 billion to $49.4 billion.

Over the last two years, revenue from capital gains taxes alone had been revised down $6 billion dollars.

But the government still expects a return to a $3 billion-plus surplus in 2012-13.

It in fact made a small upgrade back to $3.5 billion, fuelled by an upward revision to revenues and a suite of savings measures.

A series of savings measures, leaked in the lead up to budget day have been confirmed.

A tightening of the fringe benefits tax rules on company cars only saves the government $26.4 million next year, but the benefits grow dramatically in the following years to a total saving of almost $1 billion dollars by 2014-15.

The government also saves $2 billion dollars over the next four years by tightening up on family tax benefits.

Treasurer Wayne Swan claimed the government had 'imposed the strictest spending limits' to carve out $22 billion in savings over four years.

The GFC may be over but it continues to slash Government budget revenue, so much so Treasury says an extra $20 billion has been lost from revenues in the past six months.

The GFC is now expected to cost $130 billion in lost revenue.

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