The Abbott government says the federal budget will return to surplus around 2019-20.

From there, the budget will record "modest surpluses" of between 0.7 per cent and 0.4 per cent of GDP through to 2025-26, it says.

But one of Australia's most respected economists, Bank of America Merrill Lynch's Saul Eslake, says the government has used two tricks to make its budget bottom line appear better than it otherwise would have.

He told a public seminar in Canberra on Thursday that one of the government's tricks makes the budget bottom line look better in the short term, while the second makes it look better in the medium to long term.

Below is a transcript of his comments (including a reference to a run-in he once had with former treasurer Peter Costello for pointing out similar tricks in one of Mr Costello's budgets), along with some accompanying explanatory paragraphs. 

Trick one:

Mr Eslake says a footnote in the budget papers, on page 3-6 of Budget Paper No.1, shows that from 2020-21 onwards, earnings from Australia's Future Fund will be counted towards the surplus, eventually accounting for more than half the projected surpluses from 2024-25.

"One other thing in the budget that contributes to ... the size of the surpluses the government is able to project from 2021 onwards is an accounting policy change," Mr Eslake said.

"Future Fund earnings are currently $3.3 billion, they're forecast to rise to $4 billion by the end of the forward estimates period [2018-19], and if they continue to rise at the rate that they will over that interval, then by 2024-25 they'll be in excess of $5 billion per year," he said.

"The inclusion of earnings from the Future Fund accounts for the large jump in the forecast surplus between 2019-20 and 2020-21, and for more than half the surplus that's projected by 2024-25 and 2025-26.

"Now, I point to the influence of a change in accounting policy hesitantly because the last time I was critical of a government for the way it accounted for things in the budget the then treasurer, Peter Costello, rang up the chief executive of the bank I was working for, John McFarlane [of ANZ], and said that he would take regulatory action that ANZ did not like if I repeated those kinds of criticisms.

"[But] I don't think Joe Hockey is as glass-jawed as Peter Costello is, so I'm not really worried about that in this context.

"I'm not saying that it's dodgy, because I think it is consistent with the legislation that established the Future Fund, but you might have thought that it would have been disclosed more obviously than in a footnote to a chart, as indeed any company that is subject to laws regulated by the government would of course be required to do.

A chart showing how the Future Fund has been used to boost surplus projections from the 2020-21 financial year. Source: Bank of America Merrill Lynch.

Trick two:

Mr Eslake says this budget does nothing to "shore up the credibility" of Prime Minister Tony Abbott's promise to have the budget on a credible path back to surplus by 2019-20, despite claims to the contrary.

"Last year's budget, on its own definitions, sought to improve the budget bottom line through discretionary policy decisions totalling $37.2 billion – that's a lot," Mr Eslake said on Thursday.

"[But] the policy decisions in this year's budget worsen the budget bottom line by a total of $8.2 billion over the four years of the forward estimates period.

"The only reason that the government was able to say that they had fully funded all of those initiatives that were in the budget [this year] is because they chose not to spend the $10.4 billion, on net, that had been put in last year's budget in the 'contingency reserve' for the now-abandoned Paid Parental Leave Scheme.

"It's an interesting practice that future governments might want to follow in presenting their budgets that in one year you announce a bad policy – and fund it – then decide the following year that you're not going to implement that bad policy and call it a 'saving'.

"That is the only reason that this year's budget was able to say that they had not, through policy decisions, worsened the outlook for the budget over the longer term.

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