Embattled Australian govt forecasts budget "war chest" ahead of tough 2019 election

By Colin Packham

SYDNEY (Reuters) - Australia's government on Monday forecast the strongest budget outlook in 10 years, arming embattled Prime Minister Scott Morrison with a war chest which could fund possible tax cuts ahead of an early 2019 election which he is forecast to lose.Treasurer Josh Frydenberg said Australia's budget deficit for the fiscal year to June 2019 would be slashed to A$5.2 billion ($3.7 billion) from the A$14.5 billion projected back in May.

Australia will then deliver a budget surplus by 2019/20, ending more than a decade of deficits.

"The combination of a growing economy with a record number of people in work is helping both sides of the ledger, increasing our revenues while also decreasing our expenditure," Frydenberg told reporters in Canberra.

Morrison's conservative government touted the improved numbers as evidence of its economic competence over the Labor opposition, which according to opinion polls is set for a landslide victory in the next election due by May 18, 2019.

Keen to campaign on his economic record, Morrison last month brought forward Australia's annual budget to April 2019 instead of the end of May when it is normally released.

Finance Minister Mathias Cormann hinted tax cuts will be a centrepiece of the government's bid for re-election, and economists said Morrison now has sufficient resources.

"The budget numbers actually look quite conservative. We've been tracking the rolling revenue figures and they could have predicted even better figures," David de Garis, a director of economics at National Australia Bank, told Reuters.

"It's possible they have built in room for some pre-election tax cuts. With the housing market suffering, there's a good case for fiscal stimulus next year."

ANGRY VOTERS

Despite unemployment running at a six-year low and the economy growing at a pace the envy of many nations, voters are angry that former prime minister Malcolm Turnbull was ousted in a backbench revolt in August, ushering in Morrison as the country's sixth different leader in the last decade.

Morrison subsequently lost his parliamentary majority when Turnbull left politics and a series of party defections now means he is reliant on seven independents for his government's political survival.

Morrison, who lacks the personal appeal of Turnbull, has struggled to unite his fractured coalition, while a series of policy missteps and scandals has seen his efforts to campaign on economics and security issues overshadowed.

The latest scandal came just hours after the announcement of Australia's budget outlook, when a Cabinet minister resigned after a media report that he used a website to meet a younger woman while away on a Hong Kong work trip.

Even when voters tune into the government's economic message, Morrison's narrative seems to be failing to cut through, amid stagnant wage growth, high costs of living and falling house prices.

"The government is running on a message that 'you've never had it so good'. This just doesn't stack up and the government's message will anger many people," said Nick Economou, senior lecturer in Australian politics at Monash University in Melbourne.

($1 = 1.3930 Australian dollars)

(Reporting by Wayne Cole and Colin Packham; Editing by Peter Cooney, Stephen Coates and Michael Perry)