This budget will be especially challenging. Given the risks of stagflation, fiscal policy needs to be tightened. But in a cost-of-living crisis the main burden should fall on those who are relatively well off and that requires tax reform.

The uncertainties about future oil supplies and the economic consequences mean that the next Budget – only a few weeks away – is looming as the most difficult and challenging budget in living memory.

The economic outlook All the evidence was that before the Iran War started aggregate demand in Australia was tending to exceed the economy’s potential output. Thus, giving rise to dangerous inflationary pressures.

Consumer prices increased by 3.7 per cent in the 12 months to February, down from the 3.8 per cent in the 12 months to January, but still well outside the Reserve Bank’s target range.

In addition, although consumer demand was not all that strong, increasing in real terms by only 0.4 per cent in the six months ending in December, business and government investment were quite strong, each increasing in real terms by 3.9 per cent in the same six months.

No doubt this is why the Reserve Bank (RBA) increased interest rates twice in two months at its February and March meetings. Similarly, there was an expectation that fiscal policy would need to be tightened, especially as the Treasury has been projecting budget deficits running at around 2 per cent of GDP for at least the next 10 years.

Reducing the budget deficit would take some of the pressure off the Reserve Bank. Otherwise, the pressure for further interest rate increases would mount, and that means that the fight against inflation disproportionally affects young homeowners.

But now the reduction in oil and gas supplies because of the Iran War has made an already difficult budget much more difficult.

The latest surveys show that in early March consumer confidence was close to an all-time low. But since then, the Iran War has had a much bigger impact and there has been another increase in interest rates, so it likely that consumer confidence is even lower now. Similarly, it is likely that business confidence has also fallen, with the latest data showing a fall in February – the first fall for 10........

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