Australia has had its fair share of budget heroes, but the latest figures suggest that right now a budget villain may be what the nation really needs, writes Michael Janda.

Yesterday saw Great Scott come out in his Scomobile, backed by his trusty sidekick The Cormannator to premiere the latest sequel in Australia's long-running budget action series.

Great Scott is the latest protagonist, but he has assumed heroic assumptions from his vanquished predecessors: Hockules (also assisted by The Cormannator) and Wayne "The Birdman" Swan.

The only problem for Great Scott is that, as with many film franchises, the plot worsens with each sequel.

When The Birdman was writing budgets between 2008 and 2013, his heroic assumptions generally had the nation returning to surplus in a year or two, or maybe three...

Hockules overthrew The Birdman for his failures, promising to save the nation with a surplus in his first year, and one every year in his first term - those surpluses evaporated, as did the political career of Hockules before the Government's first term was complete.

Along the way, the heroic assumptions became less adventurous - a budget surplus in the first year became a budget surplus by 2019, as The Birdman's main nemesis, Declining Terms of Trade, also found Hockules defenceless.

Great Scott has taken a hit from the same bad guy in his first budget document as Treasurer.

Christmas cheer versus budget gloom There is an odd disconnect between the forecasts and the rhetoric contained in the Mid Year Economic and Fiscal Outlook, writes Ian Verrender.

The Mid-Year Economic and Fiscal Outlook, MYEFO, has seen Australia's budget position weaken further as the Treasurer's departmental boffins continue to slash their terms of trade expectations from a steep decline of 8.5 per cent to an even steeper 10.5 per cent.

There's to be little respite - the May budget predicted Declining Terms of Trade would run out of ammo next financial year, but MYEFO now reckons there's another 2.25 per cent decline ahead in 2016-17.

Surely that means the series of heroic assumptions is over? Perhaps not.

Despite another significant hit to the prices Australia gets for its exports compared to what it receives for its imports, MYEFO has only trimmed a little off the Government's economic growth forecasts.

For the budget balance it's nominal GDP that's critical.

Unlike real GDP, which only measures how much Australia produces, nominal GDP measures how much we earn for that production.

MYEFO expects nominal GDP growth of only 2.75 per cent this year, down from a budget forecast of 3.25 per cent, but that's still up on last financial year's 1.6 per cent.

Things get decidedly rosier on the forecasts next financial year, with nominal GDP growth expected to roar back to 4.5 per cent in 2016-17.

How exactly that happens with the terms of trade still falling and inflation currently stuck well under 2 per cent isn't made entirely clear.

If it doesn't happen, you can kiss the MYEFO deficit forecasts goodbye.

And there is a more sinister character that could really darken the plot - recession.

They may have already been revised by $26 billion over the next four years, but this factor alone could mean the budget deficits get worse still.

And there is a more sinister character that could really darken the plot - recession.

It's been hibernating in Australia for almost a quarter of a century, but if this monster awakens it could completely blast Great Scott from his Scomobile and turn Master Malcolm's optimism into bull.

And the truth is there's little the Government can now do to stop it.

Australia's major export earnings are at the mercy of China's demand for iron ore, coal and LNG; the housing market has already boomed and now appears to be starting its slide down the other side; and the Australian car industry is shutting over 2016 and '17 with an estimated 40,000 jobs to go with it.

The confluence of the current mining crash, the certain auto manufacturing shutdown, and a likely housing bust makes a recession far from unlikely.

Indeed, global financial giants Morgan Stanley, Goldman Sachs and PIMCO have all warned that recession risks are rising.

Goldman puts the risk at around a third - certainly not enough to warrant Treasury making it a "base case" scenario, but enough for the boffins to put in many caveats around "risks" and "uncertainties", both local and global.

Australia may still break the Dutch record of 27 years without a recession, but it is looking increasing difficult.

To do so will require some more good fortune from here on.

But Australia used its fair share of that during the global financial crisis, which solved the nation's inflation problem at the same time as Chinese stimulus revived commodities demand.

Add in a bit of good management, with stimulus payments and bank guarantees that kept the domestic economy afloat until China's building boom took off, and The Birdman helped guide the nation through the GFC relatively unscathed.

But he and his successors have since had to deal with the budget legacy of that spending on top of the collapse in revenue once China's unsustainable building boom petered out.

Only tough decisions will get Australia sustainably back into the black, even over the longer term.

They also needed, and largely failed, to deal with the legacy left behind by Australia's most renowned budget hero, Peter "Perfect" Costello.

Peter Perfect has long basked in the glow of nine surpluses out of his last 10 budgets.

But he achieved them with rising terms of trade as his powerful ally.

Rather than pocket the largesse being showered on Australia for its commodities, Peter Perfect moved to being Peter Popular by showering most of it back on Australian households through tax cuts and concessions and middle class welfare.

The legacy of that spending spree is that heroic assumptions will never get Australia's budget back to surplus, and a recession might see an even more dramatic budget blowout.

Only tough decisions will get Australia sustainably back into the black, even over the longer term.

The key choice for politicians of all persuasions is who will wear those cuts.

Will it be the wealthy seeing their tax concessions around super and housing wound back? Or the poor through cuts to welfare?

The old and sick through cuts to Medicare, hospitals and pensions? Or the young and well through higher income taxes on working age people?

Disabled people through a scale back of the NDIS? Or all of us, in greater or lesser shares, through a rise in the GST?

The options are there, but none of them will be universally popular.

Whatever Great Scott and his eventual successors do to fix the budget, they are likely to be seen, by some at least, as villains, not heroes.

But right now a budget villain may be what Australia needs.

Michael Janda is an online business reporter with the ABC.

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