Australia will become the first major economy in the developed world to record a surplus since the start of the global financial crisis.
Julia Gillard, the prime minister, has pinned her political future on a "Robin Hood" budget which includes sweeping handouts worth more than £3 billion to reverse her dwindling public support.
Relying on extra revenues from mining companies, the Government has forecast a surplus of about £1 billion – the biggest budget turnaround in the country's history, from a deficit this year of about £30 billion.
But analysts have warned that austerity measures to claw back about £11 billion in savings over the next four years could lead to the sort of widespread public anger that have plagued governments in Europe. The savings are the biggest in 24 years and include cuts of almost £4 billion from defence, slashing 3,000 public service jobs and a reduction in scheduled company tax cuts and foreign aid increases.
"Tonight we make a forceful statement that ours is one of the world's strongest economies and fairest communities," said Wayne Swan, the Treasurer. "The deficit years of the global recession are behind us. The surplus years are here."
In a budget that introduces dramatic changes across all sectors of the economy, the Government proceeded with its controversial mining and carbon taxes and plans to use the revenues for massive tax cuts and pension increases.
"It's a Labour budget to its bootstraps," Mr Swan said.
Australia has benefited from a China-fuelled mining boom which has helped to shield it from the global downturn and kept unemployment stable at just over 5 per cent. The dollar is at record highs, inflation has been stable and interest rates are relatively low, though well above current international levels.
While the Government's new carbon tax will bring in substantial revenue by charging a levy on big polluters, it has proven unpopular and raised widespread concerns that it will add to household bills. To compensate for the likely increase in electricity and power prices, the Government has cut taxes and flagged handouts worth £400 a year each to 1.5 million families.
Low-income families and students will receive an extra boost of about £140.
But analysts have criticised the big cash handouts as largely driven by Ms Gillard's need to improve her shaky political position. The prime minister's standing has become increasingly tenuous amid a series of back-flips, scandals, unpopular policy decisions and – most significantly – a non-stop run of dismal opinion poll results.
An economics commentator, Ross Gittins, said handouts were driven by politics but the austerity measures largely involved delayed spending and would not hamper the economy.
"The cash splash has no economic justification," he said on smh.com.au. "It is a political bribe from a deeply unpopular government."