Deflation risk looms as budget takes shape

There's more bad news for Treasurer Scott Morrison as he puts the final touches to his first budget.

New figures on Thursday show national income took a further hit in the first three months of the year as the terms of trade continued to slide.

The data comes a day after the latest consumer price index showed the economy has been struck by deflation, a sign demand in the economy is slowing.

It may see the Reserve Bank cut the official cash rate for the first time in a year on Tuesday, just hours before Mr Morrison delivers the budget.

Trade price data for the March quarter showed while import prices were three per cent lower, exports dropped by a greater 4.7 per cent.

Commonwealth Securities economist Savanth Sebastian says the figures confirm price pressures have been contained with most goods categories recording substantial falls.

"Deflation is a very prevalent threat and the Reserve Bank will certainly be debating the merits of another rate cut at next week's board meeting," he said.

The terms of trade have fallen for more than three years to be at their lowest level in a decade.

"The result is another indication why super-low rates are likely to be part of the economic landscape over the coming year," Mr Sebastian said.

In a tweeted video with Finance Minister Mathias Cormann, Mr Morrison says this week's numbers will be incorporated in the budget projections.

"But the key figure that you really have to focus on is what will the tax burden be on the Australian economy," the treasurer says.

The government's economic plan was not to increase the tax burden because it was such a critical time in the transition from a mining investment boom to a more diversified, stronger economy.

"The way you run that off the rails is by increasing the tax burden," he says.

But a global advisory group has warned that without taxes being part of the fix, the budget will remain in structural deficit for the next 15 years at least.

KPMG Australia has unveiled a series of proposals focusing on health, superannuation, welfare and education sectors aimed at improving the budget positions by around $12 billion a year over the long term.

Importantly, KPMG chief economist Brendan Rynne believes in the absence of meaningful tax reform, government tax receipts won't cover government payments at any stage until at least 2030.

"We are simply generating less tax revenue per person in the economy now," Mr Rynne says.

"To resolve this, we can either tax more or spend less - or the better option is to do both."