Here comes the mid-year budget review...

Treasurer Scott Morrison during Question Time in the House of Representatives. Michael Masters/Getty Images

The mid-year budget update, set to be delivered by Treasurer Scott Morrison today, is expected to show an improvement in Australia’s national debt position.

The MYEFO (Mid-Year Economic and Fiscal Outlook) is being released at 12.15pm AEDT.

The reforecast will reportedly show gross debt $23 billion less than the $606 billion predicted by the 2020-21 financial year.

Analysts are keenly watching the debt numbers to see whether this leaves room for the Coalition Government to cut personal income tax.

If the path back to a budget surplus is shortened, then the government may be able to cut taxes to counter the impact of bracket creep.

The federal budget net operating balance in October was more than $6.5 billion ahead, official figures show.

Last month Prime minister Malcolm Turnbull said he was working on a plan to deliver income tax relief.

In a speech to the Business Council of Australia, Turnbull said that “just because we’re in challenging fiscal times doesn’t mean we should raise the white flag on making the tax system better”.

Deloitte Access Economics believes the Coalition Government is likely to have to promise personal tax cuts before the next election.

The reason is bracket creep, or fiscal drag, where taxpayers move into a higher tax bracket as their wages increase over time and pay a bigger proportion of their incomes to the government.

The flow of cash from bracket creep is significant even at today’s average low level pay rises of under 2% a year. For example, pay as you go tax collections this financial year would be $4.2 billion lower if the 2014-15 tax thresholds had been indexed, says Deloitte.

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