The drama surrounding next Tuesday’s Budget delivered by Treasurer Josh Frydenberg deepens with some of the country’s biggest project construction companies calling for help to cope with the surging inflation rates on the key materials they have to buy. It comes as householders, who also double as voters, can’t believe the spiking petrol prices and they want the Federal Government to cut the fuel excise levy.

And I have to say, if there is a curveball that could undermine my positive view for stocks this year, it will be the course of inflation. I’ve always anticipated inflation easing off towards the September and December quarters of this year, which then would have given stock markets a positive shot in the arm, but the Ukraine war, China’s latest lockdowns linked to more Coronavirus challenges, demanding unions for wage rises to offset shrinking standards of living and now big contractors coming cap in hand for help, makes me worry about how long it will take for inflation to fall.

The cost of building a home, an office block or a bridge is surging and contractors on big projects need a government rescue or else we could see other big builders/developers go broke like the well-known Probuild.

And the ones that survive will be raising prices or given government assistance until prices start to fall.

A month ago, news.com.au reported that “a total of 18 building businesses, including one of Australia’s major construction companies Probuild, have collapsed after their South African parent company pulled all its financial support". Deloitte has been appointed as administrators to handle the many businesses folding, which are part of the WBHO Australia Group, while 750 employees and thousands of contractors are also impacted, with many padlocked out of sites across the country.

And the outlook for costs is getting worse with Brickworks, the country’s biggest brickmaker, raising the price of its bricks, roofing tiles and masonry range to offset the impact of rising costs on its business.

At the core of the problem, as the AFR points out today is the fact “that the price of six metals including aluminium, copper and zinc, hit a record high in early March. Prices of iron ore, which is used to make steel, have retreated from last year’s record highs but have been rebounding”.

And another part of the problem is fixed-price contracts, which civil contractors are locked into with big government infrastructure contracts to build roads, bridges, etc. With the huge spike in inflation due to the pandemic’s negative effect on the supply chain and the costs of key materials, big contractors face smaller profits or losses and they want government help.

These big contractors want other governments to follow the lead of the Queensland Government, which has a huge infrastructure plan linked to their 2032 Olympics, and it has allowed a price escalation clause, where companies “can submit a document known as 'Annexure E (Increase in Supply Costs)' if they provide evidence of additional costs and agree to a potential audit.”

Local residential builders can have price escalation clauses in their contracts (or should have them) but if they haven’t they can simply refuse to do the job, but it’s harder for publicly well-known companies to take their ‘footy home’ and not proceed with the project.

That’s why the Civil Contractors Federation (CCF) national chief executive Chris Melham is pleading for help. He’s already petitioned the Morrison Government to cut the fuel excise which currently is 43.3 cents a litre and that’s going to be a big watch for Tuesday’s Budget.

But assistance to help businesses cope with inflation will mean budget repair will have to be put on hold because when you cut excises on fuel, it undermines revenue going to the Government and that increases the deficit.

Interestingly, Bloomberg reckons Josh has the money available to provide a lot of relief. “Australia’s budget deficit is expected to narrow in the coming fiscal year as a red-hot economy drives down unemployment, which combined with soaring commodity prices will deliver a windfall to government coffers.”

Cynthia Li and Swati Pandey reported: “Treasurer Josh Frydenberg will announce in Tuesday’s budget a shortfall of A$76.9 billion ($57.6 billion), or 3.3% of gross domestic product, in the 12 months to June 2023, the median estimate of economists shows. That’s down from A$99.2 billion forecast for this year in December’s mid-year update.”

In a perfect world, the country’s Treasurer would bring down the deficit as quickly as possible, especially when commodity prices are helping the budget’s bottom line, but if inflation sends businesses broke or undermines demand, then we could end up with a recession in 2023.

And recessions kill budget repair goals, as the deficit blows out as unemployment rises and businesses go broke or pay a lot less tax.

I’ve said central banks are important in preserving growth by not being silly with interest rate rises. And treasurers have to be sensible with their tax and spending policies until places like China are back to normal supplying products. And Vladimir Putin gives up on this crazy war. Both of the latter will be good for bringing down inflation.

By the way, if Josh doesn’t deliver on Tuesday and ScoMo then loses the May election, the man who would be Treasurer, Dr Jim Chalmers, told me this week that Labor will be putting on a mini-Budget in September or October to set their course. But I’d prefer that help for business, consumers and investors arrives earlier next week.

Who said economics was boring?