Despite the confidence of all Federal Treasurers on Budget night, investors and their advisers should remember the wise warning of a retired Treasury official:

"Budget forecasts are a massive form of pretence - a pretence of knowing what would have happened, if what does happen hadn't."

But they still provide very important insights into what Treasury thinks has been happening to the economy and what is likely to happen over the year ahead.

As the graph shows, Treasury expects the Australian economy to grow faster over the year ahead, with the major boosts to growth coming from housing consumption, business investment and export income.

The likely winners and losers?

Large building companies and the companies which supply them, the child care industry, and fund managers are likely to do best.

Possible losers are hard to identify, although Treasury predicts renters will be hit by rent rises in most states.

The biggest question-mark hanging over the Budget's likely economic impact is the impact of the income tax cuts.

We simply do not know what Australians will do with the extra in their pay packets.

The tax cuts and the childcare rebate combined will add about $3.5 billion to household incomes over the next six months. This will certainly bolster retail sales - and the profits of the big retailers.

There is some evidence that middle-income earners use "windfall" rises in their after-tax income to reduce their debt and mortgages, whilst lower income earners are much more likely to spend them.

We also know that the one-off payment to retirees will also provide a spending stimulus, given that they usually spend such windfalls.

But the magnitude of these Budget effects is impossible to predict with any accuracy.

The "incentive effects" of the income tax cuts are even more problematical.

Commonsense suggests that the cuts will encourage lower-income, and part-time workers and retirees to work longer but there is no empirical study for any economy which proves tax cuts have this effect.

We simply do not know how employees will react to the changes. Norm - and Norma - may prefer to live life, rather than increase their working hours.

Similarly, the likely effects of the tax cuts and government spending increases on inflation and interest rates cannot be predicted with any certitude.

Despite some fears to the contrary, the increases in Federal government spending will not set off an inflationary spiral, although we are likely to see further spending promises as the election draws closer.

Moreover, by promising to put $5 billion of the projected $13 billion Budget surplus into the new Education Fund - instead of giving greater tax cuts - the Treasurer has reduced the likely impact of the Budget on demand-induced inflation.

As a result, we are unlikely to see a sharp rise in interest rates over the next financial year.

The very high levels of recent and expected business investment - although concentrated in the export commodities sector - suggest that business expects good profit levels to continue and such expectations usually put a solid floor under Australian share prices and returns.

But are we simply riding a dangerous, tiger-like commodity price boom?

The pessimists argue that the high commodity prices of recent years, which have encouraged massive investment in the commodities sector, will see supply increases force commodity prices down again.

This is the usual story with commodity booms. But this assumes that demand for our key commodity exports will stop skyrocketing. Certainly China's demand is unlikely to keep growing at a near vertical rate but it will still grow strongly and extra demand from an emerging India may well take up any slowdown in demand growth from her neighbour.

In sum: the global and domestic economic outlook remains highly favourable for company profits, inflation is expected to remain under reasonable control, and the Reserve Bank should not have to stamp too hard on the interest rate breaks.

All the above should be good news for Australian investors.

But a simple - and sobering - fact remains.

The big economic downturns and share market corrections are never forecast correctly, by even the fanciest econometric modeller or the most arrogant investment commentator...

Dr David Clark taught Business Economics at the University of NSW for 35 years, was an AFR and Personal Investor columnist for over a decade, and is now an investor educator. Dr Clark's views are not necessarily shared by Vanguard.