Australian households are still on track for an improvement in their real wages in 2024, though less of a near-term gain than first expected.

The mid-year budget update released on Wednesday also revealed a much smaller $1.1 billion deficit forecast for this financial year, that Treasurer Jim Chalmers said was in “striking distance” of a surplus.

The updated budget papers still showed wage growth moving in front of consumer price increases by early 2024, as was forecast back in May.

But an update in the near-term inflation forecasts have eroded the size of the real wage increase by half a percentage point in 2023/24, with households now waiting longer for a more significant real wage improvement.

“Any of those near term changes are more reflection of the inflation part of the story than the wages part of the story,” Dr Chalmers said on Wednesday.

Consumer prices are still expected to come back to the target band in the June quarter of 2025, based on Treasury forecasts.

But in the near term, the inflationary pulse has proved stronger than expected, with the federal economic agency highlighting higher global oil prices flowing through to the petrol pump and adding a quarter of a percentage point to annual inflation in the September quarter.

The improvement to the fiscal bottom line, to a deficit of $1.1 billion in 2023/2024 from the $13.9 billion predicted in May, was well signposted by Treasurer Jim Chalmers in the lead-up to the mid-year budget update.

The treasurer said the government’s decision to bank 92 per cent of the upward revisions to revenue since the May budget will help pay down debt and take pressure off inflation, which is still rising too quickly.

He acknowledged financial pressures on families but the mid-year update contained no new cost of living relief measures, though the government will revisit the matter heading into the budget next year.

A substantial cost of living relief package was announced in the last budget, including targeted energy bill subsidies.

Australia is also tracking towards a slightly stronger 12 months for economic growth.

Solid public and business investment and the return of students and tourists post-pandemic is expected to offset sluggish home building and household spending, weighed down by high inflation and interest rate hikes.

The return of students is expected to help offset sluggish home building and household spending. (Paul Miller/AAP PHOTOS)

The 1.5 per cent economic expansion forecast for the 2023/24 financial year has been upgraded to 1.75 per cent.

Economic growth is then expected to pick up as wages growth catches up with cooling inflation by 2024, supporting household spending and underpinning a 2.25 per cent lift in economic growth in 2024/25.

The labour market has proved resilient even as economic pressures intensify, though the unemployment rate is tipped to move higher to 4.5 per cent by June 2024.

Better-than-expected performance in the corporate sector and recent strength in the labour market are largely responsible for a revenue boost.

Income tax withholding has been revised up by $5 billion in 2023/24 and $15.9 billion over the four years to 2026/27, reflecting higher-than-expected employment and tax collections.

Company tax receipts have been revised up by $9.2 billion in 2023/24 and $34.5 billion over four years to 2026/27, with the near-term upgrade reflecting persistently strong commodity prices.

As well as a much smaller deficit in 2023/24, almost $40 billion in total has been wiped off deficits through to 2026/27.

Gross debt as a share of GDP is now expected to peak 1.1 percentage points lower than forecast at the 2023/24 budget, at 35.4 per cent of GDP in 2027/28.

A surplus for the current financial year is still in play, with Treasury’s cautious estimates on future commodity prices meaning its predictions tend to be conservative.

Source: AAP