Australians are facing a bleak couple of years, with Treasury forecasting dual woes of sustained high living costs and declining real wages.
Alarming energy price forecasts have even prompted Treasurer Jim Chalmers to threaten market intervention if needed to buffer the pain felt by households.
Labor's first budget in almost a decade forecasts real wages will not start to grow until 2024, when unemployment is tipped to have increased 1 per cent to 4.5 per cent.
The budget is tipping electricity prices to increase, on average, 20 per cent by Christmas and a further 30 per cent in the next financial year.
Combined, that would amount to a 56 per cent increase in power prices over the next 18 months.
"I'm not going to pretend that we're not worried about these electricity price forecasts," Mr Chalmers told reporters.
Gas prices are also forecast to increase 44 per cent in the next 18 months.
"Any responsible government facing these kinds of price hikes for electricity and gas needs to consider a broader sweep of regulatory interventions than they might have considered in years gone by and we have more work to do on this," Mr Chalmers said.
While Australians have felt the pain of rising living costs, the budget has been a winner from it, with extra billions flowing into government coffers.
But the government is forecasting revenue to take a hit amid growing social services expenses including the NDIS, which is currently growing an average of about 14 per cent a year.
Labor putting its mark on the budget
In releasing a budget in October, Labor is seeking to stamp its authority on government and implement the promises it took to May's election.
"It delivers on the priorities of the Australian people, and it repays their faith in a new government," Mr Chalmers said.
The treasurer has framed the budget around three priorities: offering some cost of living support, building a more resilient modern economy and beginning the task of budget repair.
The budget forecasts an ageing population and climate change as two of the greatest challenges Australia will face in the coming years.
An older population will cut income tax revenue, the backbone of the budget, while also leading to greater social services payments.
Climate change, as Australians are experiencing with the current floods, costs the government in support payments and recovery costs.
In the short term, however, the budget is benefiting in extra billions thanks to the inflation that is hurting households across the country.
Soaring living costs, low unemployment and surging commodity prices have delivered a windfall for the budget.
That has halved this year's forecast deficit.
The government now expects the 2022-23 deficit will be $36.9 billion — down from the $78 billion the Coalition forecast in its final budget in March.
Net debt is forecast to hit $766 billion in 2026, down from the earlier forecast of $864 billion.
Government expects inflation to peak this year
The budget forecasts inflation will peak this year at 7.75 per cent in late 2022 before dropping back to 3.5 per cent by June 2024.
"But while the temporary revenue boosts we are getting from higher employment and higher commodity prices will fade and fall, the profound and permanent spending pressures on the budget are forecast to grow and grow," Mr Chalmers said.
He insisted his first budget was just "the first step" towards budget repair and vowed "there's a bigger job to do" to put the nation on an economically sustainable path.
"The global economy teeters again, on the edge — with a war that isn't ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing — some of them already in reverse," Mr Chalmers said.
Should commodity prices remain high, the budget will continue to benefit, with estimates suggesting that for every three months that commodity prices remain sky high, an extra $10 billion comes into the budget.
Cost of living commitments
The treasurer said the government wanted to support Australians contending with higher living costs but it risked making inflation worse.
He said a $7.5 billion cost-of-living package would "put some money back in people's pockets" but vowed it avoided "placing additional pressure on inflation".
That package includes cheaper child care (which starts in July, 2023), expanded paid parental leave (to be phased in over coming years) and making medicines cheaper from January 1 — all of which had been previously announced.
Longer-term commitments include more affordable housing and getting wages growing.
The main new announcement in the budget is a new accord struck between governments, investors and industry.
It will seek to build 1 million new homes over five years, starting in 2024.
"We need people to be able to live near where the jobs and opportunities are," Mr Chalmers said.
The initial federal government investment is $350 million for 10,000 homes.
"We don't pretend this accord solves every issue, nor do we pretend we can solve this problem overnight," the treasurer said.
"But this is a serious start."
Budget facing structural woes
The budget deficit is forecast to increase to more than $51 billion in 2023-34.
Government spending on social services and welfare will hit almost $230 billion this financial year.
Spending on health will top $135 billion.
Combined, those areas represent more than half of government spending.
The NDIS is the brainchild of Labor when it was last in government. Now back in power, it will review the program as costs outstrip earlier forecasts, in part thanks to more people being recipients.
The NDIS is now second only to interest payments as the fastest-growing payment the government has to contend with.
Finance Minister Katy Gallagher said Labor had inherited structural budget problems from the former government, which it would have to address in future budgets.
The budget is also forecasting that climate change could hit tax revenue in the future.
It fears an increasing number of hot days could lead to fewer days of work and any falls in productivity would hurt the budget.
