Australians must be prepared to take some "tough medicine" in the coming months to avoid recession and worsened living standards, Treasurer Jim Chalmers has warned in a major economic statement to parliament.
Treasury has revised down forecasted growth in the economy in the years to come, with inflation expected to peak at 7.75 per cent at the end of this year.
It is already sitting at 6.1 per cent despite forecasts before the election that it would peak at 4.25 per cent.
Inflation is not expected to settle into the target band until 2024, when it is forecast to fall to 2.75 per cent.
Economic growth forecasts have been cut down by half a per cent each year for three years.
The Treasurer said the global economy was navigating a "precarious and perilous path".
"There's no use tiptoeing the pressure that people are under," Mr Chalmers said.
"You know what we are up against, you see it every day, at the supermarket, in your pay packet, when the electricity bill arrives."
Mr Chalmers said he was hopeful Australia could tame inflation and avoid a recession, but it would require suffering on the behalf of Australian households.
"Left untreated, inflation which is too high for too long undermines living standards and wrecks the economy," he said.
"But the medicine is also tough to take, and millions of Australians with a mortgage are feeling that right now."
However, Mr Chalmers was cautiously optimistic that households would see real wages growth before the end of the Albanese government's first term in 2025.
He said if that eventuated, it would be the fastest pace of wages growth in a decade — but it relied on moderating inflation.
Mr Chalmers pointed to three key strategies the government would pursue to deal with the crisis: helping with affordability through measures such as cutting childcare costs, growing wages over time and "unclogging" supply chains by investing in renewable energy.
"We have it within us to stare down these threats, to steer our way through this difficult period, and seize the opportunities of this new age," he said.
In response, Shadow Treasurer Angus Taylor said the economic problems the Albanese government faced were not of its making, but it must have a plan to respond.
"Today's statement fails to acknowledge that the Labor party went to the last election proposing bigger [budget] deficits," Mr Taylor said.
"The Treasurer held out three tests for himself: what happens to power prices, what happens to apprentices, and what happens to real wages.
"We will hold him to account on these tests."
Mr Taylor proposed several short-term solutions: encouraging pensioners back into work to ease labour pressures, rein in budget spending and maintain productivity by keeping the Australian Building and Construction Commission.
