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

The midyear 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 has eroded the size of the real wage increase by half a percentage point in 2023/24, with households waiting longer for a more significant improvement.

“Around the time of the election last year, real wages were falling 3.4 per cent and there has been a substantial improvement since then,” Chalmers said on Wednesday.

“We’ve actually just seen two consecutive quarters with real wages growth, which is good progress. We still expect to see annual wages growth in a sustained way next year, that hasn’t changed in the Treasury forecasts.

“Any of those near-term changes are more reflection of the inflation part of the story than the wages part of the story.

Consumer prices are still expected to come back to the Reserve Bank’s target inflation band of 2-3 per cent in the June quarter of 2025, based on Treasury forecasts.

But in the near term, the inflationary pulse has proved stronger than expected. Treasury pins the blame on higher global oil prices flowing through to petrol pumps 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 Chalmers in the lead-up to Wednesday’s MYEFO update.

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

Chalmers acknowledged financial pressures on families but the midyear update did not offer any new cost-of-living measures. The government will revisit the issue ahead of next May’s budget.

It did announce a substantial cost-of-living relief package last May, 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 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. However, 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 remains possible – Treasury’s cautious estimates on future commodity prices mean its predictions tend to be conservative.

– with AAP