The federal treasurer is still angling for a second surplus but he warns softening commodity prices and the weakening jobs market could ruin the upside surprise.

A record $22 billion surplus was delivered in 2022/23 thanks to strong commodity prices and higher-than-expected income and company tax revenue.

A bigger tax take from companies and individuals than expected allowed the federal government to shrink its deficit forecasts for 2023/24 in the midyear update from the $13.9 billion predicted in May to $1.1 billion  – within “striking distance” of a surplus, in the words of Treasurer Jim Chalmers.

But changing economic fortunes have Dr Chalmers warning of “much less” than the $69 billion tax windfall booked in the midyear budget update.

Due to speak at a Committee for Economic Development of Australia event in Sydney ahead of the May 14 federal budget, Dr Chalmers will say revenue upgrades are still expected but they will be more modest than the windfalls seen of late.

“In each of our first two budgets we benefited from more than $100 billion in revenue upgrades,” he will say.

“This year, we won’t see anything like that.”

“In fact, we are even looking at much less than the $69 billion we booked in the latest midyear budget update.”

While still resilient, Dr Chalmers says the labour market could not be counted on for “very substantial revenue upgrades”.

“At the end of last year, there were 14.2 million Australians in work – this is around 500,000 more than Treasury was forecasting at the time of the election,” he will say.

“We welcome this, but we don’t expect to get such upside forecast surprises this time around.”

The economy has been slowing due to higher interest rates aimed at moderations but still above target inflation, with a weaker labour market an expected consequence.

Dr Chalmers will also flag falling iron ore prices, sinking almost 10 per cent last week on fears over China’s future demand to be roughly 20 per cent lower than this time in 2023.

“When I last looked on Tuesday morning it was trading at less than $94 a tonne.”

Treasury expects all key commodities to come off their elevated price points over the coming quarters, though its assumptions tend to be conservative.

The treasurer is still hoping for a second successive surplus.

“There’ll be revenue upgrades and we’ll bank what we can from them,” he will say.

“We are still shooting for a second surplus.”

Rich Insight economist Chris Richardson said the federal budget was still tracking towards a second surplus but conditions were looking less favourable than at the past two budgets.

He said the surplus was changing shape and more of the gains were coming more from jobs and wages and less from profits and company taxes.

—AAP