The federal government is laying down the groundwork for a lacklustre mid-year budget update on Monday, warning that a rise in commodity prices may not be enough to counter a decline in economic growth.

A senior minister has also remained coy about the government’s “projection” of a balanced budget by 2021, amid fears about Australia’s AAA credit rating.

The Mid-Year Economic and Fiscal Outlook (MYEFO) will be handed down on Monday, providing the government with an opportunity to update key Treasury figures from the May budget and including funding promises from the federal election.

Rally in iron ore and coal prices to have limited impact

It is also expected to detail the impact of the economy going backwards during the September quarter, as well as lower wages growth.

Finance Minister Mathias Cormann said a rally in prices for iron ore and coal would only have a limited impact.

“The recent increases in commodity prices are not enough to offset the effect of low wage inflation and in particular income tax receipts and the low growth in company profits more generally,” Mr Cormann told Sky News.

“We always prefer having higher terms of trade, higher global prices for our key commodity exports, but as it stands, it doesn’t fully offset the effect of lower wages growth and lower profit growth.”

All eyes on possible credit rating downgrade

Mr Cormann refused to be drawn on whether the government’s aim of a budget balance by 2020/21 would still be included in Monday’s budget outlook, but said the Coalition remained on track to improve the bottom line.

Unlikely Morrison (L) will get more savings measures through Senate by May. Photo: ABC

“There will be a projection in the budget update, that will also show when the budget is expected to return back to surplus,” Mr Cormann said.

“But I will leave it to the official release of the Mid-Year Economic and Fiscal Outlook tomorrow to publicly reveal when that is expected to happen.”

All eyes will be on the reaction of credit agencies to MYEFO and whether they will trigger a credit downgrade if the document does not provide a credible path back to surplus.

Mr Cormann highlighted the passing of $22 billion worth of savings measures in parliament and hoped there would be further progress early next year.

Credit agencies looking closely at proposed savings

He warned credit agencies were “looking very carefully” at the attitude of federal parliament to the Coalition’s proposed savings.

Di Natale says government does not have a plan to deliver basic services. Photo: Getty

“I am not going to speculate on the decisions that the ratings agencies may or may not make. That is a matter for them.”

Greens leader Richard Di Natale said while the government had cut spending, Treasurer Scott Morrison had refused to consider revenue measures that would also address the budget deficit.

“The government doesn’t have a plan to ensure that we have got the revenue to pay for the services that the country needs,” Senator Di Natale said.

“[Mr Morrison] needs to be working with the crossbench to ensure that we do bring in that revenue. We know that, for example, the diesel fuel rebate could bring in billions of dollars to pay for schools and hospitals.”

Monday’s MYEFO is set to confirm the federal government will scrap the Green Army, a program introduced by former PM Tony Abbott.

The federal government has also announced new asthma drugs will be funded in MYEFO at a cost of $130 million.