Treasurer to tighten belt in 'few surprises' budget

Australia's economic luck is running out, meaning fewer spending promises from the government ahead of the election.

The federal budget will contain the smallest revenue upgrade by far in this term of government when it is released next week, Treasurer Jim Chalmers has confirmed.

That meant fewer choices for what the nation can afford to spend money on and an even bigger premium on choosing to fund what's "responsible, affordable and achievable", Dr Chalmers said in a speech on Tuesday.

Economists have speculated the budget will show a substantial upgrade, albeit smaller than in previous years, to Treasury's revenue forecasts from its December mid-year update, due to stronger commodity prices and labour market outcomes.

Dr Chalmers hosed down those predictions, saying Treasury doesn't expect a substantial change from the $26.9 billion deficit for 2024/25 it had pencilled in.

"Some commentators have made wild and wide-of-the-mark predictions about big surges in revenue," he told the Queensland Media Club.

"Some wrongly predict the tax-to-GDP ratio will go up this year, when Treasury expects it to be stable or even a bit down.

"What you'll likely see in the budget is that Treasury expects any upgrade next week to be about a sixth of the average of our budget updates."

Dr Chalmers warned of "fewer surprises" on budget night, given the constraints on spending.

Most of the government's major initiatives had already been announced, including its $8.5 billion boost to Medicare, student debt relief and $7.2 billion for the Bruce Highway.

More cost-of-living relief was also on the way but Dr Chalmers was tight-lipped on whether that included an extension of energy rebates, as has been widely speculated.

Money will also be set aside for a "Buy Australia" campaign to boost local producers impacted by US tariffs.

What form this funding takes is still unclear, but more money is likely for the government's Future Made in Australia agenda, such as subsidies for manufacturing.

An incipient global trade war threatened Australia's economic recovery but a soft landing remained in sight, with inflation and interest rates on the way down and unemployment still exceptionally low, Dr Chalmers said.

The treasurer vowed not to retaliate against US tariffs with more tariffs - a form of "economic self-harm" - but the indirect consequences of a trade war could still result in a 0.1 per cent hit to GDP by the end of the decade, Treasury estimates.

Australia's economy was also set to shed 0.25 percentage points from quarterly growth as a result of ex-tropical cyclone Alfred, which cut a path of destruction through southeast Queensland and northern NSW.

Another $1.2 billion in extra recovery funds will be added to the budget on top of the $11.6 billion in disaster support at the mid-year economic and fiscal outlook.

The cyclone has brought climate change back in focus as an election issue, after seemingly being relegated behind cost-of-living concerns.

Dr Chalmers' speech was interrupted by a pair of protesters who accused the government of "turbocharging the climate crisis" by approving fossil fuel projects.

"What we're trying to do is to strike the right balance, recognising that we can make ourselves an indispensable part of the global net-zero economy at the same time as we leverage some of our traditional strengths," he said.

"There is a role, for example, for gas in the energy transformation."

ANZ Bank expected the budget papers to show a deficit of $20 billion for 2024/25, a "marked improvement" relative to the mid-year update, as well as $2.5 billion in net new spending.

For later years in the budget outlook, conservative economic forecasts and increasing cost pressures should result in deficit estimates similar to those in last year's budget, said ANZ head of Australian economics Adam Boyton.