Short-term gain, long-term pain in budget update

But forecasts show it is no longer expected to return to balance by 2035/36, with a deficit of 0.1 per cent of GDP now predicted.

The numbers backed up Dr Chalmers claims of the government's "responsible", "sensible" and "restrained" economic management in the short-term.

For the first time in eight years, he can honestly say the government has actively improved the budget bottom line, with the net impact of policy decisions shaving $2.2 billion off cumulative deficits over the four-year forward estimates..

Savings were found by capping home battery subsidies, reducing public service spending on contractors and reining in pensions for asset-holding retirees.

Previous improvements to the bottom line have been entirely down to parameter variations - factors outside the government's control - with government decisions worsening the budget outcome.

In the previous mid-year update, the total impact of policy decisions over forward estimates amounted to a $17.5 billion deterioration in the bottom line.

In the March budget, government decisions weakened the underlying cash balance by another $34.9 billion over four years.

But while parameter variations improved the bottom line of the March budget by more than $36 billion, the impact of good luck on the mid-year update was more limited, with only minor upward revisions to personal tax, company tax and the GST.

Over the four-year forecast horizon, the underlying cash balance only improved by $8.4 billion, with $6.2 billion of that resulting from parameter variations.

Beyond 2028/29, medium-term forecasts show payments increasing.

Average growth in interest payments was revised up from 9.5 per cent to 10.7 per cent per year as a result of increased borrowing and gross debt towards the end of the projections.

Childcare subsidy growth is expected to average 5.7 per cent, compared to 5.1 per cent in the pre-election fiscal outlook, "largely reflecting higher-than-estimated childcare use by families in the forward estimates".

However, growth in NDIS payments is now expected to average at 7.6 per cent, from 8.1 per cent, reflecting the ongoing work by Health Minister Mark Butler to rein in the program.

Dr Chalmers said the budget deficit was reduced to $36.8 billion in the current financial year and improved in every year of the forward estimates "because we've managed the budget sensibly and responsibly".

"This is the only mid-year update on record that has delivered a better bottom line every year of the forward estimates, less debt in every year of the forward estimates and net policy decisions that improve the bottom line," he said in a joint statement with Finance Minister Katy Gallagher.

"On this combination of measures, it is the most responsible mid-year update on record.

"It's a sensible and responsible update that is all about delivery, responsibility and restraint."

The budget bottom line is expected to be cumulatively better off by $8.4 billion over the forward estimates.

"The private sector recovery we have been planning and preparing for is gathering pace, and we see that reflected in today's numbers," Dr Chalmers and Senator Gallagher said.

"A key driver of this is a better outlook for non-mining business investment, which is expected to reach its highest level on record in the years ahead."

Extra funding for Jewish community security was included in the update following the Bondi massacre in which Hanukkah celebrations were targeted on Sunday. 

About $34 million per year will be provided to the National Council for Jewish Community Security over three years from 2025/26.

Treasury's economic forecasts were also updated from the March budget, with headline inflation for this financial year revised up from three per cent to 3.75 per cent.