The Coalition government has slashed its surplus again, blaming the weak global economy, the drought and bushfires.
It is now expecting a $5 billion surplus for the current year. The figure is $2 billion down on budget, and $28 billion has been sliced from the surplus over four years, leaving the total half what had been expected.
The mid-year budget update shows the full impact of the government's election decision to extend the 2 per cent efficiency dividend, which applies almost universally across the public service. It also contains a sting in the tail for the public service wage bill, with the government keeping a firm lid on its wages spending over the coming four years. Next year's wages bill is expected to be a little lower than this year's, and growth beyond that is less than 1 per cent.
In bad news for Australian pay packets more widely, wages are expected to grow more slower than previously forecast, at 2.5 per cent this year. And there is no improvement in the expected unemployment rate, which is expected to slip marginally from last year, to 5.25 per cent.
The Reserve Bank wants higher wages growth to boost inflation to the target range and governor Philip Lowe wants unemployment lower, about 4.5 per cent.
Economic growth has been downgraded again, and is now forecast at 2.25 per cent. It was previously forecast at 2.75 per cent.
Labor finance spokeswoman Katy Gallagher said the budget showed a "big save" in the public service, with $8 billion taken out in efficiency dividends and other savings.
Less money coming in from the goods and services tax would mean less money flowing on to states and territories, which would impact their ability to deliver education, health and other services.
Labor Treasury spokesman Jim Chalmers called again for a boost to the unemployment benefit, the tax cuts to be brought forward and more infrastructure spending.
"The Reserve Bank, the business community, credible economists and other peak industry groups have been calling for the government to do more. The government in a pig-headed way has refused to do more and that is one of the reasons that we have these very disappointing numbers in the [update] today," he said.
But analysts were seeing the budget update as conservative, with the likelihood of improvement by budget time in May.
Deloitte Economics principal Chris Richardson said the government was being deliberately conservative.
"They may still, for my money be a little optimistic for the economy but I think they're probably a little too pessimistic on the budget," he told Sky television.
"They're assuming that things like the iron ore price go from hero to zero in just a matter of months and even then they're still seeing a surplus. If it turns out that commodity prices still fall but not at the same pace as the Treasury says that means that by budget time ... the government will a have a bit more wriggle room."
Families and business were too worried about the economy and "there's a risk that we're so worried about the economy that it becomes a self-fulfilling thing".
Treasurer Josh Frydenberg defended the shrinking surplus, saying, "The surplus has never been an end in itself but a means to an end, an end which is to reduce interest payments to free up money to be spent elsewhere across the economy."
"It's about having prudent forecasts, being calm and considered and disciplined when it comes to economic development."
The government's mid-year budget update blames the weak global economy, the drought and bushfires.
It says while the falls in house prices over the past two years have stabilised, with housing now in recovery, approvals for new homes are still down more than 40 per cent down on the 2017 peak. And housing investment is expected to fall 9 per cent this year, and again (3.5 per cent) in 2020-21. That fall in housing investment is even worse than forecast at budget time.
The mid-year update includes funding for the government's new scheme to guarantee loans for first home buyers who have only a 5 per cent deposit, a scheme that will cost $14 million this year.
The government has funded its $88 million taskforce to counter foreign interference, and is putting another $20 million into the national security budget over the coming five years.
And it has allocated an extra $12 million to the Civil Aviation Safety Authority this year to help it regulate drones - an issue that has bedeviled Canberra as which has been used as a guinea-pig jurisdiction for drones despite the lack of regulations to govern their use.
The Australian Bureau of Statistics gets $40 million extra in 2020-21, when it will be preparing for the next Census. And the National Archives gets $10 million to digitise World War Two records, as Australia marks the 75th anniversary of the war's end.
Pegasus Economics director Stephen Bartos said there would be "an awful lot of pressure between now and the budget in May for more spending".
"We face the prospect if household spending doesn't pick up there'll be fewer jobs created and less revenue collected. That will have an impact on the bottom line," he said.
People were saving their tax refunds instead of spending them because they are worried about the future.
He expected pressure for still more spending on aged care and on climate change. Mr Bartos said the downgraded wages forecast was more realistic.
While mining is expected to stop hitting the nation's growth forecasts, having its first positive move in seven years, the growth is minimal and again, less than expected.
Weak goods and services tax revenue will weigh down the ACT government's coffers, as less money than expected flows through.
The ACT will receive $2.414 billion from the federal government this financial year, including $1.4 billion in GST revenue. Overall, the states will lose $10 billion from expected revenue over the next four years.
While the mid-year update included a $623.9 million aged care package, there were no other new major spending measures to lift economic growth.
Mr Frydenberg said the next five-year intergenerational report would be released in July 2020, after the next budget and after the retirement income review, which is due in June.
By the end of September, no loans been made to Pacific countries under the new $1 billion Pacific loan facility set up on July 1, the budget update said.
The decision last week to abandon the planned biosecurity levy on arriving ships, announced in the 2018-19 budget, costs the budget bottom line $100 million a year - since the levy had already been factored in.