On Thursday, Treasurer Josh Frydenberg and Finance Minister Simon Birmingham handed down the final budget outcome for 2020/21 on Thursday, posting an underlying deficit of $134.2 billion.

It showed a $26.8 billion improvement compared to the initial forecast at the May budget which tipped a deficit of $161 billion.

The further draw down comes after an $85.3 billion shortfall in 2019/20 and a small negative balance of $690 million in 2018/19.

"What is driving this improvement to the budget bottom line is more people in work and less people on welfare," Mr Frydenberg told reporters in Canberra on Thursday via video link.

Mr Frydenberg conceded income support payments provided to furloughed workers during lockdowns encompassing the ACT, Victoria and NSW would cost the budget in excess of $20 billion.

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"The cost to the taxpayer continues to rise from the economic impact of the lockdown, and that's the fiscal cost. You add onto that the decline in economic activity which is at least $2bn a week," the treasurer said.

Mr Frydenberg said the government had already doled out $13 billion in COVID disaster and business support payments.

Labor finance spokeswoman Katy Gallagher slammed the budget outcome, claiming the money saved has already been lost because of the lockdown which has been extended due to the delayed rollout of mRNA vaccines and the federal government not backing quarantine facilities.

"Almost all of that has been wiped out during the lockdowns," Ms Gallagher said.

"I think we need to be honest with the Australian people, that a lot of that recovery has now been absorbed into supporting people through these lockdowns which were a result of the Morison government failures."

Since the May budget, the unemployment rate has fallen below five per cent for the first time in a decade.

"We recognise that since this final budget outcome, the economy has been hit by the Delta variant," Mr Frydenberg said."

"But with the vaccination rates fast approaching the 70 and 80 per cent targets, restrictions will be eased, and what these numbers confirm is that when restrictions are eased, the Australian economy bounces back."

The improvement in the budget position partly reflected higher tax receipts on the back of a stronger labour market, increased consumer spending and higher commodity prices.

Even so, Labor said the coalition's "shameful record of waste and rorts" had contributed to the largest budget deficit and highest debt level in the nation's history.

Shadow treasurer Jim Chalmers and Ms Gallagher said debt had more than tripled to $817 billion since 2013, when the coalition first came to power.

It is expected to top $1 trillion in 2022/23."While significant fiscal support has been necessary throughout the COVID-19 pandemic, and Labor has been supportive of any spending that has helped Australians affected by the pandemic, this is generational debt without a generational dividend," they said in a statement.

Mr Frydenberg said he expects the September quarter will suffer an economic contraction of at least two per cent, which will also be reflected in future jobs figures.

"It is a significant hit to the budget," he said.

At the time of the May budget, the deficit for 2021/22 was expected to hit $106.6 billion.

Senator Birmingham said forecasts for the budget and the economy would be updated in December's mid-year economic and fiscal outlook (MYEFO).

"By the time we get to MYEFO, the nation should well and truly have pushed past those 70 and 80 per cent double vaccination rates and will provide an appropriate time for us to update all the relevant forecasts and projections at that stage," he said."

There is no doubt that the payments we've made and the lockdowns have come at a cost to the economy, a cost to businesses and households, but also a cost to the budget bottom line."

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