Federal budget 2023: Wage earners might finally start to get ahead - in 2024

And demand for labour is expected to remain high, Treasury predicting the unemployment rate will not reach 4.5 per cent until 2024-25 - a year later than previously estimated - and will remain below the pre-pandemic average of 5.5 per cent.

In an important turnaround for embattled households, updated forecasts in the budget are expected to show real wage gains, adjusted for inflation, will begin to emerge from early 2024.

The improved wages outlook comes ahead of the federal budget to be released on Tuesday. It is expected to contain cost-of-living measures, including energy bill relief and increased support for pensioners and others reliant on government payments.

Treasurer Jim Chalmers said he was "pleased to see signs that wages are moving".

"Getting wages growing again is central to our economic plan and our budget," he said.

"A big part of tackling cost-of-living challenges is to help ensure ordinary Australian workers can earn enough to provide for their loved ones and get ahead."

Workers suffered a record 4.5 per cent decline in real wages last year as a modest 3.3 per cent lift in salaries was swamped by a 7.8 per cent surge in inflation.

There have been signs wage gains are increasing following a decade of virtual stagnation.

The Reserve Bank of Australia has reported an acceleration in labour costs, predicting the wage price index will increase by 4 per cent in the second half of the year before moderating as worker shortages ease.

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The wage price index rose to 3.3 per cent in the December quarter, its highest reading in 10 years. March quarter figures due out later this month are expected to show a further increase.

But these gains have been comprehensively outstripped by soaring inflation, which was still growing at 7 per cent in the first three months of the year.

Treasury believes inflation will come down more quickly than previously thought.

This, combined with a continued lift in incomes, will deliver real wage growth of 0.75 of a percentage point through next financial year, 0.5 of a percentage point more than expected last October.

The central bank said the current decline in real incomes may not be as sharp as official figures suggest as employers have increasingly used bonuses and other inducements to attract and retain staff and more hours are being worked at overtime rates.

The government forced through industrial changes late last year aimed at strengthening the bargaining power of workers but Dr Chalmers said getting inflation under control was central to securing real wage gains.

"Our Energy Price Relief Plan is already helping with this," he said.

"The budget will be focused on targeted cost-of-living relief that doesn't add to inflation, getting wages moving again and laying the foundations for a stronger and more resilient economy."

As part of this, the government expects unemployment to stay low even despite the economic slowdown caused by 11 rate hikes and a big influx of workers from overseas.

Treasury will forecast the jobless rate to stay fixed at its current near-50-year low of 3.5 per cent until the middle of the year before gradually increasing to 4.25 per cent the same time next year.

The government still expects the unemployment rate to reach 4.5 per cent, but not until 2024-25, a year later than anticipated last October.

Treasury predicts 500,000 more jobs to be created by mid-2026 and does not foresee the jobless rate reaching the pre-pandemic average of 5.5 per cent over the forecast period.

Dr Chalmers admitted current very tight conditions in the labour market would not last, but said revised outlook for unemployment was "heartening".

"Low unemployment is one of our best defences against the headwinds that are intensifying in the global economy right now," he said.

"Australia will not be immune from these challenges. We know the unemployment rate will rise again.

"Our task in the budget is to create as many secure, well-paid jobs as we can in the meantime."