Treasury expects that the government's Energy Price Relief Plan will slice 0.75 of a percentage point off inflation next financial year, supporting the Reserve Bank of Australia's campaign to lower price pressures through one of its most aggressive interest rate hiking cycles.

As a result of the concerted action, the budget forecasts inflation will drop to 6 per cent in the June quarter, slow to just 3.25 per cent in mid-2024 and reach 2.75 per cent by June quarter 2025 - within the RBA's 2 to 3 per cent target band.

Significantly, these forecasts are based on the assumption that interest rates have peaked at 3.85 per cent and will remain at this level until early next year before gradually easing to 3 per cent by mid-2025.

Inflation is expected to decelerate as growth slows. Treasury forecasts gross domestic product to increase by just 1.5 per cent next financial year and 2.25 per cent in 2024-25 as high interest rates squeeze demand.

As a result of slower growth, unemployment is expected to increase, but only modestly. According to the budget the jobless rate, currently at 3.5 per cent, will edge up to 4.25 per cent by mid-2024 and 4.5 per cent by June 2025.

The tight jobs market is expected to help drive wages up by 3.75 per cent by the middle of this year and reach 4 per cent by mid-2024 - implying workers can expect to see a resumption of real wage growth in the first half of next year.

The government has faced accusations from the opposition that its budget will make the inflation problem worse and force the central bank to push interest rates higher.

But Treasury said the $3 billion energy price relief policy had led to significant reductions in wholesale electricity and gas prices which are flowing through to households in utility charges lower than they would otherwise be.

The outlook for the single biggest expense for most families, housing, is not promising.

According to the budget, housing construction activity will shrink by 3.5 per cent next financial year and a further 1.5 per cent in 2024-25, crunching the supply of new homes at the very time the country is experiencing a large influx of migrants.

MORE BUDGET READS:

The surge in arrivals and historically low rates of departures is expected to have resulted in net overseas migration reaching 400,000 this financial year and 315,000 in 2023-24.

But the government expects the rate of intake to ease and departures to increase in 2024-25 and beyond, stabilising annual net overseas migration at around 260,000.

At the same time, Treasury reckons that the nation's fertility rate will gradually decline, resulting in the population by mid-2031 being 750,000 smaller than expected prior to the pandemic.

This is likely to be of little comfort for renters on the short-term, though.

Treasury expects average rental costs will actually accelerate further "in the next few years as increases in advertised rents flow through to existing lease agreements".