Federal budget is one of the winners from high inflation

The PBO has released analysis showing that, even before latest estimates the 2022-23 surplus could top $20 billion, gross debt as a share of gross domestic product - which had been projected to grow to above 50 per cent by 2032-33 - was no longer expected to exceed the peak of around 40 per cent reached in 2020-21.

The office attributed the improvement to an inflation and commodity price-related lift in nominal GDP from 8 to 10.25 per cent, which is boosting government revenue through higher personal income and company taxes.

"Relatively small shifts in economic conditions can have dramatic effects on expected fiscal outcomes," the PBO said, adding that its fiscal projections reflected "changes in economic conditions supported by government policy decisions".

It said although some of the revenue boost is expected to recede next financial year as global commodity prices ease lower, most of the boost to GDP will be permanent.

"These improvements have a cumulative effect on the balance sheet ... as each year projects from a better starting point," the PBO said.

Despite the improved financial position, the PBO expects more budget deficits in coming years and projects that interest payments on government debt to increase from 0.8 per cent of GDP this financial year to 1.2 per cent in 2033-34 - its highest level since the turn of the century.

But the office said this will be much be lower than had been expected at the time of the October budget, when it had been projected to reach in excess of 1.5 per cent of GDP.

Finance Minister and acting Treasurer Katy Gallagher said the government should get credit for the action it is taking to repair the budget.

Senator Gallagher said the government had delivered $40 billion of savings since coming to office and was banking much of the extra revenue flowing into its coffers.

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"We're returning the budget to a much more sustainable footing," the minister told ABC radio. "We're forecasting the first surplus in 15 years. And that is partly because of those decisions we've taken about showing restraint."

Opposition finance spokeswoman Jane Hume urged the government to not only bank the current revenue windfall but show sustained fiscal restraint in order to help combat inflation.

"It's not about returning a surplus [to the budget bottom line] in one year. It's about making sure you have than discipline, that economic management, in future years," Senator Hume said.

The opposition MP said the surplus was largely due to higher commodity prices and the fact more people were employed and pay rises were pushing more into higher tax brackets.

"That's why we would hope that the government stays with the stage three tax cuts," she said.