The federal government will fork out more than $12 billion in extra spending that will add considerable pressure to the budget, as the Treasurer appears to temper expectations ahead of next week's mid-year financial update.
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The mid-year economic and fiscal outlook (MYEFO) will show an extra $2.1 billion spent on superannuation benefits for Defence Force personnel and $1.3 billion on health and other entitlements for veterans.
Natural disaster relief will be revised by an additional $6.3 billion, the government has said, due to higher-than-anticipated costs for previous disasters across the country.
The government will also spend $3 billion more to support seniors on the age pension.
Collectively, the additional funding will add at least $12.7 billion to payments in the 2025-26 federal budget, MYEFO is expected to show.
Treasurer Jim Chalmers released the figures on Friday, days after announcing the government would not be extending its $300-a-year household energy rebates beyond 2025.
"The biggest job in the mid-year update has been making room for unavoidable pressures and payments without a substantial deterioration in the bottom line," he said.
"While we've already delivered a substantial improvement to the bottom line, estimates variations across a range of areas are putting considerable pressure on the budget."
Announcing the end of energy bill rebates for households and small businesses, which began in 2023, Dr Chalmers said it was one of several "difficult decisions" that would be made in MYEFO.
Managing spending a 'challenging exercise'
The pre-election budget update had forecast a $42.2 billion underlying cash deficit for 2025-26, with deficits of $35.4 billion, $37 billion and $37.1 billion in each of the years after.
An independent budget projection by Deloitte Access Economics has forecast a slightly smaller deficit of $38.9 billion in 2025-26, but has upgraded its forecasts for the forward estimates.
Deloitte expects budget deficits of $34.2 billion in 2026-27, $41.6 billion in 2027-28 and $44.6 billion in 2028-29.
Deloitte Access Economics partner and report co-author Cathryn Lee said without large revenue upgrades, government spending would need to be carefully managed.
In the 2025-26 federal budget, payments were expected to grow 1.7 per cent on average each year into the forecasts, compared with the historical average of about 3.4 per cent.
"Consistently holding spending growth at half the historical norm will be a challenging exercise, even more so when considering that much of government spending is related to services, such as health and care services, which are recording rapid price rises," Ms Lee said.
Ms Lee said "disciplined, long-lasting action" such as tax reform would be needed to improve the budget bottom line.
Payments and health care services to veterans have totalled more than $15 billion since Labor won the 2022 election, as the government followed through on its promise to clear the veterans' claims backlog.
Dr Chalmers defended the spending, saying it was the right thing to do.
"Our predecessors underfunded services and shamefully shortchanged veterans, but we take our responsibility to these people very seriously and we'll always make room in the budget to do the right thing by these Australians," he said.
