The federal government is bracing Australians for reduced spending elsewhere in the budget to make room for unavoidable payment blow-outs.
In his mid-year budget next week, Treasurer Jim Chalmers will reveal an unforeseen increase of $6.3 billion in natural disaster relief, an extra $3 billion in the age pension, $2.1 billion in defence force superannuation benefits and $1.3 billion in veteran entitlements.
As the four programs are demand-driven, the upward revisions since the March budget are not the result of government decisions.
But Dr Chalmers signalled the government would have to tighten its belt to ensure it did not weaken the budget balance, which is forecast to plunge deeper into deficit this financial year.
"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.
"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."
Dr Chalmers previously flagged the government would have to make "difficult decisions" in the mid-year budget.
"There will be savings as there have been savings in all of our budgets and all of our updates and the cabinet has decided today on one difficult decision in particular," he said earlier this week in announcing energy rebates would not be extended beyond 2025.
That power bill relief, which has cost the Commonwealth almost $7 billion over three rounds, was already to be discontinued and was not accounted for in the budget.
Without finding additional savings, the revisions announced on Friday would amount to a $12.7 billion hit to the budget bottom line over the four-year forward estimates period.
Deeming rates, which the government uses to assess pensioners' eligibility for social security payments, are set to rise for a second time since September after the government froze the rates at record lows during the COVID-19 pandemic.
The mooted increase, which is decided by an independent body and will be applied in March, will recoup budget savings.
The coalition has accused Labor of an irresponsible "spending spree" that has worsened Australia's fiscal health and fuelled inflation.
But recent data has shown the private sector is taking over from the public sector as the driving force in the economy.
A sharp increase in government-funded roles such as aged care, health and education has driven job creation in recent years.
However, HSBC chief economist Paul Bloxham says labour force figures show a slowdown in non-market job creation has taken the steam out of the labour market.
"Over the past year, 36 per cent of job creation has been non-market sector jobs, down from 80 per cent of the job creation over the previous year," he said on the jobs data released by the Australian Bureau of Statistics on Thursday.
"Overall, the pick-up in private sector job creation has not been enough to offset publicly funded job creation, leaving slowing growth in overall employment."
With labour demand and supply both falling, his assessment was the jobs market was gradually loosening but remained fairly tight.
At the margin, that was positive for the Reserve Bank's hopes of getting inflation under control and would make a near-term rate hike less likely, Mr Bloxham said.
