Chalmers backs his budget on inflation

Households would be buckling under higher inflation and mortgage repayments, had the Albanese government given handouts in the budget to offset cost of living pressures.

An analysis by Treasury shows that if revenue upgrades weren't returned to its coffers, inflation would be on track to hit 6.25 per cent in June next year, rather than the lower 5.75 per cent rate predicted in the October budget.

The modelling also shows, hypothetically, the Reserve Bank's cash interest rate peaking at 4.75 per cent in June 2023, compared to the forecast of 3.35 per cent assumed in the 2022/23 budget papers.

Assuming that would be passed on by the banks, that would amount to an extra $440 a month for a 500,000 mortgage, and about $290 in monthly payments for an average mortgage of $330,000.

The cash rate is currently sitting at 2.85 per cent.

Treasurer Jim Chalmers said his budget was calibrated not to add to inflation, despite an upward revision to government tax revenues in the following years.

"If we had spent all the extra revenue it would have caused more pain in the long run for Australian households and for the economy," he said.

"Our budget doesn't add to inflationary pressures in our economy, makes responsible savings, and provides targeted cost-of-living relief with an economic dividend."

The budget returned $114 billion of tax upgrades, mainly due to higher commodity prices, to the coffers over the next four years.

The government is banking 99 per cent of the upward tax revisions for the next two years, and 92 per cent over the next four, in a bid to erode some of the nation's debt.