The majority of the extra revenue from higher taxes paid by companies and individuals will be banked by the federal government.

The mid-year federal budget update, due for release on Wednesday, will show 92 per cent of upwards revisions to revenue saved over the forward estimates in a bid to take pressure off inflation and avoid billions in interest costs.

Treasurer Jim Chalmers has already foreshadowed a substantial improvement to the budget bottom line, with the $13.9 billion deficit forecasted for the current financial year back in May likely to shrink.

The strong labour market, the growing population and firm commodity prices are delivering another higher-than-expected revenue boost, and the government plans to keep banking most of those upgrades.

A substantial third of the revenue upgrade across the May budget and mid-year update is attributable to the strong labour market.

“By returning the majority of revenue upgrades to the budget, we’re helping to take pressure off inflation, get debt on a better trajectory, and avoid billions of dollars in interest costs,” Dr Chalmers said.

“We are expecting a big improvement, but still deficits across the forward estimates.

In total, the government says it has returned 88 per cent of revenue upgrades to the budget bottom line.

St George Bank senior economist Pat Bustamante said saving temporary windfalls was the right move. 

“This will help ensure monetary and fiscal policy are working in tandem and will put us in a stronger financial position to weather future challenges,” he wrote in a note.

The economist said the budget was in a “sweet spot” due to commodity prices tracking well above what was assumed, population growth exceeding all expectations, and the still resilient labour market.

He said record population growth and wage growth had helped boost income tax to a record share of income.

“However, given this has been driven by migration, we haven’t seen a corresponding rise in public service delivery costs – this will take time as arrivals gradually become eligible to access public services such as healthcare.”

The mid-year update will also contain almost $10 billion in savings and re-prioritised spending that the government says will be used to pay for “unavoidable” new expenditure.

Savings include cuts to the federal infrastructure pipeline that were announced by the infrastructure minister last month.

Australians hanging out for more cost of living relief are likely to be disappointed, the treasurer has warned, though the government will reassess its options heading into the budget next year.

“This mid-year budget update is not intended to be a mini budget or another budget,” Dr Chalmers told ABC Radio on Wednesday.

“It’s an update, it’s a stocktake and we will consider any further cost of living relief if it’s necessary in the lead up to the budget next May.”

The mid-year update is likely to reveal the cost of the National Disability Insurance Scheme deal struck with the states at national cabinet last week.

While Treasury is not forecasting a budget surplus for 2023/24, several economists expect the budget to stay in the black for a second year running. 

In 2022/23, a $22.1 billion surplus was delivered, well more than the $4.2 billion predicted in the budget.