The latest numbers show big government is here to stay despite Prime Minister Scott Morrison saying it's "time for government to get out of our lives".

Former Liberal leader Tony Abbott's deep welfare budget cuts in 2014 and subsequent plans by Morrison as treasurer to raise the pension eligibility age to 70, were part of a creed of smaller government.

The fundamentals were debt reduction, prudent spending and and lower taxes.

Labor joined the balancing the books race after getting no credit for the recession Australia didn't have to have during the global financial crisis.

Now the federal budget will remain deep in the red for the rest of the decade, the Mid-Year Economic and Fiscal Update (MYEFO) shows.

"Clearly, in advance of an election next year, the strategy is not focused on budget repair but looks to take this economic recovery to an economic expansion," EY chief economist Jo Masters says.

The outlook, despite the coronavirus Delta variant and now Omicron, has delivered an economic dividend.

"But the government is planning to largely spend - on announced known policies and unannounced but costed policies, equivalent to $16 billion over the next four years," she says.

Maybe it's a case of "shake and bake the economy" as Morrison likes to say, rather than cooking the books.

Big-ticket announcements could be made in January and February, paving the way for a possible election in March rather than May.

Labor leader Anthony Albanese says it's a disgrace to establish an additional $16 billion of "slush funds".

JP Morgan chief economist Ben Jarman agrees the budget impact of better momentum is broadly snuffed out by the decision to recycle the windfall back into spending, most unspecified.

"The central takeaway is that fiscal policy is certainly not in active tightening mode and remains pretty supportive for the economy," he says.

Capping federal government spending as a proportion of GDP was once a badge of honour.

But payments are projected to remain a higher share of the economy than they were before the pandemic.

This is because of the government's commitment to guaranteeing essential services, including more spending on key priorities such as the National Disability Insurance Scheme, aged care, childcare and defence, according to the MYEFO document released on Thursday.

Spending is seen at a relatively high 26.5 per cent of GDP in 2024-25 after swelling to 28.7 per cent in 2021-22 because of disaster payments.

"This is well above the 24.8 per cent of GDP that prevailed pre-COVID," AMP chief economist Shane Oliver says.

"Bigger government is here."

Finance Minister Simon Birmingham insists the government recognises people are doing it tough.

"That's why we brought forward tax cuts and around $1.5 billion a month extra is going into the pockets of Australian families and households each and every month," he says.

"We've managed to achieve real wages growth, the previous government hadn't."

The tax to GDP ratio has become a more convenient benchmark for the federal government.

"The government continues to reduce taxes," Treasurer Josh Frydenberg says.

"And this is reflected in the tax to GDP ratio which is expected to decline by almost one percentage point across the forward estimates, to support a private sector-led recovery."

Wages are tipped to rise and consumers are expected to remain confident and keep spending.

The outlook for wages has been upgraded to the sluggish pre-pandemic levels of 2.25 per cent, along with pockets of wage pressure from worker shortages in construction and some professional services.

"Wage growth is forecast to remain moderate, reaching 3.25 per cent for the year to the June quarter of 2025," according to the MYEFO report.

But a resurgence in workers entering Australia as international borders open could mean those predictions are wrong, again.

Net migration is tipped at a more normal 180,000 in 2022-23, 213,000 the following year and 235,000 people in 2024-25.

"We're deeply concerned about the fact the Morrison government looks to be restarting and really ramping up temporary migration in this country," ACTU spokesman Liam O'Brien says.

"This clearly puts downward pressure on wages just when we need to see them going up."

Labor says there are still 1.7 million Australians either without a job or looking for more work, and real wages declining means people are struggling to keep up with the cost of living.

"Real wages have fallen on this treasurer's watch and the prediction in (the MYEFO) forecast is that they'll continue to fall," Albanese said on Friday.

"Here in this electorate in Bundaberg, we've seen a 33 per cent increase in the costs of going to the GP since this government came into office.

"We're seeing real pressures when it comes to rents and housing prices in this community."

Inflation is heading towards the middle of the Reserve Bank's target range of 2-3 per cent but not until 2023.

Unemployment is heading down towards 4 per cent as economic growth picks up.

"No country is better placed to face the challenges presented by the pandemic and Australians can look to next year with hope, optimism and confidence," Frydenberg says.

"The combination of higher incomes, more people in work, less people on welfare, has contributed $50 billion to the budget bottom line since May."

But RBA governor Philip Lowe remains adamant the cash rate will not be lifted from its record low in 2022.

He wants better wage growth before he pulls the trigger on higher interest rates.

"There are certainly hotspots in which wages are increasingly briskly but most workers are still receiving wage increases starting with a two (per cent) and sometimes lower than this," he said in Wagga Wagga in his last scheduled public speech before Christmas.

Underlying inflation at 2.1 per cent has only just returned to the target band for the first time in six years.

Inflation sustainably within the target band would require the labour market to be tight enough to generate wages growth and the RBA board is prepared to be patient.

Australian Council of Social Service spokeswoman Edwina MacDonald says the government is right to prioritise lower unemployment over a lower deficit but it should be more ambitious.

"Unemployment should be reduced consistently below four per cent to improve the lives of those affected - including the 900,000 people languishing on unemployment payments for over a year," she says.

"And to get wages growing again."

KPMG chief economist Brendan Rynne says incredibly robust figures released on Thursday showed underlying strength in the labour market.

But the MYEFO forecasts also had real wages declining and barely positive for 2022-23, he says.

"While the hope is COVID-19 transforms itself into an endemic and becomes something like the seasonal flu, until global vaccination rates lift universally the risk of another major concerning variation remains high.

"If this were to occur, all fiscal and monetary bets will be off and we'll have to revisit the game of COVID-19 snakes-and-ladders at next year's Budget all over again."

Australian Associated Press