Solid 3.25 percent growth this year is expected to slump to 1.5 percent in 2023-24 -- a full percentage point lower than previously predicted -- according to budget forecasts.

Labor Treasurer Jim Chalmers said restraint was the name of the game as Australia confronted the prospect of a third global downturn in the last decade and a half.

"The global economy teeters again, on the edge with a war that isn't ending, a global energy crisis that is escalating, inflationary pressures persisting, and economies slowing, some of them already in reverse," he said.

Chalmers said that thanks to high employment and commodity prices, the fiscal deficit for 2022-23 was now forecast to be Aus$37 billion (US$23 billion), an improvement of Aus$41.1 billion.

"But while the temporary revenue boosts we are getting from higher employment and higher commodity prices will fade and fall, the profound and permanent spending pressures on the budget are forecast to grow and grow," he warned.

The Labor Party was elected to office in May and used its budget to deliver on its social welfare programme, promising cheaper child care, an expansion of paid parental leave and up to 20,000 affordable homes to address the soaring cost of housing.

Defence spending is set to rise eight percent this fiscal year, but with a new Defence Strategic Review being prepared, the government has deferred any major defence initiatives until next year.

Australia is weighing the purchase of stealthy nuclear-powered submarines and more long-range strike capabilities to deter the rising might of China.