Jim Chalmers has claimed “the most responsible mid-year update on record”, unveiling a multibillion-dollar improvement in the budget bottom line alongside extra money for mental health, CSIRO, and training for tradies.

Here are the three key takeaways from the mid-year economic and fiscal outlook.

The bottom line: better, still not great

As expected, this is a mid-year budget that’s all about the savings. Chalmers warned of “difficult decisions” ahead of today, but there’s no big shock.

Instead, the treasurer is making a virtue of small improvements in the bottom line, made harder by some cost blow-outs in areas like disaster relief, which will cost $6.3bn more than had been expected.

The deficit for this financial year is now expected to come in at $36.8bn, or $5.4bn better than expected in the pre-election update.

Over the four-year estimates period, the combined deficits are $8.4bn, and a little bit better than previously forecast in each year.

Let’s be clear: even with the improvement, the deficit for this financial year is predicted to be much larger than $10bn recorded in 2024-25, and there are still deficits as far as the eye can see.

The federal debt is no longer expected to pass the $1tn mark in 2025-26, which is a bonus – but that milestone has only been pushed back by a year.

Still, the documents show that spending and saving decisions taken since the pre-election fiscal outlook have actually served to improve the budget position over the four years.

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There have been more, major upgrades to revenue – thanks in large part to high commodity prices, especially iron ore and, this time around, gold – which has swelled company tax receipts.

“This is the only mid-year update on record that has delivered a better bottom line every year of the forward estimates, less debt in every year of the forward estimates and net policy decisions that improve the bottom line,” Chalmers said in a statement.

“On this combination of measures, it is the most responsible mid-year update on record.”

What’s in it for me?

The classic question of every budget. Beyond a slightly more sustainable budget position, punters will have to wait for the May budget for major announcements.

But there are some winners.

There is an extra $233m in funding for the CSIRO, which will be widely welcomed after the country’s top scientific body announced a major round of job shedding earlier this year in order to make its budget.

There’s $98m to fast-track the qualification of 6,000 tradies and establish a new national training centre in new energy skills, amid forecasts of massive worker shortages associated with the green energy transition.

The Myefo also delivers on an election commitment, with $1.1bn for more free mental health services and additional training places.

“Labor’s economic plan is all about helping with the cost of living at the same time as we build a more productive and resilient economy and a more sustainable budget, and the mid-year update advances this plan,” Chalmers said.

Inflation up, rate hikes loom

No surprise that the outlook for inflation is substantially worse than it was earlier in the year, even as growth holds up.

“The Australian economy is gathering momentum in the face of substantial global uncertainty,” according to the budget documents.

With economists warning that the Reserve Bank could hike rates at its next meeting in February, Treasury officials expect inflation to be about 3.75% by mid-2026 – far above the central bank’s 2-3% target range.

Inflation is not expected to get back to the midpoint of the Reserve Bank’s 2-3% target range for at least a year.

The accusation that high levels of government spending is partly to blame for more persistent inflationary pressures forms a major backdrop to how this mid-year budget has been framed.

The budget papers are silent on where Treasury assumes the cash rate will be over the coming year.

That higher than expected inflation will eat into workers’ pay, with wage growth in this financial year predicted to be 3.25% – suggesting falling real wages.

The labour market is also weaker than expected.

The jobless rate is now expected to peak at 4.5% (so not much above the current level of 4.3%), but employment growth is slower.