A penny-pinching Jim Chalmers will reveal a multibillion-dollar improvement in the federal budget that will still see the deficit nearly quadruple to $36.8bn in this financial year.

The treasurer is the master of expectations management, and this week’s midyear economic and fiscal outlook (Myefo) will be an exercise in selling the Albanese government’s fiscal rectitude: Chalmers and Katy Gallagher gamely battling the rising tide of spending pressures.

“Despite all the pressures we’ve had to accommodate in the budget, the bottom line is better in every year over the forwards thanks to our efforts,” the treasurer said in a statement as he revealed the latest budget figures.

The newly estimated deficit is $5.4bn better than anticipated in Treasury’s pre-election outlook, but it’s still much larger than the $10bn budget shortfall in 2024-25.

After delivering back-to-back surpluses, the commonwealth slipped back into the red in the last financial year.

The newly projected deficit for 2025-26 is part of a skinny $8.4bn combined improvement over the four years to 2028-29.

With the treasurer repeatedly warning of “difficult decisions” over recent days, the good budget news seems to end at this minor improvement in the bottom line.

We already know the treasurer will not extend household energy bill rebates, staying true to his word that they were only ever a temporary measure.

Chalmers has warned of $35bn worth of spending pressures, including an extra $6.3bn for natural disaster relief, $3bn more for age pensions than planned, and $2.1bn extra for military super benefits.

The government is again leaning heavily on cuts to consultants, contractors and labour hire, which will save a claimed $6.8bn as part of $20bn in overall savings that will be revealed in the Myefo.

Meanwhile, government departments have been told to find savings of up to 5% by reprioritising spending before the May budget.

So what else do we already know about the midyear economic and fiscal outlook?

The government will tip an extra $5bn into its cheaper home battery scheme, and limit rebates for the biggest and most expensive batteries amid a massive cost blow-out.

Treasury estimated a price tag for the policy of $2.3bn over five years to mid-2030, but the scheme was on track to exhaust that funding inside a year.

As usual, commodity prices have stayed higher than Treasury officials’ “conservative” forecasts, which will lead to more company tax than estimated.

No surprise, then, that economists had reckoned the estimated deficit for this financial year would be smaller than predicted, if not hugely so.

We also know the fiscal outlook will remain bleak.

Treasury officials have projected a decade of deficits, and the return to a balanced budget in the mid-2030s relies on optimism around how fast expenses will grow and depends on workers shouldering an ever greater share of the tax burden.

All the signs are that we are in an era of structurally higher government spending – so how do we pay for it?

Don’t expect any answers on Wednesday.

If not inspiring, Labor has been sensible and steady, and has won the mantle of better economic managers from the Coalition in the eyes of voters – an advantage it is keen to protect.

The unwelcome return of inflation in recent months makes an even greater virtue of prudence, as the government is desperate not to be seen to be adding to the problem.

Financial markets and several economists now predict the Reserve Bank will be forced to raise rates, perhaps as soon as February if the data goes the wrong way over summer.

The Coalition already has a story to tell about how Labor’s “spendathon” is to blame, and a rate rise in early 2026 could narrow the window of what is possible for the May budget.

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Chalmers last week received the Productivity Commission’s five final reports into how to retune the country’s sputtering economic engine, and he has 25 parliamentary sitting days before he is required to make them public.

Despite this elephant in the room, the treasurer this week will be hammering home the message of budget responsibility, not unveiling economic reforms and a long-term strategy for fiscal sustainability.

At some stage, the government will need to deliver both.