Higher pension and social service payments will add $33 billion to government spending over the next four years in another pressure point for the federal budget as Treasurer Jim Chalmers warns of structural problems that will keep the nation’s finances in deficit.

A tougher outlook for the economy is a key factor in the spending increase because the government is assuming more people will need assistance, with JobSeeker payments to the unemployed making up one third of the surge.

Treasurer Jim Chalmers is stressing fiscal restraint over spending programs.Credit:Alex Ellinghausen

Chalmers revealed the figure on Sunday morning in a series of interviews that promised a “responsible” budget that would have to avoid major new spending programs when inflation is expected to stay higher for longer than previously forecast.

But the increase in social services outlays cannot be avoided because the age pension, JobSeeker and most other forms of income support are indexed to consumer prices and must rise to help recipients keep up with household costs.

“One of the most important elements of our budget is the $33 billion in extra funding for pensions and payments,” Chalmers told the ABC on Sunday morning.

“That is partly a consequence of the indexation which is there to try and keep up with inflation,
particularly when it’s high, as it is right now.

“Of that $33 billion in extra funding for pensions and payments, about a third of that is the age pension. Another third of that is JobSeeker.

“And we know that people are still doing it tough. But one of the pressures on the budget is making sure we can find room for that indexation so that people who are on pensions and payments get a little bit of help twice a year to try and keep up with these skyrocketing costs of living.”

Chalmers named inflation as the “primary influence” on the budget in an interview with this masthead in recent days, revealing updated Treasury forecasts that showed the consumer price index would stay higher for longer than previously thought.

Inflation is forecast to peak at 7.75 per cent by the end of this year and fall to 5.75 per cent by the middle of next year and 3.5 per cent in mid-2024, which will mean wages are expected to decline in real terms because they cannot keep up with inflation.

Chalmers indicated he did not expect wages to rise in real terms until sometime in 2024.

“Wages growth, which is beginning to happen in our economy, will cross over with inflation some time, we think, the year after next,” he told the ABC.

In another move to deal with higher inflation, the government will set aside $560 million for housing, domestic violence and Indigenous services so community organisations can apply for funding to deal with higher costs.

The funding pool will be available for Community Sector Organisations but will not be paid automatically to those already receiving money, forcing the service providers to apply for a share of the funds.

“We’ve had a look at indexation arrangements in light of the rising cost of providing services and wage increases and this increase of over half a billion dollars goes to help community organisations meet these costs whilst still maintaining services,” Finance Minister Katy Gallagher said in a statement.

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