Unemployment is also expected to rise.

But Treasury has actually boosted its growth forecasts in 2022/23 by a quarter of a percentage point from predictions made in July.

The Albanese government has released the updated growth forecasts ahead of its first budget, which is due to be handed down in Tuesday.

For 2022/23, Treasury has added 0.25 per cent from July estimates.

The slowdown in domestic growth is expected to worsen in the following year, with Treasury downgrading its forecast for growth in 2023/24 by half a percentage point from July projections.

The forecast for real GDP in 2022/23 has been boosted from 3 per cent in July to 3.25 per cent in the federal budget.

For 2023/24, the forecast has been downgraded from 2 per cent in July to 1.5 per cent in 2023/24.

The IMF has also recently downgraded its forecast for Australia’s economic position in 2023.

“While we have plenty of things going for us, Australians have not been immune from rampant global inflation, heightened uncertainty and cost of living pressures here at home,” Treasurer Jim Chalmers said.

“These headwinds will inevitably impact our growth outlook, and Australians are already feeling the pinch from higher prices and rising interest rates.”

Treasury has also released its predictions for inflation and the employment rate in the lead up to the October 25 budget.

The jobless rate has been revised upwards and is now expected to peak at 4.25 per cent.

Inflation is still tipped to hit 7.75 per cent at its peak, unchanged from earlier forecasts, but remain higher for longer as flooding in parts of the country pushes up fruit and vegetable prices.

Despite the pain households are feeling, the treasurer says there will be limited cost of living relief in the budget as generous supports could add to inflation.

“People understand if you spray cash around indiscriminately in an untargeted way, you can make the inflation problem worse and can make interest rates go up more than they would otherwise go up,” Chalmers said.

Finance Minister Katy Gallagher says Labor has spent its first months delivering on a promise to undertake a deep audit of spending to identify where money can be returned or redirected.

Tuesday’s budget will include over $21 billion in savings and decisions to redirect existing spending, she said.

Examples include the retrieval of $6.5 billion from infrastructure projects to better align the investment with construction market conditions.

A further $3.6 billion will come from slashing expenditure on external labour, advertising, travel and legal costs.

More than $2 billion will be shaved from various grants programs.

“We have responsibly gone through the budget line-by-line and identified savings or re-prioritisations where we can, to begin the task of budget repair or pay for new government priorities,” Gallagher said.

-AAP