Treasurer Josh Frydenberg has boasted Australia's rebound from lockdowns has been stronger than any other developed nation, but warned mutating strains were the crux of ongoing uncertainty.
Latest figures in the Mid-Year Economic Fiscal Outlook unveiled an improvement in the state of the books, with Treasury estimates showing the debt blowout caused by the pandemic is lower than initially forecasted.
MYEFO's update revealed the cash balance deficit for financial year 2021-22 was $99.2 billion, a reduction from the $106.6 billion estimated at last May's budget and a marginally better cash deficit over the forwards of $2.3 billion.
The net debt over the forward estimates also points to a lower peak in 2024-25 to $914.8 billion instead of $980.6 billion, which represents 37.4 per cent of gross domestic product.
The update also pointed to an increase in total tax receipts due to stronger than expected labour market, elevated commodity and asset prices than what was initially assumed in the May budget.
Revenue over the four year period is now $109.1 billion higher, while overall expenses have increased over the same period to $106.8 billion.
Mr Frydenberg said the fiscal outlook showed improvements despite the unforeseen Delta variant wreaking havoc on the recovery plans.
"Despite the impact of Delta, which saw 13 million of our fellow Australians subjected to extended lockdown, [the] updated numbers show a stronger outlook than what was forecast to grow," he said. "This result belongs to all Australians, who have sacrificed so much over the last two years.
"No country is better placed to face the challenges presented by the pandemic and Australians can look to next year with both optimism and confidence."
Nominal GDP growth for 2021-22 was up substantially to 6.5 per cent with an expectation the unemployment rate would fall to 4.25 per cent by 2023 June quarter.
In the May budget, nominal GDP over the period was expected to rise by 3.5 per cent.
MYEFO's update coincided with the latest unemployment figures from the Australian Bureau of Statistics, which show the jobless rate in November dropped to 4.6 per cent from 5.2 per cent in October.
ANZ economists Hayden Dimes and Catherine Birch said the improvements were marginal, flagging MYEFO pointed to minimal new announcements at the pre-election budget in March, with the government shifting into budget repair in the latter half of 2022.
"The government also made new policy decisions worth around $16bn which are yet to be announced," they said. "In our view this is just bringing forward policies they will take to the election."
Treasury's forecasts flag the ongoing global pandemic presents a major risk to projections as new variants appear.
In one possible scenario, a new variant of concern would delay international border re-openings by six months to mid-2022 and result in further lockdowns and physical distancing measures domestically to curb the spread.
It is projected economic activity would drop by $20 billion when compared to the 2021-22 financial year with GDP and unemployment rates would contract by a further 1 per cent on forecasts.
Labor treasury spokesman Jim Chalmers said the budget update provided no outlines in how to overcome key economic challenges, warning complacency regarding Omicron would impact the recovery.
"We all know that the government's complacency is what stomped on the green shoots of the recovery this time last year and in the May budget," Dr Chalmers said.
Westpac chief economist Bill Evans in his MYEFO analysis noted there was a more optimistic outlook for real wages growth and productivity.
Mr Evans said the government is being "prudent" and would allow for a further upward revision in nominal GDP at the fiscal outlook ahead of the election.