Frydenberg blames drought and trade tensions for budget forecast

The drought and international trade tensions are to blame for a smaller than expected budget surplus, the federal treasurer says.

A mid-year budget update on Monday revealed the government had cut its forecast $7.1 billion budget surplus to $5 billion.

"What these numbers do show is that we do face challenging economic times," Treasurer Josh Frydenberg told Today on Tuesday.

"There's always work we continue to do to continue to strengthen the Australian economy."

He said less government debt would mean more money for infrastructure like schools or hospitals down the track.

Mr Frydenberg also waved off concerns over consumer spending, after personal income tax cuts failed to deliver an expected boost, saying punters were choosing to pay off their debt now which would free up money later.

He compared this pattern to the coalition government's pursuit of a surplus and debt repayment.

"The lower the debt levels the lower your interest payments and that means that the government is living within its means and that's critically important," he said.

Mr Frydenberg highlighted positives in his report, citing $4.2 billion worth of infrastructure projects.

Tax cuts were putting "more money" in pockets of Australians, he said.

The budget update was a fizzer for some, with Australian Council of Social Service CEO Cassandra Goldie saying it was a missed opportunity.

"We have made no progress in reducing unemployment for the past year," Dr Goldie said.

She said Newstart welfare payments needed a boost and the government needed to do more to help struggling Australian families.

Australia's economy was forecast to grow by only 2.25 per cent, a reduction from a forecast growth of 2.75.

Mr Frydenberg also cut his wage growth forecasts, now predicting it won't reach three per cent until 2022/23.

With AAP