Report warns of risks to budget surplus

The Turnbull government's promise to return the budget to a surplus and reduce debt is subject to risk and uncertainty, the independent Parliamentary Budget Office warns.

In a report released on Thursday, it says a fair amount of uncertainty surrounds the assumptions in the government's May budget.

"The potential rate of economic growth over the medium term is heavily dependent on productivity growth as labour force participation is unlikely to continue to contribute to growth," it says.

Labour force participation is already close to historical highs and is projected to fall, reflecting the impact of the ageing of the population, the report says.

Productivity growth has fluctuated during the past decade, which also makes it difficult to discern the underlying trend.

Interest rates, internationally and domestically, remain persistently low and it is unclear when or whether rates will return to their long-run average.

The May budget stuck to a promise of a surplus in 2020/21.

Treasurer Scott Morrison will hand down his midyear budget review later this month.