Stage three tax cuts, cooling inflation and bulkier pay packets are expected to underpin a 3.5 per cent increase in real household disposable incomes in 2024/25 – the fastest rate of growth in more than a decade, excluding the pandemic.

The Treasury predictions were released just days out from the Albanese government’s third budget, which is landing at a time when high costs are lingering and the economy is losing steam.

Wage growth has provided the bulk of the turnaround in disposable income, with the tax cuts contributing to more spending power.

Consumer prices are tipped to keep moderating and help improve household buying power, with inflation already well down from its 7.8 per cent peak in late 2022.

Real disposable income refers to what income is left over for households to spend or save after tax and interest payments are accounted for and when adjusted for inflation.

Household incomes have been languishing over the past few years as cost of living pressures weighed on purchasing power and mortgage repayments ballooned as the Reserve Bank responded to rising inflation by cranking interest rates higher.

Australia’s income tax burden has also been growing, which the Organisation for Economic Co-operation and Development has chalked up to bracket creep and the end of the low and middle income tax offset.

Treasurer Jim Chalmers said the budget was all about easing cost-of-living pressures.

“Decent wages and bigger tax cuts for more people are a big part of helping people earn what they need and deserve to provide for their loved ones,” he said.

Further cost of living relief is expected, though the treasurer says it will need to be carefully designed so it doesn’t fuel inflation.